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Electronically Filed
Supreme Court
SCAP-XX-XXXXXXX
12-SEP-2025
07:53 AM
Dkt. 46 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---________________________________________________________________
FREDERICK A. NITTA, M.D., INC.; FREDERICK A. NITTA,
individually; HAWAII COUNTY MEDICAL SOCIETY; CHARLENE ORCINO;
and ADRIAN “SCOTT” NORTON,
Plaintiffs-Appellees,
vs.
HAWAII MEDICAL SERVICE ASSOCIATION,
Defendant-Appellant.
SCAP-XX-XXXXXXX
APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT
(CAAP-XX-XXXXXXX; CASE NO. 3CCV-XX-XXXXXXX)
SEPTEMBER 12, 2025
RECKTENWALD, C.J., McKENNA, EDDINS, GINOZA, AND DEVENS, JJ.
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
In general, this appeal concerns whether a doctor and his
medical practice, as well as Hawaiʻi Island patients, must be
compelled to arbitrate various claims they brought against the
Hawaiʻi Medical Service Association (“HMSA”). This appeal
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concerns arbitrability, not the merits of the alleged
unconscionability of various HMSA contracts.
This is because arbitration agreements are subject to the
Federal Arbitration Act (“FAA”), which “creates a body of
federal substantive law of arbitrability, enforceable in both
state and federal courts[.]” Narayan v. The Ritz-Carlton Dev.
Co., 140 Hawaiʻi 343, 350, 400 P.3d 544, 551 (2017) (cleaned up).
When presented with a motion to compel arbitration, a circuit
court must first determine whether an arbitration agreement
exists between the parties. Koolau Radiology, Inc. v. The
Queen’s Med. Ctr., 73 Haw. 433, 445, 834 P.2d 1294, 1300 (1992).
If an arbitration agreement exists, the circuit court must then
determine whether the subject matter of the dispute is
arbitrable under the agreement. Id.
Even if a dispute is arbitrable under an arbitration
clause, arbitration clauses are voidable upon such grounds as
exist at law or in equity for the revocation of a contract.
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46
(2006). One of those grounds is unconscionability. Narayan,
140 Hawaiʻi at 350, 400 P.3d at 551. But unconscionability must
be raised and addressed only as to the arbitration clause
itself, not as to the contract as a whole. Buckeye, 546 U.S. at
445-46. In addition, “unless the challenge is to the
arbitration clause itself, the issue of the contract’s validity
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[including unconscionability] is considered by the arbitrator in
the first instance.” Id.
The Circuit Court of the Third Circuit1 (“circuit court”)
did not engage in this analytical framework when it addressed
HMSA’s motion to compel arbitration and for other relief.
Instead of determining whether plaintiffs’ claims were
arbitrable, it focused on their claims of unconscionability of
the contracts as a whole. The circuit court erroneously
addressed the merits, concluding that HMSA’s contracts were
unconscionable and caused harm to the plaintiffs.
These rulings were beyond the scope of a motion to compel
arbitration. Hence, we vacate in part the circuit court’s order
as to certain of plaintiffs’ claims that were arbitrable. But
we also determine that one plaintiff’s claims are not arbitrable
under an arbitration clause, one plaintiff’s claims are not
required to be arbitrated, and another plaintiff’s claims are
not subject to a grievance and appeals clause.
We therefore remand this case to the circuit court for
further proceedings consistent with this opinion.
1 The Honorable Robert D.S. Kim presided.
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II. Background
A. Complaint and answer
1. Complaint
a. Parties
The plaintiffs are Frederick A. Nitta, M.D., Inc. (“FNI”),
Dr. Frederick A. Nitta (“Dr. Nitta”), the Hawaiʻi County Medical
Society (“HCMS”), Charlene Orcino (“Orcino”), and Adrian “Scott”
Norton (“Norton”) (collectively, “plaintiffs”). Dr. Nitta has
owned and operated FNI, a Hawaiʻi Island corporation, since 1993.
HCMS is a corporation made up of health care professionals,
including Dr. Nitta and FNI. Orcino and Norton are residents of
Hawaiʻi County.
The defendant is HMSA.
b. Complaint’s allegations
The operative complaint is plaintiffs’ January 9, 2023
third amended verified complaint (“complaint”). In addressing
arbitrability, we must examine the
claims raised. In summary, the complaint alleges as follows:
i. FNI’s claims
FNI and its patients signed “Patient Information” and
“Payment Policy” forms, which created contractual relationships
between them. The payment policy made patients responsible for
paying for FNI’s services in full when (1) patients were
uninsured, (2) or, if patients were insured, to the extent
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services received were not covered by insurance. HMSA
unlawfully interfered with these contractual agreements by
ignoring Dr. Nitta’s diagnoses and treatment recommendations and
by unilaterally switching his patients over to other primary
care physicians.
ii. Claims of Dr. Nitta as a patient
As a patient insured by HMSA, Dr. Nitta experienced a
medical emergency in 2021 and was taken to Queen’s Hospital on
Oʻahu. HMSA refused to make any payments to the physicians
treating him or to Queens.
iii. Norton’s claims
Norton was a patient of Dr. R. Lee-Ching. After examining
Norton, Dr. Lee-Ching referred him for a diagnostic MRI. HMSA
denied the recommendation and required Norton to instead undergo
physical therapy. Norton’s health then deteriorated, and HMSA
allowed Norton to undergo a diagnostic MRI. The MRI revealed
prostate cancer that had spread to Norton’s back and spine.
Norton was flown to Queen’s Medical Center on Oʻahu for emergency
surgery. Once a strong, healthy, active man, Norton became
wheelchair-bound with limited walking ability.
iv. Orcino’s claims
Orcino was a patient who entered into a contractual
relationship with FNI in 1999. Years later, after examining a
pregnant Orcino, Dr. Nitta immediately prescribed Nifedipine to
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prevent premature labor. But when Orcino went to fill the
prescription at two separate pharmacies, she was told HMSA would
not honor it. Orcino then spent some time trying to raise money
for Nifedipine on her own. During that delay, she went into
premature labor and had to be Medivaced to Kapiolani Hospital
for Women and Children on Oʻahu, where she delivered a baby at
only 25 weeks gestation. The child survived, but now requires
significant and regular medical attention based on his
developmental challenges resulting from his premature birth.
c. Complaint’s counts and ad damnum clause
The complaint alleged the following counts:
Count I: tortious interference with a contractual right –
HMSA
Count II: tortious interference with a contractual right –
[Dr. Nitta and FNI]
Count III: tortious interference with a contractual right
– Charlene Orcino
Count IV: tortious interference with a contractual right –
Norton
Count V: unfair method of competition – HMSA
Count VI: RICO – Defendants HMSA and HMSA-Individuals
Count VII- Declaratory relief (HCMS and FNI)
Count VIII – Negligent infliction of emotional distress –
Defendant HMSA
Count IX – Intentional infliction of emotional distress –
Defendant HMSA and Defendant HMSA-Individuals
In Count I (tortious interference with a contractual
right), plaintiffs FNI and HCMS alleged that HMSA denied tests
and courses of treatment for thirty of FNI’s patients,
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identified by their initials. This led to patients changing
doctors and substituting or foregoing treatment, which worsened
patients’ conditions. It also meant FNI was not paid for work
done for these patients.
In Count II (tortious interference with a contractual
right), FNI and Dr. Nitta alleged that HMSA unilaterally
switched six of his patients over to other primary care
physicians without notifying these patients.
In Count III (tortious interference with a contractual
right), Orcino alleged that HMSA’s refusal to cover her
prescription for Nifedipine interfered with the doctor-patient
relationship, worsened her condition, and resulted in the
premature birth of her child, who is now severely disabled.
In Count IV (tortious interference with a contractual
right), Norton alleged that HMSA’s delay in approving an MRI
interfered with the doctor-patient relationship and delayed his
ultimate cancer diagnosis. As a result, the cancer spread,
Norton had to undergo emergency surgery, and Norton became
wheelchair-bound.
In Count V (unfair method of competition), plaintiffs
alleged that HMSA engaged in unfair methods of competition by
delaying or denying claims for payment and unilaterally
switching patients over to other primary care physicians. These
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acts imposed a financial hardship on FNI and threatened the
quality of care provided to patients.
In Count VI (RICO), plaintiffs alleged that HMSA engaged in
theft of services by denying medical claims and diverting
patients from FNI to other primary care physicians. They also
alleged HMSA engaged in theft by failing to make required
disposition of funds when it obtained premiums from patients yet
failed to cover their medical services.
In Count VII (declaratory relief), plaintiffs HCMS and FNI
sought a declaration that FNI’s “Patient Information” and
“Payment Policy” documents were legally enforceable contracts
between physician and patient and that HMSA cannot interfere
with that contractual relationship.
As to Count VIII (NIED), Dr. Nitta and/or FNI, Orcino, and
Norton alleged that HMSA’s misconduct caused them to suffer
emotional distress.
As to Count IX (IIED), Dr. Nitta and/or FNI, Orcino, and
Norton alleged that HMSA’s action or inaction caused them
extreme emotional distress.
Plaintiffs sought general damages, special damages,
compensatory damages, punitive damages, and HRS § 480-13(a)(1)
treble damages to be awarded against HMSA. They also asked the
court to refer the matter to the Hawaiʻi Attorney General for (1)
forfeiture of HMSA’s corporate charters; (2) cancellation of
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registration and licenses; and (3) dissolution of HMSA’s nonprofit and/or mutual benefit society. They also requested a
declaration that the “Payment Information” and “Payment Policy”
documents were legally enforceable contracts with which HMSA
cannot interfere. Plaintiffs further requested costs and
attorney’s fees, pre- and post-judgment interest, and other
relief as the court may deem just and proper.
2. Answer
HMSA filed its answer and, relevant here, reserved its
right to seek to compel arbitration as to all or some of the
claims in plaintiffs’ complaint.
B. HMSA’s motion, plaintiffs’ memorandum in opposition, HMSA’s
reply, and the initial hearing on the motion
1. HMSA’s motion
HMSA filed a motion (1) to compel arbitration of FNI, Dr.
Nitta, and Norton’s claims; (2) for summary judgment as to
Orcino’s claims on the grounds her agreement with HMSA required
her to appeal denial of benefits to the State of Hawaiʻi’s
Department of Human Services; and (3) to stay HCMS’s claim
pending arbitration.
HMSA generally contended that the complaint challenged its
denial of benefits to plan members.
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a. As to FNI’s claims
HMSA attached the following agreements to which FNI was a
party: (1) the “Participating Physician Agreement”; (2) the
“Provider Agreement for Medicare Plans” (“Medicare Agreement”);
and (3) the “QUEST Participating Physician Agreement” (“QUEST
Agreement”) (collectively, the “provider agreements”).
The existence of arbitration clauses in these three
provider agreements is not disputed on appeal.2 HMSA argued that
2
Those arbitration clauses are as follows:
Section 8.2 in the Participating Physician Agreement is titled “External Appeals,” and it states:
Arbitration Upon Exhaustion of Internal Appeals. HMSA and
Participating Physician agree that any and all claims,
disputes, or causes of action arising out of this Agreement
or its performance, breach or termination or in any way
related to this Agreement, including but not limited to any
and all claims, disputes, or causes of action based upon
contract, tort, statutory law, or actions in equity, shall
be resolved by binding arbitration as set forth in this
Agreement unless arbitration is waived pursuant to Section
4.8 of this Agreement.
If Participating Physician disagrees with HMSA’s decision
following exhaustion of internal appeals described in
Section 8.1 above, Participating Physician may submit a
written request for arbitration to HMSA’s Legal Department
in Honolulu, Hawaii, within sixty (60) calendar days
following the date of HMSA’s decision.
Arbitration of disputes between HMSA and Participating
Physician shall be conducted by an independent arbitration
service mutually selected by HMSA and Participating
Physician. Arbitration shall be conducted in Honolulu,
Hawaii, except that if the physician’s office is on a
Neighbor Island the physician may participate in the
arbitration by telephone. If HMSA and Participating
Physician are unable to agree upon an arbitration service
within thirty (30) calendar days of HMSA’s receipt of
Participating Physician’s request for arbitration, Dispute
Prevention and Resolution, Inc. (“DPR”), or, if DPR is not
available, another arbitration service selected by HMSA,
will conduct the arbitration. If the two parties (HMSA and
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Participating Physician) are unable to agree upon an
arbitrator within thirty (30) calendar days following the
submission of the claim to the arbitration service, then
the two parties shall select an arbitrator in accordance
with the arbitration service’s arbitrator selection
procedures. The arbitration will be conducted pursuant to
the Hawaii Uniform Arbitration Act, HRS Chapter 658A, and
the arbitration service’s arbitration rules (or such other
arbitration rules as the parties may mutually agree); to
the extent not inconsistent with the arbitration provisions
in this Agreement. The arbitrator may hear and determine
motions for summary disposition pursuant to HRS § 658A15(b). The arbitrator shall also hear and determine any
challenges to the arbitration agreement and any disputes
regarding whether a controversy is subject to an agreement
to arbitrate. In order to make the arbitration hearing
fair, expeditious and cost-effective, discovery by both
parties shall be limited to requests for production of
documents material to the claims or defenses in the
arbitration. Limited depositions for use as evidence at
the arbitration hearing may occur as authorized by HRS §
658A-17(b). Each party (HMSA and Participating Physician)
will pay its own attorney and witness fees, provided that
the arbitrator shall award attorney fees and costs in an
amount authorized by law to a prevailing party related to
any claim or contention of a nonprevailing party, that the
arbitrator determines was frivolous or wholly without
merit. Fees and costs of the arbitrator and the
arbitration service may be awarded by the arbitrator as the
arbitrator determines is appropriate except that HMSA shall
pay the filing and arbitrator’s fees if the prevailing
party in the arbitration is a Participating Physician
practicing as an individual in a group of less than six
Participating Physicians. If no award is made, fees and
costs of the arbitrator and the arbitration service shall
be shared equally by both parties. The decision of the
arbitrator shall be final and binding on HMSA and the
Participating Physician and judgment shall be entered
thereon upon timely motion by either party in a court of
competent jurisdiction. No other action may be brought in
any court in connection with this decision, except as
provided under the Hawaii Uniform Arbitration Act. There
shall be no consolidation of parties in the arbitration
proceeding. The arbitrator may award any remedy that can
be granted by a court in like circumstances, provided that
no award of punitive damages or exemplary damages shall be
made. The parties shall take appropriate precautions to
protect the confidentiality of any personal health
information related to the arbitration proceeding.
Section 8.2(a) in the Medicare Agreement is titled “Arbitration Upon Exhaustion of Internal Appeal,” and it states:
HMSA and Provider agree that any and all claims, disputes,
or causes of action arising out of this Agreement or its
performance, breach or termination or in any way related to
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this Agreement, including but not limited to any and all
claims, disputes, or causes of action based upon contract,
tort, statutory law, or actions in equity, shall be
resolved by binding arbitration as set forth in this
Agreement, except that in lieu of arbitration, and only for
disputes involving an MA or MA-PD Plan Member, Provider may
elect review described in Section 8.2(b) below for certain
billing disputes and review described in Section 8.2(c)
below for certain medical necessity disputes.
If Provider disagrees with HMSA’s decision following
exhaustion of internal appeals described in Section 8.1
above, Provider shall submit a written request for
arbitration to HMSA’s Legal Services in Honolulu, Hawaii,
within sixty (60) calendar days following the date of
HMSA’s decision.
Arbitration of disputes between HMSA and Provider shall be
conducted by an independent arbitration service mutually
selected by HMSA and Provider. Arbitration shall be
conducted in Honolulu, Hawaii, except that if the
physician’s office is on a Neighbor Island the physician
may participate in the arbitration by telephone. If HMSA
and Provider are unable to agree upon an arbitration
service within thirty (30) calendar days of HMSA’s receipt
of Provider’s request for arbitration, Dispute Prevention
and Resolution, Inc. (“DPR”) will conduct the arbitration.
If the two parties (HMSA and Provider) are unable to agree
upon an arbitrator within thirty (30) calendar days
following the submission of the claim to the arbitration
service, then the two Parties shall select an arbitrator in
accordance with the arbitration service’s arbitrator
selection procedures. The arbitration will be conducted
pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et
seq., and the arbitration service’s arbitration rules
applicable to the Federal Arbitration Act, or pursuant to
such other arbitration rules as the Parties may mutually
agree. The arbitrator may hear and determine motions for
summary judgment under the same standards applicable under
Rule 56 of the Federal Rules of Civil Procedure. Each
party (HMSA and Provider) will pay its own attorney and
witness fees, provided that the arbitrator may award
attorney fees and costs to a prevailing party related to
any claim or contention of a nonprevailing party, that the
arbitrator determines was frivolous or wholly without
merit. Fees and costs of the arbitrator and the
arbitration service may be awarded by the arbitrator as the
arbitrator determines is appropriate except that HMSA shall
pay the filing and arbitrator’s fees if the prevailing
party in the arbitration is a Provider practicing as an
individual in a group of less than six (6) Providers. If
no award is made, fees and costs of the arbitrator and the
arbitration service shall be shared equally by both
Parties. The decision of the arbitrator shall be final and
binding on HMSA and the Provider and judgment shall be
entered thereon upon timely motion by either Party in a
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each of these provider agreements required arbitration of “any
and all claims, disputes, or causes of action arising out of
court of competent jurisdiction. No other action may be
brought in any court in connection with this decision,
except as provided under the Federal Arbitration Act.
There shall be no consolidation of parties in the
arbitration proceeding. The Parties shall take appropriate
precautions to protect the confidentiality of any personal
health information related to the arbitration proceeding.
Section 8.3 in the QUEST Agreement is titled “Arbitration Upon Exhaustion of Administrative Appeal,” and it states:
HMSA and Participating Physician agree that, except for
disputes related to the HMSA QUEST Fee Schedule and
termination of this Agreement by HMSA based upon a
recommendation of HMSA’s Credentialing Committee, any and
all claims, disputes, or causes of action arising out of
this Agreement or its performance, or in any way related to
this Agreement or its performance, including but not
limited to any and all claims, disputes, or causes of
action based upon contract, tort, statutory law, or actions
in equity, shall be resolved by binding arbitration as set
forth in this Agreement.
Within 30 calendar days following Participating Physician’s
exhaustion of administrative remedies described above,
Participating Physician shall submit a written request for
arbitration to Legal Services at HMSA in Honolulu, Hawaii.
The arbitration shall be conducted in accord with the
Commercial Arbitration Rules of the American Arbitration
Association or its successor.
HMSA and Participating Physician shall promptly appoint a
single arbitrator. Should both parties fail to agree on a
single arbitrator within 30 calendar days of Participating
Physician’s request for arbitration, either party may apply
to the First Circuit Court, State of Hawaii, for
appointment of an arbitrator. Both parties shall share the
arbitrator’s fee equally. All other costs of the
arbitration will be paid as ordered by the arbitrator,
except that each party will pay its own attorney and
witness fees. The decision of the arbitrator shall be
final and binding on both parties.
Dispute resolution related to termination of this Agreement
by HMSA based upon a recommendation of HMSA’s Credentialing
Committee shall be in accord with HMSA’s credentialing
policies and procedures.
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this Agreement or its performance, breach or termination or in
any way related to this Agreement, including but not limited to
any and all claims, disputes, or causes of action based upon
contract, tort, statutory, law, or actions in equity. . . .”
HMSA cited County of Hawaiʻi v. UNIDEV, LLC, 129 Hawaiʻi
378, 395-96, 301 P.3d 588, 605-06 (2013), for the proposition
that the phrases “arising under” and “arising out of or in
relation to” in the arbitration provisions are to be broadly
interpreted to encompass FNI’s claims.
b. As to claims of Norton and Dr. Nitta as a patient
HMSA also attached to its motion the EUTF 75/25 PPO Member
Handbook (relevant to Norton’s claims); and the “Small Business
CompMED – A Plan” (relevant to Dr. Nitta’s claims as a patient).
HMSA argued that these member handbooks set forth the procedure
for members to appeal the denial of benefits.
The member handbooks for both Norton and Dr. Nitta (as a
patient) each contain a chapter titled “Dispute Resolution.”
The chapters are nearly identical. Both require members who
“wish to dispute a decision made by HMSA related to coverage,
reimbursement, this Agreement, or any other decision or action
by HMSA” to first request an appeal within a year of HMSA’s
action. HMSA states it will issue a written decision within 30
or 60 days from the receipt of the appeal. If a member
disagrees with HMSA’s decision with respect to “an issue of
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medical necessity, appropriateness, health care setting, level
of care, or effectiveness; or a determination by HMSA that the
service or treatment is experimental or investigational,” the
member “must” request review by an Independent Review
Organization selected by the Insurance Commissioner.
“For all other issues,” the member may “[r]equest
arbitration before a mutually selected arbitrator” or “[f]ile a
lawsuit against HMSA under 29 U.S.C. 1132(a) unless [the
member’s] plan is” a “church plan” under 29 U.S.C. 2002(33) or a
“government plan” under 29 U.S.C. 1002 (32), in which case the
member “must select arbitration.”
HMSA argued that to the extent the complaint alleged claims
concerning Dr. Nitta’s treatment as a patient, those claims also
related to “coverage, reimbursement, the Agreement, or any other
decision or action by HMSA” and were required to be arbitrated.
HMSA likewise argued that Norton’s challenge to HMSA’s delayed
coverage of his diagnostic MRI were also required to be
arbitrated.
c. As to Orcino’s claims
HMSA also attached to its motion the Quest Integration
Member Handbook relevant to Orcino’s claims. Instead of an
arbitration clause, Orcino’s member handbook contains a section
titled “Grievances and Appeals.” The process laid out is
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somewhat confusing and unclear,3 but it does not refer to
arbitration.
HMSA argued that Orcino’s options, if she did not agree
with HMSA’s denial of coverage, were primarily dictated by the
Med-QUEST Division of DHS, and that the grievance and appeal
procedure set forth in the handbook is in line with DHS’s
administrative rules, 17-1703.1-3 of the Hawaiʻi Administrative
Rules (“HAR”) which provides: “Every individual shall be
provided an opportunity for a hearing where an adverse action
affects the individual’s eligibility, benefits, services or
claims.” (Bold emphases in original, underlining added).
3
It first says that members may file a grievance if they’re not happy with (1) the quality of care or service provided; (2) the way HMSA staff treated them; (3) their doctor and how they were treated by the doctor or the staff; or (4) the way their rights weren’t respected.
It then goes on to say that if a member is not happy with HMSA’s grievance decision, the member may request a grievance review with DHS’s MedQUEST Division. It says that the grievance review decision made by Med-QUEST is final.
But it then says that a member may file an appeal with HMSA if (1) the service a member asked for was denied or restricted; (2) the authorization for a service was terminated, suspended, or reduced; (3) a member isn’t happy with health care services because they weren’t timely, there were unreasonable delays, or the grievance or appeal decision wasn’t carried out in a timely way; or 4) the member doesn’t agree with a payment that was denied or reduced. It also says members can request an expedited appeal if the standard appeal deadline (1) could seriously jeopardize a member’s life or health; (2) could seriously jeopardize a member’s ability to attain, maintain, or regain maximum function; or (3) could subject a member to severe pain that can’t be managed without the care or treatment that’s being requested.
The handbook also say that members may then ask for state administrative hearings or expedited state administrative hearings if they are not happy with HMSA’s appeal decision.
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HMSA requested summary judgment in its favor with respect
to Orcino’s claims based on an alleged lack of subject matter
jurisdiction.
d. Summary
Thus, in summary, HMSA asked the circuit court to issue an
order (1) compelling arbitration of the claims brought by FNI,
Dr. Nitta, and Norton; (2) granting summary judgment as to
Orcino’s claims for lack of subject matter jurisdiction; and (3)
staying HCMS’s claims pending arbitration.
2. Plaintiffs’ memorandum in opposition
In their memorandum in opposition, instead of addressing
the arbitration clauses in the provider agreements, plaintiffs
argued there was no written agreement to arbitrate because the
“Patient Information” and “Payment Policy” agreements were
between the physicians and their patients, not with HMSA. They
then argued that those contracts do not evidence any intent to
arbitrate. Plaintiffs also argued that the provider agreements
and member handbooks were not incorporated by reference into the
“Patient Information” or “Payment Policy” documents.
Plaintiffs then posited a fraud argument not alleged in the
complaint--that, assuming there are enforceable arbitration
agreements, HMSA engaged in fraud to induce the plaintiffs to
sign the agreements. Plaintiffs argued that HMSA fraudulently
induced them to sign the provider agreements by falsely
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informing them that contract terms could be negotiated.
Plaintiffs asserted they later learned that no suggestions they
made were incorporated by HMSA in the provider agreements;
therefore, they argued, the provider agreements were contracts
of adhesion.
Plaintiffs lastly argued that HMSA failed to show that
Orcino and Norton received and agreed to any of the terms and
conditions of their member handbooks. They asserted that the
declaration of HMSA’s Senior Manager of Medical Operations,
attesting that members receive member handbooks, was
insufficient to establish receipt because Orcino and Norton
declared they had not received their respective member
handbooks.
Plaintiffs therefore requested that the circuit court deny
HMSA’s motion in its entirety.
3. HMSA’s reply
In its reply, HMSA counter-argued that the issue is not
whether plaintiffs were required to arbitrate disputes among
themselves, but whether they were required to arbitrate their
disputes with HMSA.
HMSA also argued that the plaintiffs’ “fraud in the
inducement” argument should be rejected because (1) fraud had
not been pled with particularity anywhere in the complaint; and
(2) the allegedly fraudulent statements (that FNI could
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negotiate the arbitration provision in his physician agreements
with HMSA) post-dated the filing of the complaint and therefore
could not have been relied upon.
4. Initial hearing on the motion
At the initial hearing on the motion, the circuit court
requested supplemental briefing on “whether or not the . . .
agreements between the doctor and HMSA as well as the patients
constitute contracts of adhesion, whether or not there is a . .
. weaker party and stronger party as to not actually have an
agreement that . . . should be enforced.”
C. Supplemental briefing
1. HMSA’s supplemental brief
In its supplemental brief, HMSA quoted Leong v. Kaiser
Foundation Hospitals, 71 Haw. 240, 248, 788 P.2d 164, 169
(1990), regarding the legal standards for contracts of adhesion:
(1) the contract is the result of coercive bargaining between
parties of unequal bargaining strength; and (2) the contract
unfairly limits the obligations and liabilities of, or otherwise
unfairly advantages, the stronger party.
As background information, HMSA pointed out that it
provides health insurance to approximately 780,000 members
statewide. It also enters into provider agreements with
thousands of healthcare providers statewide. For this reason,
HMSA argued that provider agreements and members handbooks must
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have a significant degree of standardization. HMSA argued that
allowing agreements to be negotiated on a case-by-case basis
would cause the cost of healthcare in Hawaiʻi to increase
exponentially and that the administrative overhead to implement,
apply, and maintain those differing agreements would be
unmanageable.
HMSA contended that, even so, it allows providers and the
Hawaiʻi Medical Association (“HMA”) to submit feedback on draft
provider agreements each year and incorporates their ideas where
feasible. Similarly, HMSA stated it allows organizations like
the Hawaii Employer-Union Health Benefits Trust Fund (“EUTF”) to
review, negotiate, and revise draft member handbooks on their
members’ behalf.
Therefore, HMSA argued, the provider agreements, as well as
Norton’s and Orcino’s4 member handbooks, lack the hallmarks of
unenforceable contracts of adhesion.
With respect to FNI’s provider agreements specifically,
HMSA pointed out that FNI provided no input into the 2020
provider agreements, which are the agreements at issue. HMSA
also argued that FNI provided late and unreasonable input on the
2023 Participating Physician Agreement, which is not at issue,
4 HMSA’s supplemental brief does not discuss Dr. Nitta’s Small Business CompMED – A Plan member handbook, which would cover Dr. Nitta’s claims as a patient.
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as plaintiffs filed their complaint in January 2023. As to
communications between Dr. Nitta and an HMSA representative,
HMSA argued that while the representative stated that the
arbitration provision in the provider agreement was “standard”
and not negotiable, she did tell Dr. Nitta that if he had any
concerns, she would relay them to HMSA’s legal department. HMSA
said Dr. Nitta did not opt to relay any concerns.
With respect to FNI’s Medicare and QUEST Agreements, HMSA
argued they cannot be adhesive because their terms are dictated
by the State and federal governments. HMSA also argued that
Orcino’s QUEST plan was the result of HMSA meeting the exacting
requirements of the State’s QUEST request for proposals and was
not a contract of adhesion.
Regarding the dispute resolution provisions in Norton’s and
Orcino’s member handbooks, HMSA also argued that, pursuant to
Leong, a dispute resolution provision in a member handbook is
not adhesive when members’ interests were negotiated by their
unions (in Norton’s case) or by DHS (in Orcino’s case). See
Leong, 71 Haw. at 247-48, 788 P.2d at 168-69. With respect to
the arbitration provision in Norton’s member handbook,5 HMSA
argued that EUTF negotiated the member handbook (and its
5 Norton’s wife, Charlotte Huson, was a public school teacher and member of EUTF through the Hawaii State Teachers Association. Norton was covered by HMSA through his wife.
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arbitration provision) with HMSA; therefore, HSMA argued that
the arbitration provision was not a contract of adhesion.
HMSA then turned to address unconscionability. HMSA did so
because contracts of adhesion are enforceable unless they are
also procedurally and substantively unconscionable. Courbat v.
Dahana Ranch, Inc., 111 Hawaiʻi 254, 266, 141 P.3d 427, 439
(2006). HMSA argued that even if the provider agreements were
adhesive, they were not unconscionable.
With respect to procedural unconscionability, HMSA argued
that its provider agreements are short and that dispute
resolution provisions appear in their own articles, listed in
the table of contents. With respect to substantive
unconscionability, HMSA argued that the arbitration provisions
were not substantively unconscionable because they “apply with
equal force to HMSA and FNI.”
HMSA also argued that the dispute resolution provisions in
Orcino’s member handbook were not unconscionable. First, HMSA
argued Orcino’s dispute resolution provisions were not
procedurally unconscionable because she could choose among five
QUEST health plans and could leave the HMSA QUEST health plan if
she was not satisfied. Also, prospective members are provided
with informational packets and enrolled members are informed of
HMSA’s QUEST member handbook provisions via an annual notice
reminding them of how to access the online handbook or request a
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hard copy. Second, HMSA argued that the dispute resolution
provisions in Orcino’s member handbook were not substantively
unconscionable because they were dictated by state and federal
statutes governing Medicaid.
With respect to the arbitration provision in Norton’s
member handbook, HMSA argued that Norton’s arbitration provision
was not unconscionable. First, it was not procedurally
unconscionable because members and potential members are
provided with information about the HMSA plan. Second, it was
not substantively unconscionable because HMSA’s dispute
resolution procedures are required by the EUTF’s administrative
rules, and in addition to those procedures, HMSA offered
arbitration as an expeditious and cost-effective alternative to
litigation. Moreover, HMSA maintained, the arbitration
provision bears equally on HMSA and members like Norton.
2. Plaintiffs’ supplemental brief
Plaintiffs also cited Leong for the legal standard for
contracts of adhesion. Plaintiffs acknowledged that contracts
of adhesion may be enforceable, provided they are not
unconscionable. But plaintiffs argued that the three provider
agreements6 entered into by FNI were unconscionable.
6 Plaintiffs’ supplemental brief does not discuss the member handbooks for Norton, Orcino, and Dr. Nitta as a patient.
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First, according to plaintiffs, these provider agreements
were procedurally unconscionable because their terms were nonnegotiable; according to plaintiffs, HMSA controlled all aspects
of the agreements plaintiffs and physicians were forced to sign.
Plaintiffs also submitted declarations of fourteen additional
doctors who averred they were not able to negotiate the terms of
their provider agreements with HMSA. Plaintiffs attributed poor
patient outcomes, loss of patients, patient deaths, blackballing
and shuttering of medical practices, and Hawaiʻi’s doctor
shortage to HMSA’s oppressive control over medical services
payments.
Second, plaintiffs argued that the three provider
agreements were substantively unconscionable because HMSA
decides which medical services will be covered and forbids
physicians from collecting payment from patients for non-covered
services. They also argued the provider agreements violate
public policy. Specifically, plaintiffs argued they violate HRS
§ 453-1 (2013 & Supp. 2021), which is titled “Practice of
medicine defined,” and which states, in relevant part:
For the purposes of this chapter, the practice of medicine
by a physician or an osteopathic physician includes the use
of drugs and medicines; surgery; manual medicine; water;
electricity; hypnotism; telehealth; the interpretation of
tests, including primary diagnosis of pathology specimens,
medical imaging, or any physical; osteopathic medicine; any
means, method, or agent, either tangible or intangible, to
diagnose, treat, prescribe for, palliate, or correct
disease, or prevent any human disease, condition, ailment,
pain, injury, deformity, illness, infirmity, defect,
physical or mental condition in the human subject.
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Thus, plaintiffs asserted that HMSA interferes with the power of
physicians to determine and prescribe medical care to their
patients.
Plaintiffs concluded that the provider agreements are
contracts of adhesion that are unconscionable and unenforceable.
Notably, plaintiffs did not discuss the arbitration
provisions, except to allege in passing that (1) the arbitration
provision in the Participating Physician Agreement allows HMSA
to “unilaterally select[] the arbitrator”; (2) the arbitration
provision in the Medicare Agreement allows HMSA to “dictate[]
the location where any arbitration will be held”; and (3) the
QUEST Agreement allows HMSA to “reserve[] the right to dictate
the terms, process and location of arbitration.”
3. HMSA’s reply
In its reply, HMSA argued that plaintiffs’ assertions were
inaccurate. First, the Participating Physician Agreement states
that the parties will mutually select the arbitrator. Second,
the Medicare Agreement does state that arbitration will be held
in Honolulu, but that neighbor island physicians may participate
by phone. Third, the QUEST Agreement states that the
arbitration shall be conducted in accord with the Commercial
Arbitration Rules of the American Arbitration Association, that
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the parties will appoint the arbitrator, and does not mention a
location for arbitration.
D. Second hearing on the motion and circuit court’s ruling
After this supplemental briefing, the circuit court held a
second hearing on the motion on December 18, 2023.
By this time, Norton had passed away.
On February 2, 2024, the circuit court filed its findings
of fact, conclusions of law, and order denying HMSA’s motion.
The circuit court adopted the plaintiffs’ proposed document in
toto. The circuit court did not discuss or analyze whether the
arbitration provisions in the provider agreements cover the
subject matter of the plaintiffs’ claims or whether the
arbitration provisions themselves are unconscionable.
Rather, the circuit court ruled on the merits of the
plaintiffs’ claims about the unfairness of the provider
agreements. The circuit court determined that the three
provider agreements were contracts of adhesion, finding that:
[FOF] 11. Defendant HMSA’s agreements expressly
invalidated the Plaintiffs’ “Payment Policy” with their
patients.
[FOF] 12. Defendant HMSA reserved the exclusive right
to terminate the agreements.
[FOF] 13. In terms of the Defendant HMSA’s
agreements, Plaintiffs were not permitted to negotiate
and/or change any of the language or terms within the
agreements.
[FOF] 14. Defendant HMSA’s authorized representative
informed Plaintiff [Dr. Nitta] that HMSA refused to
negotiate any of the terms and conditions of its
agreements.
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[FOF] 15. Defendant HMSA had a policy and practice of
refusing to negotiate any of the language, terms and
conditions of its agreements with physicians and providers
across the State of Hawaii.
The circuit court then also concluded that the three
provider agreements were unconscionable. COL 6 concluded that
the three agreements were procedurally unconscionable because
“the terms and conditions of the HMSA Agreements were oppressive
and a disappointment to the Plaintiff in terms of negotiating
any of the terms.” By “terms,” the circuit court meant HMSA’s
(1) “exclusive authority to determine what the physician will be
paid or if the physician will be paid at all”; (2) invalidat[ion
of] “the Plaintiffs’ ‘Payment Policy’ with its patients”; and
(3) “exclusive right to terminate the agreements.”
The circuit court’s COL 7 concluded that the agreements
were substantively unconscionable because they contravened the
public policy reflected in HRS § 453-1 titled “Practice of
medicine defined.” Specifically, the circuit court concluded
that HMSA “wrongfully infringe[s] on the practice of medicine
between the physician and patient” by exercising “the exclusive
right to determine what is a ‘Covered Service’ eligible for
reimbursement” and by “prohibiting the physician from seeking
any payment for a procedure that HMSA finds is not a ‘Covered
Service.’”
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The circuit court then concluded that “Defendant’s
interference with the Plaintiffs’ contractual relationships
had severe effects.” With respect to Orcino, the “severe
effects” of HMSA’s refusal to cover her Nifedipine
prescription included being “medivaced to Honolulu for
emergency delivery of an extremely premature baby at only
twenty-five (25) weeks, gestation” and the child’s current
“substantial[] disab[ility].” With respect to Norton, the
“result of HMSA[’s] refusal to allow [him] to take
advantage of Dr. Lee-Ching’s initial diagnosis . . . [was]
limited walking ability, when [Norton] used to be a strong,
healthy and active man.”
On these bases, the circuit court denied HMSA’s motion to
compel arbitration, for summary judgment as to Orcino’s claims,
and to stay HCMS’s claims pending arbitration.
HMSA filed its notice of appeal on February 7, 2024. On October
23, 2024, we granted plaintiffs’ motion to transfer the appeal
to this court from the Intermediate Court of Appeals (“ICA”).
After completion of amici briefing, oral argument took place on
June 10, 2025.
III. Standards of Review
A. Motion to compel arbitration
A motion to compel arbitration is reviewed de novo and
based on the same standard that applies to a summary judgment
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ruling. See Koolau Radiology, 73 Hawaiʻi at 440, 834 P.2d at
1298 (“We review [motions to compel arbitration] de novo, using
the same standard employed by the trial court and based upon the
same evidentiary materials as were before it in determination of
the motion.”) (cleaned up).
B. Contract interpretation
“As a general rule, the construction and legal effect to be
given a contract is a question of law freely reviewable by an
appellate court.” Casumpang v. ILWU Local 142, 108 Hawaiʻi 411,
420, 121 P.3d 391, 400 (2005) (cleaned up).
IV. Discussion
A. The parties’ briefing
1. HMSA’s opening brief
In its opening brief, HMSA argues that the circuit court’s
order was a significant overreach; rather than determining the
narrow issue of arbitrability, the circuit court instead ruled
that the agreements themselves were unenforceable.
HMSA asserts that the circuit court erred by analyzing the
unconscionability of the HMSA contracts in totality when the law
required it to analyze only the arbitration provisions. Had it
properly analyzed the arbitration provisions, HMSA contends, the
circuit court would have concluded that the plaintiffs’ claims
“arose under” the arbitration provisions, pursuant to UNIDEV,
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129 Hawaiʻi at 395-96, 301 P.3d at 605-06, and were therefore
arbitrable.
HMSA also posits that the circuit court erred by concluding
that Norton’s member handbook, and the Participating Provider
Agreement, the Medicare Agreement, and the QUEST Agreement were
unconscionable and unenforceable. HMSA also maintains that the
circuit court erred by making factual and legal findings on the
merits of plaintiffs’ claims, when those were not at issue on a
motion to compel arbitration.
2. Plaintiffs’ answering brief
Plaintiffs’ answering brief focuses on the alleged
unconscionability of the provider agreements and member
handbooks as a whole, not the arbitration provisions themselves.
Regarding the arbitration provisions, they reiterate arguments
made in the circuit court. Plaintiffs also argue, for the first
time on appeal, that Norton’s and Orcino’s dispute resolution
provisions were procedurally unconscionable because they were
buried in 84-page member handbooks. Plaintiffs conclude by
requesting that this court affirm the circuit court’s order.
3. HMSA’s reply brief
In its reply brief, HMSA argues that plaintiffs cannot
raise a new argument about the “buried” arbitration provisions
for the first time on appeal.
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B. Amici briefs
Three groups filed amici briefs: (1) Hilo Community
Surgery Center, Kauai Community Health Alliance, Dr. Stuart
Lerner, Dr. Michelle Mitchell, and Dr. Casey Yamashita
(collectively, “HCSC”); (2) Hawaiʻi Medical Association and the
American Medical Association (“HMA/AMA”); and (3) Maui Nui
Medical Society (“MNMS”).
HCSC’s amicus brief generally asserts that HMSA has caused
harm to medical providers in Hawaiʻi through its payment
policies, but there is no specific argument about the
arbitrability of the plaintiffs’ claims.
HMA/AMA’s amicus brief also generally argues that “[t]he
inadequate systems in place that pay and reimburse physicians,
increased administrative burdens, unfair physician provider
agreements, and the business practices by insurers like [HMSA]
have placed immense pressure on independent physicians.” HMA
acknowledges that, in 2021, it “did review changes to HMSA’s
[Participating Physician Agreement] contracts,” but that the
focus at that time was on “termination with and without cause
with a 60-day notice,” not on the arbitration provisions. HMA,
however, would not consider its review of the HMSA Participating
Physician Agreement draft to “constitute actual negotiations.”
Lastly, MNMS’s amicus brief raises as substantively
unconscionable the following provisions within the provider
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agreements’ arbitration provisions: (1) exclusion of punitive
damages,7 (2) selection of Honolulu as the arbitration location
because telephonic participation “does not equal full
participation,” (3) limitation on discovery to documents
“material to claims and defenses in the arbitration” and
“preservation depositions,” and (4) prohibition on consolidation
of parties in an arbitration proceeding.
HMSA asks this court to disregard HCSC’s and HMA/AMA’s
amicus briefing as irrelevant to the arbitrability issue, and to
disregard MNMS’s amicus brief as making arguments about the
arbitration provision that the plaintiffs themselves should have
made.
7
With respect to the prohibition on punitive damages, at oral argument, the court asked HMSA’s counsel why its physician agreement arbitration provisions continued to include this prohibition after this court had invalidated such provisions in Narayan, 140 Hawaiʻi at 554, 400 P.3d at 353. Counsel responded that the Narayan court invalidated an arbitration provision based not solely on the punitive damages prohibition but on other substantively unconscionable provisions, naming, for example, a limitation on discovery. Oral argument, available at
https://www.youtube.com/live/hzUSCTiQ3VA at 18:12 - 19:59. https://perma.cc/ER6N-3MD5 at 18:12 - 19:59.
While this court did conclude that the arbitration provision was unenforceable because it was procedurally unconscionable, and that other provisions were also substantively unconscionable, there was a clear holding that a limitation on punitive damages improperly “insulate[d] ‘aggravated or outrageous misconduct’ from the monetary remedies that are designed to deter such conduct.” 140 Hawaiʻi at 554, 400 P.3d at 353. We held that, “[u]nder Hawaiʻi law, such provisions, regardless of whether they are found in arbitration agreements or other contracts, are substantively unconscionable.” Id.
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C. Analysis
1. Arbitrability
As a matter of law, when presented with a motion to compel
arbitration, the court is limited to answering two questions:
(1) whether an arbitration agreement exists between the parties;
and (2) if so, whether the subject matter of the dispute is
arbitrable under such agreement. Koolau Radiology, 73 Haw. at
445, 834 P.2d at 1300. The circuit court did not comply.
a. Whether an arbitration agreement exists between
the parties
The first step requires that the arbitration agreement
exist and that it be in writing. Gabriel v. Island Pac. Acad.,
Inc., 140 Hawaiʻi 325, 334, 400 P.3d 526, 535 (2017) (citation
omitted).
i. Participating Physician Agreement,
Medicare Agreement, and QUEST agreement
The existence of written agreements to arbitrate in the
Participating Physician Agreement, Medicare Agreement, and QUEST
Agreement is not disputed on appeal.
ii. Norton’s member handbook and the Small
Business CompMED (which applied to Dr. Nitta
as a patient)
The member handbooks for Norton and for Dr. Nitta, in his
capacity as a patient, each contain a chapter titled “Dispute
Resolution.” That chapter requires members who “wish to dispute
a decision made by HMSA related to coverage, reimbursement, this
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Agreement, or any other decision or action by HMSA” to first
request an appeal within a year of HMSA’s action. HMSA states
it will issue a written decision within 30 or 60 days from the
receipt of the appeal.
If a member disagrees with HMSA’s decision with respect to
“an issue of medical necessity, appropriateness, health care
setting, level of care, or effectiveness; or a determination by
HMSA that the service or treatment is experimental or
investigational,” the member “must” request review by an
Independent Review Organization selected by the Insurance
Commissioner. “For all other issues,” the member may “[r]equest
arbitration before a mutually selected arbitrator” or “[f]ile a
lawsuit against HMSA under 29 U.S.C. 1132(a) unless [the
member’s] plan is” a “church plan” under 29 U.S.C. 2002(33) or a
“government plan” under 29 U.S.C. 1002 (32), in which case the
member “must select arbitration.” (emphases added).
Thus, this dispute resolution clause does not mandate
arbitration unless the plan is a “church plan” or a “government
plan.” There is nothing to indicate that Dr. Nitta’s Small
Business CompMED plan is a church plan or government plan.
Therefore, the claims brought by Dr. Nitta as a patient are not
required to be arbitrated.
With respect to Norton, it appears the EUTF plan may be a
government plan. But even if it was, the next step in the
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arbitrability analysis concerns whether Norton’s claims fall
within the scope of the handbook. For reasons set forth in
Section IV.C.1.b.ii below, we hold they do not.
iii. Orcino member’s handbook
There is no arbitration provision in Orcino’s member
handbook. Orcino’s handbook contains a section titled
“Grievances and Appeals.” Although somewhat confusing, the
handbook indicates that members may submit grievances, appeals,
and expedited appeals first to HMSA and then to DHS’s Med-QUEST
Division, or request state administrative hearings and expedited
state administrative hearings. Orcino’s claim, which is not
arbitrable, is further discussed in Section IV.C.3 below.
b. Whether the subject matter of the dispute is
arbitrable
i. In general
Even if an arbitration agreement exists, the second step in
the arbitrability analysis requires a determination of whether
the dispute is actually arbitrable -- in other words, whether
the claims asserted fall under the scope of the arbitration
agreement. As we have said, “the mere existence of an
arbitration agreement does not mean that the parties must submit
to an arbitrator disputes which are outside the scope of the
arbitration agreement.” UNIDEV, 129 Hawaiʻi at 394-95, 301 P.3d
at 604-05. “What issues, if any, are beyond the scope of a
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contractual agreement to arbitrate depends on the wording of the
contractual agreement to arbitrate.” Id.
In this section, we first analyze Norton’s claims, then
turn to the claims raised under the Participating Physician
Agreement, Medicare Agreement, and QUEST Agreement.
ii. Norton’s member handbook
Norton’s member handbook speaks of disputes related to
“coverage, reimbursement, this Agreement, or any other decision
or action by HMSA.” The specific claims in the complaint that
related to Norton were Count IV (tortious interference with a
contractual right), Count VIII (NIED), and Count IX (IIED).
Norton alleged that HMSA’s delay in approving an MRI interfered
with the doctor-patient relationship and delayed his ultimate
cancer diagnosis. As a result, the cancer spread, Norton had to
undergo emergency surgery, and was wheelchair-bound. During the
course of the litigation, Norton died.
The ICA has held that an HMSA arbitration provision does
not cover the kinds of claims made by Norton. Yogi v. Haw. Med.
Serv. Ass’n, 124 Hawaiʻi 172, 238 P.3d 699 (App. 2010), is a case
strikingly factually similar to Norton’s. In that case,
plaintiff Bert Yogi sustained injuries to his shoulder, neck,
and back, which required multiple surgeries in the five years
that followed. 124 Hawaiʻi at 173, 238 P.3d at 700. Yogi’s
doctor submitted a preauthorization request to HMSA for an
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intrathecal infusion pump to treat Yogi. Id. HMSA denied the
request. 124 Hawaiʻi at 173-74, 238 P.3d at 700-01.
Yogi’s member handbook, like Norton’s member handbook,
required him to “request an appeal” from HMSA if he “wish[ed] to
dispute a determination made by HMSA related to coverage,
reimbursement, any other decision or action by HMSA, or any
other matter related to this Agreement.” 124 Hawaiʻi at 175, 238
P.3d at 702. Similar to Norton’s handbook, Yogi’s handbook
stated that HMSA will respond to the appeal within 60 calendar
days. Id. Also similar to Norton’s handbook, Yogi’s handbook
stated that, if the member disagreed with HMSA’s appeal
decision, the member could either request arbitration or request
a review by a panel appointed by the Hawaii State Insurance
Commissioner. 124 Hawaiʻi at 176, 238 P.3d at 703.
Yogi followed the internal appeal and external review
procedures, which ultimately resulted in a reversal of HMSA’s
denial. 124 Hawaiʻi at 174, 238 P.3d at 701. Yogi then filed
suit against HMSA alleging that HMSA “acted unreasonably,
wantonly, and oppressively in denying the preauthorization
request for the intrathecal infusion pump,” asserting claims for
“breach of contract, bad faith, IIED and NIED,” and seeking
damages. Id. HMSA filed a motion to compel arbitration, which
the circuit court denied. Id. HMSA appealed to the ICA, which
affirmed the circuit court. 124 Hawaiʻi at 173, 238 P.3d at 700.
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The ICA characterized the HMSA appeal provisions as
covering situations in which an insured is “seek[ing] to have
HMSA change its decision about [coverage],” because the
intrathecal infusion pump was ultimately covered and implanted
into Yogi. 124 Hawaiʻi at 174, 238 P.3d at 701. Instead, Yogi’s
lawsuit sought “damages for HMSA’s alleged conduct over the
approximate year and a half period from when [his doctor] sought
preauthorization for the intrathecal infusion pump to when Mr.
Yogi was able to undergo the procedure.” Id. The ICA noted
that HMSA’s “appeal process is not intended to deal with claims
such as bad faith, IIED or NIED, which seek money damages.” 124
Hawaiʻi at 178, 238 P.3d at 705.
Similarly, in Norton’s case, Norton no longer seeks to have
HMSA change its mind about the MRI. HMSA ultimately did cover
the MRI. Related to Norton’s claims, plaintiffs seek money
damages for the time period during which HMSA denied and delayed
the approval of the MRI, which allegedly worsened his condition.
Thus, even if Norton was subject to an arbitration provision via
his member handbook, the claims he raised are not covered by
that provision.
HMSA cites to UNIDEV, 129 Hawaiʻi 378, 301 P.3d 588, a more
recent case from this court, for the proposition that the
“arising under” language in arbitration provisions should be
broadly interpreted in favor of arbitrating claims. In that
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case, UNIDEV, a developer, entered into a contract with the
County of Hawaiʻi to develop an affordable housing project. 129
Hawaiʻi at 380-81, 301 P.3d at 589-90.
The arbitration provision within the contract required the
parties to jointly handle, then mediate, then arbitrate “[a]ny
dispute arising under the terms of this Agreement.” 129 Hawaiʻi
381, 301 P.3d 591. UNIDEV was terminated from the project, and
the County then sued it for false claims, intentional
misrepresentation, fraudulent inducement, negligent
misrepresentation, negligence, and unfair and deceptive
practices. 129 Hawaiʻi at 381-82, 301 P.3d at 591-92. UNIDEV
filed counterclaims against the County, its transferee, and its
lessee for breach of contract, quantum meruit, intentional
interference with contract, and fraudulent transfer. Id.
UNIDEV then filed a motion to compel arbitration, which the
circuit court granted. 129 Hawaiʻi at 382, 301 P.3d at 591.
This court held that the arbitration clause in question,
containing the “arising under” language, was a “general”
arbitration clause that contained “no limiting language” and
thus covered all of the claims and counterclaims between the
parties. 129 Hawaiʻi at 395-96, 301 P.3d at 605-06.
UNIDEV, however, is distinguishable. The claims and
counterclaims did arise under the contract. UNIDEV did not
mention or overrule Yogi, which is factually similar to Norton’s
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case. Norton’s arbitration clause, like Yogi’s, covers
situations in which an insured is seeking to have HMSA change
its decision about coverage. Likewise, Norton’s claims do not
fall under the scope of the arbitration agreement.
iii. Provider agreements
We turn now to the provider agreements (the Participating
Physician Agreement, the Medicare Agreement, and the QUEST
Agreement) to determine whether the plaintiffs’ claims fall
within the scope of the arbitration provisions in those
agreements.
(a) Participating Physician Agreement
First, with respect to the Participating Physician
Agreement, we note that it (but none of the other agreements)
contains a “delegation provision” expressly providing the
initial determination of arbitrability itself is subject to
arbitration: “The arbitrator shall also hear and determine any
challenges to the arbitration agreement and any disputes
regarding whether a controversy is subject to an agreement to
arbitrate.”
In other words, in the Participating Physician Agreement,
the issue of arbitrability in the first instance has been
delegated to the arbitrator.
With respect to such provisions, the United States Supreme
Court in Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63
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(2010), explained that a “delegation provision” in an
arbitration provision is “an agreement to arbitrate threshold
issues concerning the arbitration provision.” 561 U.S. at 68.
In Rent-A-Center, a former employee filed a federal employment
discrimination suit against his former employer, Rent-A-Center.
561 U.S. at 65. Both employer and employee had entered into a
“Mutual Agreement to Arbitrate Claims,” including claims for
discrimination and claims for violation of any federal law. 561
U.S. at 65-66. The arbitration provision also contained a
delegation provision, which stated that “[t]he Arbitrator, and
not any federal, state, or local court or agency, shall have
exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of
this Agreement including, but not limited to any claim that all
or any part of this Agreement is void or voidable.” 561 U.S. at
66.
The employer moved to compel arbitration, and the employee
opposed, arguing the arbitration agreement was unenforceable
because it was unconscionable. Id. The district court granted
the motion to compel arbitration. Id. The Ninth Circuit Court
of Appeals affirmed in part and reversed in part, acknowledging
the delegation provision, but holding that “the threshold
question of unconscionability is for the court.” 561 U.S. at
67.
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The United States Supreme Court reversed the Ninth Circuit
and held that, because the party seeking to avoid arbitration
did not “challenge[] the delegation provision specifically, [the
Court] must treat [the delegation provision] as valid” and
enforceable, “leaving any challenge to the validity of the
Agreement as a whole for the arbitrator.” 561 U.S. at 72.
Like in Rent-A-Center, the delegation provision in the
Participating Provider Agreement’s arbitration clause provides
that the question of whether a claim is arbitrable is to be
determined by the arbitrator in the first instance. Like in
Rent-A-Center, the plaintiffs here, as the parties seeking to
avoid arbitration, did not challenge the delegation provision.
Pursuant to Rent-A-Center, the delegation provision must
therefore be treated as valid and enforceable.
For this reason, the circuit court’s order is vacated to
the extent it denied arbitration for claims arising under the
Participating Provider Agreement. The issue of arbitrability is
reserved to the arbitrator to determine.
(b) Medicare Agreement and QUEST Agreement
Turning now to the Medicare Agreement and QUEST Agreement,
their arbitration provisions require the parties to arbitrate
“any and all claims, disputes, or causes of action arising out
of this Agreement or its performance,” including but not
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limited to “any and all claims, disputes, or causes of action
based upon contract, tort, statutory law, or actions in equity.”
In contrast with the Participating Provider Agreement,
these provider agreements do not contain delegation provisions.
We look to the complaint to determine whether plaintiffs’
claims fall within the scope of the arbitration provisions in
those agreements.
Count I (tortious interference with a contractual right)
alleged that HMSA denied tests and courses of treatment for
thirty of FNI’s patients, which meant FNI was not paid for work
done for these patients.
Count II (tortious interference with a contractual right)
alleged that HMSA unilaterally switched six of FNI’s patients
over to other primary care physicians without notice.
Count V (unfair method of competition) alleged that HMSA
engaged in unfair methods of competition by delaying or denying
claims for payment and unilaterally switching patients over to
other primary care physicians.
Count VI (RICO) alleged that HMSA engaged in theft of
services and failure to make required disposition of funds.
Count VII (declaratory relief) sought a declaration that
FNI’s “Patient Information” and “Payment Policy” documents were
legally enforceable contracts between physician and patient and
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that HMSA shall not interfere with that contractual
relationship.
As HMSA argues, these counts challenge HMSA’s actions under
the Medicare Agreement and QUEST Agreement, specifically HMSA’s
coverage, payment, and termination decisions. Therefore, these
claims arise under the arbitration provisions of the Medicare
Agreement and QUEST Agreements.
2. Unconscionability as a defense to arbitration
Even if claims are initially deemed arbitrable, plaintiffs
can avoid arbitration by “[c]halleng[ing] the validity of
arbitration agreements ‘upon such grounds as exist at law or in
equity for the revocation of any contract. . . .’” Buckeye, 546
U.S. at 444 (emphasis added). Arbitration agreements, like all
other contracts, may be invalidated by “generally applicable
contract defenses, such as fraud, duress, or unconscionability.”
Narayan, 140 Hawaiʻi at 350, 400 P.3d at 551.
To repeat, however, the challenge can only be as to the
alleged unconscionability of the arbitration clause itself,
because “unless the challenge is to the arbitration clause
itself, the issue of the contract’s validity is considered by
the arbitrator in the first instance.” Buckeye, 546 U.S. at
445-46.
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This court has explained that unconscionability consists of
procedural unconscionability and substantive unconscionability.
See Narayan, 140 Hawaiʻi at 350, 400 P.3d at 551.
Procedural unconscionability, or unfair surprise, focuses
on the process by which the allegedly offensive terms found
their way into the agreement. Narayan, 140 Hawaiʻi at 351, 400
P.3d at 552. Procedural unconscionability often takes the form
of adhesion contracts, where a form contract is created by the
stronger of the contracting parties, and the terms unexpectedly
or unconscionably limit the obligations and liability of the
weaker party. Id. Although adhesion contracts are not
unconscionable per se, they often satisfy the procedural element
of unconscionability. Id.
Substantive unconscionability, by contrast, focuses on the
content of the agreement and whether the terms are one-sided,
oppressive, or unjustly disproportionate. Id.
Generally, a determination of unconscionability requires a
showing that the contract was both procedurally and
substantively unconscionable when made, but there may be
exceptional cases where a provision of the contract is so
outrageous as to warrant holding it unenforceable on the ground
of substantive unconscionability alone. Balogh v. Balogh, 134
Hawaiʻi 29, 41, 332 P.3d 631, 643 (2014). In other words, a
contract may be so substantively unconscionable as to obviate
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the need to show that it is also procedurally unconscionable.
This also means that substantive unconscionability must always
be found to exist to declare an arbitration provision
unconscionable and therefore unenforceable. Id.
But to avoid arbitration, unconscionability must be raised
as to the arbitration provision itself, not to the contract as a
whole. See Buckeye, 546 U.S. at 445-46 (“[U]nless the challenge
is to the arbitration clause itself, the issue of the contract’s
validity is considered by the arbitrator in the first
instance.”). Hawaiʻi appellate opinions have similarly held.
See, e.g., Lee v. Heftel, 81 Hawaiʻi 1, 4, 911 P.2d 721, 724
(1996) (“Thus, because the [party seeking to avoid
arbitration’s] general allegations were based on fraud in the
inducement of the contract as a whole, rather than fraud in the
inducement of the arbitration clause, we hold that the claim
should be decided first by mediation, and then, if necessary, by
arbitration, in accordance with the terms of the DROA
contract.”).
Throughout these proceedings, plaintiffs focused their
unconscionability analysis on the HMSA agreements as a whole.
They argued they were unable to negotiate contract terms with
HMSA and that, therefore, the contracts were adhesive and
procedurally unconscionable in their totalities. As to
substantive unconscionability, Plaintiffs argued that the
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contracts as a whole violated public policy because they
interfered with the statutory definition of the practice of
medicine. Plaintiffs made only passing comments as to how any
of the specific terms within the arbitration provisions were
substantively unconscionable: first, that the Medicare
Agreement allows HMSA to “dictate[] the location where any
arbitration will be held”; and second, that the QUEST Agreement
allows HMSA to “reserve[] the right to dictate the terms,
process and location of arbitration.”
These allegations of substantive unconscionability of the
arbitration provisions within the Medicare and QUEST Agreements
are, however, inaccurate. HMSA correctly notes that although
the Medicare Agreement states that arbitration will be held in
Honolulu, it also states that neighbor island physicians may
participate by phone. HMSA is also correct in noting that the
QUEST Agreement states that the arbitration shall be conducted
in accord with the Commercial Arbitration Rules of the American
Arbitration Association, that the parties will appoint the
arbitrator, and does not mention a location for arbitration.
In this case, plaintiffs have not established that the
arbitration provisions are substantively unconscionable. As
substantive unconscionability must always be established for
unconscionability to be found, we therefore need not and do not
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address the issue of whether the arbitration provisions are
procedurally unconscionable.
Hence, the circuit court erred by concluding that the
Medicare and QUEST arbitration provisions are unconscionable and
unenforceable. We hold that as to claims arising under the
Medicare Agreement and QUEST Agreement, the circuit court erred
in denying HMSA’s motion to compel.
3. Orcino’s claim
Lastly, we address Orcino’s claim. In the complaint,
Orcino alleged that HMSA’s refusal to cover her prescription for
Nifedipine interfered with the doctor-patient relationship,
worsened her condition, and resulted in the premature birth of
her child, who is now severely disabled, for which she seeks
damages.
As part of its motion, HMSA moved to dismiss Orcino’s
claims, alleging that she did not exhaust the DHS administrative
appeals procedure set forth in her Quest Integration Member
Handbook. But the member handbook does not appear to contain
any mandatory grievance and appeal remedies. Rather, it
continuously uses “may” language with respect to grievances and
appeals.8
8 See supra note 3.
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We need not decide, however, whether the grievance and
appeal procedure is mandatory or discretionary. This is because
it no longer applies to Orcino’s claims in the complaint.
Orcino is no longer seeking coverage under the policy. She is
seeking damages for HMSA’s refusal to honor Dr. Nitta’s
Nifedipine prescription to prevent premature labor, which has
allegedly caused developmental challenges to her child resulting
from his premature birth. Like in the Yogi appeal provisions,
the grievance and appeal provisions cover situations in which an
insured is seeking to have HMSA change its decision about
coverage. That is not the subject of Orcino’s claims.
Thus, similar to Norton’s claims that are not subject to
arbitration, the grievance and appeals procedure in Orcino’s
handbook are no longer applicable. The circuit court therefore
appropriately denied HMSA’s motion to dismiss Orcino’s claims
for lack of subject matter jurisdiction. Therefore, on remand,
Orcino’s claims can be bifurcated and proceed to litigation.
V. Conclusion
Based on the reasons above, the circuit court’s order is
vacated in part and affirmed in part.
Specifically (1) plaintiffs’ claims arising under the
Participating Physician Agreement are subject to arbitration
because the delegation provision was unchallenged and it is up
to the arbitrator to determine arbitrability; (2) plaintiffs’
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claims arising under the Medicare Agreement and QUEST Agreement
are subject to arbitration because the claims are arbitrable and
the defense of unconscionability of the arbitraton clause fails
due to a lack of showing of substantive unconscionability; (3)
Norton’s claims are not subject to arbitration because whether
or not an arbitration agreement exists, the subject matter of
his claims is not arbitrable; (4) Dr. Nitta’s claims as a
patient under his Small Business CompMED plan are not subject to
arbitration because there is no mandatory arbitration clause;
and (5) Orcino’s claims arising under Orcino’s member handbook
are not subject to arbitration. Therefore, the claims asserted
by Norton, Dr. Nitta as a patient, and Orcino may be bifurcated
and proceed to litigation on remand.
We therefore order that this case be remanded to the
circuit court for further proceedings consistent with this
opinion.
Ted H.S. Hong /s/ Mark E. Recktenwald
for plaintiffs-appellees
/s/ Sabrina S. McKenna
Randall C. Whattoff
for defendant-appellant /s/ Todd W. Eddins
Tred R. Eyerly /s/ Lisa M. Ginoza
for amici curiae
Hilo Community Surgery /s/ Vladimir P. Devens
Center; Kauai Community
Health Alliance; Stuart
Lerner, M.D.; Michelle
Mitchell, M.D.; and
Casey Yamashita, M.D.
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Clarence S.K. Kekina
for amici curiae
Hawaii Medical Association and
the American Medical Association
Cynthia K. Wong
for amicus curiae
Maui Nui Medical Society
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