Court Opinion

ID: 71790
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:22:38+00
Date Added: 2024-06-11T17:21:10.539371
License: Public Domain

Case: 09-30310     Document: 00511055361          Page: 1    Date Filed: 03/18/2010

            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                  FILED
                                                                           March 18, 2010

                                       No. 09-30310                    Charles R. Fulbruge III
                                                                               Clerk

C.C.N. MANAGED CARE, INC.,

                                                   Plaintiff - Appellee
v.

FAYEZ SHAMIEH A.M.C.; SOUTHWESTERN LOUISIANA
HOSPITAL ASSOCIATION, doing business as Lake Charles
Memorial Hospital; LAKE CHARLES PHYSICIAN HOSPITAL
ORGANIZATION; ENGLAND MASSE CLINIC; R. DALE
BERNAUER; KEVIN GORIN; LYNN FORET,

                                                   Defendants - Appellants

                   Appeal from the United States District Court
                      for the Western District of Louisiana
                             USDC No. 2:06-CV-519

Before KING, JOLLY, and STEWART, Circuit Judges.
PER CURIAM:*
        Appellants are health care providers (Providers) who contracted with
appellee CCN, a Preferred Provider Organization (PPO). In exchange for CCN’s
referrals to insurance companies and employers (Payors), the Providers agreed
to provide health care services to the Payors at discounted rates. The Providers

        *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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                                  No. 09-30310

first filed an action in state court seeking to declare their contracts with PPOs
unenforceable.   The action was removed to federal court and the plaintiff
Providers dismissed a number of defendants, including CCN. In this separate
action, CCN sought a declaratory judgment that the discounts taken pursuant
to its contracts with the Providers are valid. After months of delay in the
proceeding, the Providers moved to compel arbitration under the mandatory
provisions of the contracts. The court denied their motion and the Providers
filed this appeal once the district court’s order became a final judgment. For the
reasons that follow, we affirm the district court’s denial of the motion.
                                        I.
      We begin with some background. In January 2006, the Providers filed a
declaratory action in Louisiana state court against CCN, among many other
defendants, in Shamieh, et al. v. American Interstate Ins. Co., et al. (American
Interstate). The Providers sought a declaratory judgment that the PPO network
discounts taken by Payors for services rendered by the Providers, pursuant to
CCN’s (and others’) PPO agreements, were unenforceable under the Louisiana
Workers Compensation Laws (WCL), La. Rev. Stat. § 23:1031 et seq., and Any
Willing Provider Act (AWPA), id. § 40:2201 et seq. In February 2006, one of the
defendants removed the case to federal court, at which point the Providers
voluntarily and quickly dismissed CCN and 115 of the other defendants.
      CCN then filed the instant action on March 28, 2006, seeking a federal
declaratory judgment declaring that its contracts were not subject to the notice
requirements of the AWPA, and were valid and enforceable under the WCL. The
complaint also sought damages and attorneys’ fees for breach of contract, based
on the assertion that the Providers’ state court suit in American Interstate
constituted a breach of their agreement to charge only a discounted amount to
Payors.

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                                  No. 09-30310

      In April 2006, without mentioning the arbitration clause, the now federal
defendant Providers moved to dismiss or stay proceedings based on two pending
state court cases and the pending appeal of a federal case concerning similar
issues, Liberty Mutual Ins. Co. v. Gunderson, 2006 WL 367700 (W.D. La.). The
district court granted a stay based on the Liberty Mutual appeal. After another
panel of this court dismissed that appeal for lack of jurisdiction, the district
court lifted the stay on December 21, 2006.
      CCN filed a motion for summary judgment on May 3, 2007. On May 31,
2007, the Providers filed a motion to compel arbitration. On July 20, the district
court denied the Providers’ motion on the ground that they had waived their
rights to arbitration. The court simultaneously granted summary judgment to
CCN on its declaratory judgment claims, leaving only the breach of contract
claims, which CCN later moved to dismiss. On February 2, 2009, the district
court granted CCN’s motion to dismiss, rendering the court’s July 20, 2007,
order final and appealable. Providers appeal only the denial of their motion to
compel arbitration.
                                       II.
      We review de novo the district court’s legal conclusion that the Providers
waived arbitration, but review underlying factual findings for clear error.
Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999).
Specifically, whether a party substantially invoked the judicial process and
whether there was prejudice are both factual findings that we review for clear
error. Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.
2004).
      There is, of course, a strong presumption in favor of arbitration and “any
doubts . . . should be resolved in favor of arbitration.” Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). But, “[w]aiver will be
found when the party seeking arbitration substantially invokes the judicial

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                                       No. 09-30310

process to the detriment or prejudice of the other party.” Subway, 169 F.3d at
326 (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497
(5th Cir. 1986)). Furthermore, “the act of a plaintiff filing suit without asserting
an arbitration clause constitutes substantial invocation of the judicial process.”1
Nicholas v. KBR, Inc., 565 F.3d 904, 980 (5th Cir. 2009). However, “a party only
invokes the judicial process to the extent it litigates a specific claim it
subsequently seeks to arbitrate.” Subway, 169 F.3d at 328.
       Finally, the non-moving party opposing arbitration must come forward to
demonstrate that it was prejudiced by the moving party’s substantial invocation
of the judicial process, and “[p]rejudice in the context of arbitration waiver refers
to delay, expense, and damage to a party’s legal position.” Nicholas, 565 F.3d at
910. Prejudice is more easily demonstrated when the moving party seeking to
arbitrate “engages in pretrial activity inconsistent with an intent to arbitrate,”
thus failing to “put[] a party on notice that arbitration may be forthcoming.”
Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1161 (5th Cir. 1986).
       On appeal, the Providers argue that the state court suit, American
Interstate, did not involve the same claims as those raised by CCN in the instant
action, which the Providers are now seeking to arbitrate. Each party has a
different characterization of the state court litigation, but the district court
found, and we agree, that it involved the same claims as those in the federal
action.    Both actions involved the same contracts between CCN and the
Providers, and both involved the question of whether the discounts taken under
those contracts were in violation of the AWPA and the WCL.

       1
         Nicholas notes two exceptions to its general rule and allows that other exceptions may
exist. However, the enumerated exceptions both involve situations in which the party initiates
litigation that is not inconsistent with an intent to arbitrate (suing “solely to obtain a
threshold declaration as to whether a valid arbitration agreement existed,” or suing “to obtain
injunctive relief pending arbitration.”). Here, the Providers did not mention arbitration in the
state court.

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        Therefore, the Providers’ actions in the state court suit must be considered
when determining whether they substantially invoked the judicial process
regarding the claims in the instant action. We conclude that the Providers’ act
of filing suit in American Interstate constituted a substantial invocation of the
judicial process. See Nicholas, 565 F.3d at 980. Our conclusion is strengthened
by the Providers’ continued delay in the federal court before filing the motion to
compel arbitration: they attempted dismissal, obtained a stay, and waited for
CCN’s summary judgment motion, all over a period of fourteen months, before
seeking arbitration.     There can be no question that they demonstrated a
“disinclination” to arbitrate these claims. See Miller, 781 F.2d at 497.
        Further, we agree with the district court that CCN was prejudiced by the
Providers’ invocation of the judicial process. In state court, CCN spent $58,000
coordinating the removal to federal court. Even if this would not have been
sufficient on its own (CCN did not remove the state court case itself and seems
to have been required to do very little in state court before being voluntarily
dismissed as a defendant upon removal), CCN’s prejudice in the federal action
is more substantial; it has spent $110,000 in initiating the suit, responding to
the Providers’ motion to dismiss or stay, and filing a motion for summary
judgment. Further, CCN’s legal position has changed considerably because its
motion for summary judgment on the merits of its federal declaratory action was
successful; it would likely have to relitigate the same issues in arbitration. See
Nicholas, 565 F.3d at 911 (“KBR would be prejudiced by having to re-litigate in
the arbitration forum the ERISA [preemption] issue already decided by the
district court in its favor”). Therefore, the district court’s finding of prejudice
was not clearly erroneous. Because the Providers substantially invoked the
judicial process to CCN’s prejudice, we agree that they waived their right to
arbitrate these claims and consequently the district court’s denial of arbitration
is

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Case: 09-30310   Document: 00511055361   Page: 6   Date Filed: 03/18/2010

                            No. 09-30310

                                                              AFFIRMED.

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