Horneffer v. St. Joseph Medical Center, Inc. et al

Filing 24

MEMORANDUM AND ORDER granting in part 15 Motion of Defendants to Compel Arbitration. Signed by Judge Marvin J. Garbis on 3/21/2012. (bf2, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
PETER HORNEFFER, M.D.

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Plaintiff

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vs.

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CIVIL ACTION NO. MJG-11-410

ST. JOSEPH MEDICAL CENTER, INC. *
et al.
Defendants
*
*

*

*

*

*

*

*

*

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MEMORANDUM AND ORDER RE: ARBITRATION
The Court has before it the Renewed1 Motion of Defendants
Saint Joseph Medical Center, Inc. and Catholic Health
Initiatives to Compel Arbitration [Document 15] and the
materials submitted relating thereto.

The Court has reviewed

the exhibits and considered the materials submitted by the
parties. The Court has held a hearing and has had the benefit of
the arguments of counsel.

I.

BACKGROUND2
At all times relevant hereto:

1

This is a “renewed” motion because the Court allowed Plaintiff
to file the Amended Complaint [Document 14] (referred to herein
as “Compl.”), mooting the original dismissal motion.
2
The “facts” herein are as alleged by Plaintiff and are not
necessarily agreed upon by Defendants.

1.

Plaintiff, Peter Horneffer, M.D. (“Dr. Horneffer”),
has been a cardiac surgeon licensed to practice
medicine in Maryland.

2.

Defendant, St. Joseph Medical Center, Inc. (“St.
Joseph”), has been a community acute care hospital in
Baltimore County, Maryland.

3.

Defendant, Catholic Health Initiatives (“CHI”), has
been a corporation that has, as one subsidiary, St.
Joseph.

4.

Midatlantic Cardiovascular Associates, P.A.
(“Midatlantic”) has been a professional medical
association in Maryland.

Dr. Horneffer had leadership and organizational
responsibility for St. Joseph’s cardiac surgery program from its
inception in or about 1982 through 2000.

From 1991 through to

October 2008, Dr. Horneffer was employed by Cardiac Surgery
Associates, P.A. (“CSA”), a professional medical corporation in
which Dr. Horneffer is a shareholder member.

CSA members,

including Dr. Horneffer, practiced exclusively at St. Joseph.
During the 1990’s, Midatlantic engaged in a series of
mergers and acquisitions that led to its becoming the largest
cardiology practice in the Baltimore metropolitan area.
According to Dr. Horneffer, Midatlantic engaged in an “illegal
two-pronged business plan” to control the market for
cardiovascular services and procedures in the Baltimore region.
Compl. 5, ¶ 13.

For present purposes, it suffices to state that

as part of this alleged plan, Midatlantic engaged in merger

2

negotiations with CSA that concluded unsuccessfully in December
1999.
After the termination of merger discussions, Midatlantic
began to take actions to follow through on threats it had made
to put CSA out of business.

For example Midatlantic stopped

referrals to CSA surgeons including Dr. Horneffer and used its
referral leverage to induce St. Joseph administrators to provide
kickbacks and engage in other illegal activity.3
In early 2001, Dr. Horneffer and his CSA partners informed
senior management at St. Joseph and CHI about Midatlantic’s
misconduct.

By October 2001, CSA instituted a state court

lawsuit alleging wrongful competition against Midatlantic and
made St. Joseph and CHI aware of the issues.
In January 2006, Dr. Horneffer and CSA informed St. Joseph
and CHI of their intent to add them as additional defendants in
the suit against Midatlantic.
Joseph and CHI ensued.

Settlement negotiations with St.

Eventually, after St. Joseph allegedly

engaged in an illegal sham peer review process, a settlement was
reached in September 2008 between Dr. Horneffer on one side and

3

These allegations are detailed in the (to date) unsealed
portions of the pleadings in Lincoln, et al. v. St. Joseph
Medical Center, Inc., et al., Civ. A. No. 10-cv-1632 MJG.

3

St. Joseph and CHI4 on the other.

The settlement included an

agreement to have Dr. Horneffer employed by a St. Joseph
affiliate, St. Joseph Physician Enterprise, Inc. (“Enterprise”)5
as a cardiac surgeon to work in St. Joseph’s new heart care
institute.

There were also representations by St. Joseph and

CHI to take steps to overcome the damage to Dr. Horneffer’s
medical practice that had been caused by their relationship with
Midatlantic.

These agreements are referred to in Dr.

Horneffer’s complaint as “the employment undertaking.” Compl.
15, ¶ 53.
A Physician Employment Agreement (“the Agreement”) was
entered into on September 10, 2008, between Enterprise and Dr.
Horneffer.

Although neither St. Joseph nor CHI signed the

Agreement, it was entered into as an element of their settlement
with Dr. Horneffer.

Moreover, the Agreement expressly provided

for benefits to St Joseph and CHI.6

4

Dr. Horneffer’s employment

Defendants state that CHI was not a party to the settlement
agreement. For present purposes, the Court assumes that Dr.
Horneffer’s allegation is correct.
5
According to Dr. Horneffer, Enterprise was created by CHI and
St. Joseph as a Maryland nonprofit corporation to provide
billing and other services to St. Joseph. Compl. 14 ¶ 50. Also,
Enterprise bylaws indicate that CHI is the sole corporate member
(i.e., parent) and that St. Joseph is the acting corporate
member; general operating duties and powers of Enterprise are
held by St. Joseph as the acting corporate member. Hr’g. Tr.
15:6-18, May 10, 2011 [Document 13].
6
For example, the Agreement states that Enterprise employs and
contracts with physicians who provide professional clinical

4

under the Agreement was effective October 2, 2008 with an
initial five-year term that has not yet expired.7

The Agreement

includes an arbitration provision that is the subject of the
instant motion.
In the instant lawsuit, Dr. Horneffer presents claims based
on allegations that St. Joseph and CHI made threats, harassed,
and discriminated against him “in the terms and conditions of
his employment” in retaliation for his actions in regard to the
False Claims Act case he filed against them and others. Compl.
11, ¶ 39.

Among other things, Dr. Horneffer alleges that St.

Joseph threatened him with the termination of his employment
with Enterprise, threatened to substantially reduce and even
eliminate Dr. Horneffer’s salary from Enterprise, and threatened
to enforce a non-compete clause in the Agreement.

services to St. Joseph’s patients and administrative services on
behalf of St. Joseph. The Agreement 1, Recitals A. The
physician is required to agree to render services in accordance
with St. Joseph’s bylaws, policies, rules, regulations,
procedures and protocols. Id. at Recitals B, ¶ 2.5, ¶ 3.3.
Physician also agrees to comply with CHI’s standards of conduct
and ethical and religious directives. Id. at ¶ 3.8. The Noncompetition and Non-solicitation clause protects St. Joseph, and
the physician agrees not to disparage CHI. Id. at ¶ 6,7. The
assignment clause allows Enterprise to assign its rights and
delegate its duties under the Agreement to any affiliate, entity
under common control with, or successor in interest of
Enterprise – this would appear to include both St. Joseph and
CHI. Id. at ¶ 14.
7
Dr. Horneffer is still employed under the Agreement.

5

Dr. Horneffer presents his claims in two counts:
Count I –

Violation of 31 U.S.C. § 3730(h) (Discrimination
and Harassment Against Plaintiff); and

Count II – Interference with Economic Relationships and
Activity.
By the instant motion, Defendants seek to compel
arbitration and request an award of costs, including legal fees
pursuant to 28 U.S.C. § 1927.

II.

LEGAL SETTING
The Federal Arbitration Act (“FAA”) reflects a strong

federal policy favoring arbitration, and courts are thus
required to “rigorously enforce agreements to arbitrate.”
Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 226
(1987).

However, this liberal policy does not operate to compel

arbitration of issues that do not fall within the scope of the
parties’ arbitration agreement.
Before compelling an unwilling party to arbitration, a
court must “engage in a limited review to ensure that the
dispute is arbitrable - i.e., that a valid agreement to
arbitrate exists between the parties and that the specific
dispute falls within the substantive scope of that agreement.”
Murray v. United Food and Commercial Workers Intern. Union, 289
F.3d 297, 302 (4th Cir. 2002).

“The ‘heavy presumption of

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arbitrability requires that when the scope of the arbitration
clause is open to question, a court must decide the question in
favor of arbitration.’” Levin v. Alms & Assocs., Inc., 634 F.3d
260, 266 (4th Cir. 2011)(quoting Peoples Sec. Life Ins. Co. v.
Monumental Life Ins. Co., 867 F.2d 809, 812 (4th Cir. 1989)).
The party seeking to arbitrate must establish only two
facts: “(1) [t]he making of the agreement and (2) the breach of
the agreement to arbitrate.”

Mercury Constr. Corp. v. Moses H.

Cone Mem’l Hosp., 656 F.2d 933, 939 (4th Cir. 1981).

The Court

must “avoid reaching the merits of arbitrable issues.” Id.
(citing Drivers, Chauffeurs, etc. v. Akers Motor Lines, 582 F.2d
1336, 1342 (4th Cir. 1978)).

III. DISCUSSION
Dr. Horneffer contends that he is not required to arbitrate
his claims because:
1.

His claims are not within the scope of the
arbitration clause of the agreement.

2.

St. Joseph and CHI, not being signatories to the
Agreement, cannot enforce the arbitration clause.

3.

The arbitration clause is inequitable.

These contentions shall be addressed in turn.

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A.

Scope Of The Arbitration Provision

The Agreement includes an arbitration clause that provides,
in relevant part:
Any dispute regarding (1) any aspect of this
Agreement, (2) any act which allegedly has
or may violate any provision of this
Agreement, or (3) any dispute related to the
employment relationship between the parties
or the termination of that relationship
shall be submitted to binding arbitration in
Towson, Baltimore County, Maryland before a
mutually acceptable arbitrator,8 as the
exclusive remedy for such claim or dispute.
. . . Disputes subject to arbitration
include, but are not limited to, all
employment-related claims arising under
state or federal statutes, common-law torts,
and contract claims. Employment disputes
not subject to arbitration include Section 9
injunctive and equitable relief actions as
well as workers’ compensation claims,
unemployment compensation claims, and other
employment-related claims that parties are
not legally permitted to voluntarily
arbitrate.
Agreement 14, ¶ 21.
“To decide whether an arbitration agreement encompasses a
dispute a court must determine whether the factual allegations
underlying the claim are within the scope of the arbitration
clause, regardless of the legal label assigned to the claim.”

8

Additionally, the Agreement calls for the arbitration to “be in
accordance with the American Health Lawyers Association
Alternative Dispute Resolution Service Rules of Procedure for
Arbitration.”

8

J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d
315, 319 (4th Cir. 1988).
Dr. Horneffer contends that the instant dispute cannot be
arbitrated because qui tam claims of fraud and illegal conduct
are not within the scope of the arbitration clause.

While this

may very well be correct, the instant case is not one presenting
qui tam claims.

Dr. Horneffer’s claims are for retaliatory

discrimination and tortious interference with his employment.
His claims are within the broad scope of the arbitration clause.
The Agreement provides for arbitration of “any dispute
related to the employment relationship between the parties.” The
Agreement 14, ¶ 21.

“Disputes subject to arbitration include,

but are not limited to, all employment-related claims arising
under state or federal statutes, common-law torts, and contract
claims.”

Id.

Moreover, the Fourth Circuit has held that retaliation
claims brought under § 3730(h) may be subject to arbitration.
United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525
F.3d 370, 381 (4th Cir. 2008).

“[B]y agreeing to arbitrate a

statutory claim, a party does not forgo the substantive rights
afforded by the statute; it only submits to their resolution in
an arbitral, rather than judicial, forum.”
301 (citations omitted).

9

Murray, 289 F.3d at

B.

The Nonsignatory Issue

Only Dr. Horneffer and Enterprise signed the Agreement that
contains the arbitration clause at issue.

However, the United

States Court of Appeals for the Fourth Circuit has recognized
that there are circumstances in which nonsignatories of
arbitration agreements may enforce that agreement against a
signatory. Int’l Paper Co. v. Schwabedissen Maschinen & Anleagen
GMBH, 206 F.3d 411, 416-17 (4th Cir. 2000); see also Am. Bankers
Ins. Group, Inc. v. Long, 453 F.3d 623, 627 (4th Cir. 2006) (“It
is well-established . . . that a nonsignatory to an arbitration
clause may, in certain situations, compel a signatory to the
clause to arbitrate the signatory’s claims against the
nonsignatory despite the fact that the signatory and
nonsignatory lack an agreement to arbitrate.”).
There are five theories that may provide a basis for
enforcing an arbitration clause: “1) incorporation by
references; 2) assumption; 3) agency; 4) veil piercing/alter
ego; and 5) estoppel.” Id. at 417 (citing Thomson-CSF, S.A. v.
Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995)); see
also Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 129 S. Ct.
1896, 1902 (2009)(noting that traditional principles of state
law, such as assumption, piercing the corporate veil, alter ego,
incorporation by reference, third-party beneficiary theories,

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waiver, and estoppel, may support arbitration by a nonparty to
the written arbitration agreement).
Defendants rely upon the estoppel theory. The Fourth
Circuit has stated, in regard to when a nonsignatory may be
equitably estopped to avoid an arbitration clause:
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. When each
of a signatory’s claims against a
nonsignatory makes reference to, or presumes
the existence of, the written agreement, the
signatory’s claims arise out of and relate
directly to the written agreement, and
arbitration is appropriate. Second,
application of equitable estoppel is
warranted when the signatory to the contract
containing the arbitration clause raises
allegations of substantially interdependent
and concerted misconduct by both the
nonsignatory and one or more of the
signatories to the contract. Otherwise, the
arbitration proceedings between the two
signatories would be rendered meaningless
and the federal policy in favor of
arbitration effectively thwarted.
Brantley v. Republic Mortg. Ins. Co., 424 F.3d 392, 395-96
(4th Cir. 2005) (citations, quotation marks, ellipses, and
alterations omitted)).
In essence, it would be inequitable to allow the signatory
to seek to hold a nonsignatory liable based on duties imposed by
an agreement, but repudiate the agreement’s arbitration clause.
Am. Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 627 (4th
Cir. 2006)(citing Wachovia Bank, Nat. Ass’n v. Schmidt, 445 F.3d

11

762, 769 (4th Cir. 2006)).

Additionally, a party may not use

artful pleading to avoid arbitration, such as by bringing an
action against a nonsignatory charged with acting in concert
with a non-defendant signatory.

Id. at 628 (citing R.J. Griffin

& Co. v. Beach Club II Homeowners Ass’n, Inc., 384 F.3d 157, 164
(4th Cir. 2004)); see also Davidson v. Becker, 256 F. Supp. 2d
377 (D. Md. 2003)(allowing a nonsignatory agent to compel
arbitration, the court stated that “[s]uch a finding also has
the result of preventing an unwanted result: the circumvention
of valid arbitration agreements by plaintiffs”).
To determine whether a signatory’s claims against a
nonsignatory arise out of and relate directly to the written
agreement, the Court must examine the underlying complaint.
Bankers, 453 F.3d at 627.

Am.

Dr. Horneffer contends that the

retaliation at issue here is not a breach of the Agreement but
rather a breach of § 3730(h).

However, it is not necessary for

the signatory to assert a cause of action against the
nonsignatory for breach of the contract containing the
arbitration clause. Id. at 627-28.

Rather, estoppel is

appropriate if the substance of the underlying complaint is
based on the nonsignatory’s alleged breach of obligations and
duties imposed on it by virtue of the agreement, regardless of
the claim’s label.

Id. at 628.

12

Dr. Horneffer seeks to avoid arbitration by not suing
Enterprise (the signatory) while basing claims on the allegation
that St. Joseph and CHI (the nonsignatories) acted “in concert”
and in bad faith with Enterprise to take acts detrimental to Dr.
Horneffer’s employment with Enterprise under the Agreement.
Compl. 15 ¶ 54.

See

Further, Dr. Horneffer asserts claims against

St. Joseph and CHI that arise out of and relate directly to his
employment with Enterprise under the Agreement.

For example, he

alleges that:
•

CHI and St. Joseph entered into a settlement agreement
with Dr. Horneffer wherein they agreed to employ him
by an affiliate (Enterprise) under the terms and
conditions of an employment agreement (the Agreement).
Compl. 13 ¶ 47-48.

•

St. Joseph threatened to terminate Dr. Horneffer’s
employment with Enterprise and threatened to terminate
the employment agreement. Compl. 17-19 ¶ 54(f),(h).

•

St. Joseph “threated to substantially reduce and even
eliminate” Dr. Horneffer’s salary. Compl. 22 ¶ 56.

•

St. Joseph “threatened to enforce a non-compete
clause” in the Agreement with Enterprise. Compl. 22 ¶
56.

•

Dr. Horneffer requests an award of back-pay
[presumably from Enterprise] as part of his award.
Compl. 23.

Dr. Horneffer alleges that the Agreement was negotiated
between himself, CHI, St. Joseph, and Enterprise, as part of
“the employment undertaking.” Compl. 15 ¶ 53.

Although neither

St. Joseph nor CHI signed the Agreement, they had rights under

13

it, and Dr. Horneffer seeks to impose liability on them for
their violation of a duty not to discriminate, threaten, or
harass him as an employee under the Agreement.

Dr. Horneffer

cannot rely on the employment relationship under the Agreement
to make his claims, yet repudiate the arbitration provision
therein.
Dr. Horneffer’s argument that he does not need the
employment agreement with Enterprise to establish his claims
against St. Joseph and CHI is unavailing.

He bases his claims

upon the existence of the employment relationship established by
the Agreement.

Dr. Horneffer notes that he formerly had an

employment relationship with CHI and St. Joseph that was not
governed by the Agreement and, presumably, could have such a
relationship in the future.

Nevertheless, the instant case

pertains to the time during which his employment was with
Enterprise and was based upon the Agreement.
Dr. Horneffer asserts that the principles of equitable
estoppel do not apply because his claim is based upon an
independent breach of statutory obligations, like the plaintiffs
in Brantley, who sought relief under a Federal statute.9 Thus, he
argues, his claims are “wholly separate from any action or

9

Dr. Horneffer seeks whistleblower protection under 31 U.S.C. §
3730(h). The Brantley plaintiffs sought relief under the Fair
Credit Reporting Act. Brantley, 424 F.3d at 396.

14

remedy for breach of the underlying [] contract that is governed
by the arbitration agreement.” 424 F.3d at 396.

However, in

Brantley, the underlying contract containing the arbitration
agreement was a mortgage contract, but in the lawsuit, the home
buyers were suing their mortgage insurer for increasing their
insurance premiums on the mortgage debt based on information
wrongfully obtained from their consumer credit reports.

Id.

The court found that the claims for unfair reporting were not
intertwined with the contract simply because the mortgage itself
required the plaintiffs to obtain insurance.

Id.

The court

also found that there were no allegations of collusion or
misconduct by the signatory to the arbitration agreement, and
the claims were based entirely on actions taken by the
nonsignatory. Id.
Here, Dr. Horneffer’s claim under 31 U.S.C. § 3730(h) was
brought in the capacity of an employee and is based upon the
existence of an employee relationship.10

Dr. Horneffer’s

employment relationship is established by the Agreement. Dr.

10

“Any employee, contractor, or agent shall be entitled to all
relief necessary to make that employee, contractor, or agent
whole, if that employee, contractor, or agent is discharged,
demoted, suspended, threatened, harassed, or in any other manner
discriminated against in the terms and conditions of employment
because of lawful acts done by the employee, contractor, agent
or associated others in furtherance of an action under this
section or other efforts to stop 1 or more violations of this
subchapter.” 31 U.S.C. § 3730(h)(1).

15

Horneffer alleges that he was retaliated against by his employer
in the terms and conditions of his employment and that
Defendants tortiously interfered with his employment. These
allegations directly relate to his employment and implicate
Enterprise (as employer), and St. Joseph and CHI acting in
concert to interfere with his rights as an employee.

C.

The Fair And Equitable Issue

The FAA provides that an arbitration agreement may be
invalidated under “such grounds as exist at law or in equity.”
9 U.S.C. § 2.

These grounds must relate specifically to the

arbitration clause as opposed to the contract as a whole.
Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938 (4th
Cir. 1999).

By agreeing to arbitration, litigants do not

“forego their right to have their dispute fairly resolved by an
impartial third party.”

Murray, 289 F.3d at 303.

The Court

must ensure that the litigant can effectively resolve his or her
claim in the arbitral forum.

Id. at 302.

Dr. Horneffer asserts that principles of equity mandate
that this case not be referred to arbitration.

Dr. Horneffer

argues that the process for selecting an arbitrator would be
biased if, pursuant to the Agreement, the arbitration was
conducted in accordance with the American Health Lawyers

16

Association Alternative Dispute Resolution Service Rules of
Procedure for Arbitration. Defendants deny this contention but
have mooted the issue by agreeing that they will not seek to
enforce this obligation.

Hr’g Tr. 12:18-13:10 [Document 13].

Dr. Horneffer contends that arbitration would not be fair
or equitable because St. Joseph and CHI have unclean hands, and
an arbitrator will be unable to ensure full and fair discovery
due to Defendants’ typical discovery tactics.

There is nothing

to support an “unclean hands” contention as to the applicability
of the arbitration clause. There is no basis to find that the
substantive allegations of illegal conduct are not appropriate
for resolution by arbitration pursuant to the Agreement.

D.

Cost, Fees

Defendants request, pursuant to 28 U.S.C. § 1927, that the
Court award it the excess costs, expenses, and attorney’s fees
incurred as a result of the requirement to redraft this motion
because the original complaint inaccurately stated facts related
to Dr. Horneffer’s employment.
Section 1927 provides: “Any attorney or other person
admitted to conduct cases ... who so multiplies the proceedings
in any case unreasonably and vexatiously may be required by the
court to satisfy personally the excess costs, expenses, and

17

attorneys’ fees reasonably incurred because of such conduct.”
28 U.S.C. § 1927. The purpose of § 1927 is to limit the abuse of
court processes.

DeBauche v. Trani, 191 F.3d 499 (4th Cir.

1999) (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 762
(1980)).

As such, a court considering the propriety of a § 1927

award must focus “on the conduct of the litigation and not on
its merits.”

Id.

The Fourth Circuit has noted that “a finding

of counsel’s bad faith [is] a precondition to the imposition of
fees” under § 1927.

Brubaker v. City of Richmond, 943 F.2d

1363, 1382 n.25 (4th Cir. 1991).
It is true that the original Complaint was drafted
inadequately and served to cause the defense unnecessary
expense.

This fact may be pertinent in some context - for

example, should there be consideration of an award of costs on
grounds other than § 1927.

However, the Court does not find

that Plaintiff’s counsel acted vexatiously so as to warrant the
imposition of § 1927 sanctions.

IV.

CONCLUSION
For the foregoing reasons:
1.

The Renewed Motion of Defendants Saint Joseph
Medical Center, Inc. and Catholic Health
Initiatives to Compel Arbitration [Document 15]
is GRANTED IN PART.

18

2.

Plaintiff shall pursue his claims presented
herein, if at all, in arbitration proceedings
pursuant to the Physician Employment Agreement
referred to herein.

3.

By separate Order, the Court shall stay this case
pending conclusion of the said arbitration
proceedings.

SO ORDERED on Wednesday, March 21, 2012.

/s/__________
Marvin J. Garbis
United States District Judge

19