In Pacific Fertility Cases (2022) 85 Cal. App.5th 887, the First District Court of Appeal rejected a product manufacturer’s motion to compel arbitration on grounds that the manufacturer was not a signatory to plaintiffs’ arbitration agreement with their medical providers.
The appeal arose from the 2018 fertility center tragedy where some 400 individuals and couples lost eggs and embryos through the combined fault of physician-owned Pacific Fertility Center, and Chart Industries that manufactured a defective cryostorage tank which malfunctioned. The plaintiffs had signed arbitration agreements with the physician defendants who operated PFC. Chart, a stranger to those contracts, sought to have superior court claims against it stayed or dismissed by the PFC arbitration contract.
Though not initially certified for publication, the Walkup team obtained a publication order with the help the Amicus Committee of CAOC. In announcing holdings of first impression, the court of appeal found that equitable estoppel did not apply because the plaintiffs’ product claims did not arise out of the contract, and that issues of comparative fault and the risk of inconsistent obligations were not proper considerations in determining whether equitable estoppel applies in the context of an arbitration agreement.
The appellate court rejected Chart’s argument that it was entitled to be in arbitration because plaintiffs would not have had eggs and embryos in the subject tank but for their contractual agreement with PFC. Writing for the majority Justice Kathleen Banke stated: “the argument Chart and Praxair advance ‘confuses the concept of claims founded in and intertwined with the agreement containing the arbitration clause’ with but-for causation… the doctrine of equitable estoppel does not bind nonsignatory indemnitors to an arbitration agreement between the parties to the underlying action when, as here, the indemnity claims are not founded in the contract containing the arbitration provision and there is no preexisting relationship between the defendants on which to base an estoppel.” Pacific Fertility Cases, 85 Cal.App.5th 887, 896.
Chart also argued that arbitration of the claims against it was necessary to prevent “unfair apportionment of responsibility between the different Defendants.” The Court of Appeal dismissed this argument, stating that “the issue of comparative fault and joint liability on certain issues… does not inform the equitable estoppel analysis unless the joint liability is based on the same or similar legal theories and/or facts that underlie the obligations under plaintiffs’ contracts with [Pacific]. That, however, is not the case here.” Id. at 900.
The decision has wide reaching effects in cases where arbitration agreements apply to some but not all defendants, a situation which often occurs in the medical negligence context. We commend our team in this matter headed by shareholder Doris Cheng for making new law in this area.