December 28, 2001

CALIFORNIA COURTS OF APPEAL

A. Ballard, Rosenberg, Golper & Savitt Wins Summary Judgment For Hospital And Upholds Case On Appeal

In O'Byrne v. Santa Monica Hospital Medical Center, 2001 Daily Journal D.A.R. 13135 (Cal.App. 2d Dist., Div. 1, Dec. 20, 2001) (Opinion by Spencer; concurred in by Mallano; concurrence by Vogel, M.), the California Court of Appeal ruled in favor of Ballard, Rosenberg, Golper & Savitt's client, Santa Monica Hospital Medical Center, in a breach of contract, breach of fiduciary duty, and interference with profession action brought by a staff physician against the Medical Center.

In 1992, George O'Byrne, M.D., submitted to the Medical Center an application for staff privileges in internal medicine and cardiology. The application contained an acknowledgment that O'Byrne had received and read a copy of the Attending Staff Bylaws. The Bylaws contain hearing procedures for the denial or termination of staff privileges. Over the next several years, O'Byrne had a number of issues regarding his compliance with hospital administrative directives, as well as patient care directives. In January 1998, the Medical Center contacted O'Byrne and advised him that he was required to "have and maintain an office with an address and office telephone number," among other things. The letter stated that O'Byrne's failure to comply with its contents would result in the loss of his staff privileges. The letter also stated that the Medical Center had been advised that none of its actions provided grounds for a hearing within the meaning of the Bylaws. The following day, O'Byrne filed suit against the hospital for breach of written contract, breach of fiduciary duty and intentional interference with the practice of his profession.

The Medical Center wrote to O'Byrne again on May 28, 1998, stating that it had been advised that O'Byrne had no listing in the telephone book and his name and suite number were not listed in the lobbies of the buildings where he claimed to have offices. In light of this, among other transgressions, the Medical Center was left with no choice but to recommend that his staff privileges be terminated. However, in light of the lawsuit O'Byrne had filed against the Medical Center, he would be permitted to request a hearing to challenge the decision. O'Byrne never availed himself of this option and instead resigned from the Medical Center.

Ballard, Rosenberg, Golper & Savitt filed for summary judgment on behalf of the Medical Center, and the motion was granted. On appeal, the crucial question was whether the Bylaws constituted a contract between O'Byrne and the Medical Center. The court held that under California contract law, medical staff bylaws adopted pursuant to California Code of Regulations, Title 22, Section 70703(b) do not in and of themselves constitute a contract between a hospital and a physician on its medical staff. Such bylaws may become incorporated into a separate employment contract between the hospital and the physician, but that was not the case here.

As to the breach of fiduciary duty claim, the court held that employment relationships, such as the one at issue here, are not fiduciary relationships. Finally, O'Byrne failed to present any evidence that the hospital interfered with the practice of his profession. As such, the Court of Appeal affirmed Ballard, Rosenberg, Golper & Savitt's summary judgment motion on all grounds.

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B. Initiation of Pre-Arbitration Procedures Do Not Satisfy Exhaustion Requirement

In Swiderski v. Milberg, Weiss, Bershad, Hynes & Lerach, LLP, 2001 Daily Journal D.A.R. 13047 (Cal.App. 4th Dist., Div 1, Dec. 18, 2001) (Opinion by Kremer, concurred in by Haller and McIntyre), Plaintiff James Swiderski began working for Milberg, Weiss as a law clerk in 1997. As a condition of his employment, he signed an Arbitration Agreement covering employment related disputes. In 1998, Swiderski began working for Milberg, Weiss as a full time associate. In 1999, Milberg, Weiss terminated Swiderski's employment for performance related reasons. To preserve his rights under the Agreement, Swiderski initiated contractually specified pre-arbitration procedures. However, Swiderski told Milberg, Weiss that he believed the Agreement was unenforceable as unconscionable, inapplicable to his position as an associate attorney, and that he intended to sue.

Swiderski filed suit for wrongful termination in violation of public policy. In its answer, Milberg, Weiss affirmatively alleged the lawsuit was barred by the Agreement. Milberg, Weiss ultimately filed a motion for summary judgment on the ground that all matters in the lawsuit were subject to the valid and enforceable Agreement. The Court granted the motion. Swiderski subsequently forwarded to the American Arbitration Association ("AAA") a demand for arbitration contained in a declaration of hardship for purposes for seeking relief from arbitration expenses. AAA decided to reduce Swiderski's arbitration expenses by one-half. Following the grant of summary judgment, Swiderski filed a Notice of Intention to Move for New Trial on the grounds of newly discovered evidence, that the decision was against law, and that an error of law had occurred at the summary judgment proceedings. The Court granted Swiderski's motion for new trial on the ground that Swiderski "pursued or attempted to pursue his arbitration remedy" before filing the lawsuit, and therefore was not barred by the Agreement. Admittedly, Swiderski did not raise this ground in his motion for new trial. Milberg, Weiss appealed the Court's grant of a new trial.

The Court of Appeal reversed the trial court's decision based upon the case of Charles J. Rounds Co. v. Joint Counsel of Teamsters No. 42, 4 Cal.3d 888 (1971), which held that summary judgment for defendants may properly be granted where, as here, the plaintiff has failed to exhaust or attempted to exhaust his arbitration remedy before filing his lawsuit on a claim covered by an Agreement. The Court held that, as a matter of law, the mere initiation of pre-arbitration procedures did not satisfy the exhaustion requirement. The court also found that AAA's failure to completely grant Swiderski's waiver of the arbitration expense did not constitute newly discovered evidence sufficient to grant a motion for new trial.

Swiderski also argued that because he signed the Agreement as a law clerk, the Agreement did not apply to his employment once he became an associate attorney. The Court rejected this argument, holding that the plain language of the Agreement applied to any employment relationship Swiderski had with Milberg, Weiss, whatever his position.

The Court then addressed the unconscionability of the Agreement. The Agreement was not procedurally unconscionable. There was no surprise component to the Agreement, particularly because it was not a clause hidden in a standardized form, but rather was a separate, clearly labeled, double spaced, nine-page document written in clear language. The Court also found it significant that Swiderski was an attorney. Although the Agreement was a condition of Swiderski's employment, the Court, relying on Lagatree v. Luce, Forward, Hamilton & Scripps, 74 Cal.App.4th 1105 (1999), held that this alone does not raise procedural unconscionability.

Nor did the Court find the Agreement substantively unconscionable. The Court concluded that the Agreement contained the legally requisite modicum of bilaterality for purposes of avoiding substantive unconscionability. Importantly, both Swiderski and Milberg, Weiss were required to arbitrate any employment related disputes. The fact that Milberg, Weiss could seek injunctive or other equitable relief through the courts in specified circumstances of unfair competition or unauthorized disclosure of confidential information was simply based on the business realities that a law firm must preserve its ability to seek such remedies to protect client confidences and privileged attorney work-product. The Court also found that the pre-arbitration procedures requiring Swiderski to disclose his claim and the damages he sought are not substantively unconscionable. Finally, the Agreement was not unconscionable as requiring each party to bear its own costs and expenses, plus an equal share of the arbitrator's fees and administration fees. Swiderski brought a non-statutory wrongful termination claim, so he was not entitled to the same rights that might be accorded a statutory claim for employment discrimination. In any event, because employers like Milberg, Weiss may be legally responsible for arbitration fees, any contrary contractual language could be severed.

The court ordered remand to the Superior Court to determine whether Swiderski's court activities had waived his right to arbitration.

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C. ERISA Does Not Preempt Mechanics' Lien for Unpaid Contributions to Benefit Plan

In R. Betancourt v. Storke Housing Investors, 2001 Daily Journal D.A.R. 13044 (Cal. App. 2nd Dist., Div. 6, Dec. 18, 2001) (Opinion by Perren; concurred in by Gilbert and Coffee), the plaintiff construction workers, employed by subcontractor R. P. Richards on a residential construction project owned by Storke Housing Investors, received their cash wages, but no contributions were made to their benefit plans. Relying on Civil Code ó 3110, the plaintiffs filed a mechanics' lien against Storke's property for the unpaid contributions and sought to foreclose on the lien. The trial court dismissed the action, finding that it was preempted by ERISA.

The Court of Appeal reversed, however. While Civil Code ó 3111, a statute analogous to ó 3110, had previously been held to be preempted by ERISA, the U.S. Supreme Court has since altered its interpretation of the preemptive effect of ERISA. Now, preemption is only required when a state's laws act immediately and exclusively upon ERISA plans or when the existence of ERISA plans is essential to the law's operation. Section 3110 is a state law of general applicability which creates no rights or restrictions concerning the administration or funding of ERISA plans. Therefore, the law did not fall within the preemptive effect of ERISA.

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UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

A. Judgment As A Matter Of Law Is Unwarranted Where Substantial Evidence Supports Jury's Verdict

The Ninth Circuit reversed the decision and remanded it to the trial court. The court held that the record supports a finding that Winarto was terminated in retaliation for making complaints to the company's Human Resources Department. The District Court erred by considering only the effect of the layoff analysis and by ignoring the evidence of Taylor's retaliatory motive for giving Winarto a poor evaluation. According to the Court, Toshiba offered little evidence to refute the claim that Winarto's low scores were based on anything but retaliation. Taylor's 1992 performance review called Winarto "an excellent team player." However, Taylor's later review stated that Winarto must take "responsibility to help resolve conflicts." The court found that this statement reflected "resentment for her many complaints."

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