United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION AND ORDER
LAKE, UNITED STATES DISTRICT JUDGE.
Memorial Hermann Health System, initiated this action on
August 1, 2017, by filing a petition in the 133rd State
District Court of Harris County, Texas, Cause No. 2017-50855,
against defendant, Blue Cross Blue Shield of Texas
("BCBSTx"), for breach of contract, quantum
meruit/unjust enrichment, and declaratory judgment under the
Texas Declaratory Judgment Act, Tex. Civ. Prac. & Rem.
Code § 37.003. On September 3, 2017, defendant removed
plaintiff's action to this court based on diversity
jurisdiction. Pending before the court is Defendant
Health Care Service Corporation's Motion to Dismiss
Pursuant to Rule 12(b)(3) for Improper Venue and Motion to
Compel Arbitration ("Defendant's MD, " Docket
Entry No. 8). For the reasons set forth below,
Defendant's MD will be denied.
is a non-profit, charitable healthcare system. Defendant
offers, issues, and administers insurance plans that provide
access to healthcare services. Persons covered by policies
issued and administered by the defendant
("insureds") receive health care services from the
plaintiff. The benefits that the defendant's insureds
receive are governed by a number of different types of
agreements between individual insureds and the defendant or
an employer health plan administered by the defendant.
Separate and apart from the agreements between the defendant
and its insureds, the defendant and the plaintiff have
entered into agreements that govern compensation and billing
for services that plaintiff provides to insureds covered by
defendant's various types of health insurance plans,
e.g.. Health Maintenance Organization
("HMO"), Preferred Provider Organization
("PPO"), and Traditional Indemnity Business
("Traditional Indemnity") plans. These agreements
provide defendant a contractual discount from the
plaintiff's usual and customary charges when its insureds
receive health care services at plaintiff's facilities.
the agreements that plaintiff and defendant entered into is
the "Hospital Contract for Traditional Indemnity
Business" ("Indemnity Contract" or
"Traditional Contract") executed in 2005. The
Traditional Contract provides a discounted rate,
i.e., the PAR rate, for insureds covered by
defendant's Traditional Indemnity plans. Plaintiff
alleges that when the Traditional Contract was negotiated and
signed, it was contemplated and agreed that it would cover
reimbursement only for medical services provided to members
of defendant's Traditional Indemnity plans. Plaintiff
alleges that the PAR rate has consistently been applied to
claims for all services provided by plaintiff to
defendant's insureds covered by a Traditional Indemnity
plan. Plaintiff alleges that in 2005 the PAR rate was 80% of
billed charges for all inpatient and outpatient claims,
excluding co-pays, coinsurance, and non-covered claims. Since
2005, through a series of amendments, the discount increased
for the defendant's benefit such that by January 1, 2014,
the PAR rate was down to 65% of billed charges, decreasing to
63.6% effective November 1, 2014, 63.2% effective October 15,
2015, 53% effective January 1, 2016, and 52.6% effective
August 1, 2016.
2013 defendant began offering health insurance plans over
exchanges created under the Affordable Care Act
("ACA"), with effective start dates of January 1,
2014. One of the ACA plans that defendant offered was the
Blue Advantage HMO plan ("BAV HMO Plan"). Plaintiff
alleges that because defendant wanted to reimburse plaintiff
for care provided to BAV HMO Plan members at rates to which
the plaintiff did not agree, defendant excluded the BAV HMO
Plan from the parties' HMO contract, and designated the
plaintiff as an "out-of-network" provider for BAV
HMO Plan members.
alleges that it has a statutory duty under the federal
Emergency Medical Treatment and Active Labor Act
("EMTALA"), 42 U.S.C. § 1395dd et
sea., to treat BAV HMO Plan insureds who present to one
of its facilities with an emergency medical condition.
Plaintiff alleges that under the Texas Insurance Code,
defendant must "pay for emergency care performed by
non-network physicians or providers at the usual and
customary rate or at an agreed rate, " Tex. Ins. Code
§ 1271.155(a), and must "approve or deny coverage
of poststabilization care as requested by a treating
physician or provider within . . . one hour from the time of
the request." Tex. Ins. Code § 1271.155(c).
Plaintiff alleges that when a BAV HMO Plan insured seeks
emergency treatment it verifies the insured's coverage
and eligibility electronically with the defendant. Plaintiff
alleges that if there is a subsequent change in status, such
as if the insured is admitted to the hospital, the plaintiff
notifies the defendant and requests authorization for
treatment. Plaintiff alleges that the defendant typically
responds that authorization for treatment is "pending,
" but neither refuses nor objects to continued
treatment, and does not coordinate, facilitate, or provide
instructions to transfer the patient to an in-network
facility. Because the defendant does not deny such requests
for authorization within one hour as required by the Texas
Insurance Code, plaintiff alleges that the defendant must pay
for all care, whether emergency or post-stabilization, that
plaintiff provides to BAV HMO Plan insureds. Plaintiff
alleges that denial of authorization for post-stabilization
treatment would require the defendant to coordinate transfer
of the patient to an in-network facility and provide transfer
instructions to the plaintiff.
alleges that through negotiation in late 2013 conducted via
oral and written communications, the parties agreed that the
defendant could use the Traditional Contract's PAR rate
to pay for healthcare services that plaintiff provided to BAV
HMO Plan insureds when they presented with an emergency
condition.Plaintiff alleges that for approximately 18
months, from January 2014 through mid-2015, the defendant
generally paid the plaintiff the PAR rate for healthcare
services provided to BAV HMO Plan insureds both in the
emergency room and in the hospital upon admission for
continuing care. Plaintiff alleges that contrary to the
parties' agreement and practice for 2014 and the first
half of 2015, in mid-2015 the defendant took the position
that plaintiff was required to transfer BAV HMO Plan insureds
to a different, in-network facility once the patient's
condition had - in the defendant's post-hoc opinion -
stabilized, even if the insured did not want to be
transferred. Plaintiff alleges that it has provided
emergency healthcare services to over 700 BAV HMO Plan
insureds but that despite repeated demands for payment,
defendant has not paid for those services.
Motion to Dismiss and Compel
Petition asserts claims for breach of contract, quantum
meruit/unjust enrichment, and declaratory judgment under the
Texas Declaratory Judgment Act, Tex. Civ. Prac. & Rem.
Code § 37.003.
that "[t]he operative" contract is the
"Traditional Contract" that "contains a
mandatory arbitration agreement requiring that 'any
Contract interpretation or claim issue' be resolved
'by arbitration under the commercial rules and
regulations of the American Arbitration [ ("AAA")
], ' " defendant moves the court to dismiss
this action pursuant to Federal Rule of Civil Procedure
12(b)(3) for improper venue and to compel arbitration
pursuant to the Federal Arbitration Act ("FAA"), 9
U.S.C. §§ 1 et seq., and/or the Texas
General Arbitration Act ("TGAA"), Tex. Civ. Prac.
& Rem. Code § 171.021(a). Alternatively, the
defendant moves the court to stay this action pending
that it is not suing because defendant breached the
Traditional Contract but, instead, because defendant
"breached (and continues to breach) a verbal and
email-based contract to pay [plaintiff] a particular rate for
its treatment of patients covered by the . . . BAV HMO plan .
. . (the 'BAV HMO Agreement'), "plaintiff
urges the court to deny Defendant's MD because the
arbitration clause in the Traditional Contract does not apply
to the BAV HMO Agreement.
Standard of Review and Applicable Law
motion to dismiss and to compel arbitration is a challenge to
venue based on Federal Rule of Civil Procedure 12(b)(3) and
the FAA or, alternatively, the TGAA. The FAA, 9 U.S.C.
§§ 1 et seq., creates "a body of
federal substantive law of arbitrability, applicable to any
arbitration agreement within the coverage of the Act."
Moses H. Cone Memorial Hospital v. Mercury Construction
Corp., 103 S.Ct. 927, 941 (1983) (citing Prima Paint
Corp. v. Flood & Conklin Manufacturing Corp., 87
S.Ct. 1801 (1967)). Section 2 of the FAA states that a
written arbitration agreement in any contract involving
interstate commerce is valid, irrevocable, and enforceable
except on grounds that would permit the revocation of a
contract in law or equity. 9 U.S.C. § 2.
3 of the FAA requires federal courts, on a party's
motion, to stay litigation of claims subject to arbitration.
9 U.S.C. § 3. District courts may, in their discretion,
dismiss an action instead of staying it when the entire
controversy between the parties will be resolved by
arbitration. See Fedmet Corp. v. M/V Buyalyk, 194
F.3d 674, 678 (5th Cir. 1999) ("If all of the issues
raised before the district court are arbitrable, dismissal of
the case is not inappropriate.") (citing Alford v.
Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th
Cir. 1992)). The Fifth Circuit has explained that dismissal
is appropriate in such circumstances because "[a]ny
post-arbitration remedies sought by the parties will not
entail renewed consideration and adjudication of the merits
of the controversy but would be circumscribed to a judicial
review of the arbitrator's award in the limited manner
prescribed by law." Fedmet, 194 F.3d at 678
(quoting Alford, 975 F.3d at 1164) . Although
Federal Rule of Civil Procedure 12(b) does not specifically
provide for dismissal of an action based on enforcement of an
arbitration clause, the parties do not dispute that
defendant's motion to dismiss is governed by Rule 12(b)
(3) ."On a Rule 12(b) (3) motion to
dismiss for improper venue, the court must accept as true all
allegations in the complaint and resolve all conflicts in
favor of the plaintiff." Braspetro Oil Services Co.
v. Modec (USA), Inc., 240 Fed.Appx. 612, 615 (5th Cir.
2007) (per curiam). The court may look outside of the
complaint and its attachments and review extrinsic materials,
including affidavits. Ambraco, Inc. v. Bossclip
B.V., 570 F.3d 233, 238 (5th Cir. 2009), cert,
denied, 130 S.Ct. 1054 (2010) . Absent an
evidentiary-hearing on a Rule 12(b)(3) motion, affidavits and
other evidence submitted by the non-moving party are viewed
in the light most favorable to that party. Id.
(citing Murphy v. Schneider National, Inc., 362 F.3d
1133, 1138-40 (9th Cir. 2004)).
4 of the FAA permits a party to seek an order compelling
arbitration if the other party has failed to arbitrate under
a written agreement. 9 U.S.C. § 4. Courts apply a
two-step inquiry when determining a motion to compel
arbitration. See OPE International LP v. Chet Morrison
Contractors, Inc., 258 F.3d 443, 445 (5th Cir. 2001)
(per curiam) (citing Webb v. Investacorp, Inc., 89
F.3d 252, 257-58 (5th Cir. 1996) (per curiam) (quoting
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 105 S.Ct. 3346, 3355 (1985))). The first step is
to determine whether the parties agreed to arbitrate their
dispute. Id. The second step is to determine
"whether legal constraints external to the parties'
agreement foreclose the arbitration of those claims."
Id. at 446 (citing Webb, 89 F.3d at 258).
Did the Parties Agree to Arbitrate Their Dispute?
determination of whether the parties agreed to arbitrate
their dispute requires consideration of two questions:
"(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."
Webb, 89 F.3d at 258. See Kubala v. Supreme
Production Services, Inc., 830 F.3d 199, 201 (5th Cir.
2016) ("Enforcement of an arbitration agreement involves
two analytical steps. The first is contract formation-whether
the parties entered into any arbitration agreement at
all. The second involves contract interpretation to
determine whether this claim is covered by the arbitration
agreement."). Challenges to the existence - as opposed
to the enforceability, validity, or scope - of an agreement
to arbitrate are for a court to decide. See DK Joint
Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir. 2011)
("[It] is for the courts and not the arbitrator to
decide in the first instance a dispute over whether the
parties entered into any arbitration agreement in the first
place."); Will-Drill Resources, Inc. v. Samson
Resources Co., 352 F.3d 211, 212 (5th Cir. 2003)
("[when] the very existence of any agreement to
arbitrate is at issue, it is for the courts to decide based
on state-law contract formation principles"). Courts
generally apply "ordinary state-law principles that
govern the formation of contracts, " Webb, 89
F.3d at 258 (quoting First Options of Chicago, Inc. v.
Kaplan, 115 S.Ct. 1920, 1924 (1995)), but must give due
regard to the federal policy favoring arbitration and resolve
any ambiguities as to the scope of the arbitration clause
itself in favor of arbitration. Id. See also Kubala,
830 F.3d at 202 ("Whether they entered [into] a valid
arbitration contract turns on state contract law.").
Under Texas law the party seeking to compel arbitration has
the initial burden to establish the existence of a valid
agreement to arbitrate between the parties and that the
dispute at issue falls within the scope of that agreement.
Cantella & Co., Inc. v. Goodwin. 924 S.W.2d 943,
944 (Tex. 1996) (per curiam). See also Venture Cotton
Cooperative v. Freeman, 435 S.W.3d 222, 227 (Tex. 2014)
("A party-seeking to compel arbitration . . . must
establish that the dispute falls within the scope of an
existing agreement to arbitrate."). "Upon such
proof, the burden shifts to the party opposing arbitration to
raise an affirmative defense to the agreement's
enforcement." Id. (citing J.M. Davidson,
Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003)).
Parties Have a Valid Agreement to Arbitrate Defendant cites
Article 11.C of the Traditional Contract as a valid agreement
to arbitrate between the parties that has existed since
2005. That agreement provides:
After exhausting the remedies contained in this Article 11,
any Contract interpretation or claim issue which the HOSPITAL
or BCBSTX determines has not been satisfactorily resolved
shall be resolved by arbitration under the commercial rules
and regulations of the American Arbitration Association, and
in accordance with the Texas General Arbitration Act (Chapter
171 Texas Civil Practice and Remedies Code) .
does not dispute that Article 11.C of the Traditional
Contract is a valid agreement to arbitrate between the
parties. Instead, plaintiff argues that the
claims asserted in this action arise not from defendant's
breach of the Traditional Contract but from the
defendant's breach of "a verbal and email-based
contract to pay [plaintiff] a particular rate for its
treatment of patients covered by the Blue Advantage HMO
("BAV HMO") plan, a rate that [defendant] paid for
about 18 months until it decided to breach that agreement
(the 'BAV HMO Agreement'). "
The parties in this lawsuit are sophisticated entities whose
relationship is governed by complex, heavily negotiated,
written contracts. . . [Plaintiff] and [defendant] executed
the Traditional Contract, as well as separate HMO and PPO
Contracts in 2005. . . There is no dispute that each of those
three contracts remains in force. Nor is there any dispute
that, for more than a decade, the course of dealing between
these parties has been to operate under
written contracts, executed by duly
authorized persons in each company with the power to bind
their respective employers in contract.
Both parties agree that the Traditional Contract at issue in
this Motion contains a forum selection provision requiring
any contract interpretation or claim issue to be resolved by
arbitration. . . The only dispute is whether the Traditional
Contract reaches BAV [HMO] Plan members; if it does, then the
Court must grant [defendant's] motion to compel
citing Article 11.C of the Traditional Contract defendant has
satisfied its burden to show that there is a valid agreement
to arbitrate between the parties. Plaintiff does not dispute
that the Traditional Contract has been a valid agreement
between the parties since 2005 or that Article 11. C of the
Traditional Contract contains an arbitration provision.
Plaintiff argues that the Traditional Contract does not cover
the claims asserted in this action because those claims do
not arise from an alleged breach of the Traditional Contract
entered in 2005 but, instead, from an alleged breach of an
oral and written BAV HMO Agreement entered in 2013.
Plaintiff's argument raises the question of contract
interpretation not contract formation. See
Kubala, 830 F.3d at 201 (the question of contract
formation asks "whether the parties entered into any
arbitration agreement at all") . See also IQ
Products Co. v. WD-40 Co., 871 F.3d 344, 348 (5th Cir.
2017) ("The first step is a question of contract
formation only - did the parties form a valid agreement to
arbitrate some set of claims.").
the Traditional Contract governs the claims asserted in this
action is a question of contract interpretation that does not
factor into the first question courts consider when deciding
if a valid agreement to arbitrate exists. As the Fifth
Circuit explained in Kubala, 830 F.3d at 202, the
question at the first step of the analysis is not
"whether there is an agreement to arbitrate the
claim currently before the court. . . [T] he
only-issue at the first step is whether there is any
agreement to arbitrate any set of claims." Plaintiff
recognizes as much by citing Buell Door Co. v.
Architectural Systems, Inc., No. 3:02-CV-721-AH, 2002 WL
1968223, *6-*7 (N.D. Tex. August 20, 2002), for its holding
that the arbitration provision in a written sales agreement
did not apply to a dispute arising under a separate,
subsequent verbal distributorship agreement. Because the
plaintiff in Buell Door - like the plaintiff here -
did not dispute the existence of a ...