Opinion
Civil Action Nos. 3:99CV848, 3:99CV849, 3:99CV852
April 17, 2000
MEMORANDUM OPINION
This matter is before the Court on numerous motions by each party in the three separate but related actions which are consolidated for purposes of this combined opinion. Several motions were voluntarily withdrawn during oral argument that was held on March 9, 2000 on all pending motions and the Plaintiffs withdrew Count III in Civil Action No. 3:99CV852 (hereafter referred to as CV852). Those particular motions and corresponding resolutions are identified in separate orders for each case and will not be discussed in this memorandum.
The parties, by counsel, previously consented to the jurisdiction of the Magistrate Judge.
Accordingly, there are, at present, four motions remaining in the various actions, namely:
1) Civil Action No. 3:99CV848 (hereinafter referred to as CV848): Defendant's Motion to Stay Litigation and To Compel Mediation;
2) Civil Action No. 3:99CV849 (hereinafter referred to as CV849): Defendant's Motion to Stay Litigation and To Compel Arbitration (as applies to Counts I and II of the Complaint only);
3) CV849: Defendant's Motion to Stay Litigation and To Compel Mediation (as applies to the remaining Counts III and IV of the Complaint in CV849); and
4) CV852: Defendant's Motion to Abstain, or in the Alternative, to Dismiss the Complaint for Failure to State a Claim.
Additional issues (or at least variations on existing positions) surfaced during oral argument and counsel have submitted supplemental memoranda at the request of the Court. The additional issues are:
1) Whether the assertion of a counterclaim in CV849 constitutes (or otherwise results in) a waiver by the defense of a contractual provision that the defense otherwise asserts requires arbitration so as to result in a stay of litigation; and
2) Whether the remaining allegations in CV852 are subject to application of the so-called Burford abstention doctrine if no equitable relief is now being sought because of the voluntary withdrawal by the Plaintiff of Count III.
COMPULSORY MEDIATION IN CV848 AND CV849
The Defendant seeks to compel mediation pursuant to a contractual provision which would require, if enforced, at least a temporary stay of litigation even though the parties spent over a year before the initiation of litigation engaged in unsuccessful efforts to resolve the issues by negotiation. If there was any realistic chance to resolve this matter by mediation, there has been more than sufficient time during which the parties could have initiated and presumably concluded the process. The very concept of "compelling mediation" is at least illogical, if not the epitome of an oxymoron. Even though mediation was agreed upon by contractual provision as a means to pursue resolution before litigation, mediation requires a mutual willingness to reach a mutual agreement. of course, mediation is designed and intended for use as an alternate dispute resolution mechanism to resolve issues between parties where the expertise of one or more facilitators, skilled in the arena of dispute resolution, can often salvage an otherwise hopeless situation. However, the Court is satisfied that whatever limited chance there may be for success under the extreme circumstances of this situation which includes a history of failed negotiation, the granting of a stay of litigation to provide even more time for the parties to mediate is outweighed by the need to move, if not dislodge by force of litigation, the logjam that has developed.Plaintiffs argue that to compel mediation, though it is specified in the contract, would be futile in this case. See, e.g., Mullins Coal Co. v. Clark, 600 F. Supp. 645, 647 (W.D.Va. 1985). The Court agrees with the Plaintiffs that the law does not require the "doing of a useless act." (Pls.' Mem. in Opp'n to Def.'s Mot. to Stay Litigation and Compel Mediation at 5-6). Despite the Defendant's protestations, the Court finds this case is not sufficiently distinguishable from those relied on by Plaintiff where contract provisions and administrative remedies may be waived if the process was destined to be utterly futile. Id. While the Defendant agrees that the law does not require futile gestures, the Defendant also argues that mediation would not necessarily be futile because the failed informal negotiations were a natural and necessary precursor to mediation as embraced in the contract. (Def.'s Reply to Pls.' Opp'n to Def.'s Mot. to Stay Litigation and Compel Mediation at 4). The Court finds that while Defendant relies on cases and scenarios where the courts may have properly considered and compelled non-binding mediation, this is not one of the cases where either the parties or the court would likely benefit from such a resolution. Even though a single contractual provision may be rendered unenforceable, it is a basic tenet of contract law that the remaining provisions can still be held to be effective. See United Steelworkers of America, AFL-CIO-CLC. Local Union No. 14505 v. Logan Park Care Center, Inc.,, 634 F. Supp. 182, 186 (S.D.W.Va. 1986) (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967)). The Court therefore denies the Defendant's motion to stay the litigation and compel mediation in CV848 and as to Counts III and IV in CV849.
The Court notes as an indication of how problematic the likelihood of a mediated settlement would be that the parties even have a fundamental disagreement over the interpretation and/or application of a basic contract provision as to whether the contract's so-called "kicker" provision applies to some or all of the services rendered.
COMPULSORY ARBITRATION IN CV849
One issue raised by the Defendant in CV849 is whether the action must be stayed pending the outcome of arbitration provided for under a different contract clause. The issue is not as readily resolved as that involving mediation. Not only are mediation and arbitration distinctly different legal concepts, there is a separate body of law to address whether a federal court may exercise jurisdiction where a compulsory arbitration clause is at issue.
First, while mediation and arbitration both involve a non-judicial process facilitated by a neutral party, there are several important legal distinctions between mediation and arbitration which cause them to be treated differently under the law. Formal mediation is typically a structured but informal process that is conducted by one or more third parties who are neutral and who facilitate a resolution without utilizing any coercive power or authority. Binding arbitration, however, ultimately leads to a final decision by the arbitrator after hearing and evaluating the evidence presented by the parties.
Beyond the basic legal differences between mediation and arbitration, the Court is mindful of the authority cited by the Defendant in support of its motion, including the relevant provisions of the Federal Arbitration Act and case precedent, including from this judicial district. See 9 U.S.C. § 1-16; Money Point Diamond Corp. v. Bomar Resources, Inc., 654 F. Supp. 634, 635 (E.D. Va. 1987); Hendrick v. Brown and Root. Inc., 50 F. Supp.2d 527, 531-32 (E.D.Va. 1999). At the same time, the Plaintiffs put forth a cogent argument that under E.I. Dupont De Nemours and Co., v. Lyles Lane Construction. Co., the Defendant should not be permitted to avail itself of a provision of a contract that it repudiates in order to obtain the extraordinary relief of an indefinite stay. See 219 F.2d 328, 334, cert. denied sub nom., Lyles Lane Constr. Co. v. E.I. Dupont De Nemours and Co., 349 U.S. 956 (1955).
Plaintiffs and Defendant have exchanged arguments over whether Defendant repudiated the contract as a result of a business merger. ( See, e.g., Pls.' Supp. Mem. in Opp'n to Def.'s Mot. to Stay Litigation and Compel Arbitration at 3; Def.'s Resp. to Pls.' Supp. Mem. at 4-5). Where a party has repudiated a contract, in part or in full, the court may or may not stay litigation to compel arbitration. See E.I. Dupont, 219 F.2d. at 334; see also The Atlanten, 252 U.S. 313, 315-316 (1920) (holding that although arbitration clauses are to be enforced according to their intent, the court would not compel arbitration where the clause was not intended to apply to a party's repudiation of the contract by refusal to perform). While Plaintiffs allege that the Defendant has repudiated the contract such that all of its provisions, including any obligation to submit to arbitration is "extinguished" (to coin the Defendant's term), the Defendant denies that it has repudiated the contract in its entirety, even though it also contends "in the same breath' that it is not responsible for certain claims made by Plaintiffs under the contract. Nevertheless, in this case, the allegation of total repudiation is too tenuous to overcome the clear contractual obligation to arbitrate. Indeed, ¶ 14 of the governing Hospital Services Agreement is clear on its face that `[a]ll disagreements over performance or interpretation to be resolved by arbitration in which both parties have equal weight. Cost will be shared equally or prorated according to results of adjudication." This clause has to mean that where either performance or interpretation is at issue, arbitration is required. The differing interpretations of the coverage of the subject agreements do not affect the validity and enforceability of the individual arbitration clause. See United Steelworkers of America, AFL-CIO-CLC. Local Union No. 14505 v. Logan Park Care Center, Inc., 634 F. Supp. at 186 (citingInternational Union of Operating Engineers, Local Union No. 139 v. Carl A. Morse. Inc., 529 F.2d 574, 577-578 (7th Cir. 1976)).
Despite the competing interpretations of the Hospital Services Agreement, the Court will not preclude the implementation of such a clear contractual mandate requiring arbitration. Under both the Federal Arbitration Act and settled case law, where a contract calls for arbitration "there is a presumption of arbitrability in the sense that `an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.'" ATT Technologies, Inc. v. Communications Workers, 475 U.S. 643, 650 (1986) (quoting Steelworkers v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-583 (1960)). While Plaintiffs' argument is appealing in its effort to retain Counts I and II in federal court, the Court concludes that the Plaintiffs' reliance on E.I. Dupont for the blanket proposition that a party automatically waives an otherwise compulsory arbitration requirement by the filing of a counterclaim is distinguishable for two main reasons: (1) substantive differences between the language used in the respective arbitration clauses; and (2) the juncture at which the counterclaim was filed. 219 F.2d at 333-334.
First, in E.I. Dupont, the contract's disputes clause was designed to be invoked when factual disputes arose during the performance of the contract. The court found that the questions raised in the litigation were almost exclusively questions of law, or at "least" mixed questions of law and fact. Id. Since the disputes clause in E. I. Dupont was limited to questions of fact, enforcement of the clause was not warranted. Id. In this case, however, the arbitration clause makes no distinction between disputes arising in law or fact but specifically includes "[a]ll disagreements over performance or interpretation." Therefore, the disputes in this case are exactly the type of issues that cause activation of the subject arbitration clause.
Hospital Services Agreement, attached as Exhibit A to the Complaint, at ¶ 14.
Second, in E.I. Dupont, the defendant waived its right to invoke the arbitration clause because "it had not been invoked for the settlement of any disputes either before or after the institution of the litigation."Id. Not only did Defendant fail to invoke the disputes clause before or even when litigation was initiated, it filed an answer which "denied all liability under the contract [and] asserted a counterclaim which would have required the court to adjudicate on its behalf the very matters which it denies that the court has jurisdiction to adjudicate." Id. In this case, while the parties engaged in fruitless negotiations over the disputed contract for a prolonged period, the Defendant immediately invoked the respective contractual provisions calling for, yes, mediation, but also arbitration upon the filing of the lawsuit.
The contract requires arbitration. Instead, the Plaintiffs chose to file suit in federal court. In response to the Complaint, the Defendant filed its answer and a counterclaim as well as the motion to compel and stay litigation. Under the Federal Rules of Civil Procedure, the Defendant must file an answer and, if required, a compulsory counterclaim. It is therefore logical and procedurally proper to do exactly as the Defendant did in this case by the filing of pleadings necessary to preserve all rights, including any right to compel arbitration.
All motions were filed and docketed on February 4, 2000. The Defendant in this case immediately sought relief pursuant to the arbitration provision of the contract whereas the moving party in E. I. Dupont apparently did not seek arbitration until well after litigation was underway. E. I. Dupont, 219 F.2d at 333-334.
Although it is the correct decision to grant Defendant's motion to stay to compel arbitration as to Counts I and II of CV849, the Court notes that it is loathe to proceed "piecemeal" as will apparently occur by the staying of proceedings as to Counts I and II only. However, based on the facts and law by which it is governed, the Court is constrained to grant the Defendant's motion.
BURFORD ABSTENTION
Under the so-called "Burford abstention" doctrine, the Defendant seeks to have the Court abstain in CV852 because it claims that the matter involves issues of unique state policy concerns which require abstention by the federal court in deference to the exercise of state authority.Burford v. Sun Oil Co., 319 U.S. 315 (1943). Simply put, the Burford abstention doctrine does not apply to this case as dictated by the controlling authority of Quackenbush v. Allstate, 517 U.S. 706, 714-716 (1996). The holding enunciated in Quackenbush controls for three main reasons: (1) Burford permits a federal court to dismiss only equitable actions where a parallel state court proceeding is already underway; (2) a federal court may not dismiss an action at law for money damages where it has jurisdiction; and (3) a federal court should abstain only where difficult questions of state law that bear directly upon "policy problems of substantial public import" are implicated in the case. See Quackenbush, 517 U.S. at 716, 730-31; see also Johnson v. Collins Entertainment Corp., 199 F.3d 710, 727 (4th Cir. 1999) reh'g denied, en banc, 204 F.3d 573 (4th Cir. 2000) (holding that a federal court may stay, but not dismiss actions at law where important state policy questions are at issue); and Pls.' Supp. Br. in Opp'n To Def.'s Mot. to Abstain, or in the Alternative, to Dismiss the Compl. for Failure to State a Claim at 3-4.
In this case, the Plaintiffs seek money damages for breach of contract as alleged in Counts I and II. Count III contained Plaintiffs' only request for equitable relief, but it has been withdrawn and Plaintiffs' remedies at law are all that remain. There is no parallel administrative or judicial state proceeding pending at this time. Even though the alleged acts of breach may also be addressed in the Virginia Unfair Claim Settlement Practices Act, it is not necessary to resolve them pursuant to the Act in order to dispose of resolve the claims set forth in Counts I and II. Furthermore, it is neither appropriate nor required to burden the state administrative or judicial system with the task of resolving that which is already before this Court. This is especially so where the suggested administrative relief, if pursued by Plaintiffs, would not necessarily result in an award of money damages as sought should the Plaintiffs prevail.
As argued by Plaintiffs, they would have to pursue a separate state court action in order to obtain the monetary relief it now seeks in this action. (Pls. Supp. Br. in Opp'n to Def.'s Mot. to Abstain, or in the Alternative, to Dismiss the Compl. for Failure to State a Claim at 3-4).
The Defendant's request for the alternative relief of dismissal for failure to state a claim is obviated by the Plaintiffs withdrawal of Count III, given the Court's conclusion that the remaining Counts allege separate and distinct claims for breach of contract involving disputed issues of material fact, e.g., whether the Defendant made repeated "bad faith" demands for additional information as a pretext for denying or delaying of claims. Indeed, the very terms of the state statutory scheme upon which Defendant relies to urge abstention clearly recognizes the right of any aggrieved party to seek separate legal redress:
[n]o violation of this section shall of itself be deemed to create any cause of action in favor of any person other than the Commission; but nothing in this subsection shall impair the right of any person to seek redress at law or equity for any conduct for which action may be brought."
Va. Code Ann. § 38.2-510.B (emphasis added). See also A E Supply Co. Inc. v. Nationwide Mutual Fire Ins. Co., 798 F.2d 669, 676-77, n. 9 (4th Cir. 1986), cert. denied, 479 U.S. 1091 (1987) (holding that the Act does "create contractually enforceable duties" which "does not conflict with a determination that the statute creates no private right of action, for contractual interpretation and statutory construction are separate enterprises").
Because the Defendants cannot sustain the requirements of the Burford abstention doctrine, its motion to abstain and/or to dismiss must be denied.
CONCLUSION
For the foregoing reasons, the Court finds that compelling mediation and invoking abstention are improper in these cases and therefore the Defendants' related motions are denied. However, Counts I and II of CV849 are subject to the arbitration clause of the relevant Hospital Services Agreement and therefore the Court reluctantly orders that litigation as to Counts I and II of CV849 is stayed pending further order of the Court following the conclusion of arbitration proceedings.
Appropriate Orders shall issue.
The Clerk shall forward a copy of this opinion to all counsel of record.