Mark P. Robinson, Jr., Bar No. 054426

Sharon J. Arkin, Bar No. 154858

ROBINSON, CALCAGNIE & ROBINSON

620 Newport Center Drive, 7th Floor

Newport Beach, California 92660

(949) 720-1288, FAX (949) 720-1292

Arthur Bryant, Bar No. 208365

Victoria Ni, Bar No. 212443

TRIAL LAWYERS FOR PUBLIC JUSTICE

One Kaiser Plaza, Suite 275

Oakland, California 94612-3684

(510) 622-8150, Fax 622-8155

Thomas Grande

Davis Levin Livingston Grande

851 Fort Street

Honolulu, Hawaii 96813

(808) 524-7500, Fax 545-7802

Attorneys for Plaintiffs

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF ALAMEDA

	AUDREY TIMMIS; LINDA GUDINO; ) WINSTON YARBOROUGH; MARY ) O’DONNELL; SHIRLEY MILLIGAN; )
MARY CARGILE; and, CHARLES ) PHILLIPS, M.D., ) ) Plaintiffs, ) ) vs. ) ) KAISER PERMANENTE; KAISER ) FOUNDATION HEALTH PLAN, INC.; ) KAISER FOUNDATION HOSPITALS, ) INC.; THE PERMANENTE MEDICAL ) GROUP, INC.; and DOES 1 through ) 100, inclusive, ) ) Defendants. ) _________________________________________ )		CASE NO. 833971-7 PLAINTIFFS’ OPPOSITION TO PETITION TO COMPEL ARBITRATION AND STAY ACTION; MEMORANDUM OF POINTS AND AUTHORITIES Date: July 26, 2001 Time: 2:30 p.m. Dept.: 22 [Filed concurrently with Declarations of Winston Yarborough, Shirley Milligan and Sharon J. Arkin]

TO ALL PARTIES AND TO THEIR ATTORNEYS OF RECORD:

Plaintiffs hereby oppose defendants’ petition to compel arbitration and to stay this action on the grounds that the claims in this action are not within the scope of the arbitration provisions asserted by defendants; that the arbitration provisions relied on by defendants are unconscionable and unenforceable; and, that the arbitration provisions relied on by defendants were not entered into by plaintiffs knowingly or voluntarily. Additionally, discovery relevant and material to the issues raised in this motion is currently outstanding and, unless denied on other grounds, the motion should be continued pending this further discovery.

Plaintiffs’ opposition will be based on this Opposition, the concurrently-filed Declarations of Winston Yarborough, Shirley Milligan, and Sharon Arkin, all papers, pleadings and records on file in this action and on such other and further argument and evidence as may be presented.[1]

Dated: July 12, 2001 ROBINSON, CALCAGNIE & ROBINSON

TRIAL LAWYERS FOR PUBLIC JUSTICE

DAVIS LEVIN LIVINGSTON GRANDE

By:_____________________________________

SHARON J. ARKIN

Attorneys for Plaintiffs

MEMORANDUM OF POINTS AND AUTHORITIES

1. SUMMARY OF FACTS AND ARGUMENT

This is a public interest action brought jointly by several Kaiser members, a Kaiser contract doctor and a volunteer-run health care consumer-interest organization. The plaintiffs in this action seek to stop the defendants, all operating under the Kaiser Permanente trade name, (hereafter referred to collectively as “Kaiser”), from forcing Kaiser members to split their prescription medication. As explained in the First Amended Complaint (“complaint”) on file in this action, “pill splitting” is “KAISER’s practice of providing prescription medication to members in tablets that contain twice the single dosage prescribed by the members’ treating physicians and then requiring its members to manually split the pills to obtain the required single-dose form of their medication.” (Complaint, paragraph 25.) As the complaint goes on to allege, oftentimes, “members are not trained on how to most appropriately split the pills and, even with adequate training, many of the tablets still shatter, crumble or split unevenly, leaving the patient with inconsistent and over-dosages or under-dosages.” (Id.) Nor is there any medical or therapeutic purpose for this policy. (Complaint, paragraphs 29, 30, 34.) Rather, it is imposed - involuntarily - on Kaiser members for the sole purpose of increasing Kaiser’s profits. (Id.)

The claims in this action are all predicated on consumer interest statutes and do not seek individual damages for any personal injuries resulting from Kaiser’s pill-splitting policy. Rather, all the remedies sought are designed and intended to vindicate the public’s interest in fair competition and the protection of consumers from deceptive practices. The statutes upon which this action is based are: (1) Business & Professions Code section 17200 (hereafter referred to as the “unfair competition law” or “UCL”) - for engaging in unlawful, unfair or fraudulent practices; (2) Business & Professions Code section 17500 (also hereafter referred to as the “unfair competition law” or “UCL”) - for engaging in misleading advertising[2]; and (3) Civil Code section 1750, et seq., the Consumer Legal Remedies Act (“CLRA”) - for engaging in deceptive consumer practices. The remedies sought under the UCL are only injunctive and restitutionary relief and under the CLRA for injunctive relief and statutory (not personal) damages.

Kaiser seeks to impose arbitration on plaintiffs in this case, based on the arbitration provisions purportedly contained in the individual member contracts. There are, however, several reasons why Kaiser’s motion must be denied.

•Under controlling California Supreme Court authority (Broughton v. Cigna Healthplans of Calif. (1999) 21 Cal.App.4th 1066), the injunctive relief request under the CLRA cause of action cannot be subjected to arbitration.

•Under controlling California authority (Coast Plaza Doctors Hosp. v. Blue Cross of Calif. (2000) 83 Cal.App.4th 677; Groom v. Health Net (2000) 82 Cal.App.4th 1189; Warren-Guthrie v. Health Net (2000) 84 Cal.App.4th 804), the injunctive relief request under the UCL cannot be subjected to arbitration.

•Under controlling California authority which applies the Broughton rationale (see Coast Plaza, 83 Cal.App.4th at 691-691) the restitutionary remedies sought under the UCL cannot be arbitrated.

•Under the rationale expressed by the Supreme Court in Broughton, the statutory damages sought under the CLRA cause of action should not be subjected to arbitration.

•And even if the remedies sought in these public interest causes of action were otherwise subject to arbitration, the arbitration provisions asserted by Kaiser are unenforceable because they were not knowingly or voluntarily entered into and, furthermore, they are unconscionable under the Supreme Court’s mandate in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83.[3]

6.UNDER BROUGHTON, IT WOULD BE AGAINST PUBLIC POLICY TO REQUIRE

6. ARBITRATION OF THE INJUNCTIVE REMEDIES, THE RESTITUTIONARY

6. REMEDIES OR THE STATUTORY DAMAGE REMEDIES

6. " \l 2

As Kaiser concedes in its petition, the injunctive relief sought by plaintiffs under both the UCL and the CLRA causes of action cannot be subjected to arbitration. (Kaiser Petition to Compel Arbitration, page 2, lines 4-10.) As acknowledged by Kaiser, under Broughton, injunctive relief sought under a public interest statute like the CLRA cannot be subjected to private arbitration agreements. That same analysis applies with respect to the injunctive relief remedy sought under the UCL and arbitration cannot be enforced on those claims. (Coast Plaza, supra, 83 Cal.App.4th at 691-692; Groom, supra, 82 Cal.App.4th at 1199; Warren-Guthrie, supra 84 Cal.App.4th at 817.)

Kaiser, however, argues that the non-injunctive remedies sought under those same consumer interest statutes are subject to arbitration. Kaiser is wrong. Indeed, the same public policy reasons for refusing to subject the public’s interest in the injunctive remedy to the arbitral forum applies with equal force to the restitutionary and statutory damage remedies - as they are alleged in this particular case.

A. The UCL’s restitutionary remedy is not a claim for damages, has the public’s interest as its goal and cannot be subject to a private arbitration agreement

" \l 3

Kaiser’s claim that the restitutionary remedy asserted by plaintiffs under the UCL causes of action must be subjected to arbitration fails for two different reasons, in addition to the fact that, as discussed in Part 3, below, the arbitration agreements are not enforceable in any event. First, the arbitration agreements cannot be imposed in the UCL causes of action because it is the general public asserting those claims, not the individuals, and the general public, of course, has never been a party to any contract with Kaiser. This point is highlighted by the fact that plaintiff, the California Consumer Health Care Council (“CCHCC”), has no contract with Kaiser and there is, therefore, no arbitration agreement that can be imposed on any of its claims under the UCL.

Nor can Kaiser create a contract where none exists by trying to “reach through” CCHCC - as a “prosectutorial agent” (Kaiser’s motion, pp. 11-12) - to usurp and apply the health plan contracts of the individual members. Although the health plan members may be a class entitled to restitution, as discussed in detail, below, the restitutionary remedy is designed to vindicate public rights - and that is what CCHCC is doing. CCHCC is not bringing this action as a representative of the members, per se, but as a representative of the general public, with whom Kaiser has no contract whatsoever.

Second, even if the arbitration agreements of the individuals could otherwise apply to the UCL cause of action on contractual grounds, they cannot apply under the Supreme Court’s analysis in Broughton because the restitutionary claims are not ones for personal damages but are sought solely to vindicate the public policy purposes of the statute.

(1) The UCL claims are brought on behalf of the general public and the general public has no arbitration agreement with Kaiser.

First, it is fundamental that “arbitration is a matter of contract between the parties.” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787.) A motion or petition seeking to compel arbitration is, in fact, essentially a suit in equity to compel specific performance of that contract term. (County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 245.) And, as the California Supreme Court has stated, “‘the policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate” in the first instance. (Victoria v. Superior Court (1985) 40 Cal.3d 734, 739.)

A UCL action is a public interest action that may only be brought on behalf of the general public. (Business & Professions Code section 17204.) Indeed, the Supreme Court held in Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553 that a private, for‑profit corporation had standing under the UCL to bring the action - on behalf of general public - against a retailer for allegedly violating Penal Code 308 by selling cigarettes to minors even though that organization had no personal claim against the defendant. (See, also, Consumers Union, etc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433 [consumers group not personally aggrieved had standing to bring suit under the UCL].)

Thus, a person or entity - like CCHCC - who has no contract at all with the defendant still has standing to sue that defendant under the UCL. Obviously, if a party who has no contract with the defendant has standing to sue under the UCL, there can be no possible way for the defendant to enforce an arbitration agreement against that party on that cause of action. Indeed, irrespective of the status of any plaintiff in a UCL case, the reality is that the plaintiff is not suing to vindicate personal rights, but is suing on behalf of the general public to vindicate the public’s rights. And since the public has no contract with Kaiser, there is no arbitration agreement to enforce.

Additionally, the nature of a UCL action precludes any argument that the action is subject to any contractual limitations whatsoever. The UCL claim addresses only an illegal business practice. (Business & Professions Code section 17200 [“unfair competition shall mean and include any unlawful, unfair or fraudulent business acts or practices”]; Stop Youth Addiction, supra 35 Cal.3d at 561-567 [a 17200 action enforces 17200, not the underlying statute, the violation of which constitutes the illegal practice]; Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178-179 [statute of limitations of underlying statute does not control in 17200 case.].) If that practice happens to involve the defendant’s illegal application of a contract term, it is not the fact that the illegal practice causes a breach of contract that is actionable – it is the unlawful practice itself which is. Plaintiffs are not alleging that Kaiser breached any contracts - although that may well have been an incidental result of the unlawful practice that is alleged. Once the focus is returned to the true object at issue in this case – i.e., Kaiser’s unfair practice of forcing its members to split pills – it is readily apparent that the procedural terms and provisions of any individual contract are neither relevant nor applicable to the claims in this action.

Thus, since a person or organization - like the California Consumer Health Care Council, a plaintiff in this case - can bring an action under the UCL even though it has no contract with Kaiser, there can be no contractual basis for enforcing an arbitration agreement with respect to any part of a UCL action - either for injunctive relief or for restitutionary relief.

(2) Because the purpose of the restitutionary claims under the UCL is to vindicate a public right, those claims cannot be subjected to arbitration.

" \l 4

Even if the UCL restitutionary claims were otherwise subject to the individual plaintiffs’ arbitration agreements, the petition to compel arbitration of those claims would still have to be denied because the restitutionary relief provided for under the UCL is public in nature, not private and the Supreme Court has held that such public statutory claims cannot be subjected to arbitration as a matter of public policy.

In Broughton, the California Supreme Court held in a CLRA action that the public interest nature of the action for injunctive relief precluded the defendant’s ability to require that claim to be arbitrated under the arbitration provision contained in the parties’ contract. In conducting its analysis, the Court relied on several United States Supreme Court decisions and concluded that “when the primary purpose and effect of a statutory remedy is not to compensate for an individual wrong but to prohibit and enjoin conduct injurious to the general public, i.e., when the plaintiff is acting authentically as a private attorney general, such a remedy may be inherently incompatible with arbitration.” (Broughton, 21 Cal.4th at 1077; emphasis added.) After examining the purpose and effect of the CLRA’s injunctive remedy provision, the Court concluded that “the injunction plaintiffs seek in the present case is indeed beyond the arbitrator’s power to grant” because “[t]he CLRA plaintiff in this case is functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public.” (Broughton, 21 Cal.4th at 1079-1080; emphasis added.)

The Court explained its rationale on the basis that “the evident purpose of the injunctive relief provision of the CLRA is not to resolve a private dispute but to remedy a public wrong. Whatever the individual motive of the party requesting injunctive relief, the benefits of granting injunctive relief, by and large, do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered. . . . [I]n other words, the plaintiff in a CLRA damages action is playing the role of a bona fide private attorney general.” [Broughton, 21 Cal.4th 1080; emph, added.)

Thus, the principle issue in deciding whether any aspect of a public interest action should be subjected to private arbitration is whether the action is brought on behalf of the general public in the context of a bona fide private attorney general, or whether it is brought primarily to resolve a private dispute. In the context of a UCL action, the resolution of that issue mandates that all the relief sought, both with respect to the injunctive remedy and the restitutionary remedy, must be tried by this Court and cannot be relegated to arbitration. This is because the UCL is only a public right of action, brought in equity, to enjoin unfair business competition. (Stop Youth Addiction, supra, 17 Cal.4^th at 567.) The purpose of the UCL is to make sure that the commercial playing field is level, i.e., that one business does not gain a competitive advantage over other business in the same industry by using unfair practices or by violating the law in order to save itself money and gain greater profits than companies who obey the law. (Cel‑Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [UCL “governs ‘anti‑competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’”].) But the fact that the action is directed toward unfair business competition does not restrict its application only to situations in which business competitors are harmed. Indeed, the goal of the act is much broader and is intended to address the general societal harm that results when business enterprises act illegally or unethically. (Bank of the West v. Superior Court (Industrial Indemnity Co.) (1992) 2 Cal.4^th 1254, 1264; People ex re. Mosk v. National Research Co. of Cal. (1962) 201 Cal.App.2d 765, 770.)

When a court determines that a defendant engaged in unfair business practices as defined under the statutes, Bus. & Prof. Code §17203 outlines the remedies a court may impose on that defendant. In addition to the imposition of injunctive relief, a “court of competent jurisdiction” may also “make such orders or judgments, including the appointment of a receiver, as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (Bus. & Prof. Code § 17203.) As the Supreme Court recently noted in interpreting and applying this section:

“Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices in order to protect the public and restore to the parties in interest money or property taken by means of unfair competition. These actions supplement the efforts of law enforcement and regulatory agencies. This court has repeatedly recognized the importance of these private enforcement efforts.” (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126; emphasis added.)

Not only is restitution (i.e., restoring money wrongfully taken from consumers) a goal of the statute, a court’s “orders may compel a defendant to surrender all money obtained through an unfair business practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons.” (Kraus, 24 Cal.4th 127; emphasis added.) Indeed, the Court went on to explain, disgorgement or restitution have “also been used to refer to surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.” (Id.)

A long line of Supreme Court cases have emphasized the ameliorative public policy purposes for ordering disgorgement of profits in a UCL case. As noted in People v. Thomas Shelton Powers, M.D., Inc. (1992) 2 Cal.App.4th 330, 341-342:

"In Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 153 Cal.Rptr. 28, 591 P.2d 51, the court found disgorgement to be a proper remedy under section 17535, noting that by the statute's language, "the Legislature obviously intended to vest the trial court with broad authority to fashion a remedy that would effectively 'prevent the use ... of any practices which violate [the] chapter [proscribing unfair trade practices]' and deter the defendant, and similar entities, from engaging in such practices in the future. The requirement that a wrongdoing entity disgorge improperly obtained moneys surely serves as the prescribed strong deterrent." (Id. at p. 450, 153 Cal.Rptr. 28, 591 P.2d 51.) In so holding, the court, citing both state and federal cases, reaffirmed a policy against permitting a defendant to retain any profits gained by means of an unfair business practice: "[I]nasmuch as '[p]rotection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society' [citation], we must effectuate the full deterrent force of the unfair trade statute.... We do not deter indulgence in fraudulent practices if we permit wrongdoers to retain the considerable benefits of their unlawful conduct. [p] As one court has stated, 'The injunction against future violations, while of some deterrent force, is only a partial remedy since it does not correct the consequences of past conduct. To permit the [retention of even] a portion of the illicit profits, would impair the full impact of the deterrent force that is essential if adequate enforcement [of the law] is to be achieved. One requirement of such enforcement is a basic policy that those who have engaged in proscribed conduct surrender all profits flowing therefrom.' [Citations.] . . . " (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d at pp. 451‑452, 153 Cal.Rptr. 28, 591 P.2d 51.)”(Emphasis added.)

Thus, under the UCL, the disgorgement remedy has as its fundamental purpose something other than rendering damages to the plaintiff. Indeed, the courts have repeatedly held that damages are not even recoverable under a UCL action. (Bank of the West, supra, 2 Cal.4th 1254, 1266; Cortez, supra, 23 Cal.4th at 173.) Rather, the disgorgement remedy under the UCL has as its purpose the same public policy and consumer protection goals as does the injunctive remedy. That being the case, the disgorgement remedy under the UCL must be determined by a court and not an arbitrator - just like the injunctive remedy that the Broughton court held could not be subjected to arbitration.

This same analysis was applied in Coast Plaza, supra, 83 Cal.App.4th at 691-692. There, the court applied Broughton to a UCL action, noting that, like the injunctive relief claim in Broughton, both the injunctive relief claim and the restitution/disgorgement claim in a UCL action are brought in the public interest by private attorney generals and do not provide private compensation:

“Broughton is controlling here. Much like a claim for injunctive relief under the CLRA, a claim for injunctive relief under the Unfair Competition Act, Business and Professions Code section 17200 et seq., is brought by a plaintiff acting in the capacity as a private attorney general. (Bus. & Prof.Code, § 17203 ["Any person who engages, has engaged ... in unfair competition may be enjoined in any court of competent jurisdiction."].) Although the private litigant controls the litigation of an unfair competition claim, the private litigant is not entitled to recover compensatory damages for his own benefit, but only