Engalla v. Permanente Medical Group, Inc.

Through his employer, Wilfredo Engalla (plaintiff) obtained health care from the Kaiser Foundation Health Plan and related companies (Kaiser) (defendants). Engalla became sick. Engalla received treatment from Kaiser, but Kaiser failed to discover that Engalla had lung cancer until after the cancer was inoperable. Engalla had signed an application agreeing that all disputes with Kaiser were subject to binding arbitration. Kaiser had represented that the arbitration process would result in a hearing in several months’ time and that it would be a fair way of protecting the members’ rights. The arbitration agreement required that three arbitrators be in place within 60 days of a claim being served: one chosen by the claimant, one by Kaiser, and a third, neutral arbitrator chosen by the other two arbitrators. On May 31, 1991, Engalla and his family served an arbitration claim on Kaiser, arguing that Kaiser had negligently failed to diagnose the lung cancer earlier. Kaiser engaged in numerous delays and failed to participate in selecting the third arbitrator. The claim could not proceed until all three arbitrators had been assigned. Engalla’s counsel wrote more than a dozen letters seeking the third arbitrator’s appointment and asking that the process be expedited based on Engalla’s failing health. Kaiser finally agreed to the third arbitrator’s appointment 144 days after the claim was served. Engalla died the next day. Engalla’s counsel asked Kaiser for stipulations to prevent Kaiser from benefiting from Engalla’s death. Without the stipulations, Engalla’s claim would merge with his family’s claim, reducing the total available damages from $500,000 to $250,000. Kaiser did not agree, and Engalla withdrew from the arbitration. Engalla then filed a lawsuit in court, alleging medical malpractice and breach of the arbitration agreement. Kaiser moved to compel arbitration. Engalla responded by arguing that the agreement was fraudulently obtained and that Kaiser had waived the arbitration provision through its excessive delays. Engalla produced evidence that, from 1984 to 1986, Kaiser had delayed the appointment of arbitrators in 99 percent of claims, with an average of two years from the service of the claim until the arbitrators’ appointment. The trial court ruled for Engalla, but the Court of Appeal reversed. The California Supreme Court granted review.