Connecticut General Life Insurance Company v. Houston Scheduling Services, Inc. et al
ORDER. For the reasons discussed herein, the Court GRANTS Defendants' 30 Motion to Compel. Signed by Judge Michael P. Shea on 8/29/2013. (Shiroma, M.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
CONNECTICUT GENERAL LIFE INSURANCE
No. 3:12-cv-01456 (MPS)
HOUSTON SCHEDULING SERVICES, INC. and
U.S. IMAGING, INC.,
MEMORANDUM OF DECISION
Plaintiff Connecticut General Life Insurance Company (“Plaintiff” or “CGLIC”) brings
this action against Defendants Houston Scheduling Services, Inc. (“HSS”) and U.S. Imaging,
Inc. (“USI” and collectively, “Defendants”) under the Employee Retirement Income Security
Act, 29 U.S.C. § 1001, et seq. (“ERISA”), seeking equitable relief for a fraudulent billing
scheme Defendants allegedly perpetrated against CGLIC. Defendants have moved to compel
arbitration and stay this action under 9 U.S.C. §§ 3 and 4, and Federal Rule of Civil Procedure
12(b)(3) [Dkt. # 30]. Defendants’ Motion turns on two issues: (1) whether Plaintiff’s claim falls
within the scope of the arbitration clause at issue in this case, and (2) whether Defendants, who
are not signatories to the contracts containing the arbitration clause, may compel Plaintiff, a
beneficiary of those contracts but not a signatory, to arbitrate its claim. For the reasons discussed
below, the Court finds that Plaintiff’s claim falls within the scope of the arbitration clause and
Defendants can compel Plaintiff to arbitrate that claim.
The following recitation of the facts is taken from the Complaint, documents
incorporated into the Complaint, and other materials in the record.1 “CGLIC is a nationwide
health insurer [that] offers and operates health plans as a claims administrator on behalf of selffunded employer plans and also acts as an insurer for employer-sponsored plans, including
regional and national employers with employees in the state of Texas.” (Compl. ¶ 10 [Dkt. #
1].) CGLIC offers health plans that provide benefits for “in-network” services rendered by a
network of “participating providers” and “out-of-network” services rendered by “nonparticipating providers.” (Id. ¶ 11.) “Participating providers” generally contract with CGLIC to
provide medical services to plan members for a contractually-set fee, and “non-participating
providers” provide medical services to plan members, but at a rate they are free to set
themselves. (Id.) Services provided by non-participating providers are often provided at a
higher rate than services provided by participating providers.
CIGNA Healthcare of Texas, Inc., an affiliate of CGLIC, entered into contracts with
various outpatient imaging centers in the State of Texas. (Pl.’s Mem. of Law in Opp’n to Defs.’
Mot. to Compel Arb. at 2 [Dkt. # 37].) Under these contracts, the outpatient imaging centers
became participating providers that provided in-network services to CGLIC plan members for a
set rate. (Id.) While none of the parties in this action are signatories to those contracts, they are
all affiliated with the signatories. More importantly, as CGLIC conceded at oral argument, it is
an “intended third-party beneficiary” of the contracts and is bound by those contracts. (See Pl.’s
On a motion brought under Rule 12(b)(3), the Court is permitted to consider facts
outside the pleadings, see Carrano v. Harborside Healthcare Corp., 199 F.R.D. 459, 460 n.1 (D.
Conn. 2001) (“Analysis under Rule 12(b)(3) … permits the district court to consider facts
outside of the pleadings.”), but “the court must take all allegations in the complaint as true,
unless contradicted by the defendants’ affidavits” and “draw all reasonable inferences and
resolve all factual conflicts in favor of the plaintiff, who has the burden of showing that venue in
the forum is proper.” Sawch v. Life Techs. Corp., No. 3:11-cv-1359 (AWT), 2012 U.S. Dist.
LEXIS 132858, *1 (D. Conn. Sept. 18, 2012) (internal citations and quotation marks omitted).
Second Supp. Mem. of Law in Opp’n to Defs.’ Mot. to Compel Arb. at 7 [Dkt. # 82] (“As
CGLIC noted at oral argument in this case … the contracts at issue bind CGLIC as a ‘CIGNA
Affiliate’….”); see also Compl. ¶¶ 26-28 (alleging that CGLIC was harmed by the alleged
fraudulent billing scheme because it was not charged the in-network rates set forth in the
contracts between CIGNA Healthcare of Texas, Inc. and the imaging centers).) USI owns and
operates the imaging centers and uses HSS to handle its scheduling and billing needs. (Compl.
The contracts contain the following arbitration provision:
Disputes arising with respect to the performance or interpretation of the
Agreement shall be submitted to the Medical Director for review and
If Provider is not satisfied with such resolution and to the extent permitted
by law, the matter in controversy shall be submitted to a dispute resolution
entity, or to a single arbitrator selected by the American Arbitration
Association, as the parties shall agree within 60 days of the last attempted
(Ancillary Provider Managed Care Agreement, Section III.N, attached as Ex. A to Defs.’ Mem.
of Law in Supp. of Mot. to Compel Arb. [Dkt. # 31].)2
In support of their Motion, Defendants attached an “exemplar” contract, which contains
the cited arbitration provision, and a separate contract (the “South Loop Contract”) entered into
by one of the imaging centers, which contains an arbitration clause that is essentially identical to
the exemplar contract. (See South Loop Contract, Section 6.3, attached as Ex. B to Defs.’ Mem.
of Law in Supp. of Mot. to Compel Arb. (“Disputes that might arise between the parties
regarding the performance or interpretation of the Agreement….”).) Both the exemplar contract
and the South Loop Contract were signed by CIGNA Healthcare of Texas, Inc.
Plaintiff did not contest the authenticity of the exemplar contract or Defendants’
representation that all of the contracts between CIGNA Health Care of Texas, Inc. and the
imaging centers are substantially similar, if not identical, to the exemplar contract. (See Pl.’s
Mem. of Law in Opp’n to Defs.’ Mot. to Compel Arb. at 7-8 (conceding that the imaging centers
entered into the contracts attached to the Ramirez Affidavit and not questioning the authenticity
of those contracts).) Accordingly, for the purposes of this decision, the Court assumes that all
the contracts at issue mirror the exemplar contract.
CGLIC alleges that “[f]rom approximately June 28, 2010 to approximately December 26,
2011, Defendants submitted fraudulent claims to CGLIC identifying HSS as not only the billing
entity but also, falsely, as the rendering provider of imaging services.” (Compl. ¶ 19.) “In
addition to misrepresenting itself as an imaging service provider, HSS also improperly billed
CGLIC at higher out-of-network rates for services actually provided by USI, a CGLIC innetwork provider. This resulted in CGLIC paying substantially more than it should have for the
imaging services.” (Id. ¶ 21.) “Through this fraudulent and wrongful billing scheme,” Plaintiff
alleges that “Defendants received approximately $1.4 million in claims payments from CGLIC
to which it is not entitled.” (Id. ¶ 44.) Notably, CGLIC does not allege that the services were
never rendered, only that Defendants’ billing of those services was fraudulent.
Plaintiff initiated this action under 29 U.S.C. § 1132(a)(3), which provides as follows:
“A civil action may be brought … by a participant, beneficiary, or fiduciary … to obtain other
appropriate equitable relief (i) to redress … violations or (ii) to enforce any provisions of this
title or of the plan….” See Coan v. Kaufman, 457 F.3d 250, 262 (2d Cir. 2006) (“[S]ection
502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), which the Supreme Court has described as a
‘catchall’ remedial section offer[s] appropriate equitable relief for injuries caused by violations
that § 502 does not elsewhere adequately remedy. Unlike section 502(a)(2), section 502(a)(3)
permits ERISA [fiduciaries] to bring suit for individual remedies; but relief under section
502(a)(3) must be ‘equitable.’” (internal quotation marks and citations omitted)). Invoking this
provision, Plaintiff seeks to recover the amounts paid to Defendants as part of their alleged
fraudulent billing scheme. (Id. ¶ 51.)
Plaintiff has been inconsistent, however, in how it alleges that these amounts should be
calculated. In its Complaint, Plaintiff alleges that Defendants were required to bill CGLIC at in-
network rates but, instead, Defendants “improperly billed CLGIC at higher out-of-network rates”
which “resulted in CGLIC paying substantially more than it should have for the imaging
services.” (Compl. ¶ 21.) Based on its Complaint, Plaintiff appears to calculate any possible
damages based on the difference between the in-network and out-of-network rates. At oral
argument, however, Plaintiff’s counsel asserted that the damages sought, approximately $1.4
million, represent the entire amount paid by CGLIC to Defendants, not simply the difference
between the in-network and out-of-network rates, and counsel argued that Plaintiff is entitled to
the entire amount paid because § 1132(a)(3) permits equitable disgorgement.3
Defendants move to compel arbitration on the grounds that Plaintiff’s claim is covered by
the arbitration provision in the CIGNA Healthcare of Texas, Inc./imaging center contracts.
Applicable Legal Standards
The Federal Arbitration Act “establishes a national policy favoring arbitration when the
parties contract for that mode of dispute resolution.” Preston v. Ferrer, 552 U.S. 346, 349
(2008); see also 9 U.S.C. § 2 (“[A] contract evidencing a transaction involving commerce to
settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be
valid, irrevocable, and enforceable….”). “To determine whether an action should be dismissed
in favor of arbitration, we consider four factors: (1) whether the parties agreed to arbitrate; (2)
the scope of the arbitration agreement; (3) whether, if federal statutory claims are asserted,
Congress intended those claims to be nonarbitrable; and (4) whether, if some but not all of the
Although there is case law holding that “disgorgement of profits earned on wrongfully
withheld benefits is an equitable remedy under ERISA § 502(a)(3) [29 U.S.C. § 1132(a)(3)],”
Dobson v. The Hartford Fin. Servs. Grp., Inc., No. 3:99-cv-2256 (JBA), 2002 U.S. Dist. LEXIS
17682, at *6-7 (D. Conn. Aug. 2, 2002), it is not clear whether a party may be entitled to
disgorgement of the entire amount paid in a situation like this. The Court takes no position on
claims in the case are arbitrable, the case should be stayed pending arbitration.” McAllister v.
Conn. Renaissance, Inc., 496 Fed. App’x 104, 106 (2d Cir. 2012). In this case, only the first two
factors are at issue.4
“Typically, the party seeking to compel arbitration has the burden of demonstrating by a
preponderance of the evidence the existence of an agreement to arbitrate.” Helenese v. Oracle
Corp., No. 3:09-cv-351 (CFD), 2010 U.S. Dist. LEXIS 15071, at *8 (D. Conn. Feb. 19, 2010).
Where a claim is subject to arbitration, the Court may either stay the action or dismiss it. See
Pearl Seas Cruises, LLC v. Irving Shipbuilding Inc., No. 3:10-cv-1801 (JBA), 2012 U.S. Dist.
LEXIS 46162, at *15 (D. Conn. Mar. 30, 2012) (“Under 9 U.S.C. § 3, a court, ‘upon being
satisfied that the issue involved in such suit or proceeding is referable to arbitration under such
an agreement, shall on application of one of the parties stay the trial of the action until such
arbitration has been had in accordance with the terms of the agreement.’ This mandate to stay the
action also includes the right to dismiss the action.”).
Plaintiff Must Arbitrate Its Claim against Defendants
Defendants’ Motion presents two issues relating to whether or not this case is arbitrable:
(1) Does the claim asserted by Plaintiff fall within the scope of the arbitration clause, i.e., is it
within the subject matter that the parties agreed to arbitrate? and (2) may Defendants, who are
not signatories to the contracts containing the arbitration provision, enforce the arbitration
provision against Plaintiff, who, though not a signatory either, has conceded that it is an intended
beneficiary of the contracts containing the arbitration clause?
Plaintiff’s Claim Falls within the Scope of the Arbitration Clause
Although Defendants discussed all four factors, CGLIC did not address the third and
fourth factors in their briefs.
With respect to the first issue, the Second Circuit instructs that the Court must first
determine whether the arbitration clause is a “broad clause” or a “narrow clause.” Hartford
Aircraft Lodge 743 v. Hamilton Sundstrand Corp., 213 Fed. App’x 31, 32 (2d Cir. 2007) (“At the
outset, we ordinarily decide whether the clause is ‘broad’ or ‘narrow.’”) If the Court finds that
the clause is a “broad clause,” then there is a “presumption of arbitrability” and “arbitration of
even a collateral matter will be ordered if the claim alleged implicates issues of contract
construction or the parties’ rights and obligations under it.” Louis Dreyfus Negoce S.A. v.
Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001) (internal quotation marks
omitted). If the Court finds that the clause is a “narrow clause,” then the Court is to determine
whether the claim pled on the face of the complaint falls within the literal terms of the clause.
See Louis Dreyfus, 252 F.3d at 224 (“[I]f reviewing a narrow clause, the court must determine
whether the dispute is over an issue that is on its face within the purview of the clause or over a
collateral issue that is somehow connected to the main agreement that contains the arbitration
clause. Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond
its purview.” (internal citations and quotation marks omitted)).
There are many cases within the Second Circuit at both the Court of Appeals and District
Court levels that address this broad/narrow distinction in a variety of contexts. Thus, there are
several cases holding that clauses calling for arbitration of disputes that involve the
“interpretation” of an agreement are narrow, and several cases holding that clauses that call for
arbitration of “any and all controversies” “arising out of” a contract are broad. See, e.g.,
Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645,
649, 654 (2d Cir. 2004) (holding that an arbitration clause requiring arbitration of “any
controversy, claim, or dispute between the Parties arising out of or relating in any way to this
Agreement” is broad); JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 172 (2d Cir. 2004) (holding
that an arbitration clause requiring arbitration of “any and all differences and disputes of
whatsoever nature arising out of” the Agreement is broad); Cornell Univ. v. UAW Local 2300,
942 F.2d 138, 140 (2d Cir. 1991) (finding an arbitration clause to be narrow where it required
arbitration of “any matter involving the interpretation or application” of the Agreement). There
is also a Second Circuit case holding that a contractual provision conferring on arbitrators “the
power to decide all differences arising between the parties to this agreement as to interpretation,
application or performance of any part of this agreement” is a broad clause. Abram Landau Real
Estate v. Benova, 123 F.3d 69, 71 (2d Cir. 1997). The Court was unable to find a Second Circuit
case, however, involving language that is substantially identical to the arbitration clause at issue
here: “Disputes arising with respect to interpretation and performance of the Agreement….”
And because the broad/narrow classification in these cases often turns on minor differences in
the language of the arbitration clause, the body of Second Circuit case law on this topic does not
point clearly in either direction in this case.
Fortunately, a recent case from the Eastern District of Pennsylvania provides a handy
compass, as it involved not only the same language as that found in the arbitration clause here
but an affiliate of CGLIC. In CardioNet, Inc. v. CIGNA Health Corp., No. 13-cv-191, 2013 U.S.
Dist. LEXIS 72859 (E.D. Pa. May 23, 2013), the District Court for the Eastern District of
Pennsylvania considered a motion to compel arbitration brought by CIGNA Health Corporation
against two service providers, and concluded, at CIGNA Health Corporation’s urging, that
arbitration language that is identical to one of the clauses in this case was “broad,” under a
broad/narrow classification scheme that mirrors the one used by the Second Circuit.5 In that
case, CIGNA Health Corporation entered into service agreements with two suppliers of
outpatient heart services. Id. at *2. Those agreements included arbitration provisions identical
to the South Loop Contract: “Disputes that might arise between the parties regarding the
performance or interpretation of the Agreement” that could not be resolved through the internal
dispute resolution process were to be submitted to arbitration.6 Id. at *10 (emphasis added).
When CIGNA Health Corporation decided that the cardiac services were “experimental,
investigational and unproven” and would no longer be covered, the service providers brought
suit to challenge that decision. Id. at *2-3. CIGNA Health Corporation moved to compel
arbitration and to dismiss the complaint, or in the alternative, to stay the action pending
arbitration. Id. at *5. In its brief, CIGNA Health Corporation argued that “all of Plaintiffs’
claims should be dismissed because they are within the scope of the broad arbitration provision
in the [agreements].” (CIGNA Health Corp. Br. at 12, CardioNet, 2013 U.S. Dist. LEXIS 72859
(E.D. Pa. May 23, 2013) (emphasis added).) The District Court, relying on Third Circuit case
law, agreed that the arbitration provision was broad. Id. at *14.
Compare Townsend v. Pinnacle Entm’t, Inc., 457 Fed. App’x 205, 209 (3d Cir. 2012)
(“When phrases such as ‘any claim arising out of’ appear in an arbitration provision, they are
given a broad construction….”) and RCM Techs., Inc. v. Constr. Servs. Assocs., 149 F. Supp. 2d
109, 113 (D.N.J. 2001) (noting that an arbitration clause that applied to “disputes as to
interpretation” is narrow) with Paramedics Electromedicina, 369 F.3d at 649 (holding that an
arbitration clause requiring arbitration of “any controversy, claim, or dispute between the Parties
arising out of or relating in any way to this Agreement” is broad) and Cornell Univ., 942 F.2d at
140 (finding an arbitration clause to be narrow where it required arbitration of “any matter
involving the interpretation or application” of the Agreement); see also Simpson v. Wood, No.
07-cv-47, 2010 U.S. Dist. LEXIS 1926, at *9 (D.V.I. Jan. 7, 2010) (citing case law from the
Eastern District of New York and the Second Circuit when conducting the broad/narrow analysis
of an arbitration provision).
See supra n.2 (noting that the South Loop Contract and exemplar contract contain
arbitration provisions that are essentially identical).
CardioNet is instructive for two reasons. First, the arbitration language in that case is
identical to the language of the contracts at issue here. Indeed, CIGNA entities drafted both the
CardioNet contracts and the contracts at issue here. (See Ancillary Services Agreement [Dkt. #
7-1], CardioNet, 2013 U.S. Dist. LEXIS 72859 (E.D. Pa. May 23, 2013); South Loop Contract).
In fact, it appears that the CardioNet contracts and the South Loop Contract were drafted based
on the same CIGNA template. (See id. (both contracts include the same “ANC2005MCA.US”
file designation on each page and both contracts are largely identical).) In other words, CIGNA
Health Corporation successfully argued that the arbitration provision it drafted – the same
provision at issue here – was broad. Thus, the only other case that the Court found involving the
same language, from essentially the same contract, held that the language is broad.
Second, Plaintiff is judicially estopped from arguing that the arbitration provision at issue
here is narrow based on CIGNA Health Corporation’s successful argument in CardioNet that the
same language is broad. The purpose of judicial estoppel is “to prevent improper use of judicial
machinery” and “to protect the integrity of the judicial process by prohibiting parties from
deliberately changing positions according to the exigencies of the moment.” Intellivision v.
Microsoft Corp., 484 Fed. App’x 616, 619 (2d Cir. 2012); see also New Hampshire v. Maine,
532 U.S. 742, 749 (2001) (“Where a party assumes a certain position in a legal proceeding, and
succeeds in maintaining that position, he may not thereafter, simply because his interests have
changed, assume a contrary position, especially if it be to the prejudice of the party who has
acquiesced in the position formerly taken by him.”).
Judicial “estoppel only applies when a tribunal in a prior proceeding has accepted the
claim at issue by rendering a favorable decision;” thus, the doctrine is limited to “situations
where the risk of inconsistent results … is certain.” Simon v. Safelite Glass Corp., 128 F.3d 68,
72 (2d Cir. 1997). Here, the risk of inconsistent results is certain because a related CIGNA entity
successfully argued in a prior proceeding that the language at issue in this case is broad, and to
find that it is narrow here would be inconsistent with the earlier decision. Although the plaintiff
in this action is CGLIC and the plaintiff in CardioNet was an affiliated entity, CIGNA Health
Corporation, Plaintiff is nevertheless bound by CIGNA Health Corporation’s position in
CardioNet. Judicial estoppel is an equitable doctrine, Intellivision, 484 Fed. App’x at 619, and it
is equitable to treat CGLIC and CIGNA Health Corporation as the same party for purposes of
judicial estoppel because (1) CGLIC conceded that it is a “CIGNA Affiliate”; (2) CGLIC
conceded that it is bound by the contracts entered into by another CIGNA affiliate, i.e., CIGNA
Healthcare of Texas, Inc. (see Pl.’s Second Supp. Mem. of Law in Opp’n to Defs.’ Mot. to
Compel Arb. at 7); and (3) CGLIC’s claim, at least as alleged in the Complaint, is premised on
the rates set forth in the CIGNA Healthcare of Texas, Inc./imagining center contracts.
anything, allowing CGLIC to stand in the shoes of one CIGNA affiliate for purposes of asserting
its claim but refusing to bind CGLIC to another CIGNA affiliate’s earlier position with respect to
the same arbitration language would be inequitable.
On the basis of CardioNet, and on the basis of the doctrine of judicial estoppel, the Court
finds that the arbitration clause in this case is broad. Accordingly, there is a presumption of
arbitrability, and “arbitration of even a collateral matter will be ordered if the claim alleged
implicates issues of contract construction or the parties’ rights and obligations under it.” Louis
Dreyfus, 252 F.3d at 224 (internal quotation marks omitted). That does not end the analysis,
however, because even a broad arbitration clause does not embrace every dispute that might arise
between the parties. For the reasons set forth below, the Court finds that the arbitration clause at
issue here does encompass this dispute.
As noted, Plaintiff brings its claim under a provision of ERISA, 29 U.S.C. § 1132(a)(3),
that allows a plan sponsor or fiduciary to bring claims for equitable relief. Although ERISA
provides the legal hook for the claim, the allegations of the Complaint demonstrate that the cause
of action rests on the contracts entered into by CIGNA Healthcare of Texas, Inc. and the imaging
centers. For example, Plaintiff alleges that HSS “improperly billed CGLIC at higher out-ofnetwork rates for services actually provided by USI, a CGLIC in-network provider.
resulted in CGLIC paying substantially more than it should have for the imaging services.”
(Compl. ¶ 21.) Plaintiff’s Complaint then includes an example of the alleged fraudulent billing
scheme: “Defendants engaged in this billing fraud so that they could charge CGLIC, in this
instance, $4,340.00 for the MRI and $655.00 for the CT scan, as opposed to the in-network rate
for San Antonio Diagnostic Imaging of $597.28 for the MRI and $382.28 for the CT scan.” (Id.
¶ 26.) These allegations illustrate that the claim is based on Defendants’ obligation to charge the
in-network rates set forth in the contracts, i.e., the contract is the source of the duty element of
the claim pled in the Complaint. It is the breach of a duty arising from the contracts, i.e., a duty
to charge in-network rates, that is the core of the cause of action. The dispute, then, implicates
“performance” of the contract.
At oral argument, Plaintiff’s counsel attempted to recast the claim as one based solely on
the fact that HSS, which is not a licensed healthcare provider and allegedly did not perform any
of the medical services, fraudulently billed CGLIC. In Plaintiff’s view, such conduct warrants a
restitutionary remedy – which Plaintiff calls “disgorgement” – consisting of every dollar CGLIC
paid to Defendants for medical services. This characterization is at odds with the language of the
Complaint accusing Defendants of “improper bill[ing] at higher out-of-network rates for services
actually provided by … an in-network provider,” (Compl. ¶ 21), but even if the Court were to
accept it, the parties’ dispute nevertheless would fall within the arbitration clause because
Defendants would inevitably assert defenses that implicate the terms of the contracts.
29 U.S.C. § 1132(a)(3) permits a plan sponsor or fiduciary to bring claims “to obtain
other appropriate equitable relief,” including claims by insurers seeking reimbursement or
recoupment of overpayments. See Thurber v. Aetna Life Ins. Co., 712 F.3d 654, 661 (2d Cir.
2013) (holding that an insurer’s counterclaim to recoup overpayments made to a claimant was an
equitable claim permitted under § 1132(a)(3)). Because Plaintiff’s claim is an equitable one,
Defendants are entitled to assert equitable defenses, including setoff. See, e.g., Crabtree v. Cent.
Fla. Invs., Inc., No. 6:12-cv-656-Orl-36TBS, 2012 U.S. Dist. LEXIS 177354, at *18 (M.D. Fla.
Oct. 3, 2012) (holding that a defendant may assert setoff as an affirmative defense to a claim
under 29 U.S.C. § 1132(a)(3)). Thus, even if Plaintiff is seeking the entire amount paid to
Defendants, Defendants will surely argue, among other things, that they are entitled to set off any
amounts owed with the contractually specified in-network fees that Plaintiff otherwise would
have had to pay for the medical services provided. In that case, even if the four corners of the
“claim” did not implicate the contract, the “dispute” – which is the unit of arbitrability specified
in the arbitration clause – plainly would. (See Ancillary Provider Managed Care Agreement,
Section III.N, (“Disputes arising with respect to the performance or interpretation of the
Agreement….”) (emphasis added).) Because Defendants inevitably will defend any claim that
they must return the full amount paid to them by arguing that they should be allowed to retain at
least what the service providers were entitled to under the contracts, the “dispute” necessarily
implicates “performance” and “interpretation” of the contract.
Defendants May Enforce the Arbitration Clause against Plaintiff
Ordinarily, a party may not be required to arbitrate unless it has agreed to do so. See Volt
Info. Scis., Inc. v. Bd. of Trs., 489 U.S. 468, 479 (1989) (“Arbitration under the [FAA] is a matter
of consent, not coercion….”); AT&T Techs. v. Communc’ns Workers of Am., 475 U.S. 643, 648
(1986) (“[A]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit.”). It is undisputed that, in this case,
neither Defendant is a party to the contracts containing the arbitration provisions. Rather, the
imaging centers themselves, which are owned by Defendant USI, (see Defs.’ Mem. of Law in
Supp. of Mot. to Compel. Arb. at 1 (“Forming the basis of CGLIC’s claims, yet only cryptically
referred to in its complaint, are written agreements between CIGNA Healthplan of Texas, Inc.
(“CIGNA”) and outpatient medical imaging centers owned by USI.”)), are the actual signatories
to these contracts. Defendant HSS is also alleged to be owned and controlled by Defendant USI.
(See Compl. ¶ 16 (“USI created and controls HSS as if they are for all practical purposes one
Plaintiff’s relationship to those contracts is not quite as clear. Plaintiff itself is not the
corporate entity that entered into the contracts, but at oral argument, Plaintiff conceded that it
was an “intended third-party beneficiary” of those contracts. Further, in a supplemental brief
filed after argument, Plaintiff conceded that it was bound by the terms of the contracts. (See Pl.’s
Second Supp. Mem. of Law in Opp’n to Defs.’ Mot. to Compel Arb. at 7.) The contracts include
language referring, at several places, to “CIGNA Affiliate[s],” a term that is defined broadly7 and
would include Plaintiff, as counsel conceded at oral argument. But the arbitration clause itself
references only “the parties” – a term that is not defined but, according to its plain meaning,
likely refers to the actual signatories, i.e., the imaging centers and CIGNA Healthplan of Texas,
Inc. Nonetheless, under well-established case law, a third-party beneficiary to a contract is
bound by the terms of that contract, and there are several cases finding that such beneficiaries are
(See Ancillary Provider Managed Care Agreement, Section I. (“CIGNA Affiliate means
any direct or indirect subsidiary of CIGNA Corporation.”).)
specifically bound to arbitrate under arbitration provisions in the contract that benefit them. See
Bird v. Shearson Lehman/Am. Express, Inc., 926 F.2d 116, 121 (2d Cir. 1991) (“[B]eneficiaries
are bound by principal’s agreement to arbitrate when they claim no present entitlement to the
benefits and press no claims separate from his….” (internal quotation marks omitted)); TD
Props., LLC v. VP Bldgs., Inc., 602 F. Supp. 2d 351, 358 (D. Conn. 2009) (“[W]here a contract
contains an arbitration clause which is legally enforceable, the general rule is that the beneficiary
is bound thereby to the same extent that the promisee is bound.” (internal citation and quotation
marks omitted)); Hickox v. Friedland, No. 01-cv-2025 (JGK), 2001 U.S. Dist. LEXIS 19112, at
*28 (S.D.N.Y. Nov. 21, 2001) (“Third party beneficiaries of a contract will also be bound by an
arbitration clause under ordinary principles of contract.”). Accordingly, as an intended thirdparty beneficiary of the contracts, Plaintiff is bound by the arbitration clause.
Because Plaintiff’s relationship to the contracts is, for present purposes, the same as that
of a signatory, this case begins to look very similar to a line of Second Circuit cases that
addresses whether a non-signatory to a contract containing an arbitration provision, i.e., here the
Defendants, may compel a signatory to that contract, i.e., here the Plaintiff, to arbitrate. See
Choctaw Generation Ltd. P’Ship v. Am. Home Assur. Co., 271 F.3d 403 (2d Cir. 2001);
Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88 (2d
Cir. 1999). The inquiry that the Second Circuit has instructed courts to undertake in this
situation is to determine whether the issues raised by the lawsuit are “intertwined” with the
underlying contract containing the arbitration clause. See Stolt-Nielsen, 387 F.3d at 177 (“Our
cases have recognized that under principles of estoppel, a non-signatory to an arbitration
agreement may compel a signatory to that agreement to arbitrate a dispute where a careful
review of the relationship among the parties, the contracts they signed, and the issues that had
arisen among them discloses that the issues the nonsignatory is seeking to resolve in arbitration
are intertwined with the agreement that the estopped party has signed.” (internal quotation marks
As the Second Circuit has explained, Stolt-Neilsen imposes a two-part test for
determining whether a non-signatory may compel arbitration against a signatory: (1) there must
be intertwined factual issues between the claims asserted and the agreement containing the
arbitration clause; and (2) there must be “a relationship among the parties of a nature that
justifies a conclusion that the party which agreed to arbitrate with another entity should be
estopped from denying an obligation to arbitrate a similar dispute with the adversary which is not
a party to the arbitration agreement.” Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F.3d 354,
359 (2d Cir. 2008).
The first part of this inquiry – the intertwinement of factual issues – is, as a practical
matter, similar to the inquiry discussed earlier about whether the “dispute” in this case falls
within the scope of the broad arbitration clause. That is, while the two inquiries address different
issues, they boil down to an examination of the same considerations in this case. In particular,
the question is to what degree the underlying contracts will figure in this litigation.8 See, e.g.,
Stolt-Nielsen, 387 F.3d at 178 (finding intertwinement of factual issues in a price-fixing case
where the claimed injury arose from inflated price terms contained within a charter that had an
Although this question does not turn on the law of the State of Texas, which is the
governing law of the contracts due to the fact that the imaging centers are located there, the
Court notes that Texas case law is consistent with Second Circuit case law on this issue. See
Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305-06 (Tex. 2006) (“Existing case law
demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different
circumstances. First, equitable estoppel applies when the signatory to a written agreement
containing an arbitration clause must rely on the terms of the written agreement in asserting its
claims against the nonsignatory … Second, application of equitable estoppel is warranted when
the signatory to the contract containing an arbitration clause raises allegations of substantially
interdependent and concerted misconduct by both the nonsignatory and one or more of the
signatories to the contract.”)
arbitration provision); Choctaw, 271 F.3d at 406 (finding intertwinement of factual issues where
(1) the contract containing the arbitration provision was incorporated by reference into the
contract under which the dispute arose and (2) the dispute concerned a party’s obligations under
the contract containing the arbitration provision). For the reasons explained above with regard to
the scope of the arbitration clause, it is difficult to see how this action could unfold without the
contracts playing a starring role. As noted, even if Plaintiff does not rely on the contracts to
prove its case – which is doubtful, in light of its repeated allegations about being duped into
paying out-of-network rates instead of the in-network rates mandated by the contracts –
Defendants will surely raise the contracts as part of their defense, at the very least to argue that
they should not, as a matter of equity, be required to reimburse Plaintiff for all amounts paid, but
only for those amounts above and beyond those permitted by the contracts. Thus, once again,
regardless of whether Plaintiff's claim implicates the contract, the dispute – the unit of
arbitrability specified in the contracts – surely does. Accordingly, the Court finds that the factual
issues in this dispute are intertwined with the contracts containing the arbitration clause.
The second part of the inquiry – whether there is a relationship among the parties that
justifies compelling arbitration even though the party demanding arbitration is not a signatory to
the contract containing the arbitration provision – is also satisfied. Although the case law does
not specify precisely what kind of relationship is sufficient, see Sokol Holdings, 542 F.3d at 359
(noting that “the opinion [in Stolt-Nielsen] did not explain … what kind of relationship would
favor a finding of estoppel”), review of the cases finding such a relationship demonstrates that
the following factors are significant: (1) a close parent/subsidiary relationship; and (2)
allegations by the plaintiff of conduct by both the signatory and non-signatory that give rise to
the claim. See Stolt-Nielsen, 387 F.3d at 177 (finding a parent/subsidiary relationship sufficient,
particularly where the plaintiff alleged that the conduct underlying the claim was to be
performed by the parent/non-signatory).
Here, those factors weigh in favor of a finding that Defendants’ relationship to the
imaging centers is sufficiently close to justify allowing Defendants to compel arbitration. First,
Plaintiff alleges, and Defendants concede, that USI “owns and operates” the imaging centers
and HSS serves as the administrator for USI. (See Compl. ¶¶ 13-14; Defs.’ Mem. of Law in
Supp. of Mot. to Compel. Arb. at 1.) Thus, Defendants and the imaging centers have a
relationship similar to the parent/subsidiary relationship in Stolt-Nielsen. Second, Plaintiff
alleges the non-signatory Defendants fraudulently billed for services that were actually provided
by the signatory imaging centers. (See Compl. ¶¶ 21-26.)
Thus, the conduct underlying the
claim involved both signatory and non-signatory parties, much as it did in Stolt-Nielsen. The
relationship between the non-signatory Defendants and the imaging centers that signed the
contracts is sufficient to permit Defendants to compel CGLIC to arbitrate its claim.
In sum, Defendants are entitled to compel arbitration against Plaintiff.
Whether the Contract Containing the Arbitration Clause Has Been
Terminated Is a Question for the Arbitrator
Plaintiff also argues that before making any ruling compelling arbitration, the Court
should permit the Plaintiff to conduct discovery regarding Defendants’ reported assertion that the
underlying CIGNA Healthplan of Texas, Inc./imaging center contracts were terminated.
Plaintiff’s theory is that, if the contracts were terminated, then the arbitration clause is no longer
in force and Plaintiff cannot be compelled to arbitrate its claim. The case law, however,
forecloses this argument. Where there is a broad arbitration clause, the arbitrator resolves any
claim of contract termination. See Peerless Importers, Inc. v. Wine, Liquor & Distillery Workers
Union Local One, 903 F.2d 924, 929 (2d Cir. 1990) (“[T]he arbitrator should determine any
claim of contract termination under a broad arbitration clause….”); McAllister Bros., Inc. v. A &
S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980) (“In determining whether this issue of contract
termination is arbitrable, a court must first examine the potential scope of the agreement to
arbitrate. If the arbitration clause is broad and arguably covers disputes concerning contract
termination, arbitration should be compelled and the arbitrator should decide any claim that the
arbitration agreement, because of substantive or temporal limitations, does not cover the
underlying dispute.”) As discussed above, the arbitration clause at issue here is broad and,
therefore, Defendants’ assertion that the CIGNA Healthplan of Texas, Inc./imaging center
contracts were terminated presents an issue to be resolved by the arbitrator. Accordingly, any
discovery on that issue should be conducted in the arbitration proceedings, and not in this action.
For the reasons discussed above, the Court GRANTS Defendants’ Joint Motion to
Compel Arbitration [Dkt. # 30]. Rather than staying this action pending arbitration, the Court
exercises its discretion to dismiss this case.9 See Pearl Seas Cruises, 2012 U.S. Dist. LEXIS
46162 at *15. The Clerk is directed to close the case.
IT IS SO ORDERED.
Michael P. Shea, U.S.D.J.
August 29, 2013
This Decision is “an official dismissal of all claims.” Cap Gemini Ernst & Young, U.S.,
LLC v. Nackel, 346 F.3d 360, 363 (2d Cir. 2003).
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