Petition for Writ of Certiorari — PacifiCare Health Systems, Inc. v. Book
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Supreme Court, U.S.
) FILED
02 215 Aue 62002
No. 02-
IN THE
Supreme Court of the United States
IN RE HUMANA INC. MANAGED CARE LITIGATION
PACIFICARE HEALTH SYSTEMS, INC.., et ai.,
Petitioners,
v.
JEFFREY BOOK, D.O.., et al.,
Respondents.
On Petition for a Writ of Certiorari to the
United States Court of Appeals for the Eleventh Circuit
PETITION FOR A WRIT OF CERTIORARI
JAMES W. QUINN, Esq. WILLIAM E. GRAUER
JEFFREY S. KLEIN, Esq. (Counsel of Record)
WEIL, GOTSHAL & MANGES,LLP CHRISTOPHER R.J. PACE
767 Fifth Avenue COOLEY GODWARD LLP
New York, New York 10153 4401 Eastgate Mall
(212) 310-8000 San Diego, California 92121
(858) 550-6000
EDWARD SOTO, Esq.
WEIL GOTSHAL & MANGES, LLP Attorneys for Petitioners
701 Brickell Avenue PacifiCare Health Systems, Inc.
Suite 2100 and PacifiCare Operations, Inc.
Miami, Florida 33132
(305) 577-3100
Attorneys for Petitioners
UnitedHealthcare, Inc. and
UnitedHealth Group
Incorpcrated
ts Tl A RT.
eevee ¥en. = the eee senate
i
QUESTION PRESENTED FOR REVIEW
Whether a district court must compel arbitration of.
a plaintiff's RICO claims under a valid arbitration
agreement even if that agreement does not allow an
arbitrator to award punitive damages, leaving to the
arbitrator in the first instance the decision of what
remedies are available to the RICO plaintiff in
arbitration.
ii
PARTIES TO PROCEEDINGS BELOW AND CORPORATE
DISCLOSURE STATEMENT
The parties to the proceedings in the United States
Court of Appeals for the Eleventh Circuit were (a) plaintiffs-
appellees Jeffrey Book, D.O., Dennis Breen, M.D., Michael
Burgess, M.D., Edward L. Davis, D.O., Glenn L. Kelly,
M.D., Manual Porth, M.D., and Charles B. Shane, M.D., and
(b) defendants-appellants Foundation Health Systems, Inc.,
n/k/a Health Net, Inc., PacifiCare Health Systems, Inc.,
PacifiCare Operations, Inc., n/k/a PacifiCare Health Plan
Administrators, Inc., The Prudential Insurance Company of
America, UnitedHealth Group Incorporated, f/k/a United
HealthCare Corporation, UnitedHealthcare, Inc. and
WellPoint Health Networks Inc. This petition is being filed
on behalf of PacifiCare Health Systems, Inc., PacifiCare
Operations, Inc., UnitedHealth Group Incorporated, and
UnitedHealthcare, Inc. No publicly held companies owns
10% or more of PacifiCare Health Systems, Inc. or
UnitedHealth Group Incorporated. PacifiCare Operations,
Inc., n/k/a PacifiCare Health Plan Administrators, Inc., is
owned 100% by PacifiCare Health Systems, Inc., a publicly
held company, and UnitedHealthcare, Inc. is owned 100% by
United HealthCare Services, Inc., which in turn is owned
100% by UnitedHealth Group Incorporated, a publicly held
company.
ill
TABLE OF CONTENTS
PAGE
Question Presented for REVIEW .............ccccccccecseeseceesceseeeeeneeeens i
Parties to Proceedings Below and Corporate
Disclosure Statement ...............0ccccccccccecoscececeeeeseeeeeeeeeeeeeeeeeees ii
TE ee iii
Table of Cited Authorities .0.....000. 0. cccccccccccccccceccccececeeeeeceeseeee Vv
Citation of Court of Appeals and District Court Opinions.....1
Statement of the Basis for Jurisdiction ................................... l
Federal Statutes Involved in This Case..............ccccccc00c00000-..- 2
I. STATEMENT OF THE CASE... cccccccccccccccccceeee 3
Il. REASONS FOR GRANTING PETITION.................... 7
A. THE COURT OF APPEALS’ DECISION
CONFLICTS WITH THE EIGHTH CIRCUIT’S
DECISION IN LARRY’S UNITED SUPER, INC. V.
ET x
B. THE COURT OF APPEALS’ DECISION ADDRESSES
AN ISSUE OVER WHICH THERE Is A SPLIT
AMONG THE FIRST, THIRD, FIFTH, EIGHTH,
NINTH AND ELEVENTH CIRCUITS. ....ccccccccccccecooeee 10
iv
TABLE OF CONTENTS
(CONTINUED)
PAGE
C. THE COURT OF APPEALS’ DECISION CANNOT
D. THE COURT OF APPEALS’ DECISION
UNDERMINES THE CRITICAL ROLE THAT THE
FAA PLAYS IN PROMOTING ALTERNATIVE
DISPUTE RESOLUTION. ...........ss0ssssssssssssssseseseenees 18
E. ATA MINIMUM, THIS PETITION SHOULD BE
HELD PENDING THE COURT’S DECISION IN
HOWSAM V. DEAN WITTER REYNOLDS, INC............ 24
TR, COICTLILIIIIIIN, cccccccecesccscessscccssscsessssnsssrssescsecssnsssssssess 26
v
TABLE OF CITED AUTHORITIES
PAGE
CASES
Arkcom Digital Corp. v. Xerox Corp.,
289 F.3d 536 (8th Cir. 2002) .0..........cccccecsecescenseneee 11,15
Baravati v. Josephthal, Lyon & Ross, Inc.,
a 13
Buckley v. Valeo,
ee 19
Cole v. Burns Int'l Security Servs.,
OU 14
CSC v. Letter Carriers,
es Se irentenrenenineensnnicnnntenicnenenniumeniemin 19
Gilmer v. Interstate/Johnson Lane Corp.,
es ee ennterterisenntiinmenintenenmenenn 20, 23, 24
Graham Oil Co. v. ARCO Prods. Co.,
43 F.36 13464 (BGs Cis. 1995S) ..20cccccccccccccssccccececceseses 10, 11
Great Western Mortgage Corp. v. Peacock,
110 F.3d 222 (3rd Cir. 1997) ..0..........c.ccceeee 11, 12, 13,15
Green Tree Fina. Corp. v. Randolph,
ee ee Pe icentenscinttannnpninnnennneeneemnnis 22, 23
Howsam v. Dean Witter Reynolds, Inc.,
SoUns Tanna cocieebatenebnbctnenieniailasticihpeneitinsmemieninedes 8, 24, 25, 26
vi
TABLE OF CITED AUTHORITIES
(CONTINUED)
PAGE
Investment Partners v. Glamour Shots Licensing, Inc.,
__ F.3d __, 2002 WL 1498721
(Sth Cir. July 15, 2002) ............cccecceeseees 10, 16, 17, 18, 24
John Wiley & Sons v. Livingston,
ee 22
Larry's United Super, Inc. v. Werries,
253 F.3d 1083 (8th Cir. 2001) ............ccecceeseeeeeeees passim
Mastrobuono v. Shearson Lehman Hutton, Inc.,
SOOT Bee enneeemmemnee 12, 21
McCaskill v. SCI Mgmt. Corp.,
SP ee 14
MCI Telecomm. Corp. v. Matrix Commun. Corp.,
SA bo 11, 12,15
Metro East Center for Conditioning & Health v. Qwest
Commun. Int'l, Inc., _ F.3d __, 2002 WL 1378752
SG, SD ie CEE ceetmnasremeeeencenen 10, 13, 19
Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614 (1985) ..........-..000 9, 19, 20, 23
National R.R. Passenger Corp. v. Consolidated
Rail Corp.,892 F.2d 1066 (D.C. Cir. 1990) .0.......cccccceeceeeee 14
Paine Webber Inc. v. Elahi,
ge en 11
vii
TABLE OF CITED AUTHORITIES
(CONTINUED)
PAGE
Paladino v. Avnet Computer Tech., Inc.,
134 F.3d 1054 (11th Cir. 1998) 0000000... 5, 6, 7, 10, 20
Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
eS ee icrircnennenienscervecmenecnseninntennteneremets 10
Raytheon Co. v. Automated Bus. Sys.,
i 11
Roby v. Corporation of Lloyd's,
996 F.2d 1353 (2nd Cir. 1993)..........ccccccceeeseeee 15, 16, 24
Shearson/Am. Express, Inc. v. McMahon,
ge 9, 16, 20, 22, 23
Snepp v. United States,
ne A CITE rictinititietniciirtnininieniastinanienennnnsiiantiaineenaiii 19
United States v. Krilich,
ee 19
United States v. Mezzanatto,
eens REET snihissicthiihisiinisiciaiiiecieinpeinincniicanninnimmvnnasin 19
Volt Info. Sciences, Inc. v. Board of Trustees of Leland
Stanford Jr. Univ., 489 U.S. 468 (1989) .00......cccccccceeeeeeeees 20
viii
TABLE OF CITED AUTHORITIES
(CONTINUED)
PAGE
STATUTES AND REGULATION
Federal Arbitration Act,
Fete i OI ccecsenserestssseerseeseesnetennmnmenenenn 2
Fie Si reresncsnsennssmnesnnsensseesnseeeeeiememnenaremenenenets 2, 23
DF Cee Si Pesnccscemeosssvesrseneseceemnecsnmmmmmnnnecnseerectnennnassente 2
Frese Cie i crsnserssssnsterscntsnmeunnemtennessecerqennmeien 7
ar te GP iciirerernnerscertectenesoniemmessiinies 16
Be eeelie iS ccnsncsvasnesnssenpececinasstsnenstanenenvensstenenesesstneseneaneees 4
Racketeer Influenced and Corrupt Organizations Act,
ee ere: Cees SII crncransscecsnsensenenesesmemenenmeumesemecs 2
Sa ee Ue i nicrrenstnnsensenssecenseneneseennntmenenonsmnsenenns 3,4
BF eee ee rscsncsnsnnnsumsseceeenennnnesenmmeanneetauentorn 2,3
te SEI Picennsncrersccnsinasnarectnmncnneceanensnanenccnmtenteiemntunsentaie l
BD Clas CIR cacsreccsemmmntnensnentermnnnssccienneeeneementennmemeeee 3
> Gs Fee ccneceveensneresnessestritnmnnnnitumnmmenpenenienee 4
Employee Retirement Income and Security Act,
ie Se ectsccecemecennemtensneemnnncstannieterenenmeienees 4
Federal Rule of Appellate Procedure 4 00.............ccccccceceseeseees 7
ix
TABLE OF CITED AUTHORITIES
(CONTINUED)
PAGE
OTHER AUTHORITIES
Stern, Gressman, Shapiro & Geller, Supreme Court
Preathes CH GB. BOGS) vccccccescccccescecesccccccscccscscsscossessscevsscoees 26
l
PETITION FOR WRIT OF CERTIORARI
Petitioners PacifiCare Health Systems, Inc., PacifiCare
Operations, Inc., UnitedHealthcare, Inc. and UnitedHealth
Group Incorporated respectfully petition this Court to issue a
writ of certiorari to review the judgment of the United States
Court of Appeals for the Eleventh Circuit-in Jn re Humana
Inc. Managed Care Litigation.
CITATION OF COURT OF APPEALS AND
DISTRICT COURT OPINIONS
The opinion of the Court of Appeals is reported at 285
F.3d 971. App. 1. The order denying the petition for
rehearing and rehearing en banc is unreported. App. 55.
The first opinion of the District Court for the Southern
District of Florida, which the Court of Appeals adopted as its
opinion, is reported at 132 F. Supp.2d 989. App. 11. The
second opinion of the District Court, which modified its first
opinion in part, is reported at 143 F. Supp.2d 1371. App. 47.
STATEMENT OF THE BASIS FOR JURISDICTION
This Court has jurisdiction over this petition pursuant
to 28 U.S.C. §1254(1) because the petition asks the Court to
issue a writ of certiorari to review a case in the United States
Court of Appeals for the Eleventh Circuit. The Court of
Appeals issued its decision on March 14, 2002 and denied a
petition for rehearing or rehearing en banc on June 21, 2002.
This petition is being filed with the Clerk of this Court
within 90 days from the date of the denial of the petition for
rehearing.
FEDERAL STATUTES INVOLVED IN THIS CASE
This petition involves Sections 2 and 4 of the Federal
Arbitration Act, 9 U.S.C. §1, et seg. (“FAA”), and Section
2
1964 of the Racketeer Influenced and Corrupt Organizations
Act, 18 U.S.C. §1961, et seg. (“RICO”). Those sections are
set forth in full in the Appendix. App. 57. Section 2 of the
FAA states in relevant part:
3
shall proceed summarily to the trial thereof. ... Jf
the jury find that an agreement for arbitration
was made in writing and that there is a default in
proceeding thereunder, the court shall make an
A written provision in ... a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising out of
such contract or transaction, or the refusal to
perform the whole or any part thereof, ... shall be
valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the
revocation of any contract.
Section 4 of the FAA states in relevant part (with
emphasis added):
A party aggrieved by the alleged failure, neglect,
or refusal of another to arbitrate under a written
agreement for arbitration may petition any United
States district court which, save for such
agreement, would have jurisdiction under title 28,
in a civil action or in admiralty of the subject
matter of a suit arising out of the controversy
between the parties, for an order directing that
such arbitration proceed in the manner provided
for in such agreement. ... The court shall hear
the parties, and upon being satisfied that the
making of the agreement for arbitration or the
failure to comply therewith is not in issue, the
court shall make an order directing the parties to
proceed in arbitration in accordance with the
terms of the agreement. ... If the making of the
arbitration agreement or the failure, neglect, or
refusal to perform the same be in issue, the court
order summarily directing the parties to proceed
with the arbitration in accordance with the terms
thereof.
Section 1964(c) of RICO states in relevant part:
Any person injured in his business or property by
reason of a violation of section 1962 of this
chapter may sue therefor in any appropriate
United States district court and shall recover
threefold the damages he sustains ....
1. STATEMENT OF THE CASE.
On August 14, 2000, plaintiffs Dennis Breen, Jeffrey
Book, Manual Porth and Glenn Kelly (“Plaintiffs”), along
with several other individuals, filed a ten-count complaint
against fifteen defendants, including PacifiCare Health
Systems, Inc. and PacifiCare Operations, Inc. (collectively,
“PacifiCare”), and UnitedHealthcare, Inc. and UnitedHealth
Group Incorporated (collectively, “United”). Several of the
counts in the complaint allege that PacifiCare and United
violated various provisions of the RICO statute (or aided and
abetted violations of that statute). The District Court had
jurisdiction over the complaint pursuant to 28 U.S.C. §1331
because Plaintiffs’ RICO claims arose under the laws of the
United States.’
' Plaintiffs’ substantive causes of action were for violations of RICO,
see 18 U.S.C. §1962(a) & (c), the Employee Retirement Income and
Security Act (“ERISA”), see 29 U.S.C. §1132(aX(1) & (3), a federal
4
At all times relevant to the complaint, Drs. Breen and
Book were bound by contract to arbitrate disputes with
PacifiCare, and hence PacifiCare filed motions to compel
Drs. Breen and Book to arbitrate their claims against
PacifiCare. Likewise, Drs. Porth and Kelly also were bound
by contract to arbitrate their disputes with United, so United
filed a similar motion to compel Drs. Porth and Kelly to
arbitrate their claims against United.’
On December 11, 2000 and April 26, 2001, the District
Court ruled on PacifiCare and United’s motions to compel.
The District Court found that enforceable arbitration
agreements existed between PacifiCare and Drs. Breen and
Book as well as between United and Drs. Porth and Kelly.
See 143 F. Supp.2d at 1375; 132 F. Supp.2d at 1000-01 &
1005. The District Court also held that those arbitration
agreements required Plaintiffs to arbitrate at least some of
their claims against PacifiCare and United. The District
Court, however, stopped short of ordering Plaintiffs to
arbitrate a// of their claims against PacifiCare and United. In
particular, the District Court held that Plaintiffs did not have
to arbitrate their RICO claims because all of the relevant
arbitration agreements limited the damages that an arbitrator
could award in arbitration: Both PacifiCare agreements
Medicare prompt-pay regulation, see 42 C.F.R. §417.500(a)(6), and
various State prompt-pay statutes, as well as for breach of contract,
quantum meruit, and unjust enrichment. Plaintiffs also included in their
complaint causes of action for conspiring to violate RICO, see 18 U.S.C.
§1962(d), and for aiding-and-abetting RICO violations (in alleged
violation of 18 U.S.C. §2). Plaintiffs amended their complaint while
PacifiCare and United’s appeal was pending in the Court of Appeals.
The amended complaint still includes all Plaintiffs, all defendants
(including PacifiCare and United), and most of the causes of action
(including all of the RICO causes of action) from the original complaint.
Additional motions to compel arbitration were filed in the District
Court, but they are not the subject of this petition.
5
stated that an “arbitrator shall have the power to grant all
legal and equitable remedies and award compensatory
damages provided by [State] law, except that punitive
damages shall not be awarded,” United’s agreement with
Kelly stated that “arbitrators ... shall have no authority to
award any punitive or exemplary damages,” and United’s
agreement with Porth stated that “arvitrators ... shall have no
authority to award extracontractual damages of any kind,
including punitive or exemplary damages.” App. 60-63.
While none of these damages limitations expressly
addressed RICO trebled damages, the District Court
interpreted the limitations as prohibiting arbitrators from
awarding Plaintiffs RICO trebled damages. See 132 F.
Supp.2d at 1001. Such prohibitions, the District Court held,
prevented Plaintiffs from obtaining meaningful relief on their
RICO claims in arbitration, and thus Plaintiffs were not
required to arbitrate their RICO claims against PacifiCare
and United pursuant to the Court of Appeals’ earlier decision
in Paladino v. Avnet Computer Tech., Inc., 134 F.3d 1054,
1062 (11 Cir. 1998).2 Typical of the District Court’s
analysis was its discussion of the two arbitration agreements
between PacifiCare and Dr. Breen:
> The District Court also refused to compel arbitration of Drs. Porth
and Kelly’s ERISA and State prompt-pay statutory claims against United
even though punitive or multiple damages is not a remedy available for
either claim. The District Court did so, at least in part, because the
relevant arbitration agreements required that arbitrations be commenced
within a year after one party notifies the other in writing of a dispute.
App. 62-63. The District Court incorrectly construed this notice
requirement as altering the statute of limitations on Drs. Porth and
Kelly’s ERISA and prompt-pay claims, which the District Court held
was impermissible and rendered the ERISA and prompt-pay claims
inarbitrable. See 132 F. Supp.2d at 1000.
6
Both arbitration agreements contain broad
language indicating that the parties intended for
“any controversy, dispute, or claim arising out of
the agreement” to be arbitrated. However, both
agreements prohibit the arbitrator from awarding
punitive damages. Thus, we are faced with a
potential Paladino situation, discussed earlier
with the context of United’s motion to compel
arbitration (Section II(A)), where the plaintiff may
not be able to obtain meaningful relief for
allegations of statutory violations in an arbitration
forum. ...
Accordingly, the Court will not compel Dr. Breen
to arbitrate his RICO claims against PacifiCare
due to the arbitrator’s inability to impose punitive
(treble) damages. All other statutory and non-
statutory claims shall be arbitrated, except for the
conspiracy and aiding and abetting claims that
stem from contractual relationships with other
managed care companies.
132 F. Supp. 2d at 1005.‘
PacifiCare and United appealed the District Court's
decisions to the Court of Appeals, which had jurisdiction
over the appeals pursuant to 9 U.S.C. §16(a)(1).° In a
* As reflected in the quote in text, the District Court also held that
Plaintiffs did not have to arbitrate their conspiracy and aiding-and-
abetting claims against PacifiCare and United that “stem from contractual
relationships with other managed care companies.” 143 F. Supp.2d at
1375; 132 F. Supp.2d at 1007. The Court of Appeals affirmed this
holding. See 285 F.3d at 974-977.
* The District Court denied in part PacifiCare’s motion to compel Dr.
Breen to arbitrate and United’s motion to compel Drs. Porth and Kelly to
arbitrate on December 11, 2000. PacifiCare filed its notice of appeal on
7
published opinion, the Court of Appeals affirmed the District
Court’s holding that Plaintiffs did not have to arbitrate their
RICO claims because the relevant arbitration agreements did
not allow arbitrators to award punitive damages. See 285
F.3d at 973-74. In so doing, the Court of Appeals expressly
adopted the reasoning used by the District Court to reach its
holding: “We affirm in its entirety the district court’s order
for the reasons set forth in its comprehensive opinion found
at 132 F. Supp.2d 989 (S.D.Fla. 2000).” 285 F.3d at 973-74.
II. REASONS FOR GRANTING PETITION.
The Court of Appeals’ decision, especially when read
in conjunction with its earlier decision in Paladino v. Avnet
Computer Technologies, is crystal clear: A district court in
the Eleventh Circuit is authorized to refuse to compel
arbitration of any RICO cause of action if the relevant
arbitration agreement does not allow an arbitrator to award
punitive damages. That decision (a) patently conflicts with
the law of the Eighth Circuit, (b) addresses an issue over
which there is a deep split among the First, Third, Fifth,
Eighth, Ninth and Eleventh Circuits, (c) cannot be reconciled
with opinions from the First, Second, Third, Fifth and Eighth
Circuits, and (d) undermines the critical role that the FAA
plays in promoting alternative dispute resolution. The Court
of Appeals’ decision also addresses an issue closely related
to the issue presented in Howsam v. Dean Witter Reynolds,
Inc., No. 01-800, which this Court will decide during the
January 5, 2001 and United filed its notice of appeal on January 9, 2001.
Both notices were timely under Federal Rule of Appellate Procedure
(“FRAP”) 4(aX(1)(A). The District Court denied in part PacifiCare’s
motion to compel Dr. Book to arbitrate on April 26, 2001, and PacifiCare
filed its notice of appeal on May 4, 2001. The notice was timely under
FRAP 4(a)(1)(A). The Court of Appeals consolidated these appeals on
July 10, 2001.
October 2002 Term. For all of these reasons, the Court
A. The Court Of Appeals’ Decision Conflicts
Wis 7 he Eighth Circuit’s Decision In Larry’s
United Super, Inc. v. Werries.
The most obvious reason for the Court to grant this
petition is that the Court of Appeals’ decision is in
undeniable and irreconcilable conflict with the decision of
the United States Court of Appeals for the Eighth Circuit in
Larry's United Super, Inc. v. Werries, 253 F.3d 1083 (8”
Cir. 2001). The relevant factual and procedural settings of
both appeals are in perfect parallel: As in this case, the
Werries defendants moved to compel arbitration of the
plaintiffs’ RICO claims under the FAA because the parties
were bound by arbitration agreements. Also as in this case,
the District Court held that the plaintiffs did not have to
arbitrate their RICO claims because the agreements at issue
did not allow arbitrators to award punitive damages.
Compare Werries, 253 F.3d at 1084-85 with In re Humana,
285 F.3d at 973-74 & n.3 and In re Managed Care, 132 F.
-Supp.2d at 1000-01 & 1005.
Based on these operative facts, the Werries Court
reversed the judgment of the District Court and held that a
plaintiff was required to arbitrate RICO claims even if the
of punitive damages — a conclusion that stands in diametric
opposition to the Court of Appeals’ decision here. More
specifically, the Werries Court reasoned:
At this juncture, our jurisdiction extends only to
determine whether a valid agreement to arbitrate
exists, not to determine whether public policy
9
conflicts with the remedies provided in the
arbitration clause. There exists a valid agreement
to arbitrate the RICO claims in this case, and the
Supreme Court in [Shearson/Am. Express, Inc. v.]
McMahon{, 482 U.S. 220 (1987)] has already
determined that RICO claims are arbitrable, 482
U.S. at 242, 107 S.Ct. 2332; thus, there exists no
“legal constraints external to the parties’
agreement foreclos[ing] the arbitration” of this
RICO dispute. Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105
S.Ct. 3346, 87 L.Ed.2d 444 (1985). Whether a
prospective waiver of punitive damages violates
the public policy underlying RICO’s treble
damages provision is a matter for the arbitrators in
the first instance when fashioning an appropriate
remedy if a RICO claim is proven to the
arbitrators’ satisfaction, and we express no views
on the issue at this time. We are limited to
determining whether the matter is arbitrable. We
hold that it is.
253 F.3d at 1086.
The Court of Appeals’ decision and the Werries
decision cannot both be correct: Either the FAA requires
district courts to compel arbitration of RICO claims under
arbitration agreements that prohibit punitive damages (as is
the law in the Eighth Circuit under Werries) or it does not (as
is the law in the Eleventh Circuit under Jn re Humana). This
Court should intercede to resolve this otherwise
irreconcilable conflict.
10
B. The Court Of Appeals’ Decision Addresses An
Issue Over Which There Is A Split Among The
First, Third, Fifth, Eighth, Ninth and Eleventh
Circuits.
The specific and direct conflict between the Court of
Appeals’ decision and Werries reflects a deeper and more
general conflict among the Courts of Appeals. A
fundamental premise of the Court of Appeals’ decision is
that it is for a district court to determine, before ordering
arbitration, whether a limitation on remedies contained
within an arbitration agreement is valid. If the district court
determines that it is not, the district court simply refuses to
order arbitration, and the matter never reaches an arbitrator.
See 285 F.3d at 973-74; 132 F. Supp.2d at 1005. This
premise is well established in the Eleventh Circuit, see
Paladino, 134 F.3d at 1062, and is also an accepted premise
in the Fifth Circuit, see Investment Partners v. Glamour
Shots Lic., Inc., _ F.3d _, 2002 WL 149872, at *2 (5" Cir.
July 15, 2002), and the Ninth Circuit, see Graham Oil Co. v.
ARCO Prods. Co., 43 F.3d 1244, 1247-49 (9 Cir. 1995).
On the other side of the divide, as recently recognized
by the Seventh Circuit, are at least the First, Third and
Eighth Circuits. Those “[t]hree courts of appeals have held
that under Prima Paint (Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395 (1967),] the arbitrator determines whether
contractual limitations on remedies fin arbitration
agreements] are valid.” Metro East Center for Conditioning
& Health v. Qwest Commun. Int'l, Inc., _ F.3d __, 2002
WL 1378752, at *6 (7™ Cir. June 27, 2002) (citing Werries,
253 F.3d 1083; MCI Telecomm. Corp. v. Matrix Commun.
Corp., 135 F.3d 27 (1* Cir. 1998); Great Western Mortgage
Corp. v. Peacock, 110 F.3d 222 (3™ Cir. 1997)).
11
The Eighth Circuit reached this holding (as discussed
above) in Werries. It recently reaffirmed this holding in
Arkcom Digital Corp. v. Xerox Corp., 289 F.3d 536, 539 (8”
Cir. 2002).
The First Circuit held that arbitrators, not district
courts, initially decide what remedies are available in
arbitration in MCI. The First Circuit reasoned:
Equally unavailing is Matrix’s new contention
that the Agent Agreement’s arbitration clause is
invalid because the Tariff arbitration rules
foreclose remedies, such as multiple damages, to
which it is entitled. Putting aside the question of
waiver, this argument must be brought to the
arbitrator because it does not go to the
arbitrability of the claims but only to the nature of
the available relief. See Great Western Mortgage
Corp. v. Peacock, 110 F.3d 222, 230-31 (3" Cir.
1997) [parenthetical omitted]; PaineWebber Inc.
v. Elahi, 87 F.3d 589, 599 (1" Cir. 1996)
[parenthetical omitted]. Matrix’s reliance on
Graham Oil Co. v. ARCO Products Co., 43 F.3d
1244 (9" Cir. 1994), is misplaced because, unlike
the plaintiffs there, Matrix’s claims are not
brought under a statute specifically designed to
protect bargaining rights. The applicable
precedent in our circuit is instead that parties may
contract to limit remedies in arbitration. See
Raytheon Co. v. Automated Bus. Sys., 882 F.2d 6,
12 (1* Cir. 1989); see also Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 60-
62, 115 S.Ct. 1212, 1217-19, 131 L.Ed.2d 76
(1995) [parenthetical omitted].
12
MCI, 135 F.3d at 33 n.12.
The Third Circuit held that arbitrators, not district
courts, initially decide what remedies are available in
arbitration in Great Western, a case that served as the
foundation for both Werries, see 253 F.3d at 1085-86, and
MCI, see 135 F.3d at 33 n.12. In Great Western, the plaintiff
argued that her arbitration agreement was invalid because,
among other reasons, it “deprive{d her] of ... punitive
damages.” 110 F.3d at 226. The Third Circuit approached
this argument by first setting forth the proper division of
authority between district courts and arbitrators:
Under the FAA the district court must be satisfied
that the parties entered into a valid arbitration
agreement. In conducting this inquiry the district
court decides only whether there was an
agreement to arbitrate, and if so, whether the
agreement is valid. In so deciding, the district
court is not to consider the merits of the claims
giving rise to the controversy, but is only to
determine, as we have stated, whether there is a
valid agreement to arbitrate. Once such an
agreement is found, the merits of the controversy
are left for disposition to the arbitrator.
Moreover, there is a strong presumption in favor
of arbitration, and doubts “concerning the scope
of arbitrable issues should be resolved in favor of
arbitration.”
Id. at 228 (citations and footnotes omitted).
After laying this groundwork, the Third Circuit rejected
the plaintiff's argument that the (alleged) prohibition on
13
punitive damages in her arbitration agreement allowed her to
avoid arbitration:
The availability of punitive damages is not
relevant to the nature of the forum in which [the
plaintiff's] complaint will be heard. Thus, the
availability of punitive damages cannot enter into
a decision to compel arbitration. [The New Jersey
Law Against Discrimination] provides that a
victim of unlawful discrimination may be
awarded punitive damages, but the issue of
whether this right has been waived is separate and
apart from the issue of whether an employee has
agreed to an arbitral forum, and hence, is for the
arbitrator to decide.
Id. at 232 (citations omitted).
Finally, the Seventh Circuit also appears to be in
accord with the First, Third and Eighth Circuits. Like the
First Circuit, the Seventh Circuit has held that contracting
parties have the right to prohibit the award of punitive
damages in arbitration by express agreement. See Baravati
v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709-10 (™
Cir. 1994). That Circuit has also recognized that parties
generally can waive statutory rights as part of their
arbitration agreements absent a federal statutory provision to
the contrary. See Metro East, 2002 WL 1378752, at *5.
These precedents strongly suggest that a district court in the
Seventh Circuit cannot refuse to compel arbitration simply
because an arbitration agreement prohibits an arbitrator from
14
awarding punitive damages or otherwise limits the
arbitrator’s remedial powers.°
In sum, there is a clear and mature split among the
Circuits over who first decides the meaning and significance
of a damages limitation contained in an arbitration
agreement: Is it a district court when deciding whether to
compel arbitration, or is it an arbitrator during arbitration
proceedings (subject, of course, to district court review when
the arbitrator’s award is being enforced)?’ The Court should
grant this petition and resolve this irretractable Circuit split.
C. The Court Of Appeals’ Decision Cannot Be
Reconciled With Opinions From The First,
Second, Third, Fifth And Eighth Circuits.
As explained in the preceding section, the Court of
Appeals’ primary holding — that a district court can deny a
® In McCaskill v. SCI Mgmt. Corp., 285 F.3d 623 (7 Cir. 2002), the
Seventh Circuit initially held that a district court could deny arbitration
of a Title VII claim if the relevant agreement did not allow an arbitrator
to award attorneys’ fees, but the Seventh Circuit vacated that opinion
days before Metro East was published. See 294 F.3d 879 (7 Cir. 2002).
’ On which side of the divide the D.C. Circuit falls is unclear. In Cole
v. Burns Int'l Security Servs., 105 F.3d 1465, 1482 (D.C. Cir. 1997), the
D.C. Circuit implied, but did not hold, that a district court could refuse to
compel arbitration of a Title VII claim if an arbitration agreement limited
the Title VII remedies that a plaintiff could obtain. In an earlier case,
however, the D.C. Circuit held that a district court cannot refuse to
compel arbitration on public policy grounds: “In sum, if parties have
validly agreed to submit a dispute to arbitration, we see no reason not to
enforce that agreement. If the arbitrator construes the contract so as to
require someone to commit an illegal act, a court can then refuse to
enforce the arbitrator’s decision. A court cannot, however, bypass the
arbitration process simply because a public policy issue might arise.”
National R.R. Passenger Corp. v. Consolidated Rail Corp., 892 F.2d
1066, 1071 (D.C. Cir. 1990).
15
motion to compel arbitration based on its belief that the
remedies available in arbitration are inadequate — cannot be
reconciled with published opinions from the First, Third and
Eighth Circuits. See Arkcom Digital, 289 F.3d at 539;
Werries, 253 F.3d at 1086; MCI, 135 F.3d at 33 n.12; Great
Western, 110 F.3d at 232. In addition, the Court of Appeals’
subsidiary holding — that an arbitration agreement barring
punitive damages provides inadequate remedies to a RICO
plaintiff — further conflicts with published opinions from the
Second and Fifth Circuits.
In Roby v. Corporation of Lloyd’s, 996 F.2d 1353,
1356-58 (2™ Cir. 1993), the defendants moved to dismiss
securities and RICO claims brought by investor plaintiffs
because those plaintiffs had agreed by contract to resolve all
claims through arbitration in England. The plaintiffs
opposed the dismissal by claiming, among other things, that
the arbitration would be inadequate due to the fact that an
English arbitrator could not award them RICO trebled
damages. The Second Circuit summarily rejected this view:
That RICO provides treble damages and seeks to
deter persistent misconduct does not dissuade us
from our view that the [plaintiffs’] contract
clauses must be enforced. As we have explained,
the [plaintiffs] have adequate potential remedies
in England and there are significant disincentives
to deter English issuers from unfairly exploiting
American investors. Although the remedies and
disincentives might be magnified by the
application of RICO, we cannot say that
application of English law would subvert the
policies underlying that statute.
16
The Court of Appeals’ ision even directl
clashes with the Fifth Circuit’s recent ptm Poca
decision. Similar to Plaintiffs here, the Investment Partners
——s ein it should not have to arbitrate a federal
use O on allowing for trebled damages (in
Clayton Act claim) because its arbitration tere ard
that “arbitrators shall not award punitive damages.” 2002
WL 1498721, at *1. The Fifth Circuit agreed with the Court
of Appeals that it was for a district court, not an arbitrator, to
decide initially whether the remedies available in arbitration
were adequate. See id. at *2. Thereafter, however, the Fifth
Circuit held — in direct conflict with Jn re Humana — that the
plantiff nevertheless had to arbitrate its Clayton Act claims
because “the prohibition in the parties’ arbitration agreement
against awarding ‘punitive damages’ does not extend to {bar
the award of] statutory treble damages” for two reas ons:
that RICO trebled damages were designed to be og
plaintiffs to pursue RICO claims that would advance society's fighe
17
First, the task in this case is to construe “punitive”
in a private parties’ arbitration agreement, which
the Supreme Court has clearly said we interpret
broadly to permit arbitration as far as possible.
Second, it makes sense to draw the distinction,
from the standpoint of the parties’ expectations
when they entered the arbitration agreement,
between statutory treble damages and common
law punitive damages. That is, punitive damages
are awarded under notoriously open-ended legal
standards and a broadly defined constitutional
limit concerning the amount awarded. Treble
damages, however, represent a mere mathematical
expansion of the actual damages calculated by the
arbitrator. While private parties might well
exclude common law punitive damages, with all
their uncertainty, from the arbitrator’s authority,
the riskiness of committing antitrust damages to
the arbitrator is much smaller. Thus, antitrust
treble damages may indeed be “punitive” simply
because they exceed the actual damages that have
been inflicted on the victim of violative conduct,
but they are not “punitive” for purposes of
interpreting the scope of an arbitration clause.
Id. at *3.
Following Investment Partners, if a plaintiff wants to
sue a defendant for violating RICO but has an arbitration
agreement with the defendant barring punitive damages, the
validity and effect of that agreement changes dramatically as
she travels across the country looking for a place to file suit:
If she sues the defendant in Little Rock, Arkansas (in the
Eighth Circuit), she will be required to arbitrate her RICO
claim and the arbitrator will decide whether she can recover
18
RICO trebled damages; if she sues in Oxford, Mississippi (in
the Fifth Circuit), she will again be required to arbitrate her
RICO claim, but the arbitrator will have to allow her to
recover RICO trebled damages; finally, if she sues in
Birmingham, Alabama (in the Eleventh Circuit), she will be
able to litigate her RICO claim in court and will be allowed
to recover RICO trebled damages in court. Compare
Werries, 253 F.3d at 1086 (Eighth Circuit) with Investment
Partners, 2002 WL 1498721, at *2-3 (Fifth Circuit) with In
re Humana, 285 F.3d at 973-74 & n.3 (Eleventh Circuit)
(adopting District Court’s opinion). Because such disparities
can only promote intolerable forum shopping by plaintiffs,
this Court should intercede to remedy this imbalance.
D. The Court Of Appeals’ Decision Undermines
The Critical Role That The FAA Plays In
Promoting Alternative Dispute Resolution.
Even if there were not a mature split among the
Circuits over the question presented by this petition, the
Court of Appeals’ decision would still merit review by this
Court because it is a dangerous precedent antithetical to the
effective operation of the FAA for the following reasons:
. 1. An unspoken, but necessary, assumption
underlying the Court of Appeals’ decision is that a federal
court can decide that certain statutory rights cannot be
waived in arbitration even when the legislative body that
created the nghts did not make them unwaivable. Only by
embracing this assumption could the Court of Appeals hold
that Plaintiffs were not required to arbitrate their RICO
Claims despite the facts that (1) Plaintiffs agreed to arbitrate
their disputes, including statutory disputes, with PacifiCare
and United under arbitration agreements that expressly
limited remedies in arbitration, and (2) no provision of RICO
19
suggests that its rights and remedies are unwaivable.
The Court of Appeals’ assumption, however, is
incompatible with this Court’s precedents broadly
recognizing the authority of private parties to waive statutory
rights. See United States v. Mezzanatto, 513 U.S. 196, 201
(1995) (“absent some_ affirmative indication of Congress’
intent to preclude waiver, we have presumed that statutory
provisions are subject to waiver by voluntary agreement of
the parties”). As the Seventh Circuit noted in Metro East:
As far as we know, the Supreme Court has never
held that any entitlement is outside the domain of
contract, unless the statute forbids waiver (as
§206 of the Communications Act does not).
Every day criminal defendants waive the most
fundamental rights, such as the right to jury trial
and proof beyond a reasonable doubt, in exchange
for lower sentences or other benefits. See United
States v. Krilich, 159 F.3d 1020 (7 Cir. 1998)
(collecting authority). Public employees can and
do waive constitutional rights — including the right
of political speech — in exchange for employment.
See, e.g., CSC v. Letter Carriers, 413 U.S. 548
(1973); Snepp v. United States, 444 U.S. 507
(1980). Political candidates can [even] surrender
some of their speech rights in exchange for a
federal subsidy. See Buckley v. Valeo, 424 U.S. 1,
57 n.65 (1976). ;
p
Metro East, 2002 WL 137852, at *5 (emphasis in original).
See also Mitsubishi, 473 U.S. at 628 (“Having made the
bargain to arbitrate, the party should be held to it unless
Congress itself has evinced an intention to preclude a waiver
of judicial remedies for the statutory rights at issue’’).
20
By concluding that federal courts can override the
decisions of private parties to forego certain rights or
remedies as part of an arbitration agreement, the Court of
Appeals has undermined a basic premise of the FAA — that
parties can contract to resolve their disputes in arbitration on
such terms as they see fit. See Volt Info. Sciences, Inc. v.
Board of Trustees of Leland Stanford Jr. Univ., 489 U.S.
468, 479 (1989).? This interference is troublesome in its
own right, but it is made all the more troublesome in the
context of this case. The arbitration agreement that binds Dr.
Book and PacifiCare, to take one example, is an agreement
between commercial actors that allows all parties to receive
the full range of compensatory relief in arbitration (so that
they can be “made whole”) but also frees all parties
(including Dr. Book and his affiliated doctors) from the risk
of having punitive damages assessed against them. There is
no reason that commercial actors should not be allowed to
resolve their commercial disputes without resort to punitive
damages, but that is exactly the outcome outlawed by the
* — This Court has remarked that “‘[b]y agreeing to arbitrate a statutory
claim, a party does not forgo the substantive rights afforded by the
statute; it only submits to their resolution in an arbitral, rather than a
judicial, forum.”” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
26 (1991) (quoting Mitsubishi, 473 U.S. at 628). See also McMahon,
482 U.S. at 242 (stating that litigants can “effectively vindicate their
RICO claim in an arbitral forum”). But it does not follow from this
general proposition, which explains why statutory claims are generally
arbitrable, that a party may mever agree to waive statutory remedies as
part of a valid agreement to arbitrate, or as the Court of Appeals phrased
it in an earlier decision, that “the arbitrability of [statutory] claims rests
on the assumption that the arbitration clause permits relief equivalent to
court remedies.” Paladino, 134 F.3d at 1062. The Court has never
reached that much broader holding, which would require a special
exception in the arbitration context from the rule that parties may validly
agree to relinquish statutory rights. Such an exception would be wholly
anomalous given that the arbitration setting is one deeply rooted in, and
indeed premised on, private agreement. See Mitsubishi, 473 U.S. at 625.
21
Court of Appeals, in contravention of this Court’s
precedents. Cf Mastrobuono, 514 U.S. at 58 (whether a
claim for punitive damages is arbitrable “comes down to
what the contract has to say about the arbitrability of ... [a]
claim for punitive damages” (emphasis added)).'°
2. This case also highlights well the danger of
allowing district courts to resolve, at the motion to compel
arbitration stage, whether damages limitations in an
arbitration agreement are enforceable. No arbitration
agreement at issue here expressly limits either trebled
damages or RICO remedies; instead, all but one of the
agreements simply prohibit arbitrators from awarding
“punitive damages,” while the remaining agreement does not
allow an arbitrator to award “extracontractual damages”
(which United explained to the Court of Appeals did not
restrict an arbitrator’s ability to award remedies on statutory
causes of action).
Interpreting the meaning of these arbitration
provisions, of course, is a task uniquely suited for the
decisionmaker whom the parties selected to resolve their
disputes — namely, a duly appointed arbitrator. To refuse
arbitration in this case, however, the District Court and the
Court of Appeals were required to usurp the arbitrator’s
authority and grarit to themselves the power to decide
whether RICO trebled damages were “punitive” or
“extracontractual.” Moreover, they were required to exercise
this power without knowing whether Plaintiffs even have a
legitimate claim against PacifiCare or United for RICO
trebled damages (which cannot be known until the
10 The District Court expressly found as a factual matter that the parties
to the instant dispute are sophisticated actors. See 132 F. Supp.2d at 998.
Sophisticated commercial actors should be given considerable latitude in
structuring their relationships and allocating risks.
22
appropriate decisionmaker — i.e., an arbitrator — addresses the
merits of whether PacifiCare or United violated RICO).
Nothing in this Court’s precedents supports this outcome; to
the contrary, the outcome is inconsistent with the Court’s
decision in John Wiley & Sons v. Livingston, 376 U.S. 543,
557 (1964), which held that “[o]nce it is determined ... that
the parties are obligated to submit the subject matter of a
dispute to arbitration, ‘procedural’ questions which grow out
of the dispute and bear on its final disposition should be left
to the arbitrator.”
3. As if the above reasons were not enough to
show how the Court of Appeals’ decision endangers
effective, uniform enforcement of the FAA, an additional
flaw taints the decision. In holding that Plaintiffs did not
have to arbitrate their RICO claims, neither the District
Court nor the Court of Appeals required Plaintiffs to make
any showing whatsoever that they would be unable to
vindicate their rights in arbitration; the courts simply
assumed Plaintiffs could not do so and thus released
Plaintiffs from their binding commitments to arbitrate with
PacifiCare and United. Just two Terms ago, however, this
Court (in reviewing another arbitration decision by the
Eleventh Circuit) clearly instructed federal and State courts
that the party seeking to escape arbitration under the FAA
bears the burden of proving that an arbitration agreement is
invalid in the specific context of that party’s dispute. See
Green Tree Fina. Corp. v. Randolph, 531 U.S. 79, 91-92
(2000). By presuming both (a) that the PacifiCare and
United arbitration agreements prohibited RICO trebled
damages when no agreement expressly so stated, and (b) that
this prohibition crippled Plaintiffs’ ability to obtain adequate
RICO relief, when no Plaintiff offered proof to this effect,
the District Court and the Court of Appeals turned Green
Tree on its head. See also McMahon, 482 U.S. at 227 (“The
23
burden is on the party opposing arbitration, however, to
show that Congress intended to preclude a waiver of judicial
remedies for the statutory rights at issue”).''
When confronted with a motion to compel arbitration
of statutory claims, a federal court conducts a simple and
straightforward analysis: It first asks “Is there an agreement
to arbitrate between the parties that covers the statutory
claims?” If so, it then asks “Is there any external legal
constraint that forecloses arbitration of the claims?” See
Green Tree, 531 U.S. at 90; Gilmer, 500 U.S. at 26;
Mitsubishi, 473 U.S. at 627-28. Here, the District Court
found (and the Court of Appeals agreed when it adopted the
District Court’s opinion) that Plaintiffs had arbitration
agreements with PacifiCare and United and that those
agreements covered Plaintiffs’ RICO claims. This Court has
settled the issue that Congress has not imposed a legal
constraint against arbitrating RICO claims, see McMahon,
482 U.S. at 242, and the District Court did not find any
“grounds as @xist at law or in equity for the revocation of any
contract” (9 U.S.C. §2) that voided the parties’ arbitration
agreements. See 132 F. Supp.2d at 997-1000. At this point,
the FAA-mandated analysis was complete and Plaintiffs’
RICO claims should have been sent to arbitration. That the
District Court and Court of Appeals did not stop there and
instead grafted a third prong to the FAA analysis — “Are the
‘| Relieving Plaintiffs of this burden is especially unwarranted in this
case because Plaintiffs conceded on appeal that they will not pursue any
claim sent to arbitration, including the RICO claims of other defendants
that the District Court ordered to arbitration. See, e.g., Appellees’ Br. in
11 Circuit Appeal No. 01-10247-CC, at 21 (“Plaintiffs are not going
forward with any claim referred to arbitration”). Plaintiffs should not be
allowed to avoid arbitration by contending that arbitral remedies are
inadequate when they heve no intention of going forward with arbitration
regardless of the available remedies.
24
parties’ agreed-to remedies adequate?” — turns the otherwise
administrable question of whether to compel arbitration into
a judicial quagmire. It forces judges to decide what remedies
an arbitration agreement permits, how those remedies apply
to a plaintiff's claims," and whether those remedies are
somehow “adequate.”’> Bogging down motions to compel
arbitration with such issues rather than leaving them to be
addressed in the first instance by the arbitrator charged with
resolving the parties’ disputes destroys the twin goals of the
FAA (to put arbitration agreements on par with other
contracts and to promote their efficient enforcement). See
Gilmer, 500 U.S. at 24.
E. At A Minimum, This Petition Should Be Held
Pending The Court’s Decision In Howsam v.
Dean Witter Reynolds, Inc.
The question presented in this case addresses a pure
question of law relating to the proper allocation of authority
between a district court and an arbitrator: “Whether a district
court must compel arbitration of a plaintiffs RICO claims
under a valid arbitration agreement even if that agreement
does not allow an arbitrator to award punitive damages,
leaving to the arbitrator in the first instance the decision of
what remedies are available to the RICO plaintiff in
arbitration.” Page i, supra. This question parallels the
'2 Compare Investment Partners, 2002 WL 1498721, at *3 (arbitration
clause not allowing for recovery of punitive damages still allows for
recovery of trebled damages) with In re Humana, 285 F.3d at 973-74 &
n.3 (arbitration clause not allowing for recovery of punitive damages also
does not allow for recovery of trebled damages).
‘3 Compare Roby, 996 F.2d at 1366 (arbitration provides for “adequate
potential remedies” even if it does not allow for recovery of RICO
trebled damages) with In re Humana, 285 F.3d at 973-74 & n3
(arbitration remedies not adequate if they do not allow for recovery of
RICO trebled damages).
25
question presented in Howsam v. Dean Witter Reynolds, Inc.,
No. 01-800: “[W]hether a court or the arbitrators should
decide if claims are eligible for arbitration under a self-
regulatory organization’s arbitration code provision that
‘{njo dispute, claim, or controversy shall be eligible for
submission to arbitration under this Code where six (6) years
have elapsed from the occurrence or event giving rise to the
act or dispute, claim or controversy’” (emphasis added).
This Court granted the petition for certiorari to review
Howsam (a decision by the Tenth Circuit) on February 25,
2002 and will decide Howsam during the October 2002
Term. The Court’s decision will inevitably address the
proper allocation of authority between a court asked to
compel arbitration versus an arbitrator selected by the parties
to arbitrate their substantive disputes. If the Court reverses
the Tenth Circuit’s judgment in Howsam, its rationale will
almost certainly require the reversal of the judgment by the
Court of Appeals in Jn re Humana as well. Howsam, after
all, involves a question of whether a court or an arbitrator
decides if a plaintiff's claim is time-barred, which is an issue
normally addressed before a decisionmaker reaches the
merits of a dispute. If a court at the motion to compel stage
is required to leave such an issue to an arbitrator to decide,
the court also must leave for an arbitrator the issue of
whether the parties’ a -to remedies are adequate, since
that issue can only be addressed after a decisionmaker
reaches (and resolves) the merits of a dispute.
If this Court is not inclined to grant the current petition
based on the reasons set forth in the preceding sections, then
at the least the Court should hold this petition until it
resolves Howsam. When the Court’s resolution of a case
already set for argument is likely to address issues germane
to a pending petition for certiorari, it is consistent with Court
26
practice to hold the petition until the Court decides the case
and thereafter to grant the petition, vacate the judgment on
which the petition is based, and remand the matter to the
court that originally issued the judgment for reconsideration
in light of the Court’s recent decision. See Stern, Gressman,
Shapiro & Geller, Supreme Court Practice 192-93 (7" ed.
1993). The Court should follow this well-charted course
here if it believes that full review of the Court of Appeals’
decision is unnecessary.
III. CONCLUSION.
For the foregoing reasons, Petitioners PacifiCare
Health Systems, Inc., PacifiCare Operations, Inc., United
HealthCare, Inc. and UnitedHealth Group Incorporated
respectfully requests that this Court grant this petition and
issue a writ of certiorari to the United States Court of
Appeals for the Eleventh Circuit to review its judgment in Jn
re Humana Inc. Managed Care Litigation. Alternatively,
Petitioners respectfully request that this Court hold this
petition pending its decision in Howsam v. Dean Witter
Reynolds, Inc., No. 01-800, and, after that decision is issued,
grant this petition, vacate the Court of Appeals’ judgment,
and remand this matter to the Court of Appeals for further
proceedings consistent with Howsam.
27
DATED: August 6, 2002.
Respectfully Submitted,
William E. Grauer
(counsel of record)
Christopher R.J. Pace
COOLEY GODWARD LLP
4401 Eastgate Mall
San Diego, California 92121
Telephone: 858.550.6000
Facsimile: 858.550.6420
Attorneys for Petitioners
PACIFICARE HEALTH SYSTEMS, INC.
and PACIFICARE OPERATIONS, INC.
James W. Quinn, Esq.
Jeffrey S. Klein, Esq.
WEIL, GOTSHAL & MANGES, LLP
767 Fifth Avenue
New York, New York 10153
Telephone: 212.310.8000
Facsimile: 212.310.8007
Edward Soto, Esq.
WEIL, GOTSHAL & MANGES, LLP
701 Brickell Avenue, Suite 2100
Miami, Florida 33132
Telephone: 305.577.3100
Facsimile: 305.374.7159
Attorneys for Petitioners
UNITEDHEALTHCARE, INC. and
UNITEDHEALTH GROUP
INCORPORATED
A-1
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 01-10247 & 01-12596
In ic: HUMANA INC. MANAGED CARE LITIGATION
Price Plaintiffs, Price, Sessa, Katz & Yingling, Sandra
Johnson, Patricia Freyre, Regina Joi Price, Anthony Sessa,
Arnold Katz, et al.,
Plaintiffs-Appellees,
V.
Humana Insurance Company, Coventry Health Care of
Georgia, Inc., f.k.a. Principal Health Care of Georgia, Inc.,
Principal Health Care, Inc., et al.,
Defendants,
PacifiCare Health Systems, Inc., PacifiCare Operations, Inc.,
United Health Care, United Health Group, Foundation
Health Systems, Inc., Wellpoint Health Networks, Inc.,
Prudential Insurance Company of America,
Defendants-Appellants.
Leonard J. Klay, M.D., Price Plaintiffs, Price, Sessa, Katz &
Yingling, Sandra Johnson, Patricia Freyre, Regina Joi Price,
Anthony Sessa, Arnold Katz, et al.,
Plaintiffs-Appellees,
Vv.
Humana, Inc., et al.,
Defendants,
PacifiCare Health Systems, Inc., PacifiCare Operations, Inc.,
Defendants-A ppellants.
Appeals from the United States District Court for the
Southern District of Florida.
Wa Lak ae it le NS I EP sal al TO ba ye
oe
A-2
Filed March 14, 2002
Before BARKETT, FAY and WINTER, Circuit Judges.
BARKETT, Circuit Judge:
placed limitations on the sort of damages
an arbitrator ma
award. The task facing the district court on, io deen. ©
Honorable Ralph K. Winter, U.S. Circui
Circuit, sitting by designati - Circuit Judge for the Second
For example, plaintiff Dr. Breen is sui , ,
: ' suing Prudential, PacifiCare,
“that punitive damages shall not be awarded.” ——
with United (although plaintiffs Porth and Kelly do). we
A-3
determine which of the various legal claims must be resolved
through arbitration.
The district court made four rulings related to this
appeal. First, the court held that claims between plaintiffs
and defendants who are both signatories to contracts
containi enforceable arbitration clauses must be
arbitrated.“ Second, relying primarily on our opinion in
Paladino v. Avnet Computer Technologies, Inc., 134 F.3d
1054 (11th Cir. 1998), the court found that those arbitration
clauses that exclude punitive damages are unenforceable in
this suit because they preclude recovery of treble damages
under RICO; therefore, an HMO may not compel arbitration
of a RICO suit under such an arbitration clause.’ Third, the
court determined that an HMO may not invoke its arbitration
clause to compel arbitration of an aiding-and-abetting charge
regarding a doctor’s contractual rights with a different
HMO.‘ Fourth, the court held that exceptions to the general
rule that a non-party to a contract may not invoke the
contract — exceptions we described in MS Dealer Corp. v.
Franklin, 177 F.3d 942 (11th Cir. 1999) — do not apply in the
present case; thus an HMO that is not a signatory to a
2 Thus, following the above example, Breen’s suit against Prudential
must be arbitrated.
> Again following the above example, PacifiCare may not compel
Breen to arbitrate his RICO claim against PacifiCare because the contract
between them prevents the arbitrator from awarding punitive damages.
* This means, for example, that Prudential may not compel Breen to
arbitrate a claim in which Breen alleges that Prudential conspired with
PacifiCare to impair PacifiCare’s contractual obligations to Breen (i.c.,
concerning care of Breen’s patients covered under a PacifiCare plan).
However, Prudential may compel Breen to arbitrate his claims related to
its own contractual relationship with Breen (i.e., regarding Breen’s
patients covered under a Prudential plan). .
A-4
particular contract may not invoke that contract’ itrati
clause to compel arbitration.° operons
We affirm in its entirety the district court’s
the reasons set forth in its tee dene
132 F.Supp.2d 989 (S.D. Fla. 2000). We agree that under
the circumstances here MS Dealer does not compel
application of equitable estoppel. In MS Dealer the
plaintiff, Franklin, bought a car pursuant to a “Buyers
Contract” with Jim Burke Motors. The Buyers Contract
incorporated by reference a retail installment contract, in
which Franklin was charged $990.00 for a service contract
through MS Dealer. Franklin subsequently sued both Jim
Burke and MS Dealer for conspiracy and fraud. MS Dealer
4 nonsignatory to the Buyers Contract, attempted to invoke
that contract’s arbitration clause to compel arbitration.
Noting that “there are certain limited exceptions, such as
equitable estoppel, that allow[ ] non signatories to a contract
to compel arbitration,” this Court found that MS Dealer
could compel arbitration. Jd. at 947. In discussing those
exceptions, MS Dealer relied primarily on Sunkist Soft
Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th Cir.
1993) and Boyd v. Homes of Legend, Inc., 981 F
(M.D. Ala. 1997), a
In Sunkist, the plaintiff, Sunkist Growers, Inc. (SGI)
sought to avoid arbitration as provided by the contractual
agreement between SGI and Sunkist Soft Drinks, Inc. (SSD).
Subsequent to the agreement between the SGI and SSD, Del
Monte purchased SSD. When SGI sued Del Monte over the
terms of the agreement between SGI and SSD, Del Monte
5 .
_This means, for example, that in Breen’s suit against Prudential,
PacifiCare and United, United may not compel Breen to arbitrate based
on his enforceable arbitration provision with Prudential.
A-5
sought arbitration pursuant to that agreement. SGI argued
that Del Monte could not compel arbitration because it was
not a signatory to the contract. This Court held that SGI was
equitably estopped from avoiding arbitration because SGI
was suing under the same contract that provided for
arbitration and, thus, should not be permitted to rely on some
contractual terms but avoid others. Sunkist at 758. We noted
that Del Monte was the parent company of SSD, and that
after the purchase of SSD, Del Monte had ceased operating it
as an independent enterprise. Jd. Thus, the direct nexus
between all of SGI’s claims and the agreement as well as the
integral relationship between SSD and Del Monte led us to
conclude that SGI’s claims were intimately founded in and
intertwined with the agreement, and the plaintiff was thus
equitably estopped from denying . the non-signatory
defendant’s right to compel arbitration. /d.
In Boyd, plaintiffs purchased mobile homes from
several mobile home dealers, homes which had been
manufactured by Homes of Legend (Homes). The purchases
were made pursuant to retail installment and security
agreements between the plaintiffs and the dealers,
agreements that contained arbitration clauses. Homes was
not a party to nor mentioned in these contracts for sale. The
plaintiffs sued Homes, inter alia, for breach of their written
express warranties on the mobile homes, alleging defects in
materials and workmanship. They also alleged that their
homes were covered under a myriad of state and federal
consumer warranties— including implied and non-written
warranties of merchantability, habitability, and freedom from
defects- and that Homes’ conduct violated the those
warranties as well as the consumer protection provisions of
the Magnuson-Moss Act. Some plaintiffs also sued the
dealers. Homes attempted to compel arbitration based on the
A-6
arbitration clauses in the retail installment contracts between
the various plaintiffs and dealers.
The Boyd court ruled that Homes could not compel
arbitration by invoking plaintiffs’ arbitration agreements
with the dealers, in part, because plaintiffs did not “advance
the theory that the [dealer] defendants acted as Homes of
Legend’s front in committing the alleged frauds,” but, rather,
“pursue[d] parallel claims of fraudulent conduct against two
separate commercial entities who have common, but
decidedly distinct, duties toward them ....” Boyd at 1434.
Boyd observed that this scenario was completely distinct
from two previous cases in which it had applied equitable
estoppel:
In both instances, this court applied the
doctrine of equitable estoppel, concluding that
the plaintiffs’ allegations of such pre-
arranged, collusive behavior established that
their claims against the imsurers were
intimately founded in and intertwined with
the obligations imposed by the underlying
loan agreements .... In Staples, this court
emphasized that the plaintiff's “claims against
the [the insurers were] derivative of, and
predicated on, her claims against [the lender];
if she had no claim against [the lender], she
had no claim against [the insurers].” 936
F.Supp. at 859. In Roberson, this court
emphasized that the holding was a result of
the plaintiffs’ allegations of “common
breaches of duties by all defendants working
hand-in-hand,” essentially acting on behalf of
each other to commit a common and
A-7
conspiratorial fraud. 954 F.Supp. at 1522,
1529.
Boyd at 1433.
In Sunkist, because the plaintiff's claims against the
nonsignatory defendant were based upon, and inextricably
intertwined with, the written agreement of the parties, we
compelled arbitration. In Boyd, the plaintiff's causes of
action against Homes were based on duties separate and
apart from those arising out of the retail installment contract
between the plaintiffs and the dealers, and did not allege
collusion between the defendants to defraud the plaintiffs as
to the terms of that contract. Thus, the nonsignatory
defendant was not entitled to compel arbitration. Applying
[Franklin] specifically alleges that MS Dealer
worked hand-in-hand with Jim Burke ... in
this alleged fraudulent scheme. Her
“allegations or such pre- arranged, collusive
behavior establish{ ] that [her] claims against
[MS Dealer are] intimately founded in and
intertwined with the obligations imposed by
the [Buyers Order].”
Id. (quoting Boyd at 1433).
A plaintiff's allegations of collusive behavior between
the signatory and nonsignatory parties to the contract do not
A-8
automatically compel a court to order arbitration of all of the
plaintiff's claims against the nonsignatory defendant; rather,
such allegations support an application of estoppel only
when they “establish{ ] that [the] claims against [the
nonsignatory are] intimately founded in and intertwined with
the obligations imposed by the [contract containing the
arbitration clause].” Jd. The HMOs nonetheless direct our
attention to more general language from MS Dealer, which
notes that equitable estoppel may be appropriate “when the
signatory [to the contract containing the arbitration clause]
raises allegations of . . . substantially interdependent and
concerted misconduct by both the nonsignatory and one or.
more of the signatories to the contract.” Jd. (quoting Boyd at
1433). The HMOs contend that this language mandates an
application of equitable estoppel in this case simply because
the doctors allege a RICO conspiracy.
This contention is only tenable if the passage is read
completely out of context. MS Dealer “is not a rigid test,
and each case turns on its facts.” Hill v. G E Power Systems,
Inc., __ F.3d __ (Sth Cir. 2002) (holding that district court
did not abuse its discretion in declining to apply doctrine of
equitable estoppel even though complaint alleged collusive
scheme to defraud). In all cases, “‘the lynchpin for equitable
estoppel is equity,’ and the point of applying it to compel
arbitration is to prevent a situation that ‘would fly in the face
of fairness."” Jd. at ___ (quoting Grigson v. Creative Artists
Agency, L.L.C., 210 F.3d 524, 527 (Sth Cir. 2000)). The
purpose of the doctrine is to prevent a plaintiff from, in
effect, trying to have his cake and eat it too; that is, from
“rely[ing] on the contract when it works to [his] advantage
[by establishing the claim], and repudiat[ing] it when it
works to [his] disadvantage [by requiring arbitration].”
Tepper Realty Co. v. Mosaic Tile Co., 259 F.Supp. 688, 692
A-9
(S.D.N.Y. 1966). The plaintiff's actual dependence on the
underlying contract in making out the claim against the
nonsignatory defendant is therefore always the sine qua non
of an appropriate situation for applying equitable estoppel.
In light of the foregoing, we agree with the district
court that the present RICO suit does not present an
appropriate circumstance for equitable estoppel, and even if
we did not agree, we would be hard pressed to identify any
abuse of discretion in the court’s decision to forego
application of the doctrine. See Grigson at 528 (“whether to
utilize equitable estoppel in this fashion is within the district
court’s discretion; we review to determine only whether it
has been abused.”). Here, the doctors’ suit does not rely
upon or presume the existence of an underlying contract; the
RICO claims in this case are based on a statutory remedy
Congress has provided to any person injured as a result of
illegal racketeering activities.° This remedy stands apart
from any available remedies for breach of contract, and
clearly is not “intimately founded in and intertwined with the
underlying contract obligations.” McBro Planning and
Development Co. v. Triangle Const. Co., Inc., 741 F.2d 342,
344 (1lth Cir. 1984) (quoting Hughes Masonry Co. v.
Greater Clark County School Bldg. Corp., 659 F.2d 836, 841
n.9 (7th Cir. 1981)). Thus, the doctors in the present suit are
not effectively “attempting to hold [a non-signatory HMO]
to the terms of [a signatory HMO’s] agreement.” Hughes
Masonry at 838.
6 148 U.S.C. § 1964(c) provides, in relevant part, that “ Any person
injured in his business or property by reason of a violation of section
1962 of this chapter may sue therefor in any appropriate United States
district court and shall recover threefold the damages he sustains and the
cost of the suit, including a reasonable attorney’s fee ....
A-10
Moreover, although the doctors in this case do claim
fraudulent collusive behavior by the HMOs, they make no
suggestion that the contracts containing arbitration clauses
are themselves the product of, or in any way related to, the
HMO’s conspiratorial behavior. This situation is different
from MS Dealer, in which the plaintiffs alleged that the
signatory and nonsignatory defendants had colluded to
defraud by including an excessively expensive installment
contract in a buyers order (sharing in the illicit profits), and
the only claims against the nonsignatory defendant were
related to that retail installment contract. In contrast, here
the alleged fraudulent scheme does not differentiate between
doctors with contracts and those without, and the RICO
claims are unrelated to any of the contractual relationships
that exist between the doctors and the HMOs. Therefore, the
fact that the doctors’ complaint alleges a RICO conspiracy
provides no basis in equity for allowing a nonsignatory
HMO to avail itself of an arbitration agreement that a
coconspirator signatory HMO happens to have with a
plaintiff doctor.
AFFIRMED.
A-11
United States District Court
Southern District of Florida
Miami Division
In re: MANAGED CARE LITIGATION
This Document Relates To All Cases.
No. MDL 1334
No. 00-1334-MD
Filed Dec. 11, 2000
ORDER GRANTING IN PART AND DENYING IN
PART VARIOUS DEFENDANTS’ MOTIONS TO
COMPEL ARBITRATION
MORENO, District Judge.
This multi-district litigation involves two separate
categories of plaintiffs who have filed suit against various
insurance companies that provide managed care. One group
of plaintiffs consists of subscribers (patients) who allege
causes of action against managed care companies
RICO, ERISA, and common law civil conspiracy. The other
group of plaintiffs consists of providers (doctors) who allege
causes of action against managed care companies
various legal theories, including RICO, ERISA, quantum
meruit, breach of contract, federal clean claim payment
regulations, unjust enrichment, and state prompt pay statutes.
Certain defendants seek to compel certain plaintiffs to
arbitrate the issues raised in this lawsuit, based upon
arbitration clauses contained in the contracts that form the
basis of the plaintiffs’ claims. This Order shall determine
A-12
which plaintiffs are bound by contract to use arbitration as
the forum to resolve certain claims asserted against certain
managed care companies.
WHETHER TO COMPEL ARBITRATION
I. THRESHOLD MATTERS TO BE RESOLVED PRIOR TO
ANALYZING EACH ARBITRATION CLAUSE
Prior to deciding each of the defendants’ motions to
compel arbitration individually, the Court must address
certain threshold matters that relate to all of the motions to
compel arbitration. These are: (A) the Federal Arbitration
Act’s (the “FAA’s” or the “Act’s”) strong presumption in
favor of arbitration, (B) whether ERISA claims may be
arbitrated, (C) whether allegations of conspiracy and aiding
and abetting may be arbitrated, absent a contract to arbitrate
between the parties, (D) whether a nonsignatory to an
arbitration clause may be compelled to arbitrate due to the
relationship between the nonsignatory and a signatory to the
arbitration agreement, (E) the impact of the Eleventh Circuit
decisions in Paladino v. Avnet Computer Tech., Inc., 134
F.3d 1054 (11th Cir.1998), and Randolph v. Green Tree Fin.
Corp., 178 F.3d 1149 (11th Cir.1999) rev'd in part Green
Tree Fin. Corp. v. Randolph, 531 U.S. 79, 121 S.Ct. 513,
148 L.Ed.2d 373 (2000), (F) whether class action
implications affect whether to compel arbitration, and (G)
whether the doctrine of unconscionability is useful in
determining the validity of the arbitration clauses at issue.
After addressing each of these matters, the Court shall
analyze each motion to compel separately to determine
which, if any, claims must be arbitrated.
A-13
A. The Federal Arbitration Act’s Presumption in
Favor of Arbitration
Section 4 of the FAA provides in relevant part:
A party aggrieved by the alleged failure, neglect or
refusal of another to arbitrate under a written
agreement for arbitration may petition any United
States district court ... for an order directing that
such arbitration proceed in the manner provided for
in such agreement.... [T]he court shall make an
order directing the parties to proceed to arbitration
in accordance with the terms of the agreement.
9 U.S.C. § 4.
The FAA establishes a strong federal policy in favor of
arbitration and creates “a body of substantive law of
arbitrability, applicable to any arbitration agreement within
the coverage of the act.” Moses H. Cone Memorial Hosp. v.
Mercury Contr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74
L.Ed.2d 765 (1983). The scope of the Act’s provisions
concerning the validity of arbitration clauses reaches to the
farthest limits of Congress’ power under the Commerce
Clause. Paladino, 134 F.3d at 1060. There is no dispute that
the defendants in this action are engaged in interstate
commerce, and accordingly, the Act applies to the present
motions to compel arbitration.
Section 2 of the FAA provides that an arbitration
agreement “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2. As the Supreme
Court in Cone instructs, this language reflects “a liberal
federal policy favoring arbitration agreements,
A-14
notwithstanding any state substantive or procedural policies
to the contrary.” Cone, 460 U.S. at 24, 103 S.Ct. 927. “Any
doubts concerning the scope of arbitrable issues should be
=r in favor of arbitration....” Jd. at 24-25, 103 S.Ct.
7.
The strong federal policy in favor of arbitration applies
to statutory claims with equal force. E.g., Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-
26, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). If the plaintiffs’
allegations “touch matters” covered by the arbitration
agreement, then those claims must be arbitrated, irrespective
of how the allegations are labeled. Jd. at 625 n. 13. This
approach furthers the Act’s strong presumption in favor of
arbitration. Jd. at 626, 105 S.Ct. 3346 (“{Tjhe parties’
intentions control, but those intentions are generously
construed as to issues of arbitrability.”’).
B. Whether ERISA Claims Are Subject to
Arbitration
The first threshold issue presented by the various
motions to compel arbitration, raised in both provider and
subscriber track motions to compel, is whether ERISA
claims may be arbitrated. While the Supreme Court has
ruled that RICO and antitrust claims are subject to
arbitration, Shearson/American Express v. McMahon, 482
U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (holding
RICO claims arbitrable); Mitsubishi, 473 U.S. 614, 105 S.Ct.
3346, 87 L.Ed.2d 444 (holding antitrust claims arbitrable),
there has been no such determination with respect to ERISA
claims. The Eleventh Circuit has not yet ruled upon the
issue, but many circuit courts have ruled that ERISA claims
are arbitrable. Williams v. Imhoff, 203 F.3d 758 (10th
Cir.2000); Kramer v. Smith Barney, 80 F.3d 1080 (Sth
A-15
Cir.1996); Pritzker v. Merrill Lynch, Pierce, Fenner &
Smith, 7 F.3d 1110 (3rd Cir.1993); Bird v. Shearson
Lehman/American Express, Inc., 926 F.2d 116 (2nd
Cir.1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds,
847 F.2d 475 (8th Cir.1988).
Plaintiffs argue that the Eleventh Circuit would follov.
the Ninth Circuit decision, Amaro v. Continental Can Co.,
724 F.2d 747 (9th Cir.1984), which holds that ERISA claims
are not arbitrable. The Amaro ruling rests upon the
assumption that “{a}rbitrators, many of whom are not
lawyers, ... lack the competence to interpret and apply
statutes as Congress intended.” Jd. at 750 (citation omitted).
This Court rejects the plaintiffs’ argument and finds
that ERISA claims are subject to arbitration, in view of the
Act’s strong presumption in favor of arbitration discussed
above. The Court also finds persuasive Supreme Court
rulings finding that arbitration is an appropriate forum for
RICO and antitrust injuries to be vindicated. An arbitrator
can resolve ERISA claims with the same skill, precision, and
competence as RICO or antitrust claims. Moreover, there is
no language in ERISA that leads to a finding that Congress
did not intend to have ERISA claims arbitrated.
The limiting factor with respect to this ruling that
ERISA claims are subject to arbitration is that the arbitration
clause at issue must afford the plaintiffs the opportunity of
meaningful relief in an arbitration proceeding. Paladino,
134 F.3d at 1062. This limiting factor will be addressed
below in Section I(E), where the Court will address the
impact of two Eleventh Circuit decisions, Paladino and
Randolph, upon the instant motions to compel arbitration.
This limiting factor also will be addressed with respect to
A-16
certain arbitration clauses individually in Section II of this
Order.
C. Whether Allegations of Conspiracy and
Aiding and Abetting May Be Arbitrated
Where There is No Contract to Arbitrate
Between the Parties
The next threshold issue presented by both subscriber
and provider track motions to compel arbitration is whether
conspiracy and aiding and abetting allegations may be
arbitrated where there is no contract to arbitrate between the
parties. This scenario occurs, for example, where Plaintiff A
sues Defendants B, C, and D alleging conspiracy to violate
18 U.S.C. § 1962(a) and (c) in violation of 18 U.S.C. §
1962(d), and for seeking to aid and abet and for aiding and
abetting violations of 18 U.S.C. § 1962(a) and (c) within the
meaning of 18 U.S.C. § 2. Plaintiff A has agreed to resolve
such claims with Defendant B through arbitration, but has no
contractual relationship with Defendants C and D — who
have no relation to Defendant B except that all three
defendants are separate operators of separate managed care
companies.
Plaintiffs posit that there can be no arbitration of the
conspiracy and aiding and abetting claims against
nonsignatories (Defendants C and D in the above example)
because the plaintiffs have not contracted with these parties
to arbitrate such disputes. E.g., Morewitz v. West of
England, 62 F.3d 1356, 1363 (11th Cir.1995) (quoting In re
Talbott Big Foot, Inc., 887 F.2d 611, 612 (Sth Cir.1989)
(“We are unaware of any federal policy that favors
arbitration for parties who have not contractually bound
themselves to arbitrate their disputes.”)). Defendants argue
that these claims must be arbitrated, relying upon the
A-17
Eleventh Circuit reasoning in MS Dealer Service Corp. v.
Franklin, 177 F.3d 942 (1 1th Cir.1999).
Notwithstanding the general rule that only parties who
agree to arbitrate may be compelled to do so, the Eleventh
Circuit has ruled that there exist limited circumstances where
a matter will be compelled to arbitration, absent a signed
agreement between the parties. Jd. at 947 (citing Sunkist Soft
Drinks, Inc. v. Sunkist Growers Inc., 10 F.3d 753 (11th
Cir.1993)). These are: (1) equitable estoppel, (2) agency or
related principles concerning signatory defendants and
nonsignatory defendants, and (3) third party beneficiary
relationships. MS Dealer, 177 F.3d at 947.
Defendants’ reliance on MS Dealer, where the court
found equitable estoppel existed, is misplaced. That case
involved a consumer transaction where Ms. Franklin
executed a “Buyers Order” to purchase a vehicle from Jim
Burke Motors, Inc. The Buyers Order incorporated by
. reference a Retail Installment Contract, which Ms. Franklin
purchased for $990.00, and also contained a valid arbitration
clause. Ms. Franklin filed suit after purchasing the car,
asserting claims for breach of contract, breach of warranty,
fraud, and civil conspiracy between signatory defendant Jim
Burke Motors Inc. and nonsignatory defendant MS Dealer.
Among other allegations, Ms. Franklin claimed that both
parties shared in the excessive profits from the Retail
Installment Contract. The only claims asserted against MS
Dealer related to the Retail Installment Contract. MS Dealer
moved to compel arbitration, based upon the Buyers Order
arbitration clause, and Ms. Franklin objected on the ground
that there was no signed agreement to arbitrate between
herself and MS Dealer. Jd. at 944-45.
A-18
The MS Dealer court found that Ms. Franklin was
equitably estopped from objecting to arbitration of the
dispute under both circumstances where equitable estoppel
arises. First, equitable estoppel arises where a signatory to a
written agreement must rely on the terms of the agreement in
asserting its claims against the nonsignatory. Jd. at 947
(citing Sunkist, 10 F.3d at 757). Under this form of equitable
estoppel, there also must be a close relationship between
nonsignatory and signatory defendants, which did exist
between signatory defendant Jim Burke Motors Inc. and
nonsignatory defendant MS Dealer. See Sunkist, 10 F.3d at
757. Second, equitable estoppel applies where there is
interdependence and concerted misconduct between the
nonsignatory and signatory defendants. Otherwise, the
arbitration proceeding between the two signatories would be
rendered meaningless and the federal policy in favor of
arbitration thwarted. MS Dealer, 177 F.3d at 947.
In the instant action, the plaintiffs allege violations
against parties bound to arbitrate (“signatories”) and seek to
hold nonsignatories liable for conspiracy and aiding and
abetting. Some signatory defendants have valid arbitration
clauses that will be enforced, while other signatory
defendants will litigate before the undersigned either for lack
of an arbitration agreement or an invalid arbitration
agreement. The issue before the Court is whether the
nonsignatory defendants may compel arbitration, relying
upon the doctrine of equitable estoppel.
With respect to the first way to find equitable estoppel
discussed above, there is a distinguishing factor between this
case and MS Dealer and Sunkist; namely, the relationship
between signatory defendants and nonsignatory defendants.
In MS Dealer, the defendants worked in concert to sell
vehicles with retail installment contracts included in the
A-19
purchase agreement for the vehicle. In Sunkist, which
involved licensing issues, the nonsignatory, Del Monte,
acquired all of the stock of signatory Sunkist Soft Drinks.
The instant action is distinguishable because the signatory
managed care company and nonsignatory manage care
companies do not have the requisite “close relationship”
needed to find equitable estoppel. Sunkist, 10 F.3d at 757.
With respect to the second way to find equitable
estoppel, this Court finds the doctrine inapplicable to the
current action. The MS Dealer court was concerned with
thwarting the FAA by a scenario where the nonsignatory -
defendant would litigate the same action in federal court that
the signatory defendant would arbitrate concurrently. The
present action is much more complex, involving many more
parties. The concern that the FAA will be thwarted does not
exist in the present scenario. In fact, this Court is
painstakingly following the FAA’s mandate to arbitrate
whatever the parties agree to arbitrate, even though it will
lead to concurrent proceedings. While the Court believes
that it would be most efficient to have all claims heard either
in Federal court or in front of an arbitrator due to the strong
likelihood of concurrent proceedings before itself and
multiple arbitrators, the Supreme Court has instructed
otherwise. Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213,
217, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (holding that
Federal Arbitration Act requires district courts to compel
arbitration of pendent arbitrable claims, “even where the
result would be the possibly inefficient maintenance of
separate proceedings in different forums.”). As such, the
Court will compel arbitration of whichever claims are
claims, while the same claims will be litigated before
undersigned concurrently. _ This Court will be hearing
the plaintiffs, or whose arbitration clauses are ruled invalid.
By way of example, Humana either does not have an
contractual relationship with the plaintiffs. All nonsignatory
defendants to the Humana agreements will be forced to
defend the conspiracy and aiding and abetting claim in front
of the undersigned. Accordingly, this Court does not find the
justification necessary (i.e. the thwarting of the FAA) to
allow nonsignatories to an arbitration agreement to compel
arbitration based upon the doctrine of equitable estoppel.®
? Moreover, as the Eleventh Circuit instructs in Protective Life Ins.
Corp. v. Lincoln Nat'l Life Ins. Corp., 873 F.2d 281 (11th Cir.1989),
each party shall have individualized arbitration. There shall be no
bundling of the various named plaintiffs’ claims that this Court deems
arbitrable, unless an arbitrator rules otherwise. The Court takes no
position on whether any of these arbitrations may become class actiun
arbitrations.
* The Court also does not find an agency or third party beneficiary
relationship present to compel arbitration between the nonsignatories.
MS Dealer, 177 F.3d at 947.
A-21
D. Whether a Nonsignatory to an Arbitration
Agreement May Be Compelied to Arbitrate
A related issue concerning nonsignatories to arbitration
agreements arises (1) where a plaintiff sues a parent
company, concerning an agreement between the plaintiff and
the parent’s subsidiary (or affiliate), where only the
subsidiary has contracted with the litigant to arbitrate; and
(2) where a nonsignatory plaintiff sues a signatory defendant,
based upon an agreement (that contains an arbitration clause)
between the defendant and a third party to whom the plaintiff
is affiliated. The principles enumerated by the Eleventh
Circuit in MS Dealer for justifying a nonsignatory to
arbitrate discussed above apply with equal force to these
issues, but lead to a different result. MS Dealer, 177 F.3d at
947.
The Court finds that under either theory of equitable
estoppel, as well as under the agency and third party
beneficiary exceptions, a nonsignatory parent should be
compelled to arbitrate where either (a) the signatory
subsidiary or affiliate is compelled to arbitrate, or (b) the
nonsignatory parent benefits from the contractual relations of
its subsidiary’s relationship with the plaintiffs — irrespective
of whether the subsidiary is a party to the lawsuit. Likewise,
the Court finds that a nonsignatory plaintiff is bound to
arbitrate disputes against a signatory defendant, where the
plaintiff brings suit based upon an agreement between the
defendant and a third party to whom the defendant is
affiliated.
The next issue before the Court is the Eleventh
Circuit’s rulings in Paladino v. Avnet Computer
Technologies, Inc., 134 F.3d 1054 (11th Cir.1998), and
Randolph v. Green Tree Fin. Corp., 178 F.3d 1149 (11th
Cir.1999) rev'd in part Green Tree Fin. Corp. v. Randolph,
531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). Not
surprisingly, these cases have received quite a bit of attention
from the litigants in this action. Based upon the holdings in
these two cases, the plaintiffs seek to negate contractual
obligations to arbitrate disputes between the parties because
the arbitration forum does not provide meaningful relief for
the plaintiffs’ statutory claims. Defendants argue that the
cases are distinguishable and that an arbitration forum can
meaningfully resolve all of the plaintiffs’ claims.
Despite the FAA’s strong presumption in favor of
arbitrating all disputes as agreed between the parties, the
Eleventh Circuit has refused to permit arbitration of certain
statutory disputes under limited circumstances. See
Paladino, 134 F.3d at 1062 (“[{Tjhe arbitrability of such
claims rests on the assumption that the arbitration clause
permits relief equivalent to court remedies.”). In Paladino,
the court refused to enforce the parties’ employment
agreement to arbitrate all disputes between the parties. In
relevant part, the arbitration agreement permitted the
arbitrator to award damages for breach of contract, but
prohibited the arbitrator from awarding any other type of
damages. Jd. at 1056.
The Paladino court based its holding on two grounds.
First, the court found that the clause prohibiting extra
contractual damages denied the plaintiff of any meaningful
- A-23
relief for her Title VII claims. “This clause defeats the
statute’s remedial purposes because it insulates Avnet from
Title VII damages and equitable relief.” Jd at 1062.
Second, the court found that the statutory policy behind Title
VII would be frustrated further by the parties’ agreement to
arbitrate through the American Arbitration Association
(“AAA”), which charges high fees — $2,000 in this case.
“{A] clause such as this one that deprives an employee of
any hope of meaningful relief, while imposing high costs on
the employee, undermines the policies that support Title
VII.” Id.
In Randolph, the plaintiff alleged violation of the Truth
in Lending Act (“TILA”) because the defendant required her
to obtain “vendor’s single interest” insurance in connection
with the financing of the purchase of her mobile home, but
did not include the requirement in its TILA disclosure. The
arbitration clause in the retail installment agreement
governed all disputes between the parties, and granted the
arbitrator authority to award money damages, declaratory
relief, and injunctive relief. However, the arbitration clause
made no mention of what organization shall conduct the
arbitration, whether the parties were to share the expenses of
the arbitration, or what the filing fees of the arbitration
would be. Randolph, 178 F.3d at 1151.
In holding the arbitration clause unenforceable, the
Randolph court was concerned that the plaintiffs statutory
rights under TILA would not be vindicated in an arbitration
forum due to the exorbitant cost of initiating arbitration as
compared to the “small sum” of plaintiff's claims. Jd. at
1158 (“{Tjhe arbitration clause .. fail[ed] to provide
minimum guarantees required to ensure that Randolph’s
ability to vindicate her statutory rights will not be undone by
steep filing fees, steep arbitrator’s fees, or other high costs of
A-24
arbitration.””). Perhaps realizing the potentially far reaching
effect of its holding, the court distinguished this ‘'small
consumer transaction,” as well as the employment agreement
in Paladino, from other contexts, such as commercial
franchise agreements. Jd. at 1159.
The issue before this Court is how these cases relate to
both the provider track and subscriber track agreements to
arbitrate. Beginning with the provider track plaintiffs, they
argue that their statutory rights under RICO and ERISA will
not be vindicated in an arbitration forum, and that they will
not be able to obtain meaningful statutory relief through
arbitration. The burden of establishing this proposition rests
with the provider plaintiffs. Green Tree Fin. Corp. v.
Randolph, 531 U.S. 79, 121 S.Ct. 513, 522, 148 L.Ed.2d 373
(2000): see also Shearson/American Express, 482 U.S. at
225-26, 107 S.Ct. 2332.
The issues raised by Paladino concerning limitation of
an arbitrator’s authority to award extra contractual damages
will be addressed individually below in Section II, where the
Court will determine whether any of the arbitration
agreements at issue prevent meaningful relief in an
arbitration forum due to a limitation on extra contractual
damages.
With respect to the Randolph (and to a lesser extent
Paladino.) concern that steep filing fees and costs of
arbitration will prevent meaningful relief through arbitration,
the Court declines the provider track plaintiffs’ invitation to
expand the Eleventh Circuit holdings. The Eleventh Circuit
decision in Randolph made clear that its holding was limited
to small consumer transactions concerning small sums of
money, as well as Title VII claims in employment
relationships. This Court finds the relationship between
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sophisticated groups of doctors and managed care —
companies, where the doctors contract to provide health care
to large groups of patients, quite distinguishable.
Another distinguishing factor between Randolph and
the instant action is the alleged amount in controversy. In
Randolph, the amount in controversy was a “small amount”
stemming from a failure to disclose a requirement to
purchase vendor insurance in connection with the purchase
of a mobile home. In the instant action, the provider
plaintiffs attempt to persuade the court that their statutory
claims are too small to combat the hefty costs of arbitration.
This argument is unpersuasive because each provider
plaintiff alleges multiple instances of statutory violations
over an extended period of time. In aggregate, each provider
plaintiff allegedly has suffered considerable harm. These
aggregate claims may be arbitrated by each plaintiff who has
signed a valid and enforceable arbitration agreement.
Moreover, today the Supreme Court reversed in part
the Randolph decision, ruling that an arbitration agreement
that is silent with respect to arbitration costs does not render
the agreement unenforceable. Green Tree Fin. Corp. v.
Randolph, 531 U.S. 79, 121 S.Ct. 513, 521-22, 148 L.Ed.2d
373 (2000) (“The ‘risk’ that Randolph will be saddled with
prohibitive costs is too speculative to justify the invalidating
of an arbitration agreement.””). While the Supreme Court did
acknowledge that “the existence of large arbitration costs
could preclude a litigant ... from effectively vindicating her
federal statutory rights in the arbitral forum[,]” id. at 10, the
Court was “mindful of the FAA’s purpose to reverse the
longstanding judicial hostility to arbitration agreements and
to place arbitration agreements upon the same footing as
other contracts.” Jd. at 9 (quotation and citation omitted).
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In total, the doctors are sophisticated individuals, not
consumers alleging TILA violations in connection with the
purchase of a mobile home or employees suing under Title
VII. The Court is unpersuaded that the provider track
plaintiffs’ statutory claims will not be vindicated in an
arbitration forum due to excessive filing fees and costs.
Green Tree Fin. Corp., 531 U.S. 79, 121 S.Ct. 513, 522, 148
L.Ed.2d 373 (stating that the party resisting arbitration bears
the burden of proving that the claims at issue are unsuitable
for arbitration); see also Williams v. Cigna, 197 F.3d 752,
763-64 (Sth Cir.1999) (enforcing arbitration clause absent
evidence that plaintiff cannot afford to pay half the filing
fees). To rule otherwise would expand the Eleventh
Circuit’s holdings and frustrate the FAA's strong
presumption in favor of arbitration.
In contrast, the subscriber plaintiffs are in beter
; pe
sition to argue that their claims are analogous
mee transaction or employment relationships addressed
by the Eleventh Circuit. The subscriber plaintiffs are
individuals who have contracted, through their employer, to
receive managed care from the defendants. They allege
statutory violations stemming from being mines ne
the price of their managed care due to misrepresentations
omissions. Because there is only one subscriber defexdant
who seeks to compel arbitration, it is most efficient for the
Court to acknowledge the potential analogy, and determine
whether Plaintiff Hitsman may avail herself of the Randolph
holding now. (All other issues concerning Plaintiff
Hitsman’s arbitration clause will be addressed below in
Section III.)
Plaintiff Hitsman argues that her agreement to arbitrate
disputes with PacifiCare-Oklahoma will deny her the ability
to vindicate her statutory claims. However, in contrast to the
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Randolph arbitration agreement that did not discuss which
organization would arbitrate or how costs would be shared,
Plaintiff Hitsman’s arbitration agreement is governed by
JAMS/Endispute and states that the fees and expenses of the
arbitrator and neutral administrator will be divided equally.
The filing fee for a JAMS/Endispute arbitration is $250.
Accordingly, the concerns raised in Randolph involving
steep filing fees and uncertainty as to whom shall bear the
brunt of these unknown fees do not exist here. Moreover,
the Court is unpersuaded that the amount in controversy for
Plaintiff Hitsman is such a “small sum” as the plaintiff's
injury in Randolph. Plaintiff Hitsman has failed to meet her
burden on this point, as well as her burden of establishing
that her statutory rights will not be vindicated in an
arbitration forum due to excessive filing fees. The Randolph
holding will not assist Plaintiff Hitsman in opposing the
motion to compel arbitration.
F. Whether Class Action Implications Affect
Whether to Compel Arbitration
The next issue concerning both subscriber and provider
cases concerns the potential that this Court may certify this
case as a class action. Named plaintiffs who may be forced
to arbitrate their claims seek to prevent arbitration on the
ground that this multi-district litigation is a class action, and
that other, unnamed plaintiffs will surface who are not
required to arbitrate. Following this argument, the Court
should not compel arbitration for the named plaintiffs who
agreed to arbitrate.
This argument is misguided. The Court is only
concerned with deciding the issues before it presently, not
the issues of hypothetical plaintiffs in a potential class action
lawsuit. O'Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct.
| alii
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669, 38 L.Ed.2d 674 (1974). If other plaintiffs come forward
who are not bound by an agreement to arbitrate, the Court
Moreover, class action allegations do not prevent the
named plaintiffs from being forced to compel arbitration
when such plaintiffs have agreed to arbitrate all of their
disputes with the defendants. Caudle v. American
Arbitration Ass'n, 230 F.3d 920 (7th Cir. 2000) (“A
procedural device aggregating multiple persons’ claims in
litigation does not entitle anyone to be in litigation; a
contract promising to arbitrate the dispute removes the
person from those eligible to represent a class of litigants.”);
see also Johnson v. West Suburban Bank, 225 F.3d 366, 368
(3rd Cir. 2000) (holding that arbitration of plaintiff's
statutory claims is required even where the arbitration
clauses may prevent the bringing of class action lawsuits).
G. Whether the Doctrine of Unconscionability is
Useful in Determining the Validity of the
Arbitration Clauses at Issue
Lastly, at oral argument on October 26, 2000, there
was discussion of whether the arbitration clauses at issue are
unconscionable contracts of adhesion. To prevail on this
argument, the plaintiffs must show that the clauses are both
procedurally and substantively unconscionable for the
clauses to be deemed unenforceable. Golden v. Mobil Oil
Corp., 882 F.2d 490, 493 (lith Cir.1989). “Procedural
unconscionability exists when the individualized
circumstances surrounding the transaction reveal that there
was no ‘real and voluntary meeting of the minds’ of the
contracting parties. Substantive unconscionability exists
when the terms of the contractual provision are unreasonable
and unfair.” Jd. (citations omitted).
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Plaintiffs’ unconscionability argument must be
summarily dismissed because the Court finds there is
nothing substantively unconscionable with an arbitration
ym ee Coleman v. Prudential Bache Securities, Inc.,
1350, 1351 (11th Cir.1986) (“{TJhere is no
inherently unfair or oppressive about arbitration aemtt
As discussed_above, the Court intends to examine each
arbitration clause to determine whether it is enforceable.
The Court need not rule upon whether each arbitration clause
is substantively unconscionable because an unfair or
oppressive clause will not be enforceable under existing
Supreme Court and Eleventh Circuit precedent governing
arbitration clauses, irrespective of whether the clause is
procedurally unconscionable.
With these threshold issues addressed, the Court now
examines each of the defendants’ motions to compel
arbitration.
Il. ANALYSIS OF INDIVIDUAL ARBITRATION CLAUSES
TO DETERMINE WHETHER To COMPEL
ARBITRATION IN PROVIDER TRACK CASES
A. United
UnitedHealthcare, Inc. and UnitedHealth Group
Incorporated f/k/a United HealthCare Corporation (“United”)
seek to compel arbitration of all claims raised by provider
plaintiffs Manual Porth, M.D. and Glenn L. Kelly, M.D.
With respect to Dr. Porth, the United Defendants proffer a
United HealthCare of Florida Medical Group Participation
Agreement between United HealthCare of Florida and
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Community Orthopaedics and Pain Management, Inc.” The
arbitration clause provides in relevant part that all matters
arising from the agreement shall be arbitrated, but limits the
arbitrator’s authority by preventing the arbitrator from
awarding extra contractual damages, including punitive or
exemplary damages. Moreover, the arbitration agreement
includes a one year statute of limitations to bring the claims
in arbitration once there is written notice of the dispute.
The prohibition on extra contractual damages is
precisely the type of arbitration agreement that was found
unenforceable in Paladino. Such an arbitration agreement
prevents Dr. Porth from obtaining any meaningful relief for
his statutory claims. Additionally, the one year statute of
limitations raises grave concerns that Dr. Porth’s statutory
claims will not be adjudicated appropriately in an arbitration
forum. Paladino, 134 F.3d at 1058 (citing Graham Oil Co.
v. ARCO Products Co., 43 F.3d 1244 (9th Cir.1994)).
Accordingly, the Court will not compel arbitration of
Dr. Porth’s claims arising under RICO, ERISA, federal clean
claim payment regulations, state prompt pay statutes, unjust
enrichment, and state prompt pay statutes. However, the
Court is not persuaded that the statute of limitations
provision is a strong enough factor, on its own, to overcome
the FAA’s strong presumption in favor of arbitration. Thus,
the Court will compel arbitration of Dr. Porth’ breach of
contract and quantum meruit claims, as these claims, if
successful, would lead to contractual damages.
% For the reasons discussed in Section I(D), Dr. Porth may not
frustrate the agreement to arbitrate by claiming that he is a nonsignatory
to the agreement. Dr. Porth’s allegations “touch matters” relating to this
arbitration agreement, and Dr. Porth is affiliated with Community
Orthopaedics of Pain and Management, Inc. Mitsubishi, 473 U.S. at 625
n. 13, 105 S.Ct. 3346; MS Dealer, 177 F.3d at 947.
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United moves to compel Dr. Kelly to arbitrate based
upon a United HealthCare of Colorado, Inc. Physician
Participation Agreement between United HealthCare of
Colorado and Dr. Kelly.'° The arbitration provision is
identical to the United arbitration agreement discussed above
concerning Dr. Porth, except that Dr. Kelly’s arbitration
clause only prevents the arbitrator from granting punitive or
exemplary damages. The arbitrator may award extra
contractual damages.
The Court finds that the limitation on punitive or
exemplary damages serves as a limitation on the types of
statutory claims that may be adjudicated before an arbitrator.
Paladino, 134 F.3d at 1062 (“{T)he arbitrability of such
claims rests on the assumption that the arbitration clause
permits relief equivalent to court remedies.”). Dr. Kelly
alleges RICO violations, which provide for treble damages.
Treble damages are a form of punitive damages. Gentry v.
Resolution Trust Corp., 937 F.2d 899, 910-11 (3rd
Cir.1991); Pine Ridge Recycling, Inc. v. Butts County,
Georgia, 855 F.Supp. 1264, 1273 (M.D.Ga.1994); of.
Shearson/American Express, 482 U.S. at 240-41, 107 S.Ct.
2332 (indicating in dicta that treble damages are primarily
remedial and secondarily punitive). The Court also finds
that the one year statute of limitations serves the function of
limiting the ability for Dr. Kelly to obtain meaningful relief
in an arbitration forum for his other statutory claims. Thus,
the Court shall only compel arbitration of Dr. Kelly’s breach
of contract and quantum meruit claims.
There is one final contention raised by United that must
be addressed. In an effort to compel arbitration and dismiss
‘0 Dr. Kelly’s allegations against United “touch matters” relating to
this agreement. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346.
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the instant action against Drs. Porth and Kelly, United has
expressed a willingness to waive the arbitration clauses’
limitations that prevent an arbitrator from awarding extra
contractual damages and punitive or exemplary damages. ''
Principles of justice and fair play, however, lead to the
conclusion that one party unilaterally cannot alter post litem
motam terms of an agreement so that a case is dismissed. Cf
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52,
56-57, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) (“{I}f the
contract says ‘no punitive damages,’ that is the end of the
matter, for courts are bound to interpret contracts in
accordance with the expressed intentions of the parties —
even if the effect of those intentions is to limit arbitration.”).
The Court rejects United’s attempted waiver.
B. Foundation
Foundation Health Systems, Inc. (“Foundation”)
references four agreements that contain arbitration clauses in
moving to compel plaintiff Dennis Breen, M.D. to arbitrate.
Because three of the four agreements are enforceable, the
Court shall compel Dr. Breen to advance all of his claims,
except the conspiracy and aiding and abetting claims that
stem from contractual relationships with other managed care
companies, in accordance with the parties’ contracted
arbitration agreement.
Foundation argues that an arbitration clause in the
Sutter Agreement, entered into between Health Net and
Sutter Independent Physicians as a Participating Medical
'! No such waiver has been proffered concerning the statute of
enieeel ro
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Group, requires that Dr. Breen’s claims be arbitrated.'? This
agreement calls for arbitration of all grievances between the
parties. Costs are split between the parties, unless assessed
differently by an arbitrator. Fees are advanced by the
initiating party.
The one potentially objectionable part of this
agreement. is the mandate that fees are advanced by the
initiating party. The initiate fee mandate may result in the
concern raised in Paladino and Randolph that hefty fees
because there are two other enforceable arbitration clauses
withor * a provision mandating that the fees be advanced by
under the other two agreements so that Dr. Breen is not
required to advance the fees as the initiating party.
The two other agreements that contain an arbitration
clause are: (1) Physicians Services Agreement between
Health Net and Foundation Health Systems Affiliates and
Dr. Breen, and (2) Champus/Tricare Prime and Extra
Professional Provider Agreement between Foundation
Health Systems Affiliates and Dr. Breen. The Physicians
Services Agreement calls for arbitration of claims arising in
tort, contract, or otherwise. The arbitration shall be
governed by the California Arbitration Act. The
Champus/Tricare Agreement states that any problems or
For the reasons discussed in Section I(D), Dr. Breen may not
frustrate the agreement to arbitrate by claiming that he is a nonsignatory
to the agreement. Dr. Breen’s allegations “touch matters” relating to this
arbitration agreement, aad Dr. Breen is affiliated with Sutter
Physicians. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346; MS
Dealer, 177 F.3d at 947. Likewise, the Foundation Defendants are
ee eT en ay ay er ome
A-34
disputes relating to the agreement are to be arbitrated. The
prevailing or substantially prevailing party’s costs shall be
Dr. Breen’s allegations against Foundation are
Champus/Tricare Agreement. Accordingly, the Court shall
compel Dr. Breen to arbitrate all of his claims against
Foundation, excluding conspiracy and aiding and abetting
claims that stem from contractual relationships with other
managed care companies.
Lastly, for purposes of clarity to the future arbitrator,
the Court finds unenforceable the fourth arbitration clause
proffered by Foundation, located in the CHW Agreement
between Foundation Health Systems Affiliates and CHW
Medical Foundation as a Participating Medical Group. This
arbitration agreement provides for a six month statute of
limitations to bring arbitration, and divests the arbitrator of
the ability to award punitive damages. For the various
reasons addressed above, an arbitration clause with these
limitations is unenforceable. Nonetheless, the Court will
in the Physicians Services Agreement and the
Champus/Tricare Agreement. .
C. WellPoint
WellPoint Health Networks Inc. (“WellPoint”) seeks to
compel arbitration of Dr. Breen’s allegations against it based
upon an arbitration agreement found in a Provider
Agreement between Dr. Breen and WellPoint’s subsidiary,
Blue Cross of California. The arbitration clause provides
first for a meet-and-confer process followed by arbitration.
The clause governs any problems or disputes concerning the
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agreement. The arbitration shall be governed by AAA, and
there is no limitation on damages or the types of disputes that
may be brought.
The Court finds nothing objectionable with this
arbitration clause, in view of the Court’s holdings in Section
I. Dr. Breen’s allegations against WellPoint arise from this
agreement. There are no impediments that this Court is
aware of that would prevent Dr. Breen from having all of his
claims against WellPoint meaningfully resolved in an
arbitration forum, except for conspiracy and aiding and
abetting claims that stem from contractual relationships with
other managed care companies.
D. Prudential
Prudential Insurance Company of America
(“Prudential”) moves to compel arbitration of Dr. Porth’s
claims against it based upon a Participating Physician
Agreement between Dr. Porth and Prudential Health Care
Plan, Inc. and/or its affiliates. Dr. Porth opposes this motion
on the ground that the arbitration mandate in this agreement
is optional. An examination of this arbitration clause
indicates that both parties should have proceeded differently
in handling this dispute, but ultimately leads to the
conclusion that Dr. Porth must follow the dispute resolution
procedures agreed upon between the parties. For the reasons
discussed below, Dr. Porth must mediate or arbitrate the
allegations against Prudential presently before the Court,
except for conspiracy and aiding and abetting allegations that
companies.
Article IX of the Participating Physician Agreement,
titled “Arbitration,” contains three subsections. Section A
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provides that the exclusive methods for resolving disputes
concerning the parties’ agreement are “negotiation,
mediation, and/or arbitration.” Section B, “Mediation,”
states that if a dispute arises and the parties cannot settle the
dispute through negotiation, then either party may elect to
submit the dispute to a sole mediator. If the parties cannot
resolve the dispute within sixty days from the start of
mediation, “either party may elect to submit the dispute to
binding arbitration.” Lastly, Section C, “Arbitration,”
provides the ground rules for arbitration, none of which lead
to a finding that the arbitration clause is unenforceable.
Dr. Porth bases his argument that the arbitration clause
is optional on the use of “and/or” language in Section A, as
well as the preamble to Section C, which states “If the
parties agree to binding arbitration...”
The Court finds that this agreement provides for three
different forms of dispute resolution to be the exclusive
use of “and/or” language in Section A documents that these
forms of dispute resolution are options; an aggrieved party is
not required by this agreement to avail himself of all three
options. Either party may initiate the dispute resolution
procedures through negotiation, or both parties can agree at
the onset to arbitration. In the present scenario, neither party
of how both parties chose to proceed is instructive in
determining how to resolve Prudential’s motion to compel
A-37
avail itself of the dispute resolution procedures discussed
above. Rather, Prudential unilaterally sought to compel
both parties to agree to arbitrate. The only unilateral power
Prudential possessed was to compel mediation after
negotiation proved unsuccessful. A more prudent approach
for Prudential, based upon the parties’ agreement, would
have been to initiate negotiation. While negotiation probably
would have been futile, it would have given Prudential
unilateral power to submit the dispute to mediation. If
mediation proved unsuccessful after sixty days, then
Prudential would have the unilateral power to force
arbitration, as per the parties’ agreement.
Likewise, Dr. Porth did not follow the parties’ agreed
upon dispute resolution procedures. Dr. Porth would have
ssn aiibepeutintiarinedbaltth dine extuiien én
conspiracy and aiding and abetting allegations stemming
from contractual relationships with other managed care
companies, by following the agreed upon dispute resolution
procedures. If negotiations proved futile, Dr. Porth could
have unilaterally compelled mediation. If mediation was
unsuccessful after sixty days, then Dr. Porth would have had
the unilateral power to compel arbitration.
At bottom, both parties agreed to have the
aforementioned dispute resolution procedures exclusively
govern their disputes. Accordingly, the Court must honor
this commitment. Dr. Porth is ordered to foliow the agreed
procedurés to resolve the present dispute, excluding
conspiracy and aiding and abetting allegations that stem
from contractual relationships with other managed care
companies, which this Court retains jurisdiction to hear. Dr.
Porth is free to attempt to negotiate. If such negotiation is
unsuccessful, Dr. Porth is free to compel mediation or
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arbitration. Prudential already has consented to arbitration,
but Dr. Porth has the option of mediation or arbitration--as
the parties agreement only permits arbitration at this stage of
the dispute resolution process by mutual agreement.
E. CIGNA
CIGNA Corporation, Connecticut General
Corporation, and CIGNA Health Corporation (“CIGNA”)
move to compel both Drs. Porth and Kelly to arbitrate their
disputes with CIGNA. Dr. Porth consented to arbitration in
a Physician Managed Care Agreement between Dr. Porth
and CIGNA HealthCare of Florida, Inc.'’ Section O(2) of
the agreement states that “(a]rbitration shall be the exclusive
remedy for the settlement of disputes arising under this
Agreement.” There is no language limiting the authority of
the arbitrator to award damages; fees and costs shall be split
between the parties, and AAA governs. .
The Court finds that Dr. Porth has agreed to arbitrate
raise any concerns with respect to its enforceability. There is
no reason for this Court to frustrate the parties’ agreement.
All of Dr. Porth’s claims can be meaningfully adjudicated in
an arbitration forum, except for conspiracy and aiding and
abetting claims that stem from contractual relationships with
other managed care companies, which the Court retains
jurisdiction to hear.
With respect to Dr. Kelly, CIGNA proffers two
agreements that allegedly contain arbitration clauses in
moving to compel arbitration. CIGNA directs the Court’s
2 Dr. Porth’s allegations against CIGNA “touch matters” relating to
this agreement. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346.
A-39
attention to a Physician Managed Care Agreement between
Dr. Kelly and CIGNA HealthCare of Colorado, Inc., and a
Specialist Physician Agreement between Dr. Kelly and
CIGNA HealthCare of Colorado, Inc.'*
The Physician Managed Care Agreement contains a
dispute resolution section that states that all grievances and
complaints between the parties shall be resolved in
accordance with the dispute resolution procedures in the
applicable Program Requirements. The Program
Requirements mandate that the parties negotiate to resolve
disputes. If negotiation fails, the parties are referred back to
the Physician Managed Care Agreement, which does not
give any direction as to how to proceed if negotiation does
not resolve the dispute.
The Specialist Physician Agreement does not suffer
from the same infirmity. Section G of this agreement states
that any dispute that arises concerning this agreement shall
be sent to arbitration. AAA governs, and each party pays
half the costs of the proceeding.
Thus, the Court is faced with a scenario where the
Physician Managed Care Agreement does not require
arbitration, while the Specialist Physician Agreement
requires arbitration. Accordingly, Dr. Kelley’s claims that
relate to the Specialist Physician Agreement shall be
arbitrated, except for conspiracy and aiding and abetting
allegations that stem from contractual relationships with
other managed care companies. Dr. Kelly’s claims that
relate to the Physician Managed Care Agreement may
proceed before this Court.
'* Dr. Kelly’s allegations “touch matters” relating to these agreements.
Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346.
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F. PacifiCare
PacifiCare Health Systems, Inc. and PacifiCare
Operations, Inc. (“PacifiCare”) seek to compel Dr. Breen to
arbitrate his claims against PacifiCare, and bases its
argument on two agreements: (1) Term Sheet between
Sutter Health and PacifiCare of California, and (2) PMG
Commercial Risk Agreement between Sutter Independent
Physicians and PacifiCare of Florida. Dr. Breen counters by
arguing that the Term Sheet does not apply to his claims
against PacifiCare.
While the Court disagrees with Dr. Breen’s contention,
this issue is nondispositive of PacifiCare’s motion to compel
arbitration because the PMG Commercial Risk Agreement
contains substantially the same language in its arbitration
clause as the Term Sheet’s arbitration clause.'° 4s such,
analysis of the PMG Commercial Risk Agreement’ will be
dispositive of whether Dr. Breen’s claims shall be arbitrated
or litigated in front of the undersigned.
Both arbitration agreements contain broad language
indicating that the parties intended for “any controversy,
dispute, or claim arising out of the agreement” to be
arbitrated. However, both agreements prohibit the arbitrator
from awarding punitive damages. Thus, we are faced with a
potential Paladino situation, discussed earlier within the
context of United’s motion to compel arbitration (Section
'S For the reasons discussed in Section I(D), Dr. Breen may not
frustrate the agreement to arbitrate by claiming that he is a nonsignatory
to the PMG Commercial Risk Agreement, or the Term Sheet for that
matter. Dr. Porth’s allegations “touch matters” relating to both of these
arbitration agreements, and he is affiliated with Sutter Independent
Physicians. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346; MS
Dealer, 177 F.3d at 947.
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II(A)), where the plaintiff may not be able to obtain
meaningful relief for allegations of statutory violations in an
arbitration forum. However, this agreement is
distinguishable from the United scenario because the
PacifiCare agreements do not impose a shortened statute of
limitations.
Accordingly, the Court will not compel Dr. Breen to
arbitrate his RICO claims against PacifiCare due to the
arbitrator’s inability to impose punitive (treble) damages.
All other statutory and non-statutory claims shall be
arbitrated, except for the conspiracy and aiding and abetting
claims that stem from contractual relationships with other
managed care companies.
Ill. ANALYSIS OF INDIVIDUAL ARBITRATION CLAUSE TO
DETERMINE WHETHER TO COMPEL ARBITRATION IN
SUBSCRIBER TRACK CASE INVOLVING PACIFICARE
PacifiCare Health Systems, Inc. (“PacifiCare”) also
moves to compel subscriber track plaintiff Debbie Hitsman
to arbitrate her claims raised in the instant litigation.
PacifiCare bases its argument on an arbitration clause in a
Master Group Service Agreement between MCI-WorldCom,
Inc. (“MCT”) and PacifiCare- Oklahoma. Plaintiff Hitsman,
as an MCI employee, became bound by the terms of the
agreement when she enrolled in PacifiCare HMO.
The dispute resolution process in the Master Group
Service Agreement provides in § 7.01 that a dispute “relating
to the performance of this Agreement by PacifiCare and
Member” shall first be submitted to an internal dispute
resolution process to resolve the dispute in a non-
adjudicative setting. § 7.02 provides that any dispute that is
not resolved through the dispute resolution process described
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in § 7.01 “shall have the matter resolved by binding
arbitration by a single arbitrator.” JAMS/Endispute shall
arbitrate, and its rules shall govern. The fees and expenses
of the arbitrator and neutral administrator shall be divided
equally among the disputants. Oklahoma law governs, and
the Federal Arbitration Act also applies.
Plaintiff Hitsman raises various defenses to
enforcement of the arbitration clause: (1) the arbitration
clause is invalid under Oklahoma law, (2) the present dispute
is beyond the scope of the arbitration clause, (3) ERISA
claims are not subject to arbitration, and (4) the clause is
unenforceable under Randolph and Paladino. For the
reasons discussed in Sections 1(B) and I(E) above, the
ERISA and Randolph and Paladino arguments are rejected.
With respect to the issue of invalidity under Oklahoma
law, the Court rejects that argument as well. Plaintiffs rely
upon Cannon v. Lane, 867 P.2d 1235 (Okla.1993), where the
Oklahoma Supreme Court invalidated an arbitration clause in
an HMO contract because it was a contract with reference to
insurance. Oklahoma law does not permit arbitration of
claims between an insurer and the insured, “except where
both the insured and insurer are insurance companies.” 15
Okla. Stat. §§ 801-18.
In Cannon, a state employee sued PacifiCare of
Oklahoma for failure to certify him for hemorrhoid surgery.
The court relied upon the Oklahoma statute, as well as the
common law policy that “agreements to submit future
controversies to arbitration are contrary to public policy(,]”
in refusing to enforce the arbitration clause. /d. at 1238.
The instant action is distinguishable from Cannon.
That case dealt with Oklahoma state law issues, while this
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case deals with federal claims pursuant to the FAA. The
Supreme Court has addresses this issue squarely in Perry v.
Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426
(1987). In Perry, the Court distinguished state laws that
concern the validity, revocability, and enforceability of
contracts generally, and state laws that take their meaning
precisely from the fact that a contract to arbitrate is at issue.
The FAA must defer to the former, but preempts the latter.
Id. at 491, 107 S.Ct. 2520 (“This clear federal policy places §
2 of the [FAA] in unmistakable conflict with California’s
§ 229 requirement that litigants be provided a judicial forum
for resolving wage disputes. Therefore, under the
Supremacy Clause, the state statute must give way.”). For
example, a federal court would apply state law regarding
duress and inducement in determining the validity of an
arbitration clause because it concerns the validity and
enforceability of the contract; however, the court would not
concern itself with a state law that invalidates a specific class
of cases, such as stock fraud or insurance claims. Jd. at 489,
107 S.Ct. 2520. Accordingly, the Oklahoma statute that
prevents arbitration of insurance claims is of no assistance to
Ms. Hitsman in the instant action.
Plaintiff's remaining argument, that the dispute is
beyond the scope of the arbitration clause, is also rejected.
Plaintiff argues, by focusing on the language of § 7.01, that
the arbitration clause is limited to the denial of claims
relating to the performance of the agreement. § 7.02 only
mandates arbitration for disputes “not resolved by the above
appeals and dispute resolution processes....” Plaintiff posits
that her allegations concerning systemic violations by
PacifiCare (that speak to violations of RICO and ERISA) are
not covered by the arbitration clause. PacifiCare counters by
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highlighting the preamble of § 7.02, “Any claim,
controversy, dispute or disagreement...”
The difficulty with Plaintiff's argument is two-fold.
First, this Court is not persuaded that the arbitration clause at
issue is limited only to denial of claims, particularly in view
of the broad, all-encompassing preamble of § 7.02. Second,
and perhaps more importantly, the FAA has a presumption in
favor of arbitration, as propounded by the Supreme Court.
Moses H. Cone Memo. Hosp. v. Mercury Const. Corp., 460
US. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This Court is
required to resolve any doubt “concerning the scope of
arbitrable issues ... in favor of arbitration...” Id. at 24-25,
103 S.Ct. 927. Accordingly, this argument is rejected as
well.
The parties entered into a valid arbitration agreement to
resolve all disputes concerning the Master Group Service
Agreement. Plaintiff must have all of her claims agains’
PacifiCare resolved through arbitration.
CONCLUSION
Therefore, it is
ADJUDGED that PacifiCare’s Motion to Compel
Arbitration of Subscriber Track Plaintiff Debbie Hitsman’s
claims (D.E. No. 76), filed on July 14, 2000, is GRANTED.
All of Ms. Hitsman’s claims against PacfiCare shall be
arbitrated. It is also
ADJUDGED that PacifiCare’s Motion to Compel
Arbitration of Provider Track Plaintiff Dennis Breen, M.D.’s
claims against PacifiCare (D.E. No. 257), filed on
September 8, 2000, is GRANTED in part and DENIED in
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part. All of Dr. Breen’s claims against PacfiCare shall be
arbitrated, except for (1) RICO claims and (2) conspiracy
and aiding and abetting claims that stem from contractual
relationships with other managed care companies. It is also
ADJUDGED that Prudential’s Motion to Compel
Arbitration of Provider Track Plaintiff Manual Porth, M.D.’s
claims against Prudential (D.E. No. 313), filed on September
22, 2000, is GRANTED in part and DENIED in part. All of
Dr. Porth’s claims against Prudential shall be arbitrated,
except for conspiracy and aiding and abetting claims that
stem from contractual relationships with other managed care
companies. It is also
ADJUDGED that Foundation’s Motion to Compel
Arbitration of Provider Track Plaintiff Dennis Breen, M.D.’s
claims against Foundation (D.E. No. 314), filed on
September 22, 2000, is GRANTED in part and DENIED in
part. All of Dr. Breen’s claims against Foundation shall be
arbitrated, except for conspiracy and aiding and abetting
claims that stem from contractual relationships with other
managed care companies. It is also
ADJUDGED that United’s Motion to Compel
Arbitration of Provider Track Plaintiffs Manual Porth,
M.D.’s and Glen L. Kelly, M.D.’s claims against United
(D.E. No. 319), filed on September 22, 2000, is GRANTED
in part and DENIED in part. The only claims that shall be
arbitrated are Dr. Porth’s and Dr. Kelly’s claims concerning
breach of contract and quantum meruit. All other claims
shall be litigated before the undersigned. It is also
ADJUDGED that CIGNA’s Motion to Compel
Arbitration of Provider Track Plaintiffs Manual Porth,
M.D.’s and Glen L. Kelly, M.D.’s claims against CIGNA
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(D.E. No. 323), filed on September 26, 2000, is GRANTED
in part and DENIED in part. All of Dr. Porth’s claims
against CIGNA shall be arbitrated, except for conspiracy and
relationships with other managed care companies. All of Dr.
Kelly’s claims against CIGNA stemming from the Specialist
Physician Agreement shall be arbitrated, except for
conspiracy and aiding and abetting claims that stem from
contractual relationships with other managed care
companies. However, all of Dr. Kelly’s claims against
CIGNA stemming from the Physician Managed Care
Agreement shall be litigated before the undersigned. It is
also ,
ADJUDGED that WellPoint’s Motion to Compel
Arbitration of Provider Track Plaintiff Dennis Breen, M.D.’s
claims against WellPoint (D.E. No. 457), filed on October
25, 2000, is GRANTED in part and DENIED in part. All of
Dr. Breen’s claims against WellPoint shall be arbitrated,
except for conspiracy and aiding and abetting claims that
stem from contractual relationships with othér managed care
companies.
DONE AND ORDERED in Chambers at Miami,
Florida, this 11" day of December, 2000.
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United States District Court
Southern District of Florida
Miami Division
In re: MANAGED CARE LITIGATION
This Document Relates to Provider Track Cases
No. MDL 1334
No. 00-1334-MD
Filed April 26, 2001
ORDER GRANTING IN PART PACIFICARE’S
MOTION TO COMPEL, AND ORDER MODIFYING
PRIOR ARBITRATION ORDER CONCERNING
FOUNDATION’S MOTION TO COMPEL
MORENO, District Judge.
THIS MATTER came before the Court upon
Defendants PacifiCare Health Systems, Inc. and PacifiCare
Operations, Inc.’s (“PacifiCare’s”) Contingent Supplemental
Motion to Compel Arbitration (D.E. No. 888), filed on
January 26, 2001.
THE COURT has considered the motion, responses,
and the pertinent portions of the record, and being otherwise
fully advised in the premises, it is
ADJUDGED that the motion is GRANTED in part for
the reasons addressed below. It is also
ADJUDGED that the Court’s prior arbitration order
(“Order”) dated December 11, 2000 is MODIFIED with
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respect to Foundation’s motion to compel arbitration for the
reasons addressed below.
contractual relationships with other managed care
companies. The RICO claims were deemed non-arbitrable
because the Sutter Agreement (PacifiCare) prevented the
arbitrator from awarding punitive (treble) damages.
PacifiCare now has filed a “Contingent Supplement Motion
to Compel Arbitration” based upon Dr. Breen’s affiliation
with Mercy Medical Foundation through Golden State
Physicians (the “Mercy Agreement”), as well as for other
reasons addressed in Part II.
1. ARBITRATION OF DR. BREEN’S CLAIMS AGAINST
PACIFICARE UNDER MERCY AGREEMENT, AND
MODIFICATION OF ORDER CONCERNING
FOUNDATION’S MOTION TO COMPEL ARBITRATION
clause does not prevent an arbitrator from awarding punitive
damages. Thus, PacifiCare moves the Court to compel
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Dr. Breen to arbitrate all claims arising out of the Mercy
Agreement.
The Court now is presented with a situation where the
litigants have entered into two different contracts that
faced with precisely the same scenario in its prior Order with
respect to Dr. Kelly’s claims against CIGNA, as well as a
somewhat similar scenario concerning Dr. Breen and
Foundation. After reviewing its prior Order, it appears that
the Court did not resolve these two matters consistently.
With CIGNA there was a Specialist Physician Agreement
(“Specialist Agreement”) and a Physician Managed Care
Agreement (“Physician Agreement”). The Specialist
Agreement mandated arbitration for the majority of
Dr. Kelly’s claims, while the Physician Agreement did not
mandate arbitration. The Court ruled that Dr. Kelly’s claims
that stem from the Specialist Agreement shall be arbitrated,
while his claims that stem from the Physician Agreement
shall be litigated before the undersigned.
However, with Foundation and Dr. Breen the Court
analyzed four agreements between the litigants: (1) Sutter
Agreement between Health Net and Sutter Independent
Physicians as a Participating Medical Group (“Sutter
Agreement (Foundation)”), (2) Physicians Services
Agreement between Health Net and Foundation Health
Systems Affiliates and Dr. Breen (“Physicians Services
Agreement”), (3) Champus/Tricare Prime and Extra
Professional Provider Agreement between Foundation
Health Systems Affiliates and Dr. Breen (“Champus/Tricare
Agreement”), and (4) CHW Agreement between Foundation
‘© Except as modified by this Order, the Court incorporates by
reference its prior arbitration Order.
Sutter Agreement (Foundation) that required Dr. Breen to
advance the arbitration fees as the initiating party, in view of
the Eleventh Circuit’s concern that steep filing fees and costs
could prevent meaningful relief through arbitration.
y. Green Tree Fin. Corp., 178 F.3d 1149 (llth
Cir.1999) rev'd in part Green Tree Fin. Corp. v. Randolph,
§31 U.S. 79 (2000). The Court found the arbitration clauses
in the Physicians Services Agreement and the
arbitratc; from awarding punitive damages and a six month
statute of limitations to institute arbitration. But the Court
did not, at that time, retain jurisdiction over Dr. Breen 's
claims that stemmed from the Sutter Agreement
AT &T Tech. v. Communications Workers of Am., 475 US.
643, 648-49 (“[A]rbitration is a matter of contract and @
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party cannot be required to submit to arbitration any dispute
which he has not agreed so to submit.”) (citation omitted);
Morewitz v. West of England, 62 F.3d 1356, 1365 (11th
Cir.1995) (expressing reluctant to mandate arbitration where
the parties did not bargain to do so); Goldberg v. Bear
Stearns & Co., 912 F.2d 1418, 1419 (ilth Cir.1990)
(holding that parties will not be required to arbitrate disputes
that they have not agreed to arbitrate, despite federal
presumption in favor of arbitration).
Accordingly, Dr. Breen’s claims against PacifiCare
that stem from the Mercy Agreement, including RICO
claims, shall be arbitrated. However, Dr. Breen’s RICO
claims against PacifiCare that stem from the Sutter
Agreement (PacifiCare) shall be litigated before the
undersigned, as ruled upon in the Court’s pnor Order,
because the arbitrator may not award punitive damages
under that arbitration agreement. This holding has no impact
on the Court’s prior ruling that aiding and abetting and
conspiracy claims lodged against PacifiCare that stem from
contractual relationships with other managed care companies
are to be litigated before the undersigned.
In view of the Court’s holding today, the Court now
must modify its prior Order with respect to Foundation’s
motion to compel arbitration. As discussed above, the Court
compelled Dr. Breen to arbitrate all of his claims against
Foundation based upon two arbitration agreements. The
to determine whether to compel arbitration of Dr. Breen’s
claims that stem from the Sutter Agreement (Foundation)
and CHW Agreement.
In view of the Supreme Court’s holding in Green Tree
Fin. Corp. v. Randolph, 531 U.S. 79 (2000), the Court’s
compel Dr. Breen to arbitrate all claims that stem from the
Sutter Agreement (Foundation). However, the concerns
claims that stem from the CHW Agreement due to the
arbitrator’s inability to award punitive (treble) damages. All
of Dr. Breen’s other claims stemming from this agreement
shall be arbitrated. This ruling likewise has no impact on the
Court’s prior holding that aiding and abetting and conspiracy
claims lodged against Foundation that stem from contractual
relationships with other managed care companies are to be
litigated before the undersigned.
Il. WHETHER TO COMPEi ARBITRATION OF DRS.
BURGESS, KELLY, BOOK, AND Davis’ CLAIMS
AGAINST PACIFICARE
PacifiCare also files the instant motion to compel
arbitration with respect to Drs. Burgess, Kelly, Book, and
Davis’ claims against PacifiCare. PacifiCare has reviewed its
Amended Complaint (the “Complaint”) indicates that, with
one exception, none of these doctors have lodged any claims
against PacifiCare that stem from the parties’ agreements.
Rather, these doctors only allegations against PacifiCare
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from contractual relationships with other managed care
companies. Thus, the Court finds no justification to compel
arbitration between these doctors and PacifiCare based upon
the parties’ agreements, which are not at issue in the instant
lawsuit.
However, Dr. Book alleges in the Complaint a
contractual relationship with PacifiCare, and PacifiCare
proffers the parties’ Southwest Florida Agreement, which
contains an arbitration clause, to support its motion to
compel arbitration. This agreement prevents an arbitrator
from awarding punitive (treble) damages. Thus, the Court
finds this agreement quite similar to the agreement discussed
above between PacifiCare and Sutter Health involving
Dr. Breen. Accordingly, the Court shall compel arbitration
of all of Dr. Book’s claims against PacifiCare, except for
RICO claims and aiding and abetting and conspiracy claims
that stem from contractual relationships with other managed
care companies.
Lastly, as is apparent from the Court’s rulings today,
the Court declines PacifiCare’s invitation to revisit the issue
of whether the Court should compel arbitration of aiding and
abetting and conspiracy allegations that stem from
contractual relationships with other managed care
companies. These claims shall be litigated before the
undersigned, as there is no arbitration agreement between the
parties concerning these types of claims and the justification
for invoking the doctrine of equitable estoppel is not present
here. Moreover, the Court will not stay this lawsuit pending
appellate review of a portion of its prior Order or the
resolution of any arbitrations that either are occurring
presently or may occur in the future.
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III. CONCLUSION
In sum, Dr. Breen’s claims against PacifiCare that stem
from the Mercy Agreement shall be arbitrated, including
RICO claims. The prior arbitration Order is modified so that
Dr. Breen’s claims against Foundation that stem from the
Sutter Agreement (Foundation) shall be arbitrated, but the
Court retains jurisdiction to hear Dr. Breen’s RICO claims
against Foundation that stem from the CHW Agreement.
Dr. Book’s claims against PacifiCare, except RICO claims
and aiding and abetting claims that stem from contractual
relationships with other managed care companies, shall be
arbitrated. Today’s ruling does not impact the Court’s pnor
holding that aiding and abetting and conspiracy claims that
stem from contractual relationships with other managed care
companies shall be litigated before the undersigned. There
shall be no stay of this multi-district litigation while certain
defendants appeal the Court’s ruling concerning partial
denial of motions to compel certain plaintiffs to arbitrate
their allegations lodged against them, nor shall there be a
stay while certain defendants arbitrate a portion of certain
plaintiffs’ allegations.
DONE AND ORDERED in Chambers at Miami,
Florida, this 25" day of April, 2001.
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UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 01-10247-CC & 01-12596-CC
In re: HUMANA INC. MANAGED CARE L!ITIGATION
Price Plaintiffs, Price, Sessa, Katz & Yingling, Sandra
Johnson, Patricia Freyre, Regina Joi Price, Anthony Sessa,
Amold Katz, et al.,
Plaintiffs-Appellees,
Vv.
Humana Insurance Company, Coventry Health Care of
Georgia, Inc., f.k.a. Principal Health Care of Georgia, Inc.,
Principal Health Care, Inc., et al.,
Defendants,
PacifiCare Health Systems, Inc., PacifiCare Operations, Inc.,
United Health Care, United Health Group, Foundation
Health Systems, Inc., Wellpoint Health Networks, Inc.,
Prudential Insurance Company of America,
Defendants-Appellants.
On Appeal from the United States District Court
for the Southern District of Florida.
Filed June 21, 2002
Before: BARKETT, FAY and WINTER, Circuit Judges.
PER CURIAM:
The Petition(s) for Rehearing are DENIED and no Judge in
regular active service on the Court having requested that the
Court be polled on rehearing en banc (Rule 35, Federal Rule
of Appellate Procedure), the Petition(s) for Rehearing En
Banc are DENIED.
* _ Honorable Ralph K. Winter, U.S. Circuit Judge for the Second
Circuit, sitting by designation.
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FEDERAL STATUTES INVOLVED IN THIS CASE
9 U.S.C. §2. Validity, irrevocability, and enforcement of
agreements to arbitrate
A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such
contract or transaction, or the refusal to perform the whole or
any part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.
9 U.S.C. §4. Failure to arbitrate under agreement;
petition to United States court having
jurisdiction for order to compel
arbitration; notice and service thereof;
hearing and determination
A party aggrieved by the alleged failure, neglect, or refusal of
another to arbitrate under a written agreement for arbitration
may petition any United States district court which, save for
such agreement, would have jurisdiction under Title 28, in a
civil action or in admiralty of the subject matter of a suit
arising out of the controversy between the parties, for an
order directing that such arbitration proceed in the manner
provided for in such agreement. Five days’ notice in writing
of such application shall be served upon the party in default.
Service thereof shall be made in the manner provided by the
Federal Rules of Civil Procedure. The court shall hear the
parties, and upon being satisfied that the making of the
agreement for arbitration or the failure to comply therewith is
not in issue, the court shall make an order directing the
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parties to proceed to arbitration in accordance with the terms
of the agreement. The hearing and proceedings, under such
agreement, shall be within the district in which the petition
for an order directing such arbitration is filed. If the making
of the arbitration agreement or the failure, neglect, or refusal
to perform the same be in issue, the court shall proceed
summarily to the trial thereof. If no jury trial be demanded
by the party alleged to be in default, or if the matter in
dispute is within admiralty jurisdiction, the court shall hear
and determine such issue. Where such an issue is raised, the
party alleged to be in default may, except in cases of
admiralty, on or before the return day of the notice of
application, demand a jury tral of such issue, and upon such
demand the court shall make an order referring the issue or
issues to a jury in the manner provided by the Federal Rules
of Civil Procedure, or may specially call a jury for that
purpose. If the jury find that no agreement in writing for
arbitration was made or that there is no default in proceeding
thereunder, the proceeding shall be dismissed. If the jury
find that an agreement for arbitration was made in writing
and that there is a default in proceeding thereunder, the court
shall make an order summarily directing the parties to
proceed with the arbitration in accordance with the terms
thereof.
18 U.S.C. §1964. Civil remedies
(a) The district courts of the United States shall have
jurisdiction to prevent and restrain violations of section 1962
of this chapter by issuing appropriate orders, including, but
not limited to: ordering any person to divest himself of any
interest, direct or indirect, in any enterprise; imposing
reasonable restrictions on the future activities or investments
of any person, including, but not limited to, prohibiting any
person from engaging in the same type of endeavor as the
A-59
enterprise engaged in, the activities of which affect interstate
or foreign commerce; or ordering dissolution or
reorganization of any enterprise, making due provision for
the rights of innocent persons.
(b) The Attorney General may institute proceedings
under this section. Pending final determination thereof, the
court may at any time enter such restraining orders or
prohibitions, or take such other actions, including the
acceptance of satisfactory performance bonds, as it shall
deem proper.
(c) Any person injured in his business or property by
reason of a violation of section 1962 of this chapter may sue
therefor in any appropriate United States district court and
shall recover threefold the damages he sustains and the cost
of the suit, including a reasonable attorney’s fee, except that
no person may rely upon any conduct that would have been
actionable as fraud in the purchase or sale of securities to
establish a violation of section 1962. The exception
contained in the preceding sentence does not apply to an
action against any person that is criminally convicted in
connection with the fraud, in which case the statute of
limitations shall start to run on the date on which the
conviction becomes final.
(d) A final judgment or decree rendered in favor of the
United States in any criminal proceeding brought by the
United States under this chapter shall estop the defendant
from denying the essential allegations of the criminal offense
in any subsequent civil proceeding brought by the United
States.
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ARBITRATION AGREEMENTS BINDING BREEN AND
PACIFICARE REFERENCED IN 132 F. SUPP.2D 989.
Arbitration. Any controversy, dispute or claim arising
out of this Agreement which is not resolved pursuant to the
Provider Dispute Resolution Procedure specified above shall
be resolved by binding arbitration at the request of either
Party, in accordance with the Commercial Rules of the
American Arbitration Association. Such arbitration shall
occur in Sacramento, California, unless the Parties mutually
agree to have such proceeding in some other locale. The
arbitrator shall apply California substantive law and federal
substantive law where state law is preempted. Civil
discovery for use in such arbitration may be conducted in
accordance with the provisions of California law, and the
arbitrator selected shall have the power to enforce the rights,
remedies, duties, liabilities and obligations of discovery by
the imposition of the same terms, conditions and penalties as
can be imposed in like circumstances in a civil action by a
court of competent jurisdiction of the State of California.
California Civil Code Section 1283.05, the provisions of
California law concerning the right to discovery and the use
of depositions in arbitration are incorporated herein by
reference and made applicable to this Agreement.
The arbitrator shall have the power to grant all legal
and equitable remedies and award compensatory damages
provided by California law, except that punitive damages
shall not be awarded. The arbitrator shall prepare a decision
in writing.
Notwithstanding the above, in the event either Medical
Group or PacifiCare wishes to obtain injunctive relief or a
temporary restraining order, such Party may initiate an action
for such relief in a court of general jurisdiction in the State of
A-61
California. The decision of the court with respect to the
requested injunctive relief or temporary restraining order
shall be subject to appeal only as allowed under California
law. However, the courts shall not have the authority to
review or grant any request or demand for damages.
S.D.Fla. Docket #1000, Ex. A, at pp. 12-13 & Ex. B, at p. 20
(included in 11" Circuit Excerpts of Record for Appeal No.
01-10247-CC).
ARBITRATION AGREEMENT BINDING BOOK AND
PACIFICARE REFERENCED IN 143 F. SupP.2D 1371.
10.03 ARBITRATION - Any controversy or claim
arising out of, or relating to, this Agreement, or the breach
thereof, or with respect to any of the documents executed in
conjunction herewith, that cannot be resolved through the
PacifiCare Provider Grievance Process as spelled out in the
PacifiCare Provider Policy and Procedure Manual or that
cannot be resolved using the state of Florida’s Benefit and
Payment Policy, shall be settled by Arbitration in accordance
with the commercial rules of the American Arbitration
Association. Such arbitration shall occur in Lee County,
Florida, unless the parties mutually agree to have such
proceeding in some other locale. Civil discovery shall be
permitted under the term [sic) of Florida law.
Upon submission of a dispute to the American
Arbitration Association, PacifiCare and PHYSICIAN agree
to be bound by the rules of procedure and decision of the
American Arbitration Association. The arbitrator shall have
the power to grant all legal and equitable remedies and
award compensatory damages provided by Florida law, but
shall not have the power to award punitive damages. The
arbitrator shall prepare in writing and provide the parties an
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award including factual findings and the legal basis and other
reasons on which the award is based. The arbitrator shall not
have the power to commit errors of law or legal reasoning.
Judgment upon the award rendered may be entered in any
court having jurisdiction thereof.
S.D.Fla. Docket #1075, Leal Dec. Ex. A, at p. 20 (included
in 11 Circuit Excerpts of Record for Appeal No. 01-12596-
CC).
ARBITRATION AGREEMENT BINDING KELLY AND UNITED
REFERENCED IN 132 F. SuUPP.2D 989.
Plan or Payor and Physician will work together in good
faith to resolve any disputes about their business
relationship. If the parties are unable to resolve the dispute
within 30 days following the date one party sent written
notice of the dispute to the other party, and if Plan,
Physician, or any Payor that has consented in writing to
binding arbitration wishes to pursue the dispute, it shall be
submitted to binding arbitration in accordance with the rules
of the American Arbitration Association. In no event may
arbitration be initiated more than one year following the
sending of written notice of the dispute. Any arbitration
proceeding under this Agreement shall be conducted in
Arapahoe County, Colorado. The arbitrators may construe
or interpret but shall not vary or ignore the terms of this
Agreement, shall have no authority to award any punitive or
exemplary damages, and shall be bound by controlling law.
If the dispute pertains to a matter which is generally
administered by certain Plan procedures, such as
credentialing or quality improvement plan, the procedures
set forth in that plan must be fully exhausted by Physician
before Physician may invoke his or her right to arbitration
under this section. The parties acknowledge that because
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this Agreement affects interstate commerce the Federal
Arbitration Act applies.
S.D.Fla. Docket #321, Ex. C, at §8 (included in 11" Circuit
Excerpts of Record for Appeal No. 01-10247-CC).
ARBITRATION AGREEMENT BINDING PORTH AND UNITED
REFERENCED IN 132 F. SuPP.2D 989.
The parties shall work together in good faith to resolve
any disputes about their business relationship. If the parties
are unable to resolve the dispute within 30 days following
the date one party sent written notice of the dispute to the
other party, and if either party wishes to pursue the dispute, it
shall be submitted to binding arbitration in accordance with
the rules of the American Arbitration Association. In no
event may arbitration be initiated more than one year
following the sending of written notice of the dispute. Any
arbitration proceeding under this Agreement shall be
conducted in Dade County, Florida. The arbitrators may
construe or interpret but shall not vary or ignore the terms of
this Agreement, shall have no authority to award
extracontractual damages of any kind, including punitive or
exemplary damages, and shall be bound by controlling law.
If the dispute pertains to a matter which is generally
administered by certain Plan procedures, such as
credentialing or quality improvement plan, the procedures
set forth in that plan must be fully exhausted by Medical
Group before Medical Group may invoke its right to
because this Agreement affected interstate commerce the
Federal Arbitration Act applies.
S.D.Fla. Docket #321, Ex. A, at §8 (included in 11" Circuit
Excerpts of Record for Appeal No. 01-10247-CC).
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.