Petition for Writ of Certiorari — United HealthCare of Ohio, Inc. v. Northern Kentucky Medical Society (No. 05-1466)

o

(\) Supreme Court U.S.

No. Q5 146 6MAY 74 2006

OFFICE OF THE CLEHK

IN THE

Supreme Court of the United States

UNITED HEALTHCARE OF OHIO, INC..,

Petitioner,

V.

NORTHERN KENTUCKY MEDICAL SOCIETY, ET AL.,

Respondents.

es

On Petition for Writ of Certiorari to the

Court of Appeals of Kentucky

PETITION FOR WRIT OF CERTIORARI

STEPHEN J. BUTLER GREGORY S. COLEMAN

THOMPSON HINE Counsel of Record

312 Walnut Street LISA R. ESKOW

14th Floor MELANIE P. SARWAL

Cincinnati, Ohio 45202 WEIL, GOTSHAL &

(513) 352-6700 MANGES LLP

8911 Capital of Texas Hwy.

DEBRA J. PEARLSTEIN

ELIZABETH M. AVERY ;

WEIL, GOTSHAL & Austin, Texas 78759

MANGES LLP (512) 349-1930

767 Fifth Avenue Counsel for Petitioner

New York, New York 10153

(212) 310-8000

Suite 1350

QUESTION PRESENTED

May a state court that is applying the Federal Arbitration

Act adopt a distinct test for the arbitrability of statutory and

tort claims that considers only whether the elements of those

claims reference the parties’ contract and ignores whether

they “touch matters” within the scope of the parties’ arbi-

tration agreement?

il

PARTIES TO THE PROCEEDINGS BELOW AND

CORPORATE DISCLOSURE STATEMENT

The parties to the proceedings in the Kentucky Court

of Appeals were plaintiffs-appellees Northern Kentucky

Medical Society, Academy of Medicine of Cincinnati,

E. Douglas Baldridge, M.D., P. Scott Becker, M.D., A. Lee

Greiner, M.D., Victor Schmelzer, M.D., Karl S. Ulicny,

M.D., and Raymond Will, M.D., and defendants-appellants

United HealthCare of Ohio, Inc., Anthem Health Plans of

Kentucky, Inc. d/b/a Anthem Blue Cross and Blue Shield, and

Aetna Health, Inc. Anthem and Aetna were dismissed from

the case by the Kentucky Supreme Court.

This petition is filed on behalf of United HealthCare of

Ohio, Inc. No publicly held companies own 10% or more of

United HealthCare of Ohio, Inc: United HealthCare of Ohio,

Inc. is owned 100% by United HealthCare Services, Inc.,

which in turn is owned 100% by UnitedHealth Group Inc., a

publicly held company.

TABLE OF CONTENTS

RTI FRIIS oaisiciinsciccsinncavcscensetcaasian -

Parties to the Proceedings Below and Corporate

CRANSTON novi cies sense ynesccscatsinensninespuiztanions ii

CUE GE FI iasikkiti aciomiiniiocueakiaieetommen iv

Opinions and Orders Below .............0ccceccscececseseeseeeeeees

i a a

3

4

Statutory Provisions Involved ...............ccccsscceessseeeeesees 3

IRIE OF TEI yoni: ices dndesenannaaiae 6

9

Reasons for Granting the Writ..................cccescseseeseeeeeees

I. Kentucky’s Arbitrability Standard Conflicts

with Established Arbitrability Principles

Articulated by This Court and the Federal

Courts of Appeals..................0 ROE CEE CR Ree 10

A. The National Policy Favoring Arbitration |

Applies Equally to State Courts................... 10

B. Kentucky’s Arbitrability Standard for Non-

Breach-of-Contract Claims Contravenes

Fundamental Principles for Analyzing

the Scope of FAA-Governed Arbitration

PI aikictsicsarctcinkiocooininienionticpiaieie 11

C. The Kentucky Standard Conflicts with the

Second Circuit’s Use of the Touch-Matters

Test for Price-Fixing Conspiracy Claims.... 14

D. The Kentucky Decision Contravenes the

Court’s Directive to Construe Arbitration

Agreements in Favor of Arbitration ............ 16

Il. Kentucky’s Hostility to Arbitration Invites

Gamesmanship and Forum Shopping................ 17

RII cain sak: iscictaiccesiaattcnitanlondnssuiecinpadieecapabasa mai Gotins 20

iV

TABLE OF AUTHORITIES

Cases

Acad. of Med. of Cincinnati v.

Aetna Health, Inc.,

842 N.E.2d 488 (Ohio 2006) .............eeeeeeeees 2, 8-9, 17

Acad. of Med. of Cincinnati v.

Aetna Health, Inc.,

800 N.E.2d 1185 (Ohio App. 2003), aff'd,

842 N.E.2d 488 (Ohio 2006) .......... eee eee. 8

Aiken v. World Fin. Corp. of S.C.,

623 S.E.2d 873 (S.C. App. 2005).................. 11,17, 18

Am. Safety Equip. Corp. v. J.P. Maguire & Co.,

SF) FOG Bet FAS U9GR) voscisinssconsiscssnscctans, 12

Anthem Health Plans of Ky., Inc. v.

Acad. of Med. of Cincinnati, Nos. 2003-CA-

000752-MR, 2003-CA-000753-MR, 2003-CA-

~ 000754-MR, 2004 Ky. App. LEXIS 315 (Ky.

App. Oct. 29, 2004), review denied sub nom.

Anthem Health Plans of Ky., Inc. v. Baldridge,

No. 2005-SC-0109-D (Ky. Feb. 15, 2006)........ 3-4

Brown v. ITT Consumer Fin. Corp.,

BER FSG EZET COAT Be ecco cieccasasstcnesiins 14

Cox Broad. Corp. v. Cohen,

SOE SE PID ceric arthinwiatigiriricactaseecicntes 4

Crown Homes, Inc. v. Landes,

27 Cal.Rptr.2d 827 (Cal. App. 1994)... 13

Dean Witter Reynolds, Inc. v. Byrd,

OES Be BNE tittsittsvncitcaimnsiiccmananin 16

Fazio v. Lehman Bros.,

SOE ME FG CRG As Pri nncicisapinvivstinemnnttaecsccs 13, 18

Fyrnetics (H1_K.) Ltd. v. Quantum Group, Inc.,

293 F350 UES FCAT BO iin eee ctisteirccncess 13-14, 18

Genesco; Inc. v. T. Kalcuchi & Co., Ltd.,

StS F.26 GAC CAL TO6F ) i vi sccicicsnccicsncs 13,14

Vv

TABLE OF AUTHORITIES

Gilmer v. Interstate/Johnson Lane Corp.,

Rk Me CUED hed sede ativcsadicvmaneesennns 3, 10, 12

Gregory v. Electro-Mech. Corp.,

ee ee ARIAS SB UD Pavsiaisvincavvantarinheinsninese 14

Hunt v. Up N. Plastics, Inc.,

980 F.Supp. 1046 (Minn. 1997) 0000. 13

In re Currency Conversion Fee Antitrust Litig.,

265 F.Supp.2d 385 (SDNY 2003)... 15

JLM Indus., Inc. v. Stolt-Nielsen S.A.,

Sa FO 1G) CAL DI iocsisivicinccciscauamet 3, 14,15

Kotam Elecs., Inc. v. JBL Consumer Prods., Inc.,

93 F.3d 724 (CAI1 1996) (en banc).................. 12

Loy v. Harter, |

128 S.W.3d 397 (Tex. App. 2004) ............... Li, 17,38

Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc.,

BFF Aes COW CAMO) ces sciicbsigescs saan bssasdotasicnenscn passim

Moses H. Cone Mem'l Hosp. v.

Mercury Constr. Corp., ]

soho LT, <p) | SORE P RRR S AORN EOD EBERT SoA TIN 12, 16

MS Credit Ctr. v. Horton, __ So0.2d _, No.

2004-CA-01699-SCT, 2006 WL 408415

SPINES Bh Sek PRN sc can ssaciiieds oxnsvghucnyiverccdsves 13

_ N.Y. Cross Harbor R.R. Terminal Corp. v.

Consol. Rail Corp.,

72 F.Supp.2d 70 (EDNY 1998).............6...c.006 13

Nghiem v. NEC Elecs., Inc.,

BP Ee BS EAI S FO ississaviccsvidsavcngerivestrioss | 12

PacifiCare Health Sys., Inc. v. Book,

Fe AOR MIO sashinksiticteceacchvices csdosiecsanionss he

Pennzoil Exploration & Prod. Co. v.

Ramco Energy Ltd.,

EAP Cee RARER RAED BPI cin cicnssnciscatsncnicsesannncis 14

Vi

TABLE OF AUTHORITIES

Seacoast Motors of Salisbury, Inc. v.

DaimlerChrysler Motors Corp.,

Be ed BREE eases tainncecenweichascncetsvgnntie 12

Shearson/Am. Express, Inc. v. McMahon,

GE BER Ue © NSIT) asccesicphscnsicnesnchsbospupenes ics a5 tay ee

Southland Corp. v. Keating,

ME RBA AAD cla tiensaadsins ends dvicahcchcavavtesbibaga solos 10, 19

United Steelworkers of Am. v.

Warrior & Gulf Navigation Co.,

Oe eo TI is vcccdcsiasedsthcarnnnrcanincaiands 16

Statutes & Rules

PRM Wasi Sinesk sears weve ane euesnbiactacecanune ROLES

RA acs We isavis bis catnkini dvatavehinsdunieivniAsitdakecseabackbinves

Ge BF sick diciitiiehiasdooninccbore a chal na ain eonnne 4-5,

Bee TITRA TR Roos kvchtsssuisdccnsevncisouponiioesseapalsiease

UE OO FLEA ciniprcstisvisinsnncansspaiocaqncsaen

ae) A ie SAE NA ee Reen oon see reurens wom teem

aris Ws RRMERET Ndi cncsicschuhesbinsous keumabecnianabiedesbunssninh

BR es Be Ns sceksien sss eiisihcicignasdeniein Garecrtvoiacnings

Oonatbrnrnna +

IN THE

Supreme Court of the United States

No.

—_

UNITED HEALTHCARE OF OHIO, INC.,

Petitioner,

V.

NORTHERN KENTUCKY MEDICAL SOCIETY, ET AL.,

Respondents.

On Petition for Writ of Certiorari to the

Court of Appeals of Kentucky

PETITION FOR WRIT OF CERTIORARI

The Court should grant the petition to halt a growing trend

in which state courts are determining the arbitrability of

statutory and tort causes of action using a test that egregiously

undermines the Federal Arbitration Act’s policy favoring

arbitration and the Court’s arbitration precedent. By focusing

restrictively on whether the elements of a claim reference

the parties’ contract, and not on whether the claims

“touch matters” within the scope of the parties’ arbitration

agreement, Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 625 n.13 (1985), the Kentucky

Court of Appeals disregarded the parties’ expressed intent to

arbitrate all disputes related to the parties’ business rela-

tionship. The court adopted a recent holding in parallel

litigation in Ohio against the same managed care defendants

2

concerning the same broad arbitration agreement, concluding

that state antitrust claims could not be arbitrated because the

elements of the claims did not reference the contract at

issue+-even though the contract embodied the precise price-

fixing conspiracy alleged as the antitrust violation. Under

this contract-reference rule of arbitrability, parties in

Kentucky and Ohio may evade their arbitration obligations

through artful pleading and semantics, even when the

substance of a claim unquestionably touches matters within

the scope of the parties’ agreement to arbitrate. The Court

should determine whether the FAA and the Court’s estab-

lished arbitrability principles permit that result.

Kentucky’s dangerous distortion of arbitration law is com-

pounded by the Ohio Supreme Court’s approval of the iden-

tical contract-reference test in Academy of Medicine of Cin-

cinnati v. Aetna Health, Inc., 842 N.E.2d 488 (Ohio 2006).

Because these two cases present the same arbitrability ques-

tion and, together, demonstrate a growing state-court trend,

United is simultaneously filing a petition for writ of certiorari

in the Ohio case that reiterates the arguments in this petition. '

The Kentucky and Ohio decisions assail the fundamental

premise of the federal arbitration system, which requires

courts to respect and enforce contracting parties’ agreements

not to litigate particular categories of disputes by designating

them for arbitration. In adopting a constrictive test for the

arbitrability of statutory and tort causes of action, the Ken-

tucky and Ohio courts ignored the Court’s consistent directives

that, under the FAA, arbitration agreements must be 1m-

plemented according to their negotiated terms, that they must

be interpreted with a presumption in favor of arbitra-

bility, and that broad arbitration agreements must be faith-

fully enforced to effectuate their liberal scope, rendering

' See Petition for Writ of Certiorari, United HealthCare of Ohio, Inc. v.

Acad. of Med. of Cincinnati (No. 05- ).

3

arbitrable all disputes involving allegations that touch matters

covered by the arbitration agreement. See, e.g., Mitsubishi,

473 US., at 625-626 & n.13.

Moreover, the Kentucky and Ohio decisions directly con-

flict with the Court’s explicit recognition of the arbitrability

of statutory causes of action in Mitsubishi, 473 U.S., at 614

(international antitrust claims), Shearson/American Express,

Inc. v. McMahon, 482 U.S. 220, 238, 242-243 (1987) (RICO

and §10(b) Securities Exchange Act clatms), Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (Age

Discrimination in Employment Act claims), and PacifiCare

Health Systems, Inc. v. Book, 538 U.S. 401, 407 (2003)

(RICO claims). The Kentucky and Ohio decisions also

specifically conflict with the Second Circuit’s analysis of

the arbitrability of price-fixing conspiracy claims; in par-

ticular, in JLM Industries, Inc. v. Stolt-Nielsen S.A., 387 F.3d

163 (CA2 2004).

Under Kentucky and Ohio’s unsupportable arbitrability

approach—which implements a standard previously applied

by Texas and South Carolina courts as well—these courts

now treat arbitration agreements differently than other state

and federal courts whenever litigants bring statutory and tort

claims without explicitly referencing the parties’ underlying

contract. This rule not only puts Kentucky and Ohio at odds

with other jurisdictions, but also invites gamesmanship and

forum shopping. The Court should grant the petition to

protect arbitral rights and halt the end run around arbitration

reflected by this growing state-court trend.

OPINIONS AND ORDERS BELOW

The Boone County Circuit Court denied defendants’

motions to compel arbitration and to dismiss or stay the

proces4'ngs in an unpublished opinion. See App. la. The

Kents«*» Court of Appeals’s decision is available at Anthem

Health Plans oj Kentucky, Inc. v. Academy of Medicine of

Cincinnati, Nos. 2003-CA-000752-MR, 2003-CA-000753-

4

MR, 2003-CA-000754-MR, 2004 Ky. App. LEXIS 315 (Ky.

App. Oct. 29, 2004), review denied sub nom. Anthem Health

Plans of Ky., Inc. v. Baldridge, No. 2005-SC-0109-D (Ky.

Feb. 15, 2006). See App. 4a. That court subsequently denied

a petition for rehearing in an unpublished order. See “App.

12a. The Kentucky Supreme Court denied discretionary

review in an unpublished order directing that the court of

appeals’s opinion not be published. See App. 13a..

JURISDICTION

The Kentucky Supreme Court denied discretionary review

on February 15, 2006. App. 13a. The Court has jurisdiction

under 28 U.S.C. §1257(a). See Cox Broad. Corp. v. Cohen,

420 U.S. 469, 482-483 (1975).

STATUTORY PROVISIONS INVOLVED

The enforcement provision of the Federal Arbitration Act

provides:

“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 controvergy 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. §2.

The FAA penmits parties to petition a court for an order com-

- pelling arbitration when another party does not arbitrate as

required by an arbitration agreement:

“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

5

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 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 trial 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 there-

under, 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.” 9 U.S.C. §4.

The relevant state antitrust statutory provision from

Kentucky appears in the appendix.

6

STATEMENT OF THE CASE

United HealthCare of Ohio, Inc., enters into provider

agreements with physicians and physician groups under

which the providers agree to accept rates established in the

contract when they treat individuals covered by health benefit

plans insured or administered by United. These contracts

establish and govern the parties’ relationships, including the

categories of medical services, claim-reimbursement proce-

dures, and fee schedules. The provider agreements require

United to reimburse contracting physicians who provide

covered services to members of United health plans and set

out the reimbursement rates for particuiar types of services.

Each of the respondents in this case is a party to a provider

agreement with United. In addiuon to setting fee schedules

that establish the reimbursement rates to be paid for medical

services provided to patients covered by United’s health

plans, each contract also addresses the possibility of dis-

agreements in the course of the parties’ relationship by

including an expansively worded arbitration clause that

mandates arbitration of “any disputes about their business

relationship.”” See App. 6a.

Six physicians and two medical associations practicing in

the Northern Kentucky/Greater Cincinnati area filed this state

antitrust suit against United and two other health care

companies.” The single-count, class-action complaint asserts

an antitrust claim under the Kentucky Consumer Protection

Act, Ky. REV. STAT. §367.175, alleging that the retmburse-

ment rates set by the contracts containing the parties’

arbitration clauses are unreasonably low as a result of a

* United’s provider contract with respondent Dr. A. Lee Greiner re-

quires arbitration of disputes that “arise out of or relate to” the contract.

See App. 2a.

*In the trial court, the defendants included Anthem Blue Cross and

Blue Shield and Aetna Health, Inc.

7

conspiracy among the defendant managed care companies

to fix prices in violation of state law. See Pls.’ Compl. 2-3, 5-

6, 11.

As remedies for the alleged wrongdoing, respondents seek

an injunction ordering United to cease and desist from the

alleged unlawful conspiracy to artificially depress physician

reimbursement rates reflected in the provider agreements and

to modify the parties’ contracts by setting reimbursement

rates at reasonable levels in relation to comparable regional

markets. /d., at 12. Respondents also seek damages for the

compensation they contend should have been paid beyond the

amount of the contractual reimbursement rates they received

for providing services. /bid.

Because the allegations center on the parties’ business

relationship, United and its codefendants invoked §4 of the

Federal Arbitration Act, 9 U.S.C. §4, and §417.060 of the

Kentucky Arbitration Act, Ky. REV. STAT. §417.060, to

compel arbitration of the claims under the parties’ arbitration

agreements. United and the other defendants also moved to

dismiss or, alternatively, to stay the proceedings pending

arbitration pursuant to §3 of the FAA, 9 U.S.C. §3, as well as

§417.060 of the Kentucky Arbitration Act, Ky. REv. STAT.

§417.060.

Limiting the scope of arbitration to contractual claims, the

trial court ruled that the price-fixing conspiracy claim was not

arbitrable. App. 2a. That court concluded that respondents’

antitrust claim did not “arise out of or relate to the contracts”

between the parties and that “the parties never agreed to

arbitrate claims that were independent of any breach of

contract.” /bid.

In parallel litigation in Ohio, another group of physicians

sued United and other managed care companies, alleging

violations of Ohio antitrust law based on the same rate-fixing

theory as in Kentucky. In that case, the Ohio Court of Ap-

peals applied the same contract-reference standard used by

8

the Kentucky trial court and held that the Ohio antitrust

claims were not arbitrable. See Acad. of Med. of Cincinnati

v. Aetna Health, Inc., 800 N.E.2d 1185 (Ohio App. 2003),

aff'd, 842 N.E.2d 488 (Ohio 2006).

Subsequently, on appeal of the Kentucky trial court’s

decision, the Kentucky Court of Appeals adopted, verbatim,

the reasoning of the Ohio appellate court and refused to

compel arbitration or stay the proceedings. App. 10a. Citing

a supposed “reluctance by the federal and state courts to

compel arbitration. of antitrust claims,’ and expressing its

belief that the “there is soundness in the reasoning that public

policy considerations favor judicial resolution,” App. 7a, 8a,

the court—through its incorporation of the Ohio opinion—

held that the Kentucky antitrust claims were not within the

scope of the arbitration agreements because the elements of

those claims did not reference the contracts. See App. 9a

(concluding that “[t}he express elements” of the price-fixing

claim “do not depend, as a matter of law, on the provider

agreements,” thus the claims against United were not

arbitrable (quoting Acad. of Med. of Cincinnati, 800 N.E.2d,

at 1187)).

Following the Kentucky decision, the Ohio Supreme Court

affirmed the Ohio Court of Appeals’s contract-reference

arbitrability test as an accurate reflection of federal law,

articulating an arbitrability standard for statutory and tort

causes of action identical tu that of Kentucky. Acad. of Med.

of Cincinnati, 842 N.E.2d, at 494. Two justices dis-

sented, reasoning that the majority’s arbitrability test

impermissibly deviated from pro-arbitration federal principles

by asking solely whether the plaintiffs’ claims referenced the

parties’ contract, rather than whether, in accordance with

Mitsubishi, 473 U.S., at 625 n.13, the claims touch matters

that fall within the scope of the parties’ broad agreement to

arbitrate disputes about their business relationship. See Acad.

9

of Med. of Cincinnati, 842 N.E.2d, at 495-496 (Lanzinger, J.,

dissenting).

Together, the Kentucky and Ohio opinions stake out an

approach to arbitrability that, as the dissenting Ohio justices

observed, impermissibly deviates from the established

“federal standard that inquires whether the allegations under-

lying the claims touch matters covered by the agreement.”

Ibid.

REASONS FOR GRANTING THE WRIT

The Kentucky Court of Appeals’s arbitrability standard

contravenes the FAA’s strong policy favoring arbitration, as

reflected in the arbitrability principles articulated by the

Court, including the Court’s express recognition of the

arbitrability of antitrust claims. By insisting that elements of

claims reference parties’ underlying contracts as a prerequi-

site to compelling arbitration under the FAA, Kentucky’s test

renders nonarbitrable nearly all tort and statutory causes of

action, which will almost never refer to or directly depend on

an underlying contract. Thus, under the standard adopted by

Kentucky-—-and Ohio as well—the antitrust claims in this

case, and statutory and tort claims generally, must be litigated

in derogation of the parties’ contractual bargains to arbi-

trate—even under the broadest of arbitration clauses. That

contract-reference approach eviscerates the protections af-

forded to arbitration by the FAA. It also creates an untenable

circumstance in which arbitrability under the FAA is treated

differently in the state courts of Kentucky and Ohio than

elsewhere, encouraging litigants to forum shop to escape their

arbitration commitments. Because this case presents an

important federal question on which the Kentucky and Ohio

decisions conflict with relevant decisions of the Court, and of

the federal courts of appeals, the Court should grant the

petition. Sup. CT. R. 10(b), (c).

10

{. KENTUCKY’S ARBITRABILITY STANDARD CONFLICTS

WITH ESTABLISHED ARBITRABILITY PRINCIPLES

ARTICULATED BY THIS COURT AND TRE FEDERAL

COURTS OF APPEALS.

A. The National Policy Favoring Arbitration Applies

Equally to State Courts.

Through the FAA, Congress “reverse[d] the longstanding

judicial hostility to arbitration agreements” and “place[d]

arbitration agreements upon the same footing as other con-

tracts.” Gilmer, 500 U.S., at 24; see also Southland Corp. v.

Keating, 465 U.S. 1, 12-13 (1984). Additionally, Congress

“declared a national policy favoring arbitration and withdrew

the power of the states to require a judicial forum for the

resolution of claims which the contracting parties agreed to

resolve by arbitration.” Southland, 465 U.S., at 10.

In pursuing its clear objective of ensuring the enforcement

of agreements to arbitrate, Congress did not limit the

applicability of its mandates to federal courts; rather, it

expressly rejected the notion that enforcement of arbitration

rights might depend on the forum in which they are asserted.

Id., at 15; see also Mitsubishi, 473 U.S., at 625-626. Indeed,

the two problems against which Congress legislated were

endemic to state courts: a common-law hostility toward

arbitration and the failure of state arbitration statutes to

mandate enforcement of arbitration agreements. Southland,

465 U.S., at 14. Congress’s purpose in enacting the FAA,

therefore, “was to assure those who desired arbitration and

whose contracts related to interstate commerce that their

expectations would not be undermined by federal judges,

or... by state courts or legislatures.” /d., at 13 (internal

quotation marks and citation omitted).

ll

B. Kentucky’s Arbitrability Standard for Non-

Breach-of-Contract Claims Contravenes Funda-

mental Principles for Analyzing the Scope of

FAA-Governed Arbitration Agreements.

The Kentucky test for arbitrability—-whether an action can

be maintained without reference to the underlying contract—

conflicts with the national policy favoring arbitration that is

embodied in the FAA and in the arbitration precedent of this

Court and the federal courts of appeals. Coupled with Ohio’s

approval of the identical, impermissibly constrictive arbitra-

bility standard, the Kentucky decision exemplifies a state-

court trend of undermining arbitration of statutory and tort

claims in a manner that fundamentally guts the arbitral

protections Congress enacted in the FAA, warranting the

Court’s intervention. See also, e.g., Aiken v. World Fin.

Corp. of 8.C., 623 S.E.2d 873, 875-876 (S.C. App. 2005)

(noting breadth of arbitration clause covering “all disputes,

controversies or claims of any kind and nature” but refusing

to compel arbitration of business-tort claims by a borrower

against a finance corporation for misuse of personal informa-

tion, concluding that the claims could be “maintained without

reference to the contract” between the borrower and the

bank); Loy v. Harter, 128 S.W.3d 397, 403-405 (Tex. App.

2004) (denying arbitration of business-tort claim for breach of

fiduciary duty against a company’s director and CFO after

concluding that the claim “could be maintained without

reference to the contract” governing his employment and was

nonarbitrable as unrelated to his employment relationship).

Kentucky’s contract-reference arbitrability standard con-

flicts with the approach of courts that have refused to carve

out an exception from established arbitrability principles

whenever litigation involves statutory or tort claims. As the

Court has made clear, the FAA’s “federal policy favoring

arbitration ... 1s not diminished when a party bound by an

12

agreement raises a claim founded on statutory rights.”

McMahon, 482 U.S., at 225-226 (quoting Moses H. Cone

Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

(1983)). ““[W]e are well past the time when judicial

suspicion of the desirability of arbitration and of the

competence of arbitral tribunals’ should inhibit enforcement

of the Act ‘in controversies based on statutes.’” /d., at 226

(quoting Mitsubishi, 473 U.S., at 626-627). Indeed, the

Court’s longstanding precedent establishes that antitrust

claims, and statutory claims generally, are arbitrable. See,

e.g., PacifiCare, 538 U.S., at 405-406 (RICO claims); Gilmer,

500 U.S., at 26 (ADEA claims); McMahon, 482 U.S., at 230-

233 (RICO and Securities Exchange Act claims); Mitsubishi,

473 U.S., at 627, 632-637 (international antitrust claims).

The Kentucky court, however, displayed a judicial hostility

to arbitration by establishing a distinct test for arbitrability of

statutory and tort causes of action that distorts the federal

arbitrability standard in a manner that critically deviates from

the FAA’s mandates and settled federal arbitration precedent.

Indeed, its decision begins with the erroneous observation

that “[t}here has been... reluctance by the federal and state

courts to compel arbitration of antitrust claims,” relying on

the long-dead American Safety doctrine, under which courts

once viewed antitrust claims as inherently unsuitable for

arbitration. See App. 7a-8a & n.7; see also Am. Safety Equip.

Corp. v. J.P. Maguire & Co., 391 F.2d 821, 826-829 (CA2

1968). The Court répudiated that belief over twenty years

ago. See Mitsubishi, 473 U.S., at 627, 632-637; see also, e.g.,

Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler

Motors Corp., 271 F.3d 6, 11 (CA1 2001); Kotam Elecs., Inc.

‘v. JBL Consumer Prods., Inc., 93 F.3d 724, 727 (CAI! 1996)

(en banc) (explaining that Mitsubishi “dismantl[ed] all of the

American Safety policy considerations”); Nghiem v. NEC

Elecs., Inc., 25 F.3d 1437, 1441, 1442 (CA9 1994) (explain-

ing that Mitsubishi involved “the Court’s meticulous step-by-

step disembowelment of the American Safety doctrine”). Far

13

from displaying reluctance, federal district courts and state

courts have routinely compelled arbitration of antitrust

claims. See, e.g., N.Y. Cross Harbor R.R. Terminal Corp. v.

Consol. Rail Corp., 72 F.Supp.2d 70 (EDNY 1998); Hunt

v. Up N. Plastics, Inc., 980 F.Supp. 1046 (Minn. 1997);

Crown Homes, Inc. v. Landes, 27 Cal.Rptr.2d 827, 834 (Cal.

App. 1994).

In Mitsubishi, the Court not only rejected a distrust of

arbitration for antitrust and other statutory claims, but also

required arbitration when a dispute’s allegations “touch

matters” covered by the parties’ arbitration agreement.

Mitsubishi, 473 U.S., at 625 n.13. Federal courts of appeals,

in conflict with the Kentucky and Ohio courts, have adhered

to Mitsubishi’s touch-matters test for tort and statutory

claims, requiring a “focus on the factual allegations in the

complaint rather than the legal causes of action asserted...

whatever the legal labels attached.” Genesco, Inc. v. T.

Kalcuchi & Co., Lid., 815 F.2d 840, 846 (CA2 1987) (holding

that torts can be covered by arbitration clauses “if the

allegations underlying the claims ‘touch matters’ covered by

the [agreement]”). State courts, too, have recognized the

‘propriety of applying the touch-matters test to claims other —

than breach of contract. See, e.2., MS Credit Ctr., Inc. v.

Horton, — So.2d —, No. 2004-CA-01699-SCT, 2006 WL

408415, at *6 (Miss. Feb. 23, 2006) (analyzing arbitrability of

business-tort claims under the touch-matters test).

Consistent with the touch-matters test, courts of appeals

have rejected attempts to evade arbitration by artfully

pleading, as torts, claims relating to the parties’ contractual or

business relationships. See, e.g., Fazio v. Lehman Bros., 340

F.3d 386, 395 (CA6 2003) (“Even real torts can be covered

by arbitration clauses if the allegations underlying the claims

touch matters covered by the agreement.”’) (onginal brackets,

citation, and quotation marks omitted); Fyrnetics, (H.K.) Ltd.

v. Quantum Group, Inc., 293 F.3d 1023, 1030 (CA7 2002)

14

(rejecting attempt to avoid arbitration by casting allegations

as torts of negligence and misrepresentation); Pennzoil

Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d

1061, 1067 (CAS 1998) (holding that a broad arbitration

agreement “embrace[s}] all disputes between the parties

having a significant relationship to the contract regardless of

the label attached to the dispute”); Gregory v. Electro-Mech.

Corp., 83 F.3d 382, 384 (CA11 1996) (“Whether a claim falls

within the scope of an arbitration agreement turns on the

factual allegations in the complaint rather than the legal

causes of action asserted.”).* The Kentucky opinion, how-

ever, will encourage artful pleading by hinging arbitrability

on whether the complaint references the contract contain-

ing the arbitration clause, effectively limiting arbitration to

breach-of-contract claims.

C. The Kentucky Standard Conflicts with the

Second Circuit’s Use of the Touch-Matters Test

for Price-Fixing Conspiracy Claims.

The Kentucky opinion conflicts not only generally with the

touch-matters test from Mitsubishi and its progeny, but also

specifically with the Second Cireuit’s decision in JLM

Industries, Inc. v. Stolt-Nielsen S.A., 387 F.3d 163 (CA2

2004), which used the touch-matters standard to determine

the arbitrability of price-fixing conspiracy claims against

ocean carriers whom the plaintiffs alleged exploited their

market power to fix worldwide shipping rates. /d., at 167-

168, 172-173. Analyzing precisely the type of dispute that

this case presents, the Second Circuit reversed the trial court’s

* Moreover, when, as in this case, the arbitration agreement is broad,

courts have declined to carve out categories of claims from the expansive

scope of the parties’ arbitration agreement. See Brown v. 17T Consumer

Fin. Corp., 211 F.3d 1217, 1221 (CALL 2000) (explaining that use of the

phrase “any dispute” in an arbitration agreement means that the “parties

agreed to arbitrate any and all claims against each other, with no

exceptions”); see also, e.g., Genesco, 815 F.2d, at 846.

15

ruling that the claims were nonarbitrable because they could

be proven without reliance on the parties’ contracts. /d.,

at 168.

The Second Circuit acknowledged that the price-fixing

conspiracy allegations “rest{ed] on factual allegations which

concern matters beyond the making of a particular contract

between the parties and the performance of its terms” and

therefore “will not focus exclusively ‘upon the parties’

conduct under the terms of the charter.” J/d., at 175.

Nonetheless, the court reasoned that the plaintiffs could not

have suffered the damages from the alleged price fixing had

they not entered into the contracts, “each of which specifies

price terms which are variously characterized in the amended

complaint as ‘artificially high’ and as ‘overpayments.”’” Ibid.

Accordingly, the price-fixing claims, though purportedly

extra-contractual, arose out of the contracts and fell within the

parties’ broad arbitration agreements. J/d., at 176 (holding

that antitrust disputes “unquestionably involve a core issue of

the contracts between the parties—allegations that the price

terms set forth in those contracts have been artificially

inflated as'a result of the price-fixing conspiracy”).°

Under JLM’s reasoning, the price-fixing allegations in this

case would plainly fall within the scope of the parties’ broad

arbitration agreement, which the Kentucky court’s contrary

decision eviscerates based on the statutory nature of v1.

claims. By adopting’ a narrow test for statutory causes of

* A district court within the Second Circuit similarly applied the touch-

matters standard in determining the arbitrability of claims alleging that

banks engaged in price fixing regarding currency conversion fees when

cardholders conducted foreign currency transactions with their credit

cards and the fixed prices appeared on the credit card accounts. Jn re

Currency Conversion Fee Antitrust Litig., 265 F.Supp.2d 385, 406, 410

(SDNY 2003). The court held that the claims were arbitrable because the

terms of plaintiffs’ use of the credit-card accounts were governed by the

cardholder agreements containing the arbitration clause. bid.

16

action that, as a practical matter, will render them non-

arbitrable in virtually every case, the Kentucky and Ohio

courts conflict with this Court’s and lower federal and state

courts’ accepted recognition that statutory claims are arbi-

trable under the same conditions as other claims: when they

touch matters within the scope of the parties’ arbitration

agreement.

D. The Kentucky Decision Contravenes the Court’s

Directive to Construe Arbitration Agreements in

Favor of Arbitration.

The Kentucky court not only instituted an impermissibly

restrictive arbitrability standard for statutory claims, but also

violated fundamental arbitrability principles by disregarding

the requirement that courts construe arbitration agreements in

favor of arbitration. See, e.g., Mitsubishi, 473 U.S., at 625;

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-220

(1985). Under the FAA, any doubts about arbitrability must

be resolved in favor of coverage, and arbitration must be

compelled unless it can “be said with positive assurance that

the arbitration clause is not susceptible of an interpretation

that covers the asserted dispute.” United Steelworkers of Am.

v. Warrior & Gulf Navigation Co , 363 U.S. 574, 589 (1960);

see also Moses H. Cone, 460 U.S., at 24-25 (“[A]ny doubts

concerning the scope of arbitrable issues should be resolved

in favor of arbitration.”).

Despite its duty to construe the United arbitration agree-

ments broadly under the Court’s precedent, the Kentucky

court’s impermissibly constrictive scope analysis defeated the

parties’ agreement to arbitrate “any disputes about their

business relationship.” Under a proper analysis, as the Ohio

Supreme Court dissent recognized regarding antitrust claims

in the parallel Ohio litigation, respondents’ price-fixing con-

spiracy allegations plainly touch matters concerning the

parties’ business relationship because the contracts “allegedly

contain the evidence of anticompetitive conduct and financial

17

harm” and “the reimbursement rates allegedly implicating

unlawful restraint.” Acad. of Med. of Cincinnati, 842 N.E.2d,

at 496 (Lanzinger, J., dissenting). Accordingly, as “he Ohio

dissent concluded, “[t]he antitrust conspiracy claims relate to

the provider contracts that contain the broad clauses requiring

arbitration of any dispute ‘about the business relationship’

between the physicians and United Healthcare.” [bid.

Because the price-fixing conspiracy allegations necessarily

center on the parties’ business relationship, the Kentucky

court’s refusal to compel arbitration and its creation of a

distinct, narrow arbitrability standard for statutory and tort

claims reflect a revived judictal hostility to arbitration that is

compounded by Ohio’s implementation of an identical and

equally restrictive standard. In light of this state-court

trend—which includes similar holdings from Texas and

South Carolina°—the Court should grant the petition to

clarify whether, as Mitsubishi and McMahon indicated, 482

U\S., at 225-226, 473 US., at 626-627, the FAA, the national

policy favoring arbitration, and this Court’s admonition to

faithfully enforce the negotiated terms of parties’ arbitration

agreements apply equally to motions to compel arbitration of

statutory claims or whether, as Kentucky and Ohio con-

cluded, courts should enforce arbitration nights only when the

elements of such claims expressly reference the contract in

question.

II. KENTUCKY’S HOSTILITY TO ARBITRATION INVITES

GAMESMANSHIP AND FORUM SHOPPING.

By focusing on the formal elements of claims to the

exclusion of textual analysis of parties’ arbitration agree-

ments, the Kentucky court’s restrictive standard improperly

encourages gamesmanship by tying the scope-of-arbitrability

determination to the formalities of a plaintiffs pleadings,

° See, e.g., Aiken, 623 S.E.2d, at 875-876; Loy, 128 S.W.3d, at 403-

405.

18

which can be creatively drafted to avoid reference to the

relevant contract and thus permit plaintiffs to evade arbi-

tration. Rather than ensuring the enforcement of valid

arbitration agreements, as Congress mandated in the FAA, the

Kentucky standard creates a safe harbor for parties who wish

to breach their obligation to arbitrate, authorizing plaintiffs

to do precisely what other courts have forbidden: escape

arbitration commitments by recasting a dispute in tort or as a

statutory violation. See, e.g., Fazio, 340 F.3d, at 395 (holding

that a party cannot avoid arbitration simply by framing its

action in tort); Fyrnetics, 293 F.3d, at 1030 (rejecting attempt

to avoid arbitration by casting allegations as torts of

negligence and misrepresentation). In other words, the

decision effectively creates a zone of nonarbitrability for

plaintiffs sufficiently sophisticated to plead their claims as

statutory or tort claims, rather than directly as contractual

violations.

This dangerous erosion of arbitration nghts, exacerbated

by the implementation of the same standard in Ohio, will

encourage forum shopping and generate jurisdictional dis-

putes when parties seeking to escape arbitration obligations

target Kentucky and Ohio state courts, while those wishing to

enforce arbitration agreements attempt to be heard in federal

court or other state courts.’ The Court should grant the

‘petition to reaffirm that arbitrability depends on the language

of parties’ agreements, not the forum chosen.

Additionally, by departing from traditional scope analysis

in favor of a new contract-reference test, the Kentucky and

Ohio decisions will create confusion and uncertainty over the

availability of arbitration for statutory and tort claims. For

? South Carolina and Texas courts’ implementation of the same

arbitrability test makes additional inroads on arbitration rights and further

demonstrates the need for review of the arbitrability standard for non-

contractual claims. See, e.g., Aiken, 623 S.F.2d, at 875-876; Loy, 128

S.W.3d, at 403-405.

19

countless contracts containing broad arbitration clauses like

respondents’ agreements with United, the Kentucky and

Ohio decisions will upset parties’ settled, and reasonable,

expectations that courts will honor their carefully negotiated

agreements. By effectively excluding statutory and tort

claims from arbitration regardless of the language parties

include in their arbitration agreements, the Kentucky and

Ohio opinions also introduce unavoidable unpredictability for

parties negottating contracts that reflect broad agreements to

arbitrate but rely on Ohio or Kentucky law. Indeed, these

decisions may deter parties seeking broad arbitration agree-

ments from entering into contracts governed by Kentucky or

Ohio law.

Unless addressed by the Court, the Kentucky and Ohio

opinions stand as an open invitation to other courts that have

never fully embraced arbitration and now have ammunition to

disparately treat motions to compel arbitration of claims other

than breaches of contract. This trend dangerously threatens

the FAA’s arbitral protections and the strong national policy

favoring arbitration in two significant respects. First, it will

undermine Congress’s primary goal of permitting parties to

avoid litigation by honoring their agreements not to litigate

certain—or all—disputes between them. See, e.g., Southland,

465 US., at 7 (noting that one party’s avoidance of

arbitration may lead to protracted litigation, “one of the very

risks the parties, by contracting for arbitration, sought to

eliminate”). Second, these opinions, if unreviewed, will

signal that no consequences lie for a court that egregiously

deviates from Congress’s clearly expressed will in enacting

the FAA. See supra Part 1.A.

Because the Kentucky and Ohio courts’ arbitrability stan-

dard undermines the national policy favoring arbitration,

dramatically departs from established federal precedent, and

eviscerates parties’ contractual rights while also establishing

an incentive for litigants to use the Kentucky and Ohio courts

20 .

in a manner inconsistent with the FAA, the Court should

grant the petition and determine whether statutory claims

must be arbitrated only when they reference the underlying

contract or whether, consistent with arbitrability principles

governing all other categories of claims, courts must compel

arbitration when allegations touch matters within the scope of

the parties’ arbitration agreement.

CONCLUSION

The Court should grant the petition.

Respectfully submitted,

STEPHEN J. BUTLER

THOMPSON HINE

312 Walnut Street

14th Floor

Cincinnati, Ohio 45202

(513) 352-6700

DEBRA J. PEARLSTEIN

ELIZABETH M. AVERY

WEIL, GOTSHAL &

MANGES LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

May 16, 2006

GREGORY S. COLEMAN

Counsel of Record

LISA R. ESkow

MELANIE P. SARWAL

WEIL, GOTSHAL &

MANGES LLP

8911 Capital of Texas Hwy.

Suite 1350

Austin, Texas 78759

(512) 349-1930

Counsel for Petitioner