Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-07-01971/USCOURTS-ca8-07-01971-0/pdf.json

Parties Involved:
Aegon Direct Marketing Services
Appellant
Express Scripts
Appellee

Document Text:

1

The Honorable Charles A. Shaw, United States District Judge for the Eastern

District of Missouri.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 07-1971

___________

Express Scripts, Inc., *

*

Plaintiff - Appellee, *

* Appeal from the United States

v. * District Court for the 

* Eastern District of Missouri.

Aegon Direct Marketing Services, Inc., *

*

Defendant - Appellant. *

___________

Submitted: September 24, 2007

Filed: February 13, 2008

___________

Before MURPHY, MELLOY, and SMITH, Circuit Judges.

___________

MURPHY, Circuit Judge.

Express Scripts, Inc. (ESI) brought this action against Aegon Direct Marketing

Services, Inc. (Aegon) seeking a declaratory judgment that a 2000 oral agreement

terminated an earlier agreement to arbitrate contractual disputes and injunctive relief

against Aegon's demand for arbitration. Aegon moved to dismiss or for a stay

pending arbitration. The district court1

 denied Aegon's motion, and it appeals. We

affirm.

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On June 1, 1995 predecessors of Aegon and ESI entered into a pharmaceutical

sales agreement (the 1995 Agreement), under which ESI's predecessor, Diversified

Pharmaceutical Services, Inc. (Diversified), agreed to provide pharmacy benefit

management services to Aegon's predecessor, Monumental General Insurance Group

(Monumental). Aegon succeeded to Monumental's entire interest in the 1995

Agreement before ESI acquired Diversified on April 1, 1999. Section 9.5 of the 1995

Agreement is an arbitration provision which states that "[i]f any dispute relating to this

Agreement arises between Diversified and Contractor [Monumental] which cannot be

resolved through good faith negotiation, the dispute shall be resolved by binding

arbitration in accordance with the rules of the American Arbitration Association

[AAA]." AAA Rule 1, which was in effect when the parties' predecessors entered into

the 1995 Agreement, states that "[t]hese rules and any amendment of them shall apply

in the form obtaining at the time the demand for arbitration. . .is received by the

AAA." 

On January 26, 2000 ESI and Aegon amended the 1995 Agreement to change

certain retail pricing terms. They also began negotiating a new pharmaceutical sales

agreement under which ESI would continue to provide pharmacy benefit management

services to Aegon. ESI claims that on March 28, 2000, the parties orally agreed to a

new contract (the 2000 Agreement) and that they operated under its terms and pricing

structure beginning June 1, 2000. Aegon claims on the other hand that the 2000

Agreement never went into effect and that the 1995 Agreement is the only contract

between the parties. The only copy of a 2000 Agreement included in the record is not

signed by either ESI or Aegon, and ESI does not dispute that no signed copy exists.

The unsigned contract does not include an arbitration provision and states that it

supersedes all preceding agreements. 

In 2005 a dispute arose after Aegon audited ESI's billings and concluded that

ESI had overbilled it by approximately $5 million. Aegon demanded repayment of

the excess amounts, and ESI rejected the audit findings and refused to pay. Aegon

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filed a demand for arbitration with AAA on September 8, 2006, attaching a copy of

the arbitration provision in the 1995 Agreement (§ 9.5). At the time that AAA

received Aegon's arbitration demand, its rules included one giving arbitrators the

power to rule on their own jurisdiction even if any party objects to the existence,

scope, or validity of the arbitration agreement. ESI responded to Aegon's arbitration

demand by filing this declaratory judgment action in state court on September 22,

2006, seeking injunctive relief. 

Aegon removed the case to federal court on October 10, 2006 and moved to

dismiss ESI's motions under Fed. R. Civ. P. 12(b)(6) or to stay the motions pending

arbitration pursuant to 9 U.S.C. § 3. After several months went by without a court

hearing on the parties' motions, Aegon requested on February 8, 2007 that AAA move

forward with arbitration. AAA advised the parties that it would proceed unless it

received a contrary indication from the court. On February 28, 2007 ESI filed a

motion for a temporary restraining order to enjoin the arbitration. 

The district court heard arguments on the parties' motions on March 1, 2007,

after which it denied Aegon's motion for dismissal or stay and dismissed ESI's motion

for a restraining order as moot. The court cited AT & T Technologies, Inc. v.

Communications Workers of America, 475 U.S. 643, 649 (1986), for the proposition

that "[u]nless the parties clearly and unmistakably provide otherwise, the question of

whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator."

In its view nothing in the 1995 Agreement provided clear, unmistakable evidence that

the parties had agreed to arbitrate the issues of whether a subsequent agreement

superseded the original contract or whether a billing dispute would be subject to

arbitration, and it was therefore for the court to determine arbitrability. Aegon appeals

under 9 U.S.C. § 16(a)(1)(A), and we have jurisdiction to review the district court's

order under 28 U.S.C. § 1294(1). 

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Aegon argues that where one party challenges the validity of an agreement as

a whole, but does not expressly dispute the validity of an arbitration provision within

it, that provision is severed and generally serves as clear, unmistakable evidence that

the parties intended to arbitrate any dispute over the contract's validity. See, e.g.,

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006); Prima Paint

Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967). ESI responds that

it does explicitly challenge the continuing applicability of the earlier arbitration

provision as well as the rest of the 1995 Agreement, which it says was superseded by

a 2000 Agreement.

We review de novo a district court's denial of a motion to dismiss under Fed.

R. Civ. P. 12(b)(6), Broadus v. O.K. Industries, Inc., 226 F.3d 937, 941 (8th Cir.

2000), accepting the allegations contained in the complaint as true and drawing all

reasonable inferences in favor of the nonmoving party, Katun Corp. v. Clarke, 484

F.3d 972, 975 (8th Cir. 2007). In its petition for declaratory judgment and injunctive

relief ESI alleged that the 2000 Agreement became effective and superseded the 1995

Agreement and facts which could support that allegation. The district court thus did

not err in denying Aegon's motion to dismiss ESI's petition. See id.

A district court's denial of a motion to stay pending arbitration under 9 U.S.C.

§ 3 is also reviewed de novo. FSP, Inc. v. Société Générale, 350 F.3d 27, 30 (2d Cir.

2003); Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th

Cir. 1998); In re Complaint of Hornbeck Offshore (1984) Corp., 981 F.2d 752, 754

(5th Cir. 1993); see also Enderlin v. XM Satellite Radio Holdings, Inc., 483 F.3d 559,

560 (8th Cir. 2007) (arbitrability of dispute based on contract interpretation is a legal

question reviewed de novo). Unlike our review of a motion to dismiss, however, we

need not accept either party's allegations as true but instead must review the

evidentiary record to determine whether the § 3 movant has offered sufficient proof

to "satisf[y] [the court] that the issue involved . . . is referable to arbitration under such

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an agreement," 9 U.S.C. § 3. If so, the motion for a stay pending arbitration should

be granted. 

In ruling on such a motion the district court does not determine the merits of the

substantive issues since "in deciding whether the parties have agreed to submit a

particular grievance to arbitration, a court is not to rule on the potential merits of the

underlying claims.” AT & T, 475 U.S. at 649. Aegon's very limited claim to the

district court was that an arbitrator, not a court, should decide whether the 1995

Agreement was effective at the time AAA received Aegon's demand for arbitration

and if it was, whether the billing dispute falls within the scope of the 1995 arbitration

provision. In light of these questions, the district court did not abuse its discretion by

not addressing ESI's claim that the 1995 Agreement was terminated by the purported

2000 Agreement. 

ESI argues that ignoring evidence of the validity of the 2000 Agreement

improperly elevates the 1995 Agreement and other similar arbitration agreements to

"eternal, immutable, and interminable" status, citing Nissan North America, Inc. v.

Jim M'Lady Oldsmobile, Inc., 307 F.3d 601 (7th Cir. 2002). In Nissan the parties'

arbitration agreement had a fixed term, however, which expired before the demand for

arbitration was filed. To presume arbitrability under a plainly expired arbitration

agreement "would make the contractual obligation to arbitrate limitless." Id. at 604.

In contrast, there is here no allegation that the 1995 Agreement expired on its own

terms. Instead ESI urges us to assume that the 1995 Agreement was terminated by the

2000 Agreement. The basis for this presumption was said to be a written but unsigned

copy of the purported contract, related correspondence with Aegon representatives,

and allegations that the parties operated under the terms of such agreement. The

district court concluded that this evidence did not create a presumption that the 2000

Agreement superseded the earlier one, recognizing that both parties agree that the

1995 Agreement was valid and binding at some point in time but that any evidence

that it is no longer effective goes to the underlying dispute between the parties.

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The 1995 Agreement does contain an arbitration provision, and parties give up

the right to have a court decide the merits of any dispute which they have agreed to

arbitrate. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995). Congress

enacted the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., in 1925 to

"establish[] and regulat[e] the duty to honor" such arbitration agreements. Moses H.

Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n.32 (1983). Although

the FAA applies to all arbitration agreements involving transactions in maritime or

interstate commerce, see 9 U.S.C. § 2; Prima Paint, 388 U.S. at 405, arbitration

disputes will be considered in federal court only when there is diversity of citizenship

or an independent basis for federal jurisdiction. Moses H. Cone, 460 U.S. at 26 n.32.

The FAA applies to the 1995 Agreement because the prescription drug plan in dispute

involved interstate commerce, and the district court's jurisdiction was based on the

diversity of the parties, 28 U.S.C. § 1332.

Before a district court may grant a motion to stay pending arbitration under 9

U.S.C. § 3, it "must engage in a limited inquiry to determine whether a valid

agreement to arbitrate exists between the parties and whether the specific dispute falls

within the scope of that agreement." Houlihan v. Offerman & Co., Inc., 31 F.3d 692,

696 (8th Cir. 1994) (requiring district court to apply this principle before granting

motion to compel arbitration under 9 U.S.C. § 4); also Pro Tech Indus., Inc. v. URS

Corp., 377 F.3d 868, 871 (8th Cir. 2004). Thus, "the question 'whether the parties

have a valid arbitration agreement at all' is for the court, not the arbitrator, to decide."

Terminix Int'l Co., LP v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1331 (11th Cir.

2005), quoting Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003); also

McLaughlin Gormley King Co. v. Terminix Int'l Co., L.P., 105 F.3d 1192, 1193-94

(8th Cir. 1997). 

The first threshold issue, the validity of the 1995 Agreement (exclusive of the

dispute over its continuing viability), is easily resolved in favor of the district court's

conclusion that the 1995 Agreement is presumptively valid and binding upon ESI and

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Aegon. Under the FAA, a written arbitration agreement by itself or in a contract

"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 parties do not

dispute that the 1995 Agreement was valid and enforceable or that they are successors

in interest to the rights and obligations in the 1995 Agreement. See United Computer

Sys., Inc. v. AT & T Corp., 298 F.3d 756, 766 (9th Cir. 2002) (successor in interest

by merger with original signatory); Fyrnetics (Hong Kong) Ltd. v. Quantum Group,

Inc., 293 F.3d 1023, 1029 (7th Cir. 2002). 

The second issue, "whether the specific dispute falls within the scope of [the]

agreement," must also be resolved by a court to ensure that a party is not unfairly

stripped of its right to a judicial decision about a matter it had not agreed to arbitrate.

See First Options, 514 U.S. at 945 (although FAA evinces Congress's strong

preference for arbitration, our system will not force parties "to arbitrate a matter they

reasonably would have thought a judge, not an arbitrator, would decide"). The

specific dispute here involves the scope of the arbitration provision and whether it

shows the parties' desire to have an arbitrator resolve the arbitrability issue. 

Arbitration is a matter of contract, and "arbitrators derive their authority to

resolve disputes only because the parties have agreed" to it. AT & T, 475 U.S. at

648-49. Where there is a valid, broad arbitration clause like the one here, a court

presumes arbitrability of any particular substantive dispute and resolves any doubts

in favor of coverage "unless it may be said with positive assurance that the arbitration

clause is not susceptible of an interpretation that covers the asserted dispute." Id. at

650. This presumption of arbitrability does not exist, however, if the parties were

silent about who should decide arbitrability, for "courts should not assume that the

parties agreed to arbitrate arbitrability unless there is 'clear and unmistakable' evidence

that they did so." Id. at 649; see McLaughlin Gormley, 105 F.3d at 1194 (party could

not be forced to arbitrate the issue of arbitrability because nothing in arbitration clause

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or any other contract provision "evidenced the parties' intent to give the arbitrator

power to determine arbitrability").

Aegon argues that the arbitrability dispute must be submitted to an arbitrator

according to Buckeye, 546 U.S. 440, and Prima Paint, 388 U.S. 395. The Buckeye

line of cases stands for the proposition that where the parties dispute the validity of

their contract as a whole, but not the validity or existence of the arbitration provision,

the arbitration provision is severed from the rest of the agreement and the issue of the

contract's validity is decided by an arbitrator. Buckeye, 546 U.S. at 449; Prima Paint,

388 U.S. at 403-04. Unlike the facts of those cases, ESI specifically requested in its

petition for declaratory judgment that the court declare that the 1995 Agreement “was

terminated” and “that there is no agreement to arbitrate disputes for claims arising

after June 1, 2000.” It is clear that ESI explicitly disputes the ongoing existence of the

arbitration provision in the 1995 Agreement, and the district court correctly concluded

that Prima Paint and Buckeye have no application here.

A dispute like the one here – over whether the parties agreed to arbitrate – will

be resolved by the district court "[u]nless the parties clearly and unmistakably provide

otherwise." AT & T, 475 U.S. at 648; see also First Options, 514 U.S. at 944;

McLaughlin Gormley, 105 F.3d at 1194. At issue in AT & T was whether the parties

had agreed to arbitrate a grievance filed under a collective bargaining agreement. The

Supreme Court concluded that the question of whether a collective bargaining

agreement had created a duty for the parties to arbitrate the particular grievance was

"undeniably an issue for judicial determination" unless the parties unmistakably

agreed to arbitrate the issue of arbitrability. AT & T, 475 U.S. at 649. 

In McLaughlin Gormley, we affirmed the district court's denial of Terminix's

motion to compel arbitration under 9 U.S.C. § 4. Since the parties had not clearly and

unmistakably "agreed to submit the arbitrability question itself to arbitration," the

district court was required to decide the arbitrability question "just as it would decide

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any other question that the parties did not submit to arbitration, namely,

independently." 105 F.3d at 1193, citing First Options, 514 U.S. at 943. To hold

otherwise "might too often force unwilling parties to arbitrate a matter they reasonably

would have thought a judge, not an arbitrator, would decide." First Options, 514 U.S.

at 945. Because the 1995 Agreement does not include an express statement of the

parties' intent to arbitrate questions of arbitrability, the district court did not err in

concluding that the arbitrability issue must be resolved by a court in the same manner

that any other dispute between the parties which they had not specifically agreed to

arbitrate would be resolved.

 

During oral argument Aegon asserted that the parties' incorporation of the AAA

rules into the arbitration provision of the 1995 Agreement was clear, unmistakable

evidence of their intent to arbitrate their arbitrability dispute. In support of this

contention it pointed out that the parties had agreed in 1995 to "binding arbitration in

accordance with the rules of the American Arbitration Association" and that Rule 1

then provided that the rules current at the time an arbitration demand is received are

to apply. Among the rules in effect in September 2006 when AAA received its

demand for arbitration was one giving the arbitrator power to determine his or her

jurisdiction, i.e., to determine whether a dispute is arbitrable. See, e.g., Contec Corp.

v. Remote Solution Co., Ltd., 398 F.3d 205, 211 (2d Cir. 2005). 

Because Aegon failed fully to discuss this contention in the district court or in

its appeal briefs and because our circuit has never directly addressed the effect of the

AAA jurisdictional rule on arbitrability disputes, Aegon's argument is waived and we

decline to address it today. See Fed. R. App. Procedure 28(a)(9)(A) (appellant's brief

must include contentions, reasons for them, and citations to authorities and parts of

record on which appellant relies); Twin Cities Galleries, LLC v. Media Arts Group,

Inc., 476 F.3d 598, 602 n.1 (8th Cir. 2007) (argument not briefed but raised first at

oral argument is waived); see also Mississippi River Corp. v. FTC, 454 F.2d 1083,

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1093 (8th Cir. 1972) ("proper judicial administration" requires that appellant raise

issues in opening brief).

For these reasons we affirm the judgment of the district court.

______________________________

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