Opinion
Civil Action No. 3:01-CV-2816-G
January 17, 2002
MEMORANDUM ORDER
Before the court is the application of the plaintiff United of Omaha Life Insurance Company ("United of Omaha") for a preliminary injunction. Having carefully considered the parties' submissions, and having had the benefit of oral argument on January 4, 2002, the court denies, for the reasons set forth below, United of Omaha's application.
I. BACKGROUND
United of Omaha is a nationwide insurance company incorporated in Nebraska with its principal place of business in Omaha, Nebraska. Original Complaint for Declaratory Judgment and Application for Temporary Restraining Order, Temporary Injunction and Permanent Injunction ("Complaint") ¶¶ 1, 7. Among its services, United of Omaha provides employer-sponsored group health insurance plans. Id. ¶ 7. The defendants in this action, Cook Children's Medical Center and Cook Children's Physician Group (collectively, "Cook Children's"), are Texas non-profit corporations located in Fort Worth, Texas. Id. ¶ 2-3.
United of Omaha entered into a group insurance plan (the "Policy") with Dallas Trailer Repair Company ("Dallas Trailer"), which became effective on August 1, 2000. Id. ¶ 8. Under the Policy, United of Omaha provided life and health insurance benefits to employees of Dallas Trailer and their dependents. Id. In his application for coverage with United of Omaha, Oscar Herrera ("Herrera"), an employee of Dallas Trailer, allegedly failed to disclose that his minor son, Jose Herrera, suffers from spina bifida. Id. ¶¶ 9-14. During the effective period of Herrera's health insurance policy, Jose Herrera received medical care and treatment, which resulted in the submission of reimbursement claims to United of Omaha, totaling approximately $437,000. Id. ¶ 15.
On June 17, 1997, United of Omaha entered into a contract (the "Mutually Preferred Agreement") with Private Healthcare Systems, Inc. ("PHCS"). Id. ¶ 16; see also Mutually Preferred Agreement, Exhibit 1. Under that agreement, United of Omaha executed a limited power of attorney, which authorized PHCS to act as its agent in United of Omaha's relationships with certain preferred provider groups and facilities. Complaint ¶ 16; see generally Mutually Preferred Agreement, Exhibit 1. As United of Omaha's agent, PHCS entered into a Preferred Facility Agreement and a Preferred Physician Group Agreement with Cook Children's. Id. ¶ 17-18; see also Preferred Facility Agreement Cook Children's Medical Center ("Facility Agreement"), Exhibit 2; Preferred Physician Group Agreement Cook Children's Physician Network ("Physcian Agreement"), Exhibit 3. Cook Children's is not a party to United of Omaha's Mutually Preferred Agreement with PHCS. Defendants' Response in Opposition to Plaintiff's Application for Temporary Injunction ("Response") at 6.
All citations to Exhibits in this memorandum order refer to documents introduced as evidence during the court's hearing on United of Omaha's application for preliminary injunction on January 4, 2002.
From August 6, 2000 through April 30, 2001, Cook Children's provided medical care and treatment to Jose Herrera. Response at 2; Complaint ¶ 19. Cook Children's submitted bills for Jose Herrera's care, totaling $389,833, to United of Omaha pursuant to the Facility Agreement and Physcian Agreement. Response at 2; see also Complaint ¶¶ 20-21. Subsequently, United of Omaha refused to pay those bills, arguing that it is under no obligation to reimburse Cook Children's because Herrera obtained health insurance coverage through fraudulent misrepresentations by failing to disclose his son's preexisting medical condition. Complaint ¶ 22; Response at 5.
The Facility Agreement, in pertinent part, provides:
Within thirty (30) days of receipt of a clean claim containing all necessary information, [United of Omaha] will use its best efforts to pay or arrange to pay [Cook Children's] for COVERED CARE, as full compensation, the PREFERRED PAYMENT RATE in accordance with Exhibit D and the Administrative Handbook.
Facility Agreement, Exhibit 2 at 18.
The Physician Agreement, in pertinent part, provides:
[United of Omaha] agrees to pay or arranges to pay [Cook Children's], as full compensation, the lesser of [Cook Children's] usual charge, or the Specified Rates for Covered Care furnished to Covered Individuals for which [Cook Children's] has submitted a proper claim . . .
Physician Agreement, Exhibit 3 at 23.
On October 31, 2001, Cook Children's initiated arbitration proceedings against United of Omaha, pursuant to the arbitration clauses in the Facility Agreement and the Physician Agreement, to enforce the payment provisions in those agreements and to recover its expenses for providing medical care to Jose Herrera. Complaint ¶ 24; Response at 5. On December 26, 2001, United of Omaha filed an application for a Temporary Restraining Order and Preliminary Injunction. See Complaint at 1. In its application, United of Omaha argued that the Mutually Preferred Agreement controls Cook Children's right to payment and that this dispute is not arbitrable. Complaint ¶¶ 27-30.
The Facility Agreement contains a binding arbitration clause, providing:
Any controversy or claim arising out of or relating to this Agreement or the breach thereof, which is not so resolved, will be settled by binding arbitration in accordance with the National Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration . . .
Facility Agreement, Exhibit 2 at 10.
The Physician Agreement also contains a binding arbitration provision that provides:
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association . . .
Physician Agreement, Exhibit 3 at 9.
In response, Cook Children's argues that it is not a party to the Mutually Preferred Agreement and that the only agreements that govern the relationships between United of Omaha and Cook Children's are the Facility Agreement and the Physician Agreement, both of which mandate arbitration of any disputes over reimbursement for insurance claims. Response at 1-2.
The court granted United of Omaha's application for a temporary restraining order ("TRO"), without hearing, on December 26, 2001. Amended Temporary Restraining Order, filed December 26, 2001. On January 4, 2002, the court held a hearing on United of Omaha's application for temporary injunction. At the close of the hearing, the court indicated to counsel that it would extend, for good cause shown, the TRO issued on December 26, 2001, until the court ruled on United of Omaha's application for preliminary injunction. An order was issued that day to this effect. Order, filed January 4, 2001.
After issuing an Amended TRO, the court was able to reach counsel for Cook Children's and inform them of the court's action. In effect, the Amended TRO restrained Cook Children's from initiating, proceeding with, or participating in any arbitration proceeding relating to any claims against United of Omaha arising from treatment provided to Jose Herrera. Amended Temporary Restraining Order, filed December 26, 2001.
II. ANALYSIS A. Standard for a Preliminary Injtinction
To obtain a preliminary injunction, it is well established that the movant must show: (1) a substantial likelihood that the movant will ultimately prevail on the merits; (2) a substantial threat that the movant will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing parties; and (4) that granting the injunction is not adverse to the public interest. Vision Center v. Opticks, Inc., 596 F.2d 111, 114 (5th Cir. 1979) (citation omitted), cert. denied, 444 U.S. 1016 (1980); Mississippi Power Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir. 1985) (citing Canal Authority of State of Florida v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974)).
The decision to grant or deny a preliminary injunction is left to the sound discretion of the district court. Mississippi Power Light, 760 F.2d at 621. A preliminary injunction is an extraordinary remedy which should only be granted if the movant has clearly carried its burden of persuasion on all of the four factors. Id.; Allied Marketing Group, Inc. v. CDL Marketing, Inc., 878 F.2d 806, 809 (5th Cir. 1989) (citations omitted). In this instance, the court's analysis can stop with the likelihood of success on the merits because, as discussed below, United of Omaha has not shown a reasonable likelihood of prevailing on its claim that arbitration is prohibited.
Because a preliminary injunction should be granted only if the movant has clearly carried the burden of persuasion on all four factors, Mississippi Power Light Co., 760 F.2d at 621, it is unnecessary for the court to consider the remaining factors when the movant fails to carry its burden on any one of the factors. Medlin v. Palmer, 874 F.2d 1085, 1091 (5th Cir. 1989) ("The failure of a movant to establish one of the above four elements will result in the denial of a motion for a temporary injunction."); Anderson v. Douglas Lomason Co., 835 F.2d 128, 133 (5th Cir. 1988) ("if the movant does not succeed in carrying its burden of persuasion on any one of the four prerequisites, a preliminary injunction may not issue. . . .").
B. Arbitration of Claims 1. Applicable Law
In considering whether a dispute is subject to binding arbitration, the first step a court must take "is to determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). In general, this determination is made by "applying the federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [Federal Arbitration] Act ["FAA"]." Id. (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 24 (1983)) (internal citations omitted). Here, the court sees no reason to deviate from the policy of applying federal law in its analysis of whether this case is subject to arbitration. Neither party has argued that the FAA does not apply to this dispute and it appears to come within the FAA's purview. See 9 U.S.C. § 1 et seq.2. Legal Standard
Federal law strongly favors arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56 (1995) (the FAA "declared a national policy favoring arbitration.") (quoting Southland Corporation v. Keating, 465 U.S. 1, 10 (1984)); Moses H. Cone Memorial Hospital, 460 U.S. at 24-25 ("The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."). Consequently, the FAA, by its terms, "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct he parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985).
The posture of this case is somewhat unusual in that no motion to compel arbitration is pending. Nonetheless, it necessarily follows from the court's denial of United of Omaha's application for preliminary injunction that the dispute may proceed to arbitration.
Whether a contract's arbitration clause requires arbitration of a given dispute is a matter of contract interpretation, which is to be performed by the court. See ATT Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986) (it is the court's duty to interpret agreement and determine whether parties intended to arbitrate). The court's interpretative function must be carried out with appropriate deference to the federal policy that favors arbitration over litigation and requires arbitration clauses to be construed generously, in favor of arbitration. See Southland Corporation, 465 U.S. at 10-11; ASW Allstate Painting Construction Co., Inc. v. Lexington Insurance Compnay, 188 F.3d 307, 311 (5th Cir. 1999) ("[T]he party opposing arbitration bears the burden of proving that no valid arbitration agreement exists as to the dispute.") (construing Texas law). Despite judicial deference to arbitration, a party may not be required to arbitrate a dispute that it did not agree to arbitrate, see Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 37 (5th Cir. 1990), and the controversy must come within the contract's arbitration provision before the court can order arbitration. See Explo, Inc. v. Southern Natural Gas Co., 788 F.2d 1096, 1098 (5th Cir. 1986).
In OPE International LP v. Chet Morrison Contractors, Inc., 258 F.3d 443 (5th Cir. 2001), the Fifth Circuit described the inquiry under the FAA as follows:
Courts conduct a two-step inquiry when deciding whether parties must submit to arbitration. . . . The first step is to decide whether the parties agreed to arbitrate their dispute This determination involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. . . . To resolve these issues, courts generally . . . should apply ordinary state-law principles that govern the formation of contracts. . . . Once a court determines that the parties agreed to arbitrate, the court must assess whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims.258 F.3d at 445-46 (internal citations and quotations omitted).
3. Cook Children's Claims Are Subject to Arbitration
In this case, the court must determine which of the agreements governs the dispute over United of Omaha's non-payment of Jose Herrera's medical expenses at Cook Children's. United of Omaha contends that the Mutually Preferred Agreement applies. Specifically, it argues that Cook Children's claims are predicated on whether the care provided to Jose Herrera is "Covered Care," which is a "threshold issue that must be decided before any consideration of whether [Cook Children's] [is] entitled to payment." Application for Preliminary Injunction and Brief in Support ("Application") at 7. The determination of what is "Covered Care" is made solely by United of Omaha pursuant to the Mutually Preferred Agreement. Id. at 8. Consequently, according to United of Omaha, since the issue of Covered Care is essential to Cook Children's claims, this dispute cannot be subject to arbitration because the contract addressing the issue of what is Covered Care, i.e., the Mutually Preferred Agreement, contains no arbitration clause. Id. at 8-9.
In support of this claim, United of Omaha notes, "Neither the Preferred Facility Agreement nor the Preferred Physician Group Agreement provides a method to determine whether care is Covered Care." Application at 8.
Cook Children's disputes this contention. In particular, Cook Children's argues that both the Facility Agreement and the Physician Agreement contain valid arbitration clauses and that this dispute falls squarely within the scope of those agreements to arbitrate any claims arising out of or relating to those agreements. Response at 7. In addition, Cook Children's disputes the applicability of the Mutually Preferred Agreement to this dispute, asserting that it is not a party to the Mutually Preferred Agreement and that its claims are in no way based upon that agreement. Id. at 8. Accordingly, Cook Children's argues, this dispute is subject to arbitration. Id. at 9. The court agrees with Cook Children's contention.
Cook Children's also observes that, unlike the Mutually Preferred Agreement, both United of Omaha, through PHCS, and Cook Children's are parties to the Facility Agreement and the Physician Agreement. Response at 9.
At the outset, the court notes that United of Omaha has not questioned the validity of the arbitration provisions in the Facility Agreement and the Physician Agreement. See generally Application. As discussed previously, United of Omaha only contests the applicability of those provisions to this dispute. Thus, the court need only determine whether the dispute at hand falls within the scope of the arbitration provisions in those agreements. OPE International, 258 F.3d at 445-46. When addressing questions of arbitrability, courts have repeatedly held that all doubts concerning the scope of an arbitration clause in a contract should be resolved in favor of arbitration. See, e.g., United Steelworkers of America v. Warrior and Gulf Navigation Company, 363 U.S. 574, 583 (1960); Pennzoil Exploration and Production Company v. Ramco Energy Limited, 139 F.3d 1061, 1067 (5th Cir. 1998). Both the Supreme Court and the Fifth Circuit have characterized arbitration clauses, similar to the ones in the Facility Agreement and Physician Agreement, as "broad arbitration clauses capable of expansive reach." Pennzoil Exploration, 139 F.3d at 1067 (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 397-98 (1967) (labelling as "broad" a clause requiring arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement"), and Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir.) (holding that when parties agree to an arbitration clause governing "[a]ny dispute . . . arising out of or in connection with or relating to this Agreement," they "intend the clause to reach all aspects of the relationship.") [, cert. denied, 525 U.S. 876 (1998)]). Courts have also distinguished narrow arbitration clauses ( i.e., clauses that only require arbitration of disputes "arising out of" the contract) from broad arbitration clauses ( i.e., clauses governing "disputes that `relate to' . . . the contract."). Pennzoil Exploration, 139 F.3d at 1067 (citing Tracer Research Corp. v. National Envtl. Svcs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994) (comparing "relating to" language with "arising out of" language.) [, cert. dism'd, 515 U.S. 1187 (1995)]). In this case, both the Facility Agreement and the Physician Agreement use not only the phrase "arising out of," but also "relating to." Facility Agreement, Exhibit 2 at 10; Physician Agreement, Exhibit 3 at 9. Consequently, there can be no doubt that this is a "broad" arbitration clause. See Pennzoil Exploration, 139 F.3d at 1067. Broad arbitration clauses "are not limited to claims that literally arise under the contract, but rather embrace all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute." Id. (internal citations and quotations omitted). Keeping in mind the strong policy in favor arbitration, the court finds that the dispute over payment of Jose Herrera's bills is clearly "related to" the Physician Agreement and the Facility Agreement, and is therefore arbitrable under the broad arbitration provisions in those agreements. See Pennzoil Exploration, 139 F.3d at 1068.
In addition, based on the evidence presented in the court's hearing on the preliminary injunction and the parties' submissions on this issue, the court finds United of Omaha has failed to carry its burden of showing a substantial likelihood of success on the merits, i.e., that it will be able to prevail on its claim that the present dispute is not subject to binding arbitration. See, e.g., Mississippi Power Light, 760 F.2d at 621. At best, United of Omaha only demonstrated that, with respect to the Mutually Preferred Agreement, arbitration is not a chosen method of dispute resolution for the company. This fact is of no moment for several reasons. First, it is undisputed that Cook Children's is not a party to the Mutually Preferred Agreement. Response at 9 ("Defendants are not signatories or third party beneficiaries of the Mutually Preferred Agreement."); see generally Mutually Preferred Agreement, Exhibit 1. Second, the Mutually Preferred Agreement does not appear to be referenced in or mentioned in the Facility Agreement or the Physician Agreement. See generally Facility Agreement, Exhibit 2; Physician Agreement, Exhibit 3. Third, and perhaps most importantly, United of Omaha is a party to the Facility Agreement and the Physician Agreement, both of which express a clear and unambiguous intent to require arbitration of the claims in dispute here. Accordingly, the court finds this dispute is arbitrable.
Section 2.8(i) of the Mutually Preferred Agreement provides:
[United of Omaha] hereby grant[s] to PHCS a power of attorney . . . to act in its name and on its behalf with respect to any and all contracts with Health Care Providers [such as Cook Children's] regarding PHCS Services . . . [United of Omaha] shall abide by the terms of any agreement with a Health Care Provider (e.g., PHCS Provider Agreement) entered into by PHCS on behalf of [United of Omaha] with regard to the provision of healthcare services arranged for by PHCS.
Mutually Preferred Agreement, Exhibit 1 at 6 (emphasis added).
III. CONCLUSION
For the reasons stated above, the application for preliminary injunction, filed by United of Omaha, is DENIED.
SO ORDERED.
January 17, 2002.