State High Court Rules That Consumers Can Still Ask Courts To Bar Deceptive Practices But Otherwise Must Honor Agreements To Settle Disputes

Los Angeles Times

SAN FRANCISCO – The California Supreme Court ruled Thursday that medical malpractice victims who are bound by arbitration agreements can still go to court to obtain orders that prohibit health care providers from certain deceptive consumer practices.

However, the court also held such victims must litigate their claims for financial compensation before arbitrators–private judges paid by the litigants.

The 4-3 ruling shut down a legal avenue that plaintiff lawyers had hoped to use to get around arbitration clauses in civil disputes. Many trial lawyers believe juries are more likely than arbitrators to award substantial damages, particularly when a plaintiff’s case is emotionally compelling.

The compromise decision was called “a strong victory for consumers” by attorney Anthony Kornarens, who represented the plaintiffs in the case before the court. “The court is saying that a private contract cannot trump a law enacted for a public purpose.”

At the same time, the defendant, Cigna Healthplans of California, also described the ruling as a consumer victory, contending that arbitration agreements keep health care costs down.

In the case before the court, the plaintiffs had sought to avoid arbitration of a medical malpractice claim by also seeking a court injunction against deceptive advertising by a health maintenance organization.

Keya Johnson, of Los Angeles, and her son, Adrian Broughton Jr., filed a lawsuit against Cigna Healthplans for severe injuries they say Adrian suffered during his birth in 1993. The 13-pound baby boy was born partially paralyzed.

Johnson, who was diabetic, had gained about 80 pounds during her pregnancy and had difficulties during the birth of an earlier child, her lawyers said.

They also contended that medical diagnostic tests showed that her fetus weighed about 13 pounds seven months into Johnson’s pregnancy, and she should have been scheduled for a caesarean section. Her lawyers said she was seen by a physician assistant instead of a doctor for her prenatal care.

Both Johnson and her son were Medi-Cal patients, and the state had entered into an agreement with Cigna requiring disputes to be resolved through arbitration rather than in trial courts.

In addition to claiming medical malpractice, Johnson charged that Cigna had violated a little-used state consumer law by falsely advertising high-quality services. The consumer law allows a judge to issue an injunction to prevent dishonest practices in the future.

Because of the need for an injunction to protect the public, the plaintiffs argued that the entire case should be heard by a jury, rather than arbitrators.

The court, in a decision written by Justice Stanley Mosk, declined to say whether a private arbitrator can ever issue a permanent injunction to deter bad behavior.

But when plaintiffs are seeking a court order to prevent “future deceptive practices on behalf of the general public,” the matter must be heard by a trial court, rather than an arbitrator, the court said in the case, Broughton vs. Cigna, SO72583.

Lisa Perrochet, one of Cigna‘s lawyers, said “it was some consolation” that only injunctions affecting the public at large can be heard by a court when there is an arbitration agreement.

She also said she was pleased the court ruled that monetary questions had to be decided by arbitrators. The decision will stop “a backdoor way around a binding arbitration clause,” she added.

Consumer activist Jamie Court called the decision a “big victory for the public interest.”

“It means that HMOs are going to have their dirty laundry aired in public, and there is nothing that HMOs fear more,” he said. “This says that society’s business is not going to be done behind the closed doors of an arbitrator’s office.”

Cigna also called the decision important to consumers.

“Binding arbitration provides a fair, cost-effective alternative to the trial court system in resolving disputes,” Cigna said in a prepared statement. “Without it, health care costs would rise significantly.”

Christopher E. Angelo, who argued for the plaintiffs before the Supreme Court, said he was “ecstatic” about the decision.

“Now managed care will be required to follow California law and if they don’t, there will be an injunction issued ordering them to follow it,” Angelo said.

But he also criticized the decision for leaving monetary decisions in the hands of arbitrators, who he contended rule for defendants eight times out of 10.

In Broughton’s case, Angelo can still argue that Cigna‘s arbitration agreement was not valid because the state cannot waive Medi-Cal recipients’ rights to a jury trial.

Joining Mosk were Chief Justice Ronald M. George and Justices Marvin Baxter and Kathryn Mickle Werdegar. Justices Ming W. Chin and Janice Rogers Brown dissented, saying the entire case should be decided by arbitration.

Justice Joyce Kennard also dissented. She argued that Cigna had failed even to prove the existence of an arbitration agreement.