Category: Daily News

In 2019 , health insurance giant Humana filed an arbitration claim against Walgreens, a major drugstore chain, alleging that Walgreens had submitted millions of falsely-inflated prescription drug prices for more than a decade. This case arises from Walgreens’ longstanding contracts with Humana to reimburse Walgreens for prescription drugs it dispensed at its pharmacies to people insured by Humana.

The dispute centered on the way that Walgreens calculates the “usual and customary” price of prescription drugs. Humana alleged that Walgreens had been inflating these prices in order to overcharge the insurer. Walgreens denied these allegations and said that it was simply following the terms of its contracts with Humana.

The arbitrator was Elliot Gordon, a retired federal judge. After a lengthy hearing, the arbitrator ruled in favor of Humana and awarded the insurer $642 million in damages.

Walgreens has filed a petition in federal court to vacate the arbitration award, arguing that the arbitrator “rewrote” its contracts with Humana and used a flawed model to assess alleged damages. Walgreens acknowledges that the bar for vacating an arbitration award is high. But they say “it is not insurmountable, however.”

According to the Federal Arbitration Act (FAA), a party can appeal an arbitration award if the original award contains material and prejudicial errors of law of such a nature that it does not rest upon any appropriate legal basis, or is based upon factual findings clearly unsupported by the record; or if the original award is subject to one or more of the grounds set forth in Section 10 of the FAA for vacating an award.

Walgreens also claims that law firm Crowell & Moring should not have been allowed to represent Humana after previously advising Walgreens years earlier on drug pricing matters at the heart of Humana’s 2019 arbitration. Crowell has denied any conflict of interest in representing Humana against the law firm’s former client Walgreens2.

Walgreens last year sued Crowell & Moring in District of Columbia Superior Court to immediately stop the large law firm from representing insurer Humana Health Plan Inc in the arbitration with Walgreens over drug pricing, contending Crowell, as its former firm, has violated its ethical duty. A judge in May 2021 ruled that Walgreens’ push for a preliminary injunction against Crowell belonged in front of the arbitrator. Walgreens appealed, and the drug-pricing arbitration moved ahead with Crowell remaining as counsel to Humana.

Washington, D.C.-based Crowell has denied any conflict of interest in representing Humana against the law firm’s former client Walgreens. A spokesperson for Crowell on Monday in a statement reviewed by Reuters called Walgreens’ ethics claim “meritless” and said the firm was “confident that the arbitrator’s thorough and well-reasoned award will be affirmed.”

Walgreens also argues that the arbitrator’s award is “manifestly unjust” and should be vacated on that ground as well.

Humana has responded to Walgreens’ petition, arguing that the arbitrator’s award should be confirmed. Humana argues that the arbitrator correctly found that Walgreens breached its contracts and that the damages award is supported by the evidence. Humana also argues that the arbitrator did not abuse its discretion and that the award is not manifestly unjust.

The outcome of the case could have a major impact on the pharmaceutical industry and the cost of prescription drugs.If the arbitrator’s award is upheld, it could set a precedent that would make it more difficult for pharmacies to inflate prescription drug prices. This could lead to lower prices for patients and could help to reduce the overall cost of healthcare.

The outcome of the case is also significant because it could impact the way that arbitration is used to resolve disputes in the pharmaceutical industry.

Cedars-Sinai Medical Center operates a nonprofit academic medical center in Los Angeles. Its total workforce exceeds 15,000 employees, including approximately 2,100 doctors and 2,800 nurses. Together, these employees provide medical care to thousands of patients per day and perform related administrative and operational functions.

Deanna Hodges began working for Cedars in 2000. Throughout her tenure, she worked in an administrative role with no patient care responsibilities. Her office was in an administration building Cedars owned about a mile from the main Cedars medical campus, though she occasionally visited the main medical campus in her capacity as an employee. A shuttle bus ran continuously between the main medical campus and the administration building, and many Cedars employees traveled between the two sites on a daily basis.

In 2007, Hodges was diagnosed with stage III colorectal cancer. She stopped working for a year and a half to undergo treatment, which included chemotherapy. The treatment was effective to rid her of cancer but left her with lingering side effects. These included unspecified allergies, a weakened immune system, and neuropathy – damage to the nerves resulting in an ongoing “tingling sensation” in her fingers and toes. None of these side effects limited her ability to perform her job functions, and she successfully returned to work for Cedars in 2009.

As an administrative employee without direct patient contact, plaintiff was under no obligation to get a flu vaccine when she was hired or when she returned from cancer treatment in 2009. This changed in 2017. That September, Cedars announced a new policy requiring all employees, regardless of their role, to be vaccinated by the beginning of flu season. This was the latest expansion to Cedars’s longstanding efforts to limit employee transmission of flu, which had become more urgent in recent years following multiple patient deaths relating to flu.

The expanded 2017 policy aligned with the recommendation of the United States Department of Health and Human Services Centers for Disease Control and Prevention (CDC) “that all U.S. health care workers get vaccinated annually against influenza.”

Her doctor wrote a note recommending an exemption for various reasons, including her history of cancer and general allergies. None of the reasons was a medically recognized contraindication to getting the flu vaccine.

Cedars denied the exemption request. Hodges still refused to get the vaccine. Cedars terminated her. Hodges sued Cedars for disability discrimination. Her complaint contained six causes of action, each alleged as a violation of FEHA or the public policy it manifests.

The trial court granted Cedars’s motion for summary judgment. The court of appeal affirmed in the published case of Hodges v. Cedars-Sinai Medical Center – B297864 (May 2023).

In her appellate briefing she identifies the elements of her prima facie discrimination claim as being those of a claim for physical disability discrimination. Citing Arteaga v. Brink’s, Inc. (2008) 163 Cal.App.4th 327, 344-345, a physical disability case which recites the elements of her prima facie claim as follows: “that she (1) suffered from a disability, or was regarded as suffering from a disability; (2) could perform the essential duties of the job with or without reasonable accommodations[;] and (3) was subjected to an adverse employment action because of the disability or perceived disability.”

Plaintiff argues her cancer history and neuropathy amount to a physical disability because they “make it impossible for her to work as she cannot work as she cannot get vaccinated. Her disabilities limited her ability to safely receive the vaccine.” To be clear, plaintiff admits her cancer history and neuropathy in no way otherwise limited her ability to work in 2017.

In moving for summary judgment, Cedars introduced evidence that plaintiff was not disabled and could not prove she was disabled. It offered official guidance from the CDC and testimony from Dr. Grein that there were only two medically recognized contraindications for getting the flu vaccine. None of the conditions listed on her exemption form were recognized contraindications for getting the flu vaccine.

The court of appeal concluded that “Judgment was proper on plaintiff’s disability discrimination cause of action because she failed to produce evidence sufficient to create a fact issue concerning an essential element of her prima facie case, i.e., her claimed disability or the perception by Cedars of disability. We therefore need not address the other elements of plaintiff’s prima facie case.”

“Even if plaintiff had made a prima facie case for discrimination of any kind (e.g., physical disability, medical condition, or otherwise), summary adjudication of her disability discrimination cause of action would still have been proper because Cedars presented a legitimate, nondiscriminatory reason for her termination, and plaintiff fails to argue the reason was pretextual.”

Elizabeth Castelo was employed by Xceed as its Controller and Vice President of Accounting. In November 2018, Xceed informed Castelo her employment would be terminated effective December 31, 2018. On November 19, 2018, the parties entered into an agreement entitled “Separation and General Release Agreement”, in which Xceed agreed to pay Castelo a severance payment in consideration for a full release of all claims, including “a release of age discrimination claims that she has or may have under federal and state law, as applicable.”

The release extended to all claims known and unknown “arising directly or indirectly from Employee’s employment with [Xceed] [and] the termination of that employment” including (among many other listed claims) “wrongful discharge[;] violation of public policy[;] . . . [and] violation of the California Fair Employment and Housing Act.” The parties agreed to waive the protections of Civil Code section 1542.

Castelo and Xceed signed the Separation Agreement on November 19, 2018. Attached as Exhibit A to the Separation Agreement was a document entitled “Reaffirmation of Separation and General Release Agreement” which was to be signed on the date of her separation, which was December 31, 2018.

It was undisputed Xceed management intended that Castelo would sign the Reaffirmation on the date of her separation. However, Castelo signed it on the same date she signed the main Separation Agreement, on November 19, 2018, and Xceed did nothing to correct that error. She was paid $137,334 for her signing this agreement as of the date of her separation.

Nonetheless Castelo sued her former employer Xceed Financial Credit Union (Xceed) for wrongful termination and age discrimination in violation of the Fair Employment and Housing Act (FEHA)

On October 3, 2019, the parties stipulated the action would be submitted to binding arbitration pursuant to an arbitration agreement executed in 2013. The court then dismissed the action without prejudice but retained jurisdiction to enter judgment on any arbitration award.

The matter was submitted to binding arbitration before Hon. Enrique Romero (ret.). Xceed filed a response to Castelo’s complaint alleging, among other things, Castelo’s action was barred by the release. Xceed also filed a cross-complaint and first amended cross-complaint, asserting claims for (1) breach of the Separation Agreement and Reaffirmation; (2) unjust enrichment; (3) reformation; (4) declaratory relief; and (5) promissory estoppel.

The arbitrator rejected Castelo’s assertion that since the release was signed on November 18, and that she was not wrongfully terminated until December 31, the release violated Civil Code section 1668, which prohibits pre-dispute releases of liability in some circumstances. The arbitrator granted summary judgment in favor of Xceed on the ground Castelo’s claims were barred by a release in her separation agreement.

Castelo moved to vacate the arbitration award, arguing the arbitrator exceeded his powers by enforcing an illegal release. The trial court denied the motion to vacate and entered judgment confirming the arbitration award. The Court of Appeal affirmed in the published case of Castelo v. Xceed Financial Credit Union – B311573 (May 2023).

The parties disagreed as to the proper scope of the court of appeal’s review. “Where, as here, an arbitrator has issued an award, the decision is ordinarily final and thus ‘is not ordinarily reviewable for error by either the trial or appellate courts.’ [Citation.] The exceptions to this rule of finality are specified by statute.

As relevant here, the [California Arbitration Act (CAA)] provides that a court may vacate an arbitration award when “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.”

Castelo contends on appeal that the release, as interpreted and applied by the arbitrator, violates Civil Code section 1668 because it purported to release claims that accrued after Castelo signed the document. Castelo claims that the arbitrator exceeded his authority in giving effect to the illegal release and that this court must review the arbitrator’s and trial court’s decisions de novo.

The court of appeal noted that “Castelo does not claim the entire Separation Agreement and Reaffirmation is illegal. She does not seek to rescind the agreement and does not propose she return the $137,334.00 she received as consideration. Rather, she seeks to invalidate only the release, and only to the extent the arbitrator applied the release to claims that accrued on or after the date of its execution. Castelo’s argument that the arbitrator’s decision is subject to judicial review simply because the release is alleged to be illegal thus fails.”

The arbitrator explained the basis for this conclusion at length. Among other things, the arbitrator reasoned: “[T]he objectively-manifested intent of the Agreement was for Castelo to release all claims as of the date of signature (defined as the ‘Effective Date’ in the Agreement) in exchange for the payment of $5,000.00, and then extend that release through the Separation Date, December 31, 2018, for an additional $132,334.00.”

When the arbitrator then turned to whether the release, as interpreted, violated Civil Code section 1668 because Castelo executed the release before the claim for wrongful termination had fully accrued. “[¶] Even assuming arguendo that Castelo’s claim for wrongful termination did not accrue until her termination on December 31 and that the release affects the ‘public interest,’ this argument gains no traction.”

“The Agreement did not have, as its purpose, the immunization of Xceed from liability for a future violation of law. Rather, it clearly intended to, on December 31, 2018, effect the release of claims which had accrued on or before that date (i.e., an accrued claim for wrongful termination, and any other employment-related claim Castelo could bring). The Arbitrator declines to permit Castelo – who accepted the benefits under the Reaffirmation – to use her mistakenly-premature execution of the Reaffirmation to leverage this statute as a weapon against Xceed.”

Here the court of appeal noted “Castelo has not cited a single case in which section 1668 was invoked to invalidate a release of a claim that was known to the releasor at the time the release was executed and after a dispute had already arisen between the parties, and our review has revealed none.“

The court of appeal concluded “the arbitrator did not commit clear legal error in enforcing the release and the trial court did not err in denying the motion to vacate. The arbitrator’s enforcement of the release did not violate section 1668 because Castelo signed the release after the allegedly discriminatory decision was made and after Castelo had already concluded that she was being wrongfully terminated because of age discrimination.”

Jason Labella claimed to have suffered injury in the form of COVID-19-related illness, as well as injury to the digestive, circulatory and nervous systems, while employed on December 6, 2021 as a pipe fitter by Marathon Petroleum.

The defendant filed petitions to compel the attendance at deposition of fact witnesses Briauna Hollingsworth, Marshall Mataalii, and Jenna Vasquez. They said that Labella and the fact witnesses lived at the same address, and that the depositions were necessary “to obtain details of Mr. LaBella’s possible exposure to COVID at home.”

The WCJ issued an order denying all three petitions to compel, stating, “this court is unaware of any basis or jurisdiction for compelling a non-party to appear for a deposition.”

The defendant’s Petition for Removal of the case was granted, and the WCAB rescinded the WCJ’s decision, and return this matter to the WCJ for further proceedings and decision in the case of Labella v Marathon Petroleum – ADJ15703855 (April 2023).

In his Petition, the defendant argued that pursuant to Labor Code section 5710, any party to a workers’ compensation proceeding may cause the deposition of witness.

Defendant cites to the WCAB panel decision in Terrones v. Remedy Temp (August 30, 2010, ADJ423557) [2010 Cal. Wrk. Comp. P.D. LEXIS 451] as authority for the proposition that the WCJ is empowered to compel to the deposition of a non-party witness. Defendant also claims a due process right to conduct discovery relevant to applicant’s claim of industrial injury, and that the WCJ’s order declining to compel the requested depositions results in a denial of that due process right.

The WCJ’s Report initially describes various procedural irregularities in the subpoenas issued by the defendant. The report then responds to defendant’s citation to the panel decision in Terrones v. Remedy Temp, supra, 2010 Cal. Wrk. Comp. P.D. LEXIS 451, observing that as a panel decision, the case is not mandatory authority.

The Report notes that Terrones involved nonparty employees of the defendant, as distinguished from the present matter in which the nonparty deponents are not employees of defendant, and are essentially strangers to the case. The WCJ observes that defendant has not established “good cause” for the deposition of the witnesses beyond their proximity in the same household as applicant, and that defendant may issue a subpoena for the witnesses to testify at trial.

The report concludes that “if defendant can show good service and ‘good cause ‘for taking the nonparties’ deposition…..this WCJ would consider whether or not an Order Compelling is appropriate.”

In response the WCAB panel noted that an adequate and complete record is necessary to understand the basis for the WCJ’s decision and the WCJ shall “…make and file findings upon all facts involved in the controversy[.]” (Lab. Code, § 5313; Hamilton v. Lockheed Corporation (2001) 66 Cal.Comp.Cases 473, 476 [2001 Cal.Wrk.Comp. LEXIS 4947] (Appeals Bd. en banc).

“Here, the WCJ’s Order does not substantively address any issue beyond stating that there is no basis or jurisdiction to compel a non-party’s appearance at deposition. The record does not frame the issues, contains no exhibits, testimony or summary of evidence, and does not adequately explicate the basis for the order, To the extent that the WCJ’s report describes multiple other considerations, including whether the underlying subpoenas were procedurally defective, whether appropriate notice to the deponents was effectuated, whether the defendant’s petitions establish good cause for an order compelling, and whether a protective order or other limitations on the scope of the depositions is appropriate, the record is silent on these issues.”

“Accordingly, and pursuant to Hamilton v. Lockheed Corporation, supra, 66 Cal.Comp.Cases 473, we will rescind the October 25, 2022 Order, and return this matter to the trial level for further proceedings and for the creation of an adequate record.”

The WCAB pointed out several applicable code sections that provide guidelines for the taking of depositions, and that labor code section 5710 provides that attendance of witnesses and the production of records may be required.”

“Thus, while the Appeals Board may cause the taking of a deposition of a witness who happens to be an employee of a party, as was the case in Terrones v. Remedy Temp, supra, 2010 Cal. Wrk. Comp. P.D. LEXIS 451, the jurisdiction of the Appeals Board in such nonparty cases is not limited to the employees of parties.”

In facilities such as large hotels and large restaurants where the employer is in the business of providing a banquet facility at which food and beverages are served, the employer often adds a mandatory, and substantial “service charge” to the contract for every banquet. Prior to 2019 California, courts long held that these mandatory charges cannot be considered gratuities under the labor code and thus not distributable to those who serve food and beverages at the banquet.

That view changed after the 2019 appellate case O’Grady vs. Merchant Exchange Productions Inc., 41 Cal.App.5th 771 (2019) 254 Cal.Rptr.3d 494. Plaintiff, Lauren O’Grady, was a banquet server and bartender at the Julia Morgan Ballroom in San Francisco, which is operated by Merchant Exchange Productions. Plaintiff brought this class action alleging that her and the other non-managerial service employees were entitled to the 21 percent “service charge” added to every banquet bill. Plaintiff alleged that the service charge constituted a gratuity that should be distributed to the non-managerial service employees pursuant to labor code section 351.

The employer took the position that two Court of Appeal opinions hold, as a matter of law that a service charge can never be a gratuity. The trial court agreed, and sustained the employer’s general demurrer without leave to amend. The issue presented on appeal was whether the “service charge” may be a “gratuity” that Labor Code section 351 requires to go only to the non managerial employees involved with the actual serving of the food and beverages.

The court of appeal reversed the trial court dismissal and concluded there is no categorical prohibition why what is called a service charge cannot also meet the statutory definition of a gratuity.

Tipping and service fees have been becoming a flashpoint in the restaurant and hospitality industries. Healthcare-related service fees began gradually popping up on diners’ bills in the last decade but became ubiquitous after the COVID-19 shutdowns. The tacked-on fees came amid a wave of empathy and gratitude for service workers at a moment when the future of restaurants seemed in doubt.

Now, according to a report by the San Francisco Chronicle the O’Grady ruling was tested as recently as April 19, 2023 when a San Francisco judge ruled in a nonjury trial that a Marriott hotel in downtown San Francisco must pay around $9 million in withheld service fees to staff who served food and drinks at banquets, and said he would decide later whether to add interest charges and attorneys’fees. .

The workers’ lawyer, Shannon Liss-Riordan, said this was the first case to go to trial since the O’Grady decision where she was also the plaintiff’s attorney. “Customers pay service charges – on top of hefty food and beverage bills – because they think they are tips for the waitresses.” Liss-Riordan said she has won similar cases in Massachusetts and Hawaii and has suits pending against other hotels in San Francisco and elsewhere in California..

Harvard Law School graduate Shannon Liss-Riordan of Lichten & Liss-Riordan has had a long career litigating discrimination, wage and hour, and traditional labor law matters, and has gone after some of the nation’s most prominent companies, including Whole Foods, Starbucks, Uber and Lyft, on behalf of workers.

And now according to a new story published this month in the Los Angeles Times, the Los Angeles city attorney is examining whether Ten Five Hospitality violated an ordinance for allegedly keeping the entirety of the 5% service fee they charged to customers instead of distributing it to workers,

A 5% service fee attached to customer restaurant bills is at the heart of this investigation launched by the Los Angeles city attorney’s office, and it involves some of the city’s most celebrated restaurants at the adjacent Thompson hotel, Tommie hotel and Citizen News building: Mother Wolf, Ka’teen, Mes Amis, Bar Lis and the Terrace.

The definition of “hotel” in the L.A. ordinance covers restaurants that are contracted or leased premises that are connected to or operated in hotels, such as the Terrace or Mother Wolf. L.A.’s ordinance states that service fees cannot be retained by a hotel employer but must be paid in their entirety to the hotel worker performing services for the customers from whom the service charges are collected. The ordinance also mandates that no part of these amounts may be paid to supervisory or managerial employees, and that the service fee must be paid to the hotel workers equitably.

According to an April 6 letter from Deputy City Atty. Joshua L. Crowell, City officials asked Ten Five Hospitality – the group that operated the five restaurants –  and the five restaurants, for a response and numerous documents, including any evidence that would demonstrate workers benefited from the fee.

The city attorney’s office is also investigating allegations that at least two workers at the Terrace were fired after speaking out about the service fee.

No Ten Five Hospitality executives were made available for comment.  But a spokesperson provided a prepared statement, which read: “The Wellness Fee, which is explained clearly on all customer bills, enables the company to provide an above-market employee package including a robust medical, dental & vision insurance program, 401(k) benefit offering and better working conditions for all employees.” The spokesperson declined to answer any other questions about the allegations in the city’s letter.