Louisiana Health Service Indemnity Co v. Gambro A B et al

Filing 71

MEMORANDUM RULING re 60 MOTION to Vacate Final Partial Class Determination Award filed by Louisiana Health Service Indemnity Co. Signed by Judge Tucker L Melancon on 07/07/2011. (crt,Davenport, M)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
LAFAYETTE DIVISION
Louisiana Health Service
Indemnity Co.

Civil Action 05-1450

versus

Judge Tucker L. Melançon

Gambro A B, et al

Magistrate Judge C. Michael Hill
MEMORANDUM RULING

Before the Court is plaintiffs, Louisiana Health Service Indemnity Company, d/b/a
BlueCross BlueShield of Louisiana, HMO of Louisiana, Inc.’s (“BCBSLA”) Motion To
Vacate Final Partial Class Determination Award Under 9 U.S.C. §§ 10(a)(3) & (a)(4) [Rec.
Doc. 60], and defendant, DVA Renal Healthcare, Inc. f/k/a Gambro Healthcare Inc.’s
(“Gambro”), Opposition thereto [Rec. Doc. 68] 1 . For the following reasons, BCBSLA’s
motion will denied.
I. Background
BCBSLA filed this action on August 8, 2005 to recover damages for overpayments
it allegedly made to Gambro as a result of Gambro’s “unlawful conduct.” R. 1; ¶3 a-h. On
November 29, 2005, Gambro filed a motion to stay this litigation and compel BCBSLA to
arbitrate its claims under the contract between Gambro and BCBSLA (“BCBSLA/Gambro

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On July 6, 2011, one day before the date of this Ruling, BCBSLA filed a Notice Of
Second Arbiral [sic] Motion To Vacate Partial Final Class Determination Award [Rec.
Doc. 69] citing Jock v. Sterling Jewelers, Inc., 2011 WL 2609853 (2d Cir. July 1, 2011) in
support of its Motion to Vacate. The Second Circuit’s recognition that, “as long as the arbitrator
is even arguably construing or applying the contract and acting within the scope of his authority,
a court’s conviction that the arbitrator has committed serious error in resolving the disputed issue
does not suffice to overturn his decision,” however, confirms this Court’s Ruling denying
BCBSLA’s Motion to Vacate the Partial Final Class Determination.

Arbitration Agreement”). R. 21. On March 15, 2006, the Court granted Gambro’s motion
to compel arbitration and administratively terminated this action subject to allowing any party
to initiate a motion to reopen the proceedings within thirty (30) days of the arbitrator’s
decision if deemed necessary. R. 34.

BCBSLA filed its class arbitration demand with

the American Arbitration Association (“AAA”) on October 26, 2006. R. 35, Exh. F. On
October 5, 2007, the three member arbitration panel (“the Panel”) issued a Clause
Construction Award pursuant to Rule 3 of the AAA’s Supplementary Rules for Class
Arbitrations,2 finding that, although the agreement was silent as to class arbitration, BCBSLA
and Gambro had impliedly agreed to class arbitration. R. 35, Exh. K.
On May 9, 2008, BCBSLA moved the Panel to certify the class in arbitration. R. 355, Exh. Q, 06/07/10 Letter. In its Motion for Class Certification, BCBSLA alleged that it
represented a class composed of approximately 225 class members, each with different
arbitration agreements. R. 61, Class Determination Award; R. 61, Exh. 2; R. 68-1, Exh. E,
9/25/09 Class Certification Hrg, 1681:12-14; 1685:2-15, 22-24; 1716:8-25; Exhs. F, G; Exh.
I, 08/18/10 Letter referencing Order No. 12. Of the approximately 225 arbitration
agreements, three (3) contracts included express waivers of class proceedings and the others
were silent as to class arbitration. Id.; R. 35-5, Exh. Q, 06/07/10 Letter.
On April 30, 2010, Gambro filed a Motion to Reconsider the Panel’s Clause
Construction Award based on the Supreme Court’s decision in Stolt-Neilsen S.A. v. Animal
2

Rule 3 of the AAA Supplementary Rules for Class Arbitrations (“Rule 3”) provides:
Upon appointment, the arbitrator shall determine as a threshold
matter, in a reasoned, partial final award on the construction of the
arbitration clause, whether the applicable arbitration clause permits
the arbitration to proceed on behalf of or against a class (the
“Clause Construction Award”).
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Feeds International Corp., 130 S.Ct. 1758 (2010). R. 35-4, Exh. L. The Panel issued its
denial of Gambro’s Motion to Reconsider on June 7, 2010. See, Exh. I, 08/18/10 Letter
referencing Order No. 12. During a telephone conference with the Panel held on July 30,
2010, “both parties asked the [Panel] to proceed to a decision with respect to class
certification rather than await a decision by the [District] Court on a possible appeal [of the
Clause Construction Award] by Gambro.” Id. Thereafter, on September 2, 2010, Gambro
filed a motion in this Court to vacate the Panel’s October 5, 2007 Clause Construction Award
permitting class arbitration. R. 36. The Court denied the motion on December 21, 2010. R.
52.
On February 9, 2011, the Panel denied BCBSLA’s Motion for Class Certification in
a Partial Final Class Determination Award (“Class Determination Award”). R. 61, Exh. 4.
On May 10, 2011, BCBSLA filed the motion before the Court to vacate the Panel’s Class
Determination Award. R. 60.
II. Standard Of Review
The Federal Arbitration Act (“FAA”) provides the means for enforcing arbitral
awards, via a judicial decree confirming, vacating, modifying or correcting an award. Hall
St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). “Judicial review of an arbitration
award is ‘exceedingly deferential.’ Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th
Cir.2004). Vacatur is available ‘only on very narrow grounds,’ Brabham v. A.G. Edwards
& Sons Inc., 376 F.3d 377, 380 (5th Cir.2004), and federal courts must defer to the
arbitrator’s decision when possible. Antwine v. Prudential Bache Sec., Inc., 899 F.2d 410,
413 (5th Cir.1990). An award must be upheld as long as ‘it is rationally inferable from the
letter or purpose of the underlying agreement.’ Nauru Phosphate Royalties, Inc. v. Drago
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Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir.1998)(internal quotation marks omitted).
Even ‘the failure of an arbitrator to correctly apply the law is not a basis for setting aside an
arbitrator’s award.’ Kergosien, 390 F.3d at 356. ‘It is only when the arbitrator strays from
interpretation and application of the agreement and effectively dispenses his own brand of
industrial justice that his decision may be unenforceable.’ Major League Baseball Players
Assoc. v. Garvey, 532 U.S. 504, 509 (2001)(quoting Steelworkers v. Enter. Wheel & Car
Corp., 363 U.S. 593, 597 (1960) (internal quotation marks omitted)). The party moving to
vacate an arbitration award has the burden of proof. The court must resolve any doubts or
uncertainties in favor of upholding the award. Brabham v. A.G. Edwards & Sons Inc., 376
F.3d 377, 385, n.9 (5th Cir.2004) (citing Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358
F.3d 337, 343 (5th Cir.2004)). “[R]eview under [9 U.S.C.] § 10 focuses on misconduct
rather than mistake.” AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1752 ( 2011).
III. Analysis
BCBSLA moves the Court to vacate the Panel’s denial of its Partial Class
Determination Award under the FAA, 9 U.S.C. §§ 10(a)(3) and (a)(4). In Hall Street
Associates v. Mattel, Inc., 552 U.S. 576 (2008), the Supreme Court held that the statutory
grounds contained in the FAA, sections 10 and 11, are the exclusive means by which an
arbitral award may be vacated. Hall Street at 584. Pursuant to Section 10(a) of the FAA,
there are only four grounds for which a court can vacate an arbitration award:
(1) [W]here the award was procured by corruption, fraud, or undue means;
(2) [W]here there was evident partiality or corruption in the arbitrators, or
either of them;
(3) [W]here the arbitrators were guilty of misconduct in refusing to postpone
the hearing, upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; or of any other misbehavior by which
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the rights of any party have been prejudiced; or
(4) [W]here the arbitrators exceeded their powers, or so imperfectly executed
them that a mutual, final, and definite award upon the subject matter submitted
was not made.
9 U.S.C. § 10(a).
BCBSLA bases its motion to vacate on grounds three and four in asserting that: (1) the Panel
exceeded its authority under the FAA and AAA Supplementary Class Arbitration Rule 1(c)
by applying Stolt-Nielsen in the Class Determination Award; (2) the Panel replaced its own
policy choice for the rule of law to the “silent contracts” of the absent class members; and
(3) the Panel precluded BCBSLA from presenting evidence that the absent class members
had, in fact, authorized class arbitration. R. 60. Gambro opposes BCBSLA’s motion as to
each of these issues.
1. Whether the Panel exceeded its authority
BCBSLA’s motion to vacate involves the Supreme Court’s decision in Stolt-Nielsen
S.A. v. Animal Feeds International Corporation, 599 U.S. ----, 130 S.Ct. 1758, 1768 n. 3
(2010), which was decided after the Panel issued its Clause Construction Award. In
Stolt-Nielsen, the Court considered, inter alia, whether an arbitration panel has the authority
to impose class arbitration where an arbitration agreement is silent on the issue because it
viewed class arbitration as “the best rule to be applied in such a situation.” Id. at 1769. The
Court held that the arbitration panel exceeded its powers by imposing its own policy choice
“instead of identifying and applying a rule of decision derived from the FAA or either
maritime or [state] law.” Id.
Because the arbitration agreement between Gambro and BCBSLA was silent as to
class arbitration, Gambro requested that the Panel reconsider its Clause Construction Award
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in light of Stolt-Nielsen. The Panel denied Gambro’s request and Gambro filed a motion to
vacate the Clause Construction Award in this Court. In its ruling on Gambro’s motion to
vacate, the Court held that the panel’s reconsideration of the Award was barred by the
functus officio doctrine and that the motion for vacatur was untimely under Section 12 of the
FAA and Rule 3 of the AAA Supplementary Rules. R. 51. The Court stated that, based on
the record before it, the Panel did not impose its own policy choices in rendering the Clause
Construction Award as the Court had admonished in Stolt-Nielsen. Id.
In the motion at bar, BCBSLA contends that the Panel exceeded its authority under
the FAA and AAA Supplementary Class Arbitration Rule 1(c) by applying Stolt-Nielsen in
the Class Determination Award. In essence, BCBSLA contends that the Court’s December
2010 Memorandum Ruling was intended to preclude the Panel from applying Stolt-Nielsen
to the underlying arbitration for any purpose, in particular the Class Determination Award.
The Court disagrees.
The record reflects that in issuing the Partial Final Class Determination Award (“Class
Award”), the Panel initially determined that, based on Supreme Court precedent, they must
apply Stolt-Nielsen to BCBSLA’s class certification motion. R. 68-1, pp. 4-6. Citing Harper
v. Virginia Dept. of Taxation 509 U.S. 86 (1993), the Panel concluded that it was required
to “apply all current controlling jurisprudence, including Stolt-Nielsen to its analysis.” Id.
at 97 (“When this Court applies a rule of federal law to the parties before it, that rule is the
controlling interpretation of federal law and must be given full retroactive effect in all cases
still open on direct review and as to all events, regardless of whether such events predate or
postdate our announcement of the rule.”). Thus, while recognizing that it had previously
decided that the contract between BCBSLA and Gambro permitted class arbitration, because
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the decision was formed in the Clause Construction Award, prior to the Supreme Court’s
holding in Stolt-Nielsen, the Panel concluded it must apply Stolt-Nielsen to BCBSLA’s
proposed class motion.
BCBSLA’s proposed class consists of approximately 225 absent class members each
with different arbitration agreements.3 R. 35-5, Exh. Q, 06/07/10 Letter; R. 61, Class
Determination Award; R. 61, Exh. 2; R. 68-1, Exhs. F, G; Exh. I, 08/18/10 Letter referencing
Order No. 12. All but three (3) of the proposed class members’ arbitration agreements are
silent on class proceedings and the three exceptions expressly waive class proceedings. Id.
In its Class Award, the Panel stated that while its pre-Stolt-Nielsen Clause Construction
Award determined that the “BCBSLA/Gambro contract permits this arbitration to proceed
on behalf of the class ... it did not address whether Gambro’s contracts with anyone else
allowed class arbitration.” Id.
The Panel’s Class Determination Award required that the arbitration satisfy the
prerequisites for class certification laid out in Rule 4 of the AAA’s Supplementary Rule for
Class Arbitrations. Under Rule 4(a), the decision to affirmatively authorize class arbitration
under the AAA Supplementary Rules is governed by a separate “Class Determination
Award” which requires in pertinent part that: (1) the class is so numerous that joinder of
separate arbitrations on behalf of all members is impracticable; ... and (6) “each class
member has entered into an agreement containing an arbitration clause which is substantially
similar to that signed by the class representative(s) and each of the other class members.”

3

Gambro represents that there are 227 absent class members. R. 68, p. 4.
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AAA Supplementary Rules, Rule 4(a)(1)&(6). Focusing on these two requirements of Rule
4(a) - numerosity and substantially similar contracts - the Panel held, in light of Stolt-Nielsen,
the other class members’ arbitration contracts do not permit class arbitration. Id.
In making this determination, the Panel stated that its pre-Stolt-Nielsen Clause
Construction Award interpreted the BCBSLA/Gambro Arbitration Agreement to permit class
arbitration while its post-Stolt-Nielsen Class Award required that the other class members
agreements not permit arbitration. Thus, the Panel reasoned, as only BCBSLA could be
permitted to proceed on behalf of the class, “a putative class of one” would be created and
the numerosity requirement under Rule 4 would not be met. R. 61, Class Award, p. 8; R. 68,
Exh. M. The Panel further concluded that because of the disparity between the preStolt-Nielsen “silent” arbitration contracts and the post-Stolt-Nielsen “silent” arbitration
contracts, the arbitration contracts were not substantially similar. Id. at p. 9.
Finally, the Panel concluded that this Court’s statement in its December 21, 2010
Memorandum Ruling regarding Stolt-Nielsen’s application to the Clause Construction
Award, did not preclude the Panel from applying Stolt-Nielsen’s legal principles to the Class
Award. The Panel reasoned that the Court’s denial of Gambro’s motion to vacate was based
on its holding that the doctrine of functus officio precluded Gambro from challenging the
Panel’s Clause Construction Award. R. 51. Citing the Court’s statement in its opinion that,
unlike the Stolt-Nielsen arbitration panel, the Panel in this case “did not try to ascertain what
the best result could have been by imposing its own policy choices,” the Panel determined
that the Court did not make any ruling “that the Panel was correct” in permitting class
arbitration under the BCBSLA/Gambro Arbitration Agreement nor under any other
arbitration agreement. R. 61, Class Award, p. 10. The Panel’s reasoning is spot on. The
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Court’s distinction of Stolt-Nielsen in its consideration of the Clause Construction Award,
was not intended to have any affect on the Panel’s consideration of Stolt-Nielsen in the Class
Determination Award.
2. Whether the Panel replaced its own policy choice for the rule of law
Nor did the Panel exceed its authority under the FAA by citing only Stolt-Nielsen
rather than any “rule, custom, practice, law or other positive legal precept in interpreting the
absent class member agreements.” R. 60-2, p. 17. As held by the Court at page six of this
Ruling, under Harper, the Panel was required to apply the current controlling jurisprudence,
including Stolt-Nielsen, to its analysis of the “silent” arbitration agreements. Harper, 509
U.S. at 97. Further, as asserted by Gambro, in AT&T Mobility LLC v. Concepcion, 131 S.Ct.
1740 (2011), a decision following Stolt-Nielsen, the Supreme Court held that the FAA, rather
than any individual state’s laws, controls the determination of whether an arbitration
agreement authorizes class arbitration. Id. at 1747 (“When state law prohibits the arbitration
of a particular type of claim, the conflicting rule is displaced by the FAA”).
Based on the foregoing as well as jurisprudence holding that “[t]he court may not
refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a
mistake of law or fact,” see, Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak
Dan Gas Bumi Negara, 364 F.3d 274, 288 (5 th Cir. 2004) 4 , BCBSLA’s contention that the
Panel failed to properly interpret the absent class member agreements must fail.

4

See also, Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009);
Apache Bohai Corporation LDC v. Texaco China BV, 480 F.3d 397, 401 (5th Cir.2007).
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3. Whether the Panel precluded BCBSLA from presenting evidence
As to BCBSLA’s argument that it was “given no opportunity after Stolt-Nielsen to
present any evidence concerning the standards enunciated in that case,” the record indicates
the contrary. By letter dated August 18, 2010, the Panel invited the parties’ input on the
effect of Stolt-Nielsen on BCBSLA’s pending class certification motion. R. 68-1, Exh. I.
The Panel stated that they had “conducted a highly preliminary evaluation” of the arbitration
agreements between each member of BCBSLA’s proposed class and are now “confronted
with the question as to how the Supreme Court’s decision in Stolt-Nielsen ... should be
applied to class certification issues in the circumstances of this proceeding and in view of the
requirements of Rule 4... including, among others, the requirements of Rule 4(a)(6).” Id. At
BCBSLA’s request, the arbitrators agreed, in an Order dated August 27, 2010, to accept
further briefing concerning the effect of Stolt-Nielsen on BCBSLA’s class certification
motion. The Order stated that “[b]y September 3, 2010,Claimants will advise Respondents
of any specific contract it intends to refer to in connection with its additional argument
regarding class certification.” R. 68, Exh. J, Proc. Order No. 12. BCBSLA does not dispute
Gambro’s representation that it identified no contracts as of September 3, 2010 nor does
BCBSLA identify any such contracts in its briefs “concerning Stolt-Nielsen” that it submitted
to the Panel on September 10, 2010 and October 14, 2010 for consideration in the Class
Determination Award. R. 68-1, Exhs. K, L.
FAA Section 10(a)(3) permits a court to vacate a final award “where the arbitrators
were guilty of misconduct ... in refusing to hear evidence pertinent and material to the
controversy ....” 9 U.S.C. § 10(a)(3). “An ‘arbitrator is not bound to hear all of the evidence
tendered by the parties.... [He] must give each of the parties to the dispute an adequate
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opportunity to present its evidence and arguments.’ ” It is appropriate to vacate an arbitral
award if the exclusion of relevant evidence deprives a party of a fair hearing. “Every failure
of an arbitrator to receive relevant evidence does not constitute misconduct requiring vacatur
of an arbitrator's award. A federal court may vacate an arbitrator’s award only if the
arbitrator's refusal to hear pertinent and material evidence prejudices the rights of the parties
to the arbitration proceedings.” Rent-A-Center, Inc. v. Barker, 633 F.Supp.2d 245, 252
(W.D.La.,2009) (quoting Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak
Dan Gas Bumi Negara, 364 F.3d 274, 300-301 (5th Cir.2004)).
BCBSLA has failed to identify any evidence, pertinent, material or otherwise, which
the Panel refused to hear in deciding the Class Determination Award. Moreover, in light of
the prevailing jurisprudence, BCBSLA has failed to demonstrate that it was prejudiced or
deprived of a fair hearing.
IV. Conclusion
Based on the well-established jurisprudence setting out the Court’s standard of review
in vacating an arbitration panel’s decision, as well as the foregoing analysis, BCBSLA has
failed to establish any violations under 9 U.S.C. §§ 10(a)(3) or (a)(4) and the Panel’s Partial
Class Determination Award is therefore confirmed. BCBSLA’s motion to vacate will
therefore be denied.

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