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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2006

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_1048%3A1. Public record. Not legal advice.