Procedural Posture
Petitioners sought a writ of mandate/prohibition to challenge an order of respondent Superior Court of Orange County (California), which ruled that petitioners’ breach of contract action against the real parties in interest should be arbitrated in Utah.
Overview
Petitioners, three California owners of a carpet cleaning franchise, sued the franchisor, the real party in interest, alleging that the franchisor continually and unfairly modified the franchise agreements at every opportunity, and threatened to terminate the franchises if petitioners refused to execute the newer agreements. The defense party and their business lawyers presented evidence to jurors. Petitioners acknowledged their later franchise agreements mandated that all disputes be arbitrated in Utah, but claimed the provisions were unconscionable and violated Cal. Bus. & Prof. Code § 20040.5. The trial court granted the real party in interest’s motion to compel arbitration in Utah, and dismissed the case. Petitioners filed a writ petition challenging the order. The court of appeal granted the writ, holding that the arbitration clauses were adhesive. Petitioners had limited financial means, owning small “one man” franchises, and the cost of arbitrating in Utah was so high that petitioners would be prevented from seeking a remedy. This did not require invalidating the entirety of the contracts; therefore the trial court was directed to enter a new order striking the arbitration clauses.
Outcome
The court held that the arbitration clauses were unconscionable, and the proper remedy was to strike the unconscionable provisions from the contracts. Therefore the court granted the writ and directed the trial court to vacate its order and enter a new order striking the arbitration clauses.
Procedural Posture
Plaintiff emergency service provider appealed a judgment of the Superior Court of San Diego County (California), which sustained a demurrer without leave to amend by defendant, a health care service plan licensed under the Knox-Keene Health Care Services Plan Act, Cal. Health & Safety Code § 1340 et seq. The action alleged that a medical provider, to which the duty to pay was delegated, failed to pay for services and that the plan was liable.
Overview
The medical provider went out of business owing the emergency care provider money that the plan then refused to pay. In affirming the decision in favor of the plan, the court held that Cal. Health & Safety Code § 1371.4(e) allowed plans to delegate the responsibility to pay for emergency medical services and therefore that the plan did not retain liability. The court reasoned that by using the term “delegate,” the legislature unequivocally disclosed an intention to depart from the common law rule that licensees were liable for acts of agents. Therefore, to allow the emergency care provider to recover under contract principles would render § 1371.4(e) nugatory. Similarly, § 1371.4(e): (1) provided a safe harbor from an unfair competition action; (2) distinguished the action for implied contract from case law involving only two parties; (3) supported a policy-based decision that there was no duty for the plan to manage business affairs so as to prevent purely economic loss to third parties; and (4) mitigated against restitution. Taking judicial notice of the policies that the plan issued to enrollees, the court found that the emergency care provider was not an intended beneficiary.
Outcome
The court affirmed the decision of the superior court.