Opinion
CIVIL ACTION NO. 01-1882 SECTION "K"(1)
October 12, 2001
ORDER AND REASONS
Before this Court are Defendant's Motion to Compel Arbitration and Dismiss Litigation (rec. doc. 6 ) and Plaintiff's Motion Requesting a Preliminary injunction (rec. doc. 10). This Court heard oral arguments on these motions on September 26, 2001. After consideration of the relevant facts, jurisprudence, and arguments presented in counsels' memoranda, this Court GRANTS Defendant's Motion to Compel Arbitration and Dismiss Litigation and DENIES Plaintiffs Motion for Preliminary Injunction.
Background
Effective January 1, 1999 Benesight and SAIA entered a Customer Services Agreement and determined that Benesight would serve as third party administrator for SAIA's self-funded employee Health Care Plan. Under the Agreement, Defendant was responsible for: (1) receiving and reviewing claims for benefits under the Health Care Plan, (2) computing any benefits payable, (3) arranging payment of claims when required, and (4) making reasonable efforts (which may include legal or other proceedings) to recover funds incorrectly paid if there were mistakes processing the claims. Plaintiffs Complaint, p. 3. Defendant was also required to permit SAIA to inspect or audit all records and files at its office during business hours.
On January 1, 1999 Benesight began making payments on claims it deemed eligible under the plan from a bank account opened by SAIA. Since that date, plaintiff alleges that defendant made overpayments and/or wrongful payments to claimants in an amount greater than $75,000. Plaintiffs Complaint, p. 4. Plaintiff retained Arthur Anderson to audit defendant's claim processing and payment work. On September 1, 2000 defendant gave plaintiff unrestricted access to its records. On December 31, 2000, plaintiff terminated the Customer Services Agreement and on January 2, 2001, parties entered into a "Run-Out Claims Administration Agreement." All terms and conditions of the Customer Services Agreement were to remain applicable to the services provided by the Run-Out Agreement. Plaintiffs Complaint, p. 5. On January 4, 2001 defendant refused Arthur Anderson further access to its records. Plaintiff has since been unable to complete the audit but believes it could finish the audit in 15 days if defendant would provide the same access to records that it did from September 2000 to January 2001. Plaintiffs Complaint, p 4.
On February 16, 2000, defendant offered plaintiff access to its records to allow Arthur Anderson to complete the audit provided that: (1) it was completed in three days unless explicit reasons were given to justify additional days and (2) plaintiff signed a confidentiality agreement drafted by defendant in which Arthur Anderson and/or SAIA would indemnify defendant for liabilities it may incur as a result of the audit. In response to defendant's conditional offer, plaintiff pointed out that agreement entered into by the parties imposed temporal limitations or a confidentiality agreement on the completion of the audit. Plaintiff later conceded to defendant's confidentiality agreement, but requested several changes be incorporated. Defendant refused to accept any modifications to its proposed confidentiality agreement.
When it was evidence the parties could not resolve their differences, plaintiff filed suit on June 19, 2001 and lodged the following claims against defendant: (1) breach of ERISA fiduciary duty, (2) failure to allow SAIA to perform its ERISA duties, (3) professional negligence or malpractice, and (4) breach of contract. Plaintiff Complaint, p. 7-11. In response to plaintiff's citation, defendant advised that it was initiating the dispute resolution procedure set forth in Section VII of the Customer Agreement and requested that plaintiff voluntarily dismiss or forego litigation and engage in arbitration. At first, plaintiff denied defendant's request. Plaintiff subsequently agreed to submit to arbitration, but filed a motion for a preliminary injunction seeking to compel defendant to honor the audit provisions of the Customer Agreement. Thus, this Court must determine whether the circumstances of the instant matter warrant a preliminary injunction pending arbitration.
In its Motion to Compel Arbitration and Dismiss defendant requests this Court to order plaintiff to arbitrate its claims under the Federal Arbitration Act ( 9 U.S.C. § 1) and Section VII of the Customer Agreement. Under the Federal Arbitration Act, written arbitration agreements and contracts affecting interstate commerce are irrevocable and enforceable absent revocation of the contract itself. Plaintiff's Motion to Compel Arbitration, p. 5. The FAA stresses strict enforcement of arbitration clauses and requires any ambiguity to be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Contr. Corp., 460 U.S. 1 (1983) and Neal v. Hardee's Food Sys., Inc., 918 F.2d 34 (5th Cir. 1990). Defendant asserted that the contract at issue in this case is governed by the Federal Arbitration Act (FAA).
Defendant highlighted the pertinent sections of the Customer Agreement at issue:
Section 7.1. Disputes. If, however, any dispute does arise between the TPA and Plan Sponsor which relates to or arises from this Agreement, whatever its nature, the parties agree to forego litigation and proceed as follows: Either party may notify the other of the matter in dispute and that it wishes to begin the dispute resolution procedure. Within 30 days after notification, a designated executive of Plan Sponsor will meet and confer in an effort to resolve the problem.
Section 7.2 Arbitration. Any dispute or claim relating to this Agreement not resolved in the manner provided in 7.1 shall be resolved by final and binding arbitration before the American Arbitration Association.
Defendant also presented this Court with the two-step analysis employed by the Fifth Circuit to determine whether arbitration is appropriate. See for example R.M Perez Assocs., Inc. v. Welch, 960 F.2d 534 (5th Cir. 1992). Under the Fifth Circuits's approach, this Court should determine (1) whether there is a written agreement to arbitrate and (2) whether any of the issues raised are within the reach of that agreement. Positioning his motion within that framework, defendant asserted: (1) the Customer Agreement between the parties is clearly valid and not disputed by plaintiff and (2) plaintiffs claims undoubtedly relate to or arise from the Customer Agreement. Because plaintiff did not contest the validity of the contract, defendant urged this Court to refer the matter to arbitration. Houston General Ins. Co. v. Realex Group N.V. 776 F.2d 514 (5th Cir. 1985).
Defendant conceded that Section 3 of the Federal Arbitration Act directs federal courts to honor arbitration clauses and stay litigation pending resolution of arbitrable claims. However, defendant also noted that the Fifth Circuit has held dismissal of an arbitrable cause of action is proper in some circumstances. Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161 (5th Cir. 1992). In Alford, the Court stated that when all issues raised in the district court must be submitted to arbitration, dismissal is proper. Thus, defendant asserted dismissal was appropriate in this case because the audit dispute: (1) is a part of a larger dispute that relates to or arises from the Customer Agreement and (2) presents many ongoing procedural and administrative issues that may lead to further court involvement. Defendant's Supplemental Memorandum to Compel Arbitration, p. 5.
Plaintiff did not contest that this matter is appropriate for arbitration, but urged the Court to issue a preliminary injunction pending resolution of the entire dispute. Plaintiff's Motion for Preliminary Injunction, p. 23. Plaintiff argued that a preliminary injunction was proper in this matter because it believed its' motion satisfied the four requirements necessary for a preliminary injunction: (1) likelihood of success on the merits, (2) does not serve the public interest, (3) the threatened injury to movant outweighs the threatened injury to the nonmovant, and (4) a substantial likelihood of irreparable harm if the injunction is not granted.
During oral argument, plaintiff asserted that it is appropriate to issue a preliminary injunction pending arbitration in this case and relied primarily on Speedee Oil Change Sys., Inc v. State Street Capital, Inc. 727 F. Supp. 289 (E.D.La 1989). In that case, the district court granted plaintiff's request for a preliminary injunction even though its breach of contract claim was subject to arbitration holding that a district court retains the power to issue a preliminary injunction even when it concurrently issues a stay of all proceedings pending arbitration. The Court reasoned:
The Federal Arbitration Act would serve little social purpose if the invocation of the arbitration process meant potential damages would be left to mount up as the administrative process spent its course, or that the tactical posturing of the disputants could continue with a life of its own outside the arbitration framework which both sides bargained for.
Thus, plaintiff urged this Court to employ the authority it had to issue a preliminary injunction to preserve the status quo pending arbitration of the issues. Plaintiff argued that the status quo must be maintained in this case and reasoned that without an order allowing the completion of this audit, the fundamental purpose of the parties' agreement would be frustrated and Benesight would thwart the purpose of arbitration with continued tactics outside the process rendering the arbitration a "hollow formality." Plaintiff did not offer any further argument as to why the issue of the audit could not be addressed during arbitration. Plaintiff Opposition to Arbitration and Motion for Preliminary Injunction, p. 25.
In its attempt to persuade this Court to issue a preliminary injunction pending arbitration, plaintiff also contended that the requirements for an injunction were met. Generally, plaintiff argued it was likely to win on the merits of the breach of contract claim because defendant had the responsibility under the plan to pay proper claims and permit an audit of records under provisions of the Customer Service Agreement and "Run Out Agreement." Plaintiff further posited that the following constituted beach of contract: (1) preventing completion of the audit, (2)demanding indemnification when the audit is completed, and (3) imposing temporal limitations on the time in which the audit must be completed.
Plaintiff also reasoned that there is a likelihood it will succeed on the merits of its "ERISA a Fiduciary Duty Claim." Plaintiff alleged defendant was an ERISA fiduciary under the Health Care Plan because it had control over dispositions of assets of the plan and had authority to grant or deny claims for payment of medical expenses. Therefore, defendant owed a fiduciary duty to claimants under the plan. As a fiduciary, plaintiff argued that defendant's alleged erroneous payments on claims and its failure to recover incorrectly paid claims constituted breaches of that fiduciary duty.
To satisfy the second prong necessary for a preliminary injunction, plaintiff asserted that a preliminary injunction would promote public policy. Because ERISA is designed to protect the public and interests of employees and their beneficiaries, plaintiff believed that public policy would be served with the completion of the audit as plaintiff has already found mistakes in defendant's payment of claims.
Plaintiff reasoned then posited that the balance between harm to beneficiaries from noncompletion of the audit verses burden on defendant to allow the audit to be completed tipped in favor of the completion of the audit.
Finally, plaintiff asserted that the following constituted "irreparable harm" justifying a preliminary injunction: (1) damages to plaintiff's reputation and the image of the Health Plan when plaintiff is unable to reconcile payments with obligations, (2) permanent loss of providers for the plan when they learn of erroneous payments, (3) increased risk that participants in the Plan will sue plaintiff, and (4) "worse claims experience" and higher premiums for participants in the Plan if overpayments are not corrected. Plaintiff Motion for Preliminary Injunction, p. 23.
Defendant presented several arguments in response. First, defendant urged that plaintiffs motion for preliminary injunction be denied because the arbitrator could render the relief requested. See Arbitration Act sections R-36 and R-45 which provide power to the arbitrator to grant injunctive a relief. Second, defendant argued that the Fifth Circuit has only permitted the issuance of a preliminary injunction pending arbitration when such action is contemplated by the parties' agreement to arbitrate. See RGI Inc. v. Tucker Assoc., 858 F.2d 227 (5th Cir. 1988). In RGI, the Court held that a preliminary injunction pending arbitration was proper because the contract between the parties specifically provided that in the event that a dispute was submitted for arbitration, the contract was to remain in force and effect until a decision was rendered. However, defendant attempted to distinguish the instant claim from RGI and explained that there is nothing in the present contract to suggest that these parties contemplated injunctive relief pending arbitration.
Third, defendant asserted that the prerequisites for issuance of preliminary injunction had not been met. Initially, defendant argued that plaintiff had not demonstrated that there was a likelihood that it would prevail on the merits of the case. In contesting the "breach of contract" allegation related to the audit disagreement, defendant pointed out that plaintiff had conveniently ignored the wording of Section 1.8 of the contract between the partied that stated in part, "the location, length and frequency of all audits must be reasonable and agreed to by the TPA." Defendant Supplemental Motion to Compel Arbitration and Dismiss Litigation, p. 5. With this porous requirement, defendant asserted that the "breach of contract" dispute related to the audit was a closer argument than plaintiff conceded in its motion and argued that there was certainly no "substantial likelihood" that plaintiff would ultimately prevail on this point.
Defendant also contested plaintiffs contention that it was likely to succeed on the merits of the ERISA fiduciary duty claim because defendant argued that it was not the plan administrator under the plan, Rather, it merely administered the health plan controlled by the discretion of plaintiffs policies and decisions.
Defendant also contested plaintiffs resolution that the balance Between Burden of Preliminary Injunction Requiring the Audit and Harm to Plaintiff tipped in plaintiffs favor. Instead, defendant argued that a preliminary injunction would: (1) be the "loss of the benefit of the parties' agreement to arbitrate," (2) impose direct and indirect costs of being forced to litigate in an improper forum, (3) be likely to have implications throughout the arbitration proceeding, and (4) possibly disclose confidential information and trade secrets.
Defendant countered plaintiffs argument that public interest would be served through a preliminary injunction and asserted that public policy favored arbitration. Further, because it no longer administers the plan, defendant argued that plaintiff's "public interest" in protecting health plan participants was misguided.
Finally, defendant's disagreed with plaintiffs description of "irreparable harm" and noted that "a long delay by plaintiff after learning of a threatened harm may be taken as an indication that the harm would not be serious enough to justify a preliminary injunction." Wright and Miller, Federal Practice and Procedure § 2948 at 156. In this case, plaintiff waited eight months and unnecessarily delayed this matter when it first denied submission of the claim to arbitration and did not move for a preliminary injunction until defendant filed its motion to compel arbitration. Thus, defendant reasoned that there was no real chance of harm from a denial of the request for a preliminary injunction. Even if there were, plaintiff did not articulate why money could not repair any damages it may incur pending arbitration.
In a collateral argument, defendant asserted that plaintiff was not entitled to preliminary injunction because it has not complied with Federal Rule of Civil Procedure Rule 65(c) and (d). Rule 65(c) provides in part, "no restraining order or preliminary injunction shall issue except on the giving of security by the applicant in such sum as the Court deems proper for the payment of such costs and damages as may be incurred or suffered for any party who was found to have been wrongfully enjoined or restrained." Rule 65(d) requires all motions for preliminary injunction specifically set forth the justification for issuance and describe all conduct, documents, information, fees and expenses that need to be addressed in any such order. Because defendant did not believe plaintiff had complied with either of these requirements, it urged this Court to deny the motion for preliminary injunction.
ANALYSIS
The parties agree that this claim is subject to arbitration. However, the real issue before this Court is whether a preliminary injunction pending arbitration is proper under these facts. In RGI v. Tucker Accoc., 858 F.2d 227 (5th Cir. 1988) citing Merrill Lynch v. Hovey, 726 F.2d 1286, 1292 (8th Cir. 1984), the Court noted the split in ideology within the circuits on this point. The Eighth and Tenth Circuits have cautioned that the fear of granting a preliminary injunction pending arbitration is that the court will inject itself into the merits of the case that are more appropriately left to the arbitrator. See Merrill Lynch, Pierce, Fenner Smith, Inc. v. Hovey 726 F.2d 1286 (8th Cir. 1984) and Merrill Lynch, Pierce, Fenner Smith, Inc. v. Scott, No. 83-1480 (10th Cir. 1983). However, the Court in RGI also noted that the First, Second, Third, Fourth and Seventh circuits have held that a Court should not be prevented from maintaining the status quo pending arbitration merely because the parties include arbitration clauses in their contracts. See for example, Teradyne, Inc. v. Mostek Corp., 797 F.2d 43 (1St Cir. 1984), Roso-Lino Beverage Distribs., Inc. v. Coca-Cola Bottling Co. of N Y, Inc., 749 F.2d 124 (2d Cir. 1984), Merrill Lynch v. Bradley, 756 F.2d 1048 (4th Cir. 1985), Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348 (7th Cir. 1983), Rather, the exercise of a injunctive powers is viewed as "adjectival and central to preserving the status quo" so that the arbitration process can run its course and have a meaningful impact on the resolution of the dispute.
This Court addressed a similar issue in Morrison HomeCenter v. Hilti, Inc., 1998 WL 397894 (E.D. La 1998), when faced with a franchise agreement with a non-compete clause. In that case, this Court granted plaintiffs request for a preliminary injunction pending arbitration when the contract between the parties specifically stated that "pending arbitration, either party may seek injunctive relief in a court of competent jurisdiction." The Court reasoned that with a preliminary injunction, plaintiff sought to preserve the status quo by (1) enjoining defendant from terminating the contract and violating its non-compete clause and (2) enforcing the terms of the contract.
To an extent, this case seems distinguishable from RGI and Morrison because there is no agreement between plaintiff and defendant to permit injunctive relief pending arbitration. Further, plaintiff was unable to articulate a dire need to preserve the status quo pending arbitration. Because defendant is no longer the administrator of the plan, there does not seem to be an imminent threat of harm to any of the participants. Thus, this Court is not persuaded that a preliminary injunction is required to preserve the status quo.
The merits of plaintiff's prima facie case in support of a preliminary injunction are also questionable. While this Court offers no opinion as to the likelihood of success on the merits of the cause of action, plaintiff has failed to satisfy other prongs required to issue a preliminary injunction. For example, plaintiff has not sufficiently explained what harm it will suffer that is "irreparable" and can not be repaired with money. As this Court views it, all of plaintiff's possible injuries can later be remedied with a monetary judgment. Moreover, the audit issue can be addressed by the arbitrator.
Thus, while this Court has the power and authority to issue a preliminary injunction pending arbitration, it is not appropriate in this case. There is no agreement between the parties contemplating a preliminary injunction pending arbitration or a continuation of the contract as there was in RGI and Seepdee. Also, the facts of this case are distinguishable from Morrison where the court needed to maintain the status quo to ward off the danger of a violation of a non-compete clause or termination of the contract. Finally, because plaintiff has not produced evidence of any "irreparable harm, " a preliminary injunction is not appropriate.
Accordingly, this Court GRANTS defendant's Motion to Compel Arbitration and Dismiss Litigation and DENIES plaintiff's Motion to Request a Preliminary Injunction Pending Arbitration.