Case Title: OKLAHOMA ONCOLOGY & HEMATOLOGY P.C. v. US ONCOLOGY, INC.

Citation: 

Docket Number: 102673

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2007-03-15T00:00:00Z

Document:
OKLAHOMA ONCOLOGY & HEMATOLOGY P.C. v. US ONCOLOGY, INC.  OKLAHOMA ONCOLOGY & HEMATOLOGY P.C. v. US ONCOLOGY, INC. 2007 OK 12 160 P.3d 936 Case Number: 102673; Consol. w/102612 Decided: 03/15/2007 THE SUPREME COURT OF THE STATE OF OKLAHOMA OKLAHOMA ONCOLOGY & HEMATOLOGY P.C., an OKLAHOMA PROFESSIONAL CORPORATION, d/b/a CANCER CARE ASSOCIATES, Appellant, v. US ONCOLOGY, INC., a DELAWARE CORPORATION, and AOR MANAGEMENT COMPANY OF OKLAHOMA, INC., a DELAWARE CORPORATION, Appellees. APPEAL FROM THE DISTRICT COURT OF TULSA COUNTY, THE HONORABLE DAVID L. PETERSON, PRESIDING ¶0 Oklahoma Oncology & Hematology, P.C., d/b/a Cancer Care Associates filed suit against its business manager, AOR Management Company of Oklahoma, Inc., and the business manager's parent corporation, US Oncology, Inc. The suit sought declaratory judgment and damages for multiple contract and tort claims arising out of the management of plaintiff's medical oncology business. The business manager had a pending arbitration complaint. The district court stayed the arbitration. The defendants moved to lift the stay and compel arbitration. Plaintiff opposed arbitration, asserting that there was no valid enforceable arbitration agreement and that the costs of arbitration are so exorbitant as to be unconscionable. Plaintiff requested the district court to conduct an evidentiary hearing before ruling on the motion to compel arbitration. The district court referred all of plaintiff's claims to arbitration without conducting an evidentiary hearing. Plaintiff appealed and filed an original action in the event the order compelling arbitration is determined to be non-appealable. We previously determined the pre-judgment order is a final appealable order. We retained the appeal, consolidated the original action with the appeal, and stayed the arbitration proceeding during the pendency of this appeal. ORDER COMPELLING ARBITRATION REVERSED AND CAUSE REMANDED WITH INSTRUCTIONS; ORIGINAL JURISDICTION DENIED. Lana Jeanne Tyree, Cartwright & Tyree, Oklahoma City, Oklahoma, and John H. Tucker, Rhodes, Hieronymus, Jones, Tucker & Gable, PLLC, Tulsa, Oklahoma, for appellant. James M. Sturdivant and Timothy A. Carnery, Gable & Gotwals, Tulsa, Oklahoma, for appellees. TAYLOR, J. ¶1 The basic question in this appeal and the consolidated original action is whether the district court erred in sending all claims in this suit to arbitration. We find the district court erred in compelling arbitration and reverse the arbitration order. We remand this case to the district court with instructions. I. The Proceedings Below ¶2 The following are basic facts gleaned from the district court filings and the arguments in this Court. ¶3 Defendant/appellee AOR Management Company of Oklahoma, Inc. (AOR-OK) is a Delaware corporation incorporated in 1995 to provide business management services in Oklahoma to CCA. AOR-OK was a wholly-owned subsidiary of American Oncology Resources, Inc. (AOR) until it became a wholly-owned subsidiary of defendant/appellee US Oncology, Inc. (USON) in 1999. ¶4 This controversy has its origin in a business transaction that occurred in 1995, whereby AOR-OK became the business manager for the oncology medical practices of the CCA physicians. The transactional documents executed in March, 1995, included the Management Services Agreement (MSA) between CCA and Oncology and Hematology Management Partnership, a Texas General Partnership (the Texas partnership) and a Purchase Agreement executed by AOR, AOR-OK, CCA, Oklahoma Oncology & Hematology P.C., and more than fifteen physicians. ¶5 The MSA is the central contract in this controversy. The MSA was executed by only one person, Alan M. Keller, M.D., a CCA physician. Dr. Keller executed the agreement both on behalf of the Texas general partnership and on behalf of CCA. ¶6 The MSA prescribed the duties and obligations of CCA and AOR-OK for the business management of the oncology medical practices of the CCA physicians. The MSA has a forty-year term with automatic renewal every five years thereafter. The MSA fixed AOR-OK's business management fees for the first five years at a "monthly fee" in the amount equal to the "fixed amount" plus seven percent of the adjusted gross revenue. The "fixed amount" for the first sixty months ranged from $325,890 to $359,013 under the schedule in the MSA. However, the "fixed amount" was increased by several amendments to the MSA. The first amendment was in January of 1997 and the last was in October of 1999. Each amendment was in writing and executed on behalf of AOR-OK and CCA. After the first five years, the MSA provided for a "monthly fee" equal to 24.7% of the adjusted gross revenue. ¶7 The working relationship between CCA and AOR-OK during the first five years apparently disintegrated after USON became the parent corporation of AOR-OK. According to CCA, USON has taken control of CCA's administrative and financial business, its money and accounts, and its books and records. On January 26, 2005, CCA notified AOR-OK that it considered the MSA to be illegal, against public policy, and void ab initio under Oklahoma law. Two days later, on January 28, 2005, AOR-OK filed an arbitration complaint asking that the business management fee provisions in the MSA be reformed. ¶8 In the arbitration complaint, AOR-OK alleged that 1) macro-economic changes in the cancer care industry during the past several years resulted in a substantially lower business management fee for AOR-OK, 2) CCA and AOR-OK have been unable to agree to any changes in the business management fee since 1999, and 3) AOR-OK resigned itself to fulfilling the MSA for substantially less profit than had been anticipated. It further alleged that the change in reimbursement rates in the Medicaid Modernization Act of 2003 directly impacts the amount of the business management fee in the MSA. ¶9 The arbitration complaint referred to section 7.2(d) of the MSA as authorizing arbitration for the purpose of rewriting the business management fee provisions in the MSA. Section 7.2(d) provides for the parties to negotiate in good faith concerning a new service arrangement or a new basis for compensation as may be necessary due to change in Medicare/Medicaid law, state law or change in any third party reimbursement system; and if the parties cannot agree to a new service arrangement or basis for compensation, it provides for the matter to be sent to binding arbitration. ¶10 The relief sought in the arbitration complaint is "a judgment that would reform the terms of the MSA such that AOR Management [AOR-OK] would be compensated at a level that approximates as closely as possible its economic position that it was in prior to changes caused by the MMA [Medicaid Modernization Act]." The arbitration complaint also seeks "costs and expenses, including reasonable attorneys' fees, for prosecution of this proceeding, as well as any further relief to which it justly may be entitled." ¶11 CCA did not answer the arbitration complaint. Instead, it filed suit in the Tulsa County District Court on February 14, 2005. The amended petition asserts that the MSA is contrary to established public policy in that it allows AOR-OK to engage in the unlicensed and unauthorized practice of medicine, to split patient revenues, and to exert dominion and control over CCA's medical practice and financial affairs. It further asserts that USON is treating CCA as if it is a wholly- owned subsidiary of USON by exercising dominion and control over CCA's entire business. The amended petition asks the district court to declare that the MSA was void ab initio and unenforceable and that there is no valid contract between the parties. It also sought a stay of arbitration and an award of compensatory and punitive damages for breach of contract, fraud and deceit, conversion, and misappropriation and embezzlement, together with interest, costs, and attorney fees against both AOR-OK and USON. ¶12 CCA also sought an emergency stay of AOR-OK's arbitration proceeding until the district court decides whether the MSA is contrary to Oklahoma law and public policy and void ab initio. The district court stayed the arbitration. ¶13 Neither AOR-OK nor USON answered the district court petition. They filed a motion to lift the stay and to compel arbitration. The motion urged arbitration under section 8.6 of the MSA which provides for any controversy, dispute, or disagreement arising out of or relating to the MSA to be submitted to binding arbitration in accordance with Article XI of the Purchase Agreement. Article XI of the Purchase Agreement calls for mediation under the Commercial Mediation Rules of the American Arbitration Association and for binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. ¶14 CCA responded that arbitration proceedings under the Commercial Arbitration Rules of the American Arbitration Association are cost prohibitive. CCA requested an evidentiary hearing on its allegations that 1) there is no valid and enforceable contract between the parties, 2) the costs of arbitration are so excessive as to be unconscionable, and 3) AOR-OK's and USON's management of CCA's business under the MSA is illegal. ¶15 The district court received briefs on the enforceability of the arbitration provisions and heard argument of counsel but did not conduct an evidentiary hearing. The district court ruled in favor of AOR-OK and USON on their motion to compel arbitration, dissolved the stay of arbitration, and referred all of CCA's claims to arbitration. ¶16 CCA timely appealed the order compelling arbitration and also filed an original action in the event the order compelling arbitration should be declared a non-appealable order. The amended application to assume original jurisdiction asked for relief via a writ of mandamus similar to the relief sought in this appeal. II. The Appeal ¶17 In the pre-decisional stage of this appeal, we determined that the pre-judgment order compelling arbitration and staying further proceedings in the district court is a final appealable order, citing III. The Issues on Appeal ¶18 The district court entered a general order in favor of AOR-OK and USON, sending all of CCA's claims to arbitration. The district court did not conduct the evidentiary hearing requested by CCA before compelling arbitration. The district court did not enter any specific findings or conclusions, and its general order compelling arbitration did not otherwise directly address many of the questions raised in the parties' arguments. However, a finding that CCA agreed that this controversy should be resolved by binding arbitration is embraced in the general order in favor of AOR-OK and USON. IV. The Standard of Review ¶19 The question as to the existence of valid enforceable agreements to arbitrate all of CCA's claims in this case against AOR-OK and USON is a question of law to be reviewed by a de novo standard, Rogers v. Dell Computer Corp., V. Federal Arbitration Law ¶20 Both sides of this controversy rely on federal court jurisprudence and both argue that the other one's position is inconsistent with federal arbitration law. Whether a contract affects interstate commerce under the FAA often involves questions of fact and law. See Citizens Bank v. Alafabco, Inc., ¶21 The FAA embodies a liberal policy favoring enforcement of arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., ¶22 Although the FAA favors arbitration when it is the parties' contractual choice of a remedial forum, id., VI. The Parties to the Arbitration Agreement ¶23 Under the above federal arbitration law, a court must send a controversy to arbitration when a party brings forth a valid enforceable agreement to arbitrate the controversy. State law is similar. ¶24 Having perused the MSA, it appears, beyond argument, to be a contract between CCA and AOR-OK by assignment. USON has not alleged that it is a party to the MSA, and there is no evidence in the appellate record tending to prove that fact. Further, USON does not dispute that it is a separate corporate entity distinct from AOR-OK. But, AOR-OK and USON, at least implicitly, argue that they act as one legal entity. ¶25 The issue as to the existence of an arbitration agreement presents a gateway question about whether the parties are bound by a given arbitration clause and raises a "question of arbitrability" for a court to decide. See VII. The Arbitration Agreement ¶26 AOR-OK and USON contend that CCA's agreement to arbitrate the instant controversy is set out in two provisions in the MSA and one provision in the Purchase Agreement. Those provisions are 1) section 7.2 (d), which requires binding arbitration to change the terms of the contract, 2) section 8.6, which requires binding arbitration to settle controversies, disputes and disagreements arising out of the MSA, and 3) section 11.01 of the Purchase Agreement, which requires mediation and binding arbitration to settle controversies, disputes and disagreements arising out of the Purchase Agreement. The provisions of arbitration agreements will be examined under general principles of state contract law. Kaplan, ¶27 The following elementary rules of contract law are applicable here. The courts will read the provisions of a contract in their entirety, Mortgage Cleaning Corp. v. Baughman Lumber Co., ¶28 Guided by these rules, we review the arbitration provisions. Section 7.2(d) of the MSA requires the parties to agree to a new service arrangement or a new basis for compensation for the services and thereby amend those provisions in the MSA whenever specific external forces affect the manner in the which the management service will be performed or compensated. If the parties cannot agree on the changes in the contract, the plain meaning of the words in section 7.2(d) is that an arbitrator will arbitrarily rewrite those provisions in the contract. ¶29 Some two years ago when the relationship with CCA, AOR-OK and USON was unworkable, CCA gave notice to AOR-OK that the MSA was void. In response, AOR-OK filed an arbitration complaint under section 7.2(d) asking that an arbitrator alter the terms of the MSA because the economy and Medicare/Medicaid reimbursement have changed. Although the arbitration complaint requested that the MSA be reformed, AOR-OK did not seek the contract remedy of reformation. ¶30 The FAA reversed the longstanding judicial hostility to arbitration agreements and placed them upon the same footing as other contract provisions. Prima Paint Corp. v. Flood & Conklin Mfg. Co., ¶31 We turn now to section 8.6 of the MSA which requires binding arbitration of controversies, disputes and disagreements arising out of the MSA. ¶32 CCA's claims against USON relate directly to USON's conduct, its alleged wrongful non-contractual handling of CCA's financial affairs, and relate only indirectly to the MSA. ¶33 Even though the plain meaning of the terms of section 8.6 provides for arbitration of disputes relating to the MSA or a breach of the MSA, AOR-OK may not be entitled to bring all of CCA's claims under section 8.6. This is so because section 8.8 contemplates that either party may file a legal action to enforce or interpret the MSA. ¶34 AOR-OK and USON contend that it is the broad language in the arbitration provision of the Purchase Agreement that clearly provides for all claims related to the MSA to be resolved in binding arbitration. It is true that section 11.01 of the Purchase Agreement expresses a sweeping arbitration scope to include contract and tort controversies arising under the Purchase Agreement. ¶35 Finally, CCA opposed the motion to compel arbitration because participation in the arbitral forum under the Commercial Arbitration Rules of the American Arbitration Association is conditioned upon the payment of exorbitant arbitration fees and costs. In response, AOR-OK and USON urged that the medical physicians have sufficient funds to pay the fees and that an arbitrator might reallocate the fees among the parties at the conclusion of the arbitration proceeding. This response did not dispel the allegation of exorbitant arbitration fees and costs to be paid by CCA nor did it vitiate the need for an evidentiary hearing as to whether the costs render the arbitration provision unenforceable. See Green Tree Financial Corp.-Alabama, VIII. Evidentiary Hearing on Motion to Compel Arbitration ¶36 We turn now to the procedural issue of whether the district court should have conducted an evidentiary hearing before it referred all claims to arbitration. This issue is controlled by Rule 4(c) of the Rules for District Courts. 12 O.S.Supp.2002, ch. 2, app. Rule 4(c) requires either a hearing or a stipulation on fact issues raised on a pre-trial motion. ¶37 The order compelling arbitration on all of CCA's claims must be reversed and remanded. On remand, the district court must conduct an evidentiary hearing on the existence of a valid and enforceable arbitration agreement and the expense of arbitration under the Commercial Arbitration Rules of the American Arbitration Association before deciding which, if any, of CCA's claims are subject to an enforceable arbitration agreement. Should the district court determine that USON has no arbitration agreement with CCA, it must proceed to hear the merits of all of CCA's claims against USON. IX. The Original Action ¶38 We consolidated CCA's original action, No. 102,612, with the retained appeal. The relief CCA sought via this Court's writ of mandamus has been granted in this appeal, and for that reason, we would not issue the writ. However, CCA's original action also urged us to exercise our original jurisdiction as a court of first instance to address the issue of whether the state public policy may be circumvented by an arbitration clause. ¶39 Our state constitution, Okla. Const., art. 7, § 4, vests this Court with the discretion to exercise original jurisdiction as a court of first instance, concurrent with the jurisdiction of the district courts, as well as the authority to issue writs to the courts below. Although we may exercise original jurisdiction to entertain a case in the first instance as distinguished from our appellate jurisdiction, Burks v. Walker, 1909 OK 317, 109 P. 544, 25 Okl. 353, Syllabus by the Court, No. 3, historically, we have exercised our original jurisdiction to entertain private disputes when a great public concern is involved or if a great injury will be suffered by our failure to exercise original jurisdiction. Jarman v. Mason, 1924 OK 722, ¶20, 229 P. 459, 463, 102 Okl. 278. Otherwise, we leave the case to the jurisdiction of the district court in the first instance. Kitchens v. McGowen, 1972 OK 140, ¶6, 503 P.2d 218 , 219 . ¶40 We recognize the egregious nature of illegal patient-fee splitting and unlicensed practice of medicine, fraud and fraud in the inducement, and misappropriation and embezzlement as claimed by CCA. We also recognize that CCA's physicians are engaged in oncology medical practices throughout the state. However, this suit involves private litigants, private contracts, and alleged tortious conduct of private entities. We do not view this case as involving the interests of the sovereign state over which we would assume original jurisdiction to sit as a court of first instance or otherwise requiring this tribunal of last resort to function as the trial court. Accordingly, we do not assume original jurisdiction in No. 102, 612. X. Conclusion ¶41 We conclude that the district court erred in refusing to conduct an evidentiary hearing as requested by CCA on the fact issues raised in the filings on the motion to compel arbitration. We also conclude, as a matter of law, that the arbitration provision in section 7.2(d) of the MSA is not enforceable under the FAA or the OUAA. We reverse the order dissolving the temporary stay of arbitration and compelling all claims to arbitration and remand this cause to the district court. On remand, the district court shall proceed to conduct an evidentiary hearing and, in ruling on the motion to compel arbitration, make findings of fact and conclusions of law on all issues raised by the parties. We note appellees' lately filed motion to dismiss or request for instructions. The motion to dismiss is denied. The request for instructions may be presented to the district court on remand. ORDER COMPELLING ARBITRATION REVERSED AND CAUSE REMANDED WITH INSTRUCTIONS; ORIGINAL JURISDICTION DENIED. WINCHESTER, C.J., EDMONDSON, V.C.J., and LAVENDER, HARGRAVE, OPALA, TAYLOR, and COLBERT, JJ., concur. KAUGER, J., concurs in result. WATT, J., concurs in part and dissents in part. FOOT