Memorial Hermann Health System v. Health Care Services Corporation D/B/A Blue Cross And Blue Shield of Texas

Filing 20

MEMORANDUM OPINION AND ORDER denying 8 MOTION to Dismiss Defendant Health Care Service Corporations Motion To Dismiss Pursuant To Rule 12(b)(3) For Improper Venue And Motion To Compel Arbitration (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MEMORIAL HERMANN HEALTH SYSTEM,

November 17, 2017
David J. Bradley, Clerk

§
§

Plaintiff,

§

v.

§
§
§

BLUE CROSS BLUE SHIELD OF TEXAS,

§

CIVIL ACTION NO. H-17-2661

§

Defendant.

§

MEMORANDUM OPINION AND ORDER

Plaintiff,

Memorial

Hermann Health System,

initiated this

action on August 1, 2017, by filing a petition in the 133rd State
District

Court

of

Harris

County,

Texas,

Cause No.

2017-50855,

against defendant, Blue Cross Blue Shield of Texas ("BCBSTx"), for
breach

of

quantum

contract,

meruit/unjust

enrichment,

and

declaratory judgment under the Texas Declaratory Judgment Act, Tex.
Civ. Prac. & Rem. Code§ 37.003. 1
removed

plaintiff's

jurisdiction. 2

action

to

On September 3, 2017, defendant
this

court

based

on

diversity

Pending before the court is Defendant Health Care

Service Corporation's Motion to Dismiss Pursuant to Rule 12(b) (3)
for Improper Venue and Motion to Compel Arbitration ("Defendant's
MD,"

Docket

Entry No.

8) .

For

the

reasons

set

forth

below,

Defendant's MD will be denied.

1

Plaintiff named BCBSTx as the defendant in the state court
action. BCBSTx asserts, however, that it is not a corporate entity
but, instead, an unincorporated division of Health Care Service
Corporation. See Defendant's MD, Docket Entry No. 8, p. 6 n.1.
2

Notice of Removal, Docket Entry No. 3.

I.
Plaintiff

is

Defendant offers,

a

Factual Background3

non-profit,

issues,

charitable

and administers

provide access to healthcare services.
issued and

administered by

the

healthcare

system.

insurance plans

that

Persons covered by policies

defendant

health care services from the plaintiff.

("insureds")

receive

The benefits that the

defendant's insureds receive are governed by a number of different
types of agreements between individual insureds and the defendant
or an employer health plan administered by the defendant.

Separate

and

and

apart

insureds,

from
the

the

agreements

defendant

and

between

the

the

plaintiff

defendant
have

entered

its
into

agreements that govern compensation and billing for services that
plaintiff provides to insureds covered by defendant's various types
of health insurance plans,

~'

Health Maintenance Organization

("HMO"), Preferred Provider Organization ("PPO"), and Traditional
Indemnity

Business

agreements

provide

("Traditional
defendant

a

Indemnity")

contractual

plans. 4

discount

These
from

the

plaintiff's usual and customary charges when its insureds receive
health care services at plaintiff's facilities.

Plaintiff's Original Petition ("Petition"), attached to
Notice of Removal, Docket Entry No. 3-1, pp. 7-16 ~~ 6-33.
See
also "Factual Background," Defendant's MD, Docket Entry No. 8,
pp. 9-11.
3

Id. at 7-9 ~~ 7-13.
See also Defendant's MD, Docket Entry
No. 8, p. 9 ("[Plaintiff] alleges that the parties entered into
various contracts to govern their relationship, including how
[defendant] would reimburse [plaintiff] for services provided to
members of various [defendant] health benefit plans.").
4

-2-

One of the agreements that plaintiff and defendant entered
into is the "Hospital Contract for Traditional Indemnity Business"
("Indemnity Contract" or "Traditional Contract") executed in 2005.
The Traditional Contract provides a discounted rate, i.e., the PAR
rate,

for insureds covered by defendant's Traditional Indemnity

plans.

Plaintiff alleges that when the Traditional Contract was

negotiated and signed, it was contemplated and agreed that it would
cover reimbursement only for medical services provided to members
of defendant's Traditional Indemnity plans.
the

PAR rate

has

Plaintiff alleges that

consistently been applied

to

cla-ims

for

all

services provided by plaintiff to defendant's insureds covered by
a Traditional Indemnity plan.

Plaintiff alleges that in 2005 the

PAR rate was 80% of billed charges for all inpatient and outpatient
claims,

excluding co-pays,

coinsurance,

and non-covered claims.

Since 2005, through a series of amendments, the discount increased
for the defendant's benefit such that by January 1, 2014, the PAR
rate

was

down

to

65%

of

billed

charges,

decreasing

to

63. 6%

effective November 1, 2014, 63.2% effective October 15, 2015, 53%
effective January 1, 2016, and 52.6% effective August 1, 2016.
In late 2013 defendant began offering health insurance plans
over exchanges created under the Affordable Care Act ("ACA"), with
effective start dates of January 1,

2014.

One of the ACA plans

that defendant offered was the Blue Advantage HMO plan ("BAV HMO
Plan") .

Plaintiff

alleges

that

because

defendant

wanted

to

reimburse plaintiff for care provided to BAV HMO Plan members at
-3-

rates to which the plaintiff did not agree, defendant excluded the
BAV HMO Plan from the parties'

HMO contract,

and designated the

plaintiff as an "out-of-network" provider for BAV HMO Plan members.
Plaintiff alleges
federal

Emergency

("EMTALA"),

that

Medical

42 U.S.C.

§

it has

a

statutory duty under the

Treatment

and

1395dd et seq.,

Active

Labor

Act

to treat BAV HMO Plan

insureds who present to one of its facilities with an emergency
medical

condition.

Plaintiff

alleges

that

under

the

Texas

Insurance Code, defendant must "pay for emergency care performed by
non-network physicians or providers at the usual and customary rate
or at an agreed rate,"

Tex.

Ins.

Code

§

1271.155 (a),

and must

"approve or deny coverage of poststabilization care as requested by
. one hour from the

a treating physician or provider within
time of the request."

Tex.

Ins. Code

§

1271.155(c).

Plaintiff

alleges that when a BAV HMO Plan insured seeks emergency treatment
it verifies the insured's coverage and eligibility electronically
with

the

defendant.

Plaintiff

alleges

that

if

there

is

a

subsequent change in status, such as if the insured is admitted to
the hospital,

the plaintiff notifies the defendant and requests

authorization for treatment.

Plaintiff alleges that the defendant

typically responds that authorization for treatment is "pending,"
but neither refuses nor objects to continued treatment, and does
not coordinate, facilitate, or provide instructions to transfer the
patient to an in-network facility.

Because the defendant does not

deny such requests for authorization within one hour as required by
-4-

the Texas Insurance Code, plaintiff alleges that the defendant must
pay for all care,

whether emergency or post-stabilization,

plaintiff provides to BAV HMO Plan insureds.

that

Plaintiff alleges

that denial of authorization for post-stabilization treatment would
require the defendant to coordinate transfer of the patient to an
in-network

facility

and

provide

transfer

instructions

to

the

plaintiff.
Plaintiff

alleges

that

through

negotiation

in

late

2013

conducted via oral and written communications, the parties agreed
that the defendant could use the Traditional Contract's PAR rate to
pay for healthcare services that plaintiff provided to BAV HMO Plan
insureds

when

they

presented

with

an

emergency

Plaintiff alleges that for approximately 18 months,

condition. 5
from January

2014 through mid-2015, the defendant generally paid the plaintiff
the PAR rate
insureds both

for healthcare services provided to BAV HMO Plan
in the

emergency room and

admission for continuing care.

in the

hospital

upon

Plaintiff alleges that contrary to

the parties' agreement and practice for 2014 and the first half of
2015,

in mid-2015 the defendant took the position that plaintiff

was required to transfer BAV HMO Plan insureds to a different,

Petition, attached to Notice of Removal, Docket Entry
No. 3-1, p. 11 ~ 20 and p. 16 ~ 35.
See also Defendant's MD,
Docket Entry No. 8, p. 10 ("Because [plaintiff] was not an
'in-network' provider for the BAV [HMO] Plan . . . [defendant] took
the
position
that
the
Traditional
Contract
applied
for
reimbursement of services provided by [plaintiff] to BAV [HMO] Plan
members.
[Plaintiff] eventually agreed.").
5

-5-

in-network facility once

the patient's

defendant's post-hoc opinion
not

want

to

in the

stabilized, even if the insured did

transferred. 6

be

condition had -

Plaintiff

alleges

that

it

has

provided emergency healthcare services to over 700 BAV HMO Plan
insureds but that despite repeated demands for payment, defendant
has not paid for those services. 7
II.

Motion to Dismiss and Compel Arbitration

Plaintiff's Petition asserts claims for breach of contract,
quantum meruit/unjust enrichment,

and declaratory judgment under

the Texas Declaratory Judgment Act,
§

Tex.

Civ.

Prac.

& Rem. Code

37.003. 8
Asserting that "[t]he operative" contract is the "Traditional

Contract" 9

that

"contains

requiring that

a

mandatory

arbitration

agreement

'any Contract interpretation or claim issue'

be

resolved 'by arbitration under the commercial rules and regulations
of the American Arbitration [ ( "AAA")] , '" 10 defendant moves the court
to dismiss this action pursuant to Federal Rule of Civil Procedure

6

Id. at 13

~

24.

Id. at 16 ~ 33. See also Defendant's MD, Docket Entry No. 8,
p.
10
("[Plaintiff]
alleges that
[defendant]
breached its
contractual obligations with regard to payment of claims submitted
for post-emergency care services bo BAV [HMO] Plan members and, as
a result, owes the PAR reimbursement rate for hundreds of BAV [HMO]
Plan claims.").
7

~~

8

Id. at 16-20

9

Defendant's MD, Docket Entry No. 8, p. 16.

10

34-50.

Id. at 11.
-6-

12{b) (3) for improper venue and to compel arbitration pursuant to
the Federal Arbitration Act ("FAA"), 9 U.S.C.

§§

1 et seq., and/or

the Texas General Arbitration Act ("TGAA"), Tex. Civ. Prac. & Rem.
Code

§

171.021(a) . 11

Alternatively, the defendant moves the court

to stay this action pending arbitration. 12
Asserting that it is not suing because defendant breached the
Traditional Contract but, instead, because defendant "breached (and
continues

to breach)

a

verbal and email-based contract

to pay

[plaintiff] a particular rate for its treatment of patients covered
by the

BAV HMO plan

plaintiff

urges

the

court

(the
to

'BAV HMO Agreement') ," 13

deny Defendant's

MD

because

the

arbitration clause in the Traditional Contract does not apply to
the BAV HMO Agreement . 14
A.

Standard of Review and Applicable Law

Defendant's motion to dismiss and to compel arbitration is a
challenge

to

venue

based

on

Federal

Rule

of

Civil

Procedure

Id. at 7. See also Defendant's Reply Brief in Support of Its
Motion to Dismiss Pursuant to Rule 12(b) (3) for Improper Venue and
Motion to Compel Arbitration ("Defendant's Reply"), Docket Entry
No. 16, p. 5.
11

12

Id. at 20.

See also Defendant's Reply, Docket Entry No. 16,

p. 18.
13

Plaintiff Memorial Hermann Health System's Response to
Defendant's Motion to Dismiss for Improper Venue and Motion to
Compel Arbitration ("Plaintiff's Response"), Docket Entry No. 14,
p. 6.
Id.
See also Plaintiff Memorial Hermann Health System's
Surreply in Opposition to Defendant's Motion to Dismiss for
Improper Venue and Motion to Compel Arbitration ("Plaintiff's
Surreply"), Docket Entry No. 17, p. 5.
14

-7-

12 (b) (3)
U.S.C.

and the FAA or,

§§

alternatively,

the TGAA. 15

The FAA,

9

1 et seq., creates "a body of federal substantive law of

arbitrability, applicable to any arbitration agreement within the
coverage of the Act."

Moses H. Cone Memorial Hospital v. Mercury

Construction Corp., 103 S. Ct. 927, 941 (1983)
Corp.

v.

Flood

(1967)).

&

Conklin Manufacturing

(citing Prima Paint

Corp.,

87

S.

Ct.

1801

Section 2 of the FAA states that a written arbitration

agreement in any contract involving interstate commerce is valid,
irrevocable, and enforceable except on grounds that would permit
the revocation of a contract in law or equity.

9

Section 3 of the FAA requires federal courts,
motion,

to

9 U.S.C.

§

stay
3.

litigation

of

claims

subject

to

u.s.c.

§

2.

on a party's
arbitration.

District courts may, in their discretion, dismiss an

action instead of staying it when the entire controversy between
the parties will be resolved by arbitration.
M/V Buyalyk,

194 F.3d 674,

678

(5th Cir.

15

See Fedmet Corp. v.

1999)

("If all of the

Defendant' s
MD,
Docket
Entry No.
8,
p.
7
&
n. 2.
Acknowledging that the arbitration provision in the Traditional
Contract specifically invokes the TGAA but does not expressly
exclude application of the FAA, and that a separate provision of
the contract provides that the contract will be governed by Texas
law, defendant asserts that regardless of whether the pending
motion to dismiss and compel arbitration is analyzed under federal
or state law, the result would be the same.
Plaintiff neither
disputes the applicability of the FAA, nor argues that the outcome
would be different under the TGAA. See Vujasinovic & Beckcom, PLLC
v. Cubillos, Civil Action No. H-15-2546, 2016 WL 5573712, *4 (S.D.
Tex. September 29, 2016) (holding that where a contract contained
a Texas choice of law provision and an arbitration clause requiring
disputes to be resolved pursuant to the TGAA, but did not expressly
exclude applicability of the FAA, the FAA and the TGAA both apply) .
-8-

issues raised before the district court are arbitrable, dismissal
of the case is not inappropriate.")

(citing Alford v. Dean Witter

Reynolds, Inc.,

(5th Cir. 1992)).

Circuit

has

975 F.2d 1161, 1164

explained

that

dismissal

is

appropriate

The Fifth
in

such

circumstances because "[a]ny post-arbitration remedies sought by
the parties will not entail renewed consideration and adjudication
of the merits of the controversy but would be circumscribed to a
judicial review of the arbitrator's award in the limited manner
prescribed by law."
F.3d at 1164).
not

Fedmet, 194 F.3d at 678 (quoting Alford, 975

Although Federal Rule of Civil Procedure 12(b) does

specifically provide

for

dismissal

enforcement of an arbitration clause,

of

an action based on

the parties do not dispute

that defendant's motion to dismiss is governed by Rule 12(b) (3) . 16
"On a Rule 12 (b) ( 3) motion to dismiss for improper venue, the court
must accept as true all allegations in the complaint and resolve
all conflicts in favor of the plaintiff."
Co. v. Modec

(USA),

Inc.,

Braspetro Oil Services

240 F. App'x 612,

16

615

(5th Cir.

2007)

The Fifth Circuit has not decided whether a motion to compel
arbitration should be decided under Rule 12 (b) ( 1) for lack of
subject matter jurisdiction, or Rule 12(b) (3) for improper venue.
See Noble Drilling Services, Inc. v. Certex USA, Inc., 620 F.3d
469, 472 n.3 (5th Cir. 2010)
("Our court has not previously
definitively decided whether Rule 12(b) (1) or Rule 12(b) (3) is the
proper rule for motions to dismiss based on an arbitration or
forum-selection clause."). Since this action originated in state
court, and the defendant removed it to this forum contending that
the court has subject-matter jurisdiction because the parties are
diverse, defendant could not now argue that the court does not have
subject-matter jurisdiction.
Moreover, if the court lacked
subject-matter jurisdiction, the logical consequence would be
remand to state court not dismissal.
-9-

(per curiam) .

The court may look outside of the complaint and its

attachments and review extrinsic materials, including affidavits.
Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 238 (5th Cir. 2009),
cert.

denied,

130

S.

Ct.

1054

(2010).

Absent

an evidentiary

hearing on a Rule 12(b) (3) motion, affidavits and other evidence
submitted by the non-moving party are viewed in the light most
favorable to that party.

Id. (citing Murphy v. Schneider National,

Inc., 362 F. 3d 1133, 1138-40 (9th Cir. 2004)).
Section

4

of

the

FAA permits

a

party

to

seek

an

order

compelling arbitration if the other party has failed to arbitrate
under a written agreement.

9 U.S.C.

§

4.

Courts apply a two-step

inquiry when determining a motion to compel arbitration.

See OPE

International LP v. Chet Morrison Contractors, Inc., 258 F.3d 443,
445 (5th Cir. 2001)
89

F.3d

Mitsubishi

252,

(per curiam)

257-58

Motors

(5th

Corp.

v.

S. Ct. 3346, 3355 (1985))).

(citing Webb v. Investacorp, Inc.,

Cir.
Soler

1996)

(per

curiam)

Chrysler-Plymouth,

(quoting
Inc.,

105

The first step is to determine whether

the parties agreed to arbitrate their dispute.

Id.

The second

step is to determine "whether legal constraints external to the
parties' agreement foreclose[]

the arbitration of those claims."

Id. at 446 (citing Webb, 89 F.3d at 258).
B.

Analysis

1.

Did the Parties Agree to Arbitrate Their Dispute?

The determination of whether the parties agreed to arbitrate
their

dispute

requires

consideration
-10-

of

two

questions:

"(1) whether there is a valid agreement to arbitrate between the
parties; and (2) whether the dispute in question falls within the
scope of that arbitration agreement."

Webb, 89 F.3d at 258.

See

Kubala v. Supreme Production Services, Inc., 830 F.3d 199, 201 (5th
Cir. 2016)

("Enforcement of an arbitration agreement involves two

analytical steps.

The first

is contract formation-whether the

parties entered into any arbitration agreement at all.

The second

involves contract interpretation to determine whether this claim is
covered

by

existence -

the

arbitration

agreement.") .

Challenges

to

the

as opposed to the enforceability, validity, or scope

- of an agreement to arbitrate are for a court to decide.

See DK

Joint Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir. 2011)

("[It]

is for the courts and not the arbitrator to decide in the first
instance[]

a dispute over whether the parties entered into any

arbitration agreement in the first place."); Will-Drill Resources,
Inc. v. Samson Resources Co.,
("[when]

352 F.3d 211,

212

(5th Cir. 2003)

the very existence of any agreement to arbitrate is at

issue, it is for the courts to decide based on state-law contract
formation principles") .

Courts generally apply "ordinary state-law

principles that govern the formation of contracts," Webb, 89 F.3d
at

258

(quoting First Options of Chicago,

Inc.

v.

Kaplan,

115

s. Ct. 1920, 1924 (1995)), but must give due regard to the federal
policy favoring arbitration and resolve any ambiguities as to the
scope of the arbitration clause itself in favor of arbitration.
Id.

See also Kubala, 830 F.3d at 202 ("Whether they entered [into]
-11-

a valid arbitration contract turns on state contract law.") .

Under

Texas law the party seeking to compel arbitration has the initial
burden to establish the existence of a valid agreement to arbitrate
between the parties and that the dispute at issue falls within the
scope of that agreement.

Cantella & Co.,

S.W.2d 943, 944 (Tex. 1996)

(per curiam).

Inc.

v.

Goodwin,

924

See also Venture Cotton

Cooperative v. Freeman, 435 S.W.3d 222, 227 (Tex. 2014)

("A party

seeking to compel arbitration . . . must establish that the dispute
falls within the scope of an existing agreement to arbitrate.").
"Upon

such

proof,

the

burden

shifts

to

the

party

opposing

arbitration to raise an affirmative defense to the agreement's
enforcement."

Id.

(citing J.M.

Davidson,

Inc.

v.

Webster,

128

S . W. 3d 2 2 3 , 2 2 7 ( Tex . 2 0 0 3 ) ) .
(a)

The Parties Have a Valid Agreement to Arbitrate

Defendant cites Article 11.C of the Traditional Contract as a
valid agreement to arbitrate between the parties that has existed
since 2005. 17

That agreement provides:

After exhausting the remedies contained in this Article
11, any Contract interpretation or claim issue which the
HOSPITAL or BCBSTX determines has not been satisfactorily
resolved shall be resolved by arbitration under the
commercial rules and regulations of
the American
Arbitration Association, and in accordance with the Texas
General Arbitration Act (Chapter 171 Texas Civil Practice
and Remedies Code) . 18

17

18

Defendant's MD, Docket Entry No. 8, p. 13.

Traditional Contract,
Entry No. 8-2, p. 2.

attached to Defendant's MD,
-12-

Docket

Plaintiff

does

not

dispute

that

Article

11.C

of

the

Traditional Contract is a valid agreement to arbitrate between the
parties. 19

Instead, plaintiff argues that the claims asserted in

this action arise not from defendant's breach of the Traditional
Contract but from the defendant's breach of "a verbal and emailbased

contract

to

pay

[plaintiff]

a

particular

rate

for

its

treatment of patients covered by the Blue Advantage HMO ( "BAV HMO")
plan, a rate that

[defendant]

paid for about 18 months until it

decided to breach that agreement (the 'BAV HMO Agreement') ." 20
Defendant replies:
The parties in this lawsuit are sophisticated entities
whose relationship is governed by complex, heavily
negotiated, written contracts.
[Plaintiff] and
[defendant] executed the Traditional Contract, as well as
separate HMO and PPO Contracts in 2005.
. There is no
dispute that each of those three contracts remains in
force.
Nor is there any dispute that, for more than a
decade, the course of dealing between these parties has
been to operate under written contracts, executed by duly
authorized persons in each company with the power to bind
their respective employers in contract.

19

See Petition, attached to Notice of Removal, Docket Entry
No. 3-1, pp. 8-9 ~~ 11-13 (alleging existence and key terms of the
Traditional Contract including the PAR rate) .
20

Plaintiff's Response, Docket Entry No. 14, p. 6.
See also
Petition, attached to Notice of Removal, Docket Entry No. 3-1,
p. 11 ~ 20 ("[I]n late 2013, before the BAV [HMO P]lan took effect,
[defendant] took the position that it could access and pay the
discounted PAR rate for treatment that [plaintiff] provided to BAV
insureds who presented to the emergency room or with emergency
conditions.
Initially, [plaintiff] disagreed and maintained that
[defendant] was not entitled to access the PAR rate to pay for
treatment provided to BAV insureds who came to [plaintiff] through
the emergency room or with emergency conditions. However, through
negotiation in late 2013, the parties agreed that [defendant] could
use the PAR rate to reimburse [plaintiff] for BAV insureds who were
treated [by plaintiff] because they presented to the emergency room
or with an emergency condition.").
-13-

Both parties agree that the Traditional Contract at
issue in this Motion contains a forum selection provision
requiring any contract interpretation or claim issue to
be resolved by arbitration.
The only dispute is
whether the Traditional Contract reaches BAV [HMO] Plan
members;
if it does,
then the Court must grant
[defendant's] motion to compel arbitration. 21
By citing Article 11.C of the Traditional Contract defendant
has satisfied its burden to show that there is a valid agreement to
arbitrate between the parties.

Plaintiff does not dispute that the

Traditional Contract has been a valid agreement between the parties
since

2005

contains

or

that

Article

11.C

of

an arbitration provision.

the

Traditional

Plaintiff

argues

Contract
that

the

Traditional Contract does not cover the claims asserted in this
action because those claims do not arise from an alleged breach of
the Traditional Contract entered in 2005 but,

instead,

from an

alleged breach of an oral and written BAV HMO Agreement entered in
Plaintiff's

2013.

argument

raises

the

question

of

contract

interpretation not contract formation.

See Kubala, 830 F.3d at 201

(the question of

asks

contract

formation

"whether

entered into any arbitration agreement at all") .

the parties
See also l.Q

Products Co. v. WD-40 Co., 871 F.3d 344, 348 (5th Cir. 2017)
first

step is a question of contract formation only -

("The

did the

parties form a valid agreement to arbitrate some set of claims.").
Whether the Traditional Contract governs the claims asserted
in this action is a question of contract interpretation that does
not factor into the first question courts consider when deciding if
21

Defendant's Reply, Docket Entry No. 16, pp. 6-7.
-14-

a

valid agreement

to arbitrate

explained in Kubala,

exists.

830 F.3d at 202,

step of the analysis is not

As

the

Fifth Circuit

the question at the first

"whether there is an agreement to

the claim currently before the court.

arbitrate
issue at

the

first

step is whether there

arbitrate any set of claims."

is

[T] he only

any agreement

to

Plaintiff recognizes as much by

citing Buell Door Co. v. Architectural Systems, Inc., No. 3:02-CV721-AH, 2002 WL 1968223, *6-*7 (N.D. Tex. August 20, 2002), for its
holding that the arbitration provision in a written sales agreement
did not apply to a dispute arising under a separate,
verbal distributorship agreement. 22

subsequent

Because the plaintiff in Buell

Door - like the plaintiff here - did not dispute the existence of
a

valid

arbitration

agreement

but,

instead,

argued

agreement did not apply to the asserted claims,
that

"the

issue

to

be

addressed

Agreement's arbitration provision."
(b)

is

the

that

the

the court found

scope

of

the

Sales

Id. at *3.

The Scope of the Arbitration Agreement Is for the
Court to Determine

Whether the scope of an arbitration agreement covers the claims
asserted in a
decide.
591

lawsuit is generally a question for the court to

See Howsam v. Dean Witter Reynolds, Inc., 123 S. Ct. 588,

(2002)

v.

Communications

Workers of America, 106 S. Ct. 1415, 1418 (1986)).

"But where the

arbitration
22

(quoting AT

agreement

&

T Technologies,

contains

a

Inc.

delegation

clause

giving

Plaintiff's Surreply, Docket Entry No. 17, pp. 5-6.
-15-

the

arbitrator the primary power to rule on the arbitrability of a
specific claim,

the analysis changes."

Kubala,

(citing First Options, 115 S. Ct. at 1923).
Weekley Homes,

L.P.,

180 S.W.3d 127,

130

830 F. 3d at 201

See also In re David
(Tex.

2005)

("[A]bsent

unmistakable evidence that the parties intended the contrary, it is
the

courts

matters' .
the

• If )

court's

arbitrator.
refer a

rather
•

than

arbitrators

that

must

decide

'gateway

"Delegation clauses are enforceable and transfer

power

to

decide

arbitrability

questions

to

the

Thus, a valid delegation clause requires the court to

claim to arbitration to allow the arbitrator to decide

gateway arbitrability issues."

Kubala, 830 F.3d at 202.

[I]f the party seeking arbitration points to a purported
delegation clause, the court's analysis is limited.
It
performs the first step
an analysis of contract
formation- as it always does.
But the only question,
after finding that there is in fact a valid agreement, is
whether the purported delegation clause is in fact a
delegation clause - that is, if it evinces an intent to
have the arbitrator decide whether a given claim must be
arbitrated.
. If there is a delegation clause, the
motion to compel arbitration should be granted in almost
all cases.
Id. 23

See also Brittania-u Nigeria, Limited v. Chevron USA, Inc.,

866 F.3d 709, 713 (5th Cir. 2017)

("In Kubala .

23

. we provided an

In a footnote the Kubala court recognized that the Fifth
Circuit has carved out a narrow exception to the rule that a valid
delegation clause requires the court to refer arbitrability issues
to the arbitrator.
Id. at 202 & n.l (citing Douglas v. Regions
Bank, 757 F.3d 460, 464 (5th Cir. 2014); the Kubala court stated
that "[w]here the argument for arbitration is 'wholly groundless,'
we refuse to enforce a delegation clause." But the court cautioned
that "[s]uch cases are exceptional, and . . . not a license for the
court to prejudge arbitrability disputes more properly left to the
arbitrator pursuant to a valid delegation clause."
Kubala, 830
F.3d at 202 & n.1.
This exception is not relevant here because
plaintiff has not argued that it applies.
-16-

in-depth explanation of who decides what when a contract includes
an arbitration provision.").
not

assume

that

the

In making this analysis, courts "will

parties

agreed to

arbitrate

arbi trabili ty

' [u] nless the parties clearly and unmistakably provide otherwise. '"
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d
671, 675 (5th Cir. 2012)
at 1418).

(quoting AT & T Technologies, 106

s.

Ct.

If the court concludes that the parties clearly and

unmistakably delegated arbitrability,

the court "must refer the

claim

court

to

arbitration [;]"

but

if

the

concludes

that

the

parties did not, the court "must perform the ordinary arbitrability
analysis."

Kubala, 830 F.3d at 203.

Accordingly, this court must

decide if the Traditional Contract contains a delegation clause
pursuant

to

which

the

plaintiff

and

defendant

clearly

and

unmistakably provided for the arbitrators to decide arbitrability.
Brittania-u Nigeria, 866 F.3d at 714 (citing Petrofac, 687 F.3d at
675).

"[T]he party contending that an arbitrator has authority to

decide arbitrability 'bears the burden of demonstrating clearly and
unmistakably that the parties agreed to have the arbitrator decide
that threshold question.

I H

Houston Refining, L.P. v. United

Steel, Paper and Forestry, Rubber, Manufacturing,

Energy, Allied

Industrial and Service Workers International Union, 765 F.3d 396,
408 (5th Cir. 2014)

(quoting ConocoPhillips, Inc. v. Local 13-0555

United Steelworkers International Union,
Cir. 2014)

741 F.3d 627,

(citation and internal alteration omitted).

-17-

630

(5th

The

Traditional

Contract

does

not

include

an

express

delegation clause pursuant to which the plaintiff and defendant
clearly and unmistakably provided for the arbitrators to decide
arbitrability.

Nevertheless,

citing Petrofac,

687 F. 3d at 675,

defendant argues that because the arbitration provision in the
Traditional Contract specifically incorporates the AAA Commercial
Arbitration Rules, which provide that the arbitrator will decide
the issue of arbitrability, the determination of whether the claims
asserted in this action are governed by the arbitration agreement
in the Traditional Contract is for the arbitrator, not the court,
to decide. 24
In Petrofac

the

Fifth Circuit

confirmation of an arbitration award.

reviewed the
Id. at 673.

trial

court's

The arbitration

agreement stated that the parties agreed to resolve claims under
their

contract

through

binding

arbitration

"conducted

by

the

American Arbitration Association under its Construction Industry
Arbitration Rules."

Id. at 674.

The rules granted the arbitrator

the power "to rule on his or her own jurisdiction, including any
objections with respect to the existence, scope or validity of the
arbitration agreement."

Id.

at 675.

The Fifth Circuit joined

several other circuits in holding that "express adoption" of the
AAA

rules

in

unmistakable

an

arbitration

evidence

that

agreement
the

constitutes
to

arbitrate

Defendant's MD, Docket Entry No. 8, pp. 13-16.
Defendant's Reply, Docket Entry No. 16, pp. 12-13.

See also

24

-18-

parties

agreed

"clear and

arbitrability."
("In Petrofac,

Id.

See also Brittania-u Nigeria, 866 F.3d at 714

687 F.3d at 675,

we concluded that incorporating

rules from the American Arbitration Association .

. clearly and

unmistakably expressed the parties' intent to leave the question of
arbitrability to an arbitrator.").

The opinion noted that the

decision complied with the circuit's "prior suggestions that the
incorporation of the AAA rules 'may be sufficient to show that the
parties to those agreements intended to confer that power on the
arbitration panel."'

Id. at 675, n.2 (quoting DK Joint Venture 1,

649 F.3d at 317 n.9).
The Petrofac decision makes clear that incorporation of the
AAA rules by reference into an arbitration agreement serves as a
delegation clause.

See Houston Refining,

765 F.3d at 410 & n.28

(citing Petrofac in support of its recognition that "an arbitration
agreement
arbitrate

need not

recite verbatim that

arbitrability'

unmistakable' agreement").

in

order

to

the

'parties agree

manifest

to

'clear

and

See also Vujasinovic & Beckcom,

2016

WL 5573712 at *5 ("Even though this arbitration agreement does not
contain an explicit delegation clause, the Petrofac decision makes
clear that incorporating the AAA rules by reference . . . serves as
an implicit delegation clause.").
Plaintiff argues that notwithstanding the reference to the AAA
rules the court must decide whether the claims asserted in this
action

fall

within

the

scope

of

the

Traditional

Contract's

arbitration agreement because the defendant has not carried its
-19-

burden of demonstrating clearly and unmistakably that the parties
agreed to have the arbitrator decide the threshold question or
arbitrability. 25

Citing Lucchese Boot Co. v. Rodriguez, 473 S.W.3d

373, 383-84 (Tex. App.- El Paso 2015, no pet.), Haddock v. Quinn,
287 S.W.3d 158

(Tex. App. -Fort Worth 2009,

pet.

denied),

and

Burlington Resources Oil & Gas Co., L.P. v. San Juan Basin Royalty
Trust, 249 S.W.3d 34, 39-40 (Tex. App. -Houston [1st Dist.] 2007,
pet.

denied) ,

plaintiff

argues

that

incorporation

of

the

AAA

Commercial Arbitration Rules by reference does not demonstrate
clearly and unmistakably

that

the

parties

agreed

to

have

the

arbitrator decide the threshold question of arbitrability when, as
here, the arbitration agreement is a "narrow" provision that only
requires arbitration of disputes "concerning the interpretation" of
the contract,

as opposed to a

"broad"

provision that

requires

arbitration of any and all disputes connected with or related to
the contract. 26
Boot,

Haddock,

courts

have

Plaintiff contends the analysis in the Lucchese
and Burlington Resources cases shows that Texas

only

held

that

arbitrability "when there is

parties
(1)

have

agreed

to

arbitrate

a specific mention of gateway

issues like arbitrability[, i.e., an express delegation clause] or
( 2)

a

broad arbitration

clause

that

25

clearly

and

unmistakably

Plaintiff's Response, Docket Entry No. 14, pp.
Plaintiff's Surreply, Docket Entry No. 17, pp. 12-14.
26

23-28;

Plaintiff's Response, Docket Entry No. 14, p. 25; Plaintiff's
Surreply, Docket Entry No. 17, p. 12.
-20-

provides

for

arbitration

all

of

disputes,

incorporation of arbitration rules. " 27

plus

an

express

The courts in each of these

cases recognized the majority rule adopted by the Fifth Circuit in
Petrofac, 687 F.3d at 675, but found that it did not apply based on
specific language in the arbitration agreements at issue.

These

cases stand for the principle that courts are to review the entire
agreement

before

reflexively applying the

rule

that

the

Fifth

Circuit adopted in Petrofac.
The

Fifth Circuit

distinguishes

between broad and narrow

arbitration clauses.

See Pennzoil Exploration & Production Co. v.

Ramco Energy,

139

Pennzoil

the

Ltd.,

F. 3d 1061,

Fifth Circuit

1067

(5th Cir.

1998).

In

held that mandating arbitration of

disputes that "relate to" or "are connected with" a subject are
"broad arbitration clauses capable of expansive reach," id., but
that agreements mandating arbitration of disputes "arising out of"
a subject are narrow.

Id.

Here, the parties agreed to arbitrate

"any Contract interpretation or claim issue." 28

Asserting that use

of the capitalized defined term "Contract" in the agreement refers
solely

to

the

Traditional

Contract,

plaintiff

argues

and

defendant does not dispute - that this agreement is narrow because
the

parties

27

only

agreed

to

arbitrate

disputes

involving

Plaintiff's Response, Docket Entry No. 14, p. 25.

28

Traditional Contract, attached to Defendant's MD,
Entry No. 8-2, p. 2, Article 11.C.
-21-

Docket

interpretation of the Traditional Contract and claim issues covered
by that contract. 29

Although citing Petrofac, 687 F.3d at 674-75,

defendant argues that "[t]he majority rule in the Fifth Circuit and
in Texas is that 'the express incorporation of rules that empower
the arbitrator to determine arbitrability' suffices as clear and
unmistakable

evidence

of

the

parties'

intent

to

allow

the

arbitrator to decide such issues without reference to whether an
arbitration provision is broad or narrow." 30

Petrofac and all of

the other cases on which defendant relies appear to have involved
broad- as opposed to narrow- arbitration agreements. 31

Moreover,

defendant has not cited and the court has not found any authority
holding

that

a

narrow

arbitration

agreement

coupled

with

incorporation by reference of rules giving an arbitrator power to
rule on his own jurisdiction is enough to show that the parties
clearly

and

unmistakably

agreed

to

arbitrate

arbitrability.

Because defendant does not dispute that the arbitration agreement
at issue here is narrow, and because defendant has not cited any
authority holding that a narrow arbitration agreement coupled with

29

Plaintiff's Response, Docket Entry No. 14, pp. 22-23;
Plaintiff's Surreply, Docket Entry No. 17, p. 12.
See also
Defendant's Reply, Docket Entry No. 16, p. 7 (arguing not that the
arbitration agreement in the Traditional Contract is broad but,
instead, that the "Traditional Contract has a broad reach")
30

Defendant's Reply, Docket Entry No. 16, pp. 16-17.

31

See Plaintiff's Response, Docket Entry No. 14, p. 26 & n.S
(collecting cases and arbitration agreements)
-22-

incorporation by reference of rules giving an arbitrator power to
rule on his own jurisdiction is enough to show that the parties
clearly and unmistakably agreed to arbitrate arbitrability and
strip the court of power to perform the arbitrability analysis, the
court concludes that defendant has failed to carry its burden of
"demonstrating clearly and unmistakably that the parties agreed to
have

the

arbitrator decide

Refining, 765 F.3d at 408.

that

threshold question."

Houston

Accordingly, the court concludes that

the scope of the arbitration agreement is for the court - not the
arbitrator - to determine.
(c)

Plaintiff's Claims Do No Fall Within the Scope of
the Arbitration Agreement

Whether a particular dispute falls within the scope of an
arbitration agreement is a question of state contract law governed
by federal arbitration law and policy.

9 U.S.C.

§§

2, 4; Webb, 89

F.3d at 257-58 (citing Volt Information Sciences, Inc. v. Board of
Trustees of Leland Stanford Junior University,
1254

(1989)) .

See also IKON Office Solutions,

Inc.

Ct.
v.

1248,

Eifert,

Houston [14th Dist.] 1999, no pet.)

2 S.W.3d 688, 694 (Tex. App.
("In determining whether a

109 S.

claim falls

within the scope of an

arbitration agreement, Texas courts follow federal law and focus on
the factual allegations of the complaint rather than the legal
cause

of

action

asserted.").

Where

a

contract

contains

an

arbitration clause, "there is a presumption of arbitrability in the
sense that '[a]n order to arbitrate the particular grievance should
-23-

not be denied unless it may be said with positive assurance that
the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute.
coverage.'"

AT

&

Doubts should be resolved in favor of

T Technologies, 106 S. Ct. at 650 (quoting United

Steelworkers of America v. Warrior & Gulf Navigation Co., 80S. Ct.
13471 1352-53 (1960)) •

"While ambiguities in the language of the

agreement should be resolved in favor of arbitration . . . [courts]
do not override the clear intent of the parties, or reach a result
inconsistent with the plain text of the contract, simply because
the policy favoring arbitration is implicated."
House,

Inc.,

omitted) .

122

S.

Ct.

754,

764

(2002)

E. E. 0. C. v. Waffle
(internal

citation

"Arbitration under the [FAA] is a matter of consent, not

coercion."

Id.

The parties agreed to arbitrate "any Contract interpretation
or claim issue." 32
argues -

As stated in the preceding section, plaintiff

and defendant does not dispute -

that this arbitration

agreement is narrow because it only encompasses disputes involving
interpretation of the Traditional Contract and claim issues covered
by that contract. 33
("[C]ourts

See Pennzoil Exploration,

distinguish

'narrow'

arbitration

139 F.3d at 1067
clauses

that

Traditional Contract, attached to Defendant's MD,
Entry No. 8-2, p. 2, Article 11.C.
32

only

Docket

Plaintiff's Response, Docket Entry No. 14, pp. 22-23;
Plaintiff's Surreply, Docket Entry No. 17, p. 12.
See also
Defendant's Reply, Docket Entry No. 16, p. 7 (arguing not that the
arbitration agreement in the Traditional Contract is broad but,
instead, that the "Traditional Contract has a broad reach").
33

-24-

require arbitration of disputes 'arising out of' the contract from
broad arbitration clauses governing disputes that 'relate to' or
'are connected with' the contract.").

"[I]f the clause is narrow,

the matter should not be referred to arbitration or the action
stayed, unless the court determines that the dispute falls within
the clause."

Baudoin v.

Mid-Louisiana Anesthesia Consultants,

Inc., 306 F. App'x 188, 192 (5th Cir. 2009)

(quoting Complaint of

Hornbeck Offshore (1984) Corp., 981 F.2d 752, 755 (5th Cir. 1993).
Asserting

that

plaintiff's

allegations

center

on

the

interpretation of the Traditional Contract and its application to
claims

for

reimbursement

submitted by the plaintiff

for post-

emergency services provided to BAV HMO Plan insureds and are thus
contract interpretation disputes about claim issues arising under
the Traditional Contract, defendant argues that "the entire dispute
falls within the arbitration provision and dismissal is proper." 34
Defendant argues that
Counts One and Two center on the applicability of the
Traditional Contract, or its terms, to BAV Plan claims,
thereby making such claims eligible for the reimbursement
rates agreed to in the Traditional Contract.
. Thus,
reference to and evidence relating to the Traditional
Contract is essential for [plaintiff] to maintain its
claims.
The facts implicated by Count Three for
declaratory relief are also "interwoven" with the
Traditional
Contract because
that
Count
seeks
a
declaration that [defendant's] claims determinations
violate the parties' contract.
Resolution of this
claim is not possible without
reference
to
the
Traditional Contract and therefore this claim is also
subject to arbitration. 35

34

Defendant's MD, Docket Entry No. 8, p. 16.

35

Id. at 18-19.
-25-

In support of its argument that all of plaintiff's claims fall
within the scope of the arbitration agreement defendant refers to
the text of the Traditional Contract as evidence that
[Plaintiff] and [defendant]
. entered into a broadranging Hospital Contract for Traditional Indemnity
Business
(the
"Traditional
Contract") .
The
Traditional
Contract
provides
the
"reimbursement
mechanism which will be used as the basis for payment of
Covered Services by [defendant] to [plaintiff]." (Ex. 1
Traditional Contract Art. 2.A.)
The reimbursement rate
under the Traditional Contract is known as the PAR
rate.
The Traditional Contract defines "Covered
Services" as "those acute care inpatient and outpatient
hospital services for which benefits are available under
a Subscriber's health care benefit plan."
(Id. Art.
1. A.) "Subscriber," in turn, "means any person entitled
to receive Covered Services under a health care benefit
plan provided or administered by [defendant] . " ( Id. Art.
1. B.)

In 2013, [defendant] introduced the Blue Advantage
HMO plan (the "BAV Plan"). .
[Plaintiff] was "out-ofnetwork" for the BAV Plan.
. Because [plaintiff] was
not an "in-network" provider for the BAV Plan .
.,
[defendant] took the position that the Traditional
Contract applied for reimbursement of services provided
by [plaintiff] to BAV Plan members.
Plaintiff
eventually agreed.
Now, [plaintiff] alleges that [defendant] breached
its contractual obligations with regard to payment of
claims submitted for post-emergency care services to BAV
Plan members and, as a result, owes the PAR reimbursement
rate for hundreds of BAV Plan claims. 36
Plaintiff responds that the defendant's
sole basis for arguing that [its] BAV HMO claims fall
within the scope of the
[Traditional]
Contract's
arbitration clause is an improperly broad, out-of-context
reading of the term "Subscriber" that conflicts with the
rest of the language of the [Traditional] Contract, is

36

Defendant's MD, Docket Entry No. 8, pp. 9-10.
-26-

inconsistent with the parties'
supported by any evidence. 37

intent,

and

is

not

Plaintiff has asserted claims for breach of contract, quantum
meruit/unjust

enrichment,

and

declaratory

judgment

based

on

assertions that it has provided healthcare services for defendant's
BAV HMO Plan insureds but that defendant has failed to pay for
those services.
Contract

for

plaintiff's

The Traditional Contract is titled,

Traditional

status

as

a

Indemnity

Business,"

and

"Hospital
refers

"contracting hospital with BCBSTX

to
for

traditional indemnity business." 38

Defendant's contention that the

claims

require

at

issue

in

this

action

interpretation of

the

Traditional Contract ignores the title and other language in that
contract referring to "traditional indemnity business."

Defendant

argues that the Traditional Contract is applicable to BAV HMO Plan
insureds because plaintiff's facilities were out-of-network for
those insureds, but fails to cite any language in the Traditional
Contract showing that the parties intended that contract to apply
to out-of-network insureds.

The BAV HMO Plan did not exist until

2013 and was not even contemplated in 2005 when the parties entered
the

Traditional

plaintiff's

Agreement,

evidence

that

and

defendant

the parties

does

not

attempted but

dispute

failed

to

negotiate amendments to the Traditional Contract that would have

37

Plaintiff's Surreply, Docket Entry No. 17, p. 6.

Id. (citing Exhibit 1-A to Plaintiff's Response, Docket Entry
No. 14-1, p. 12, Art. 15.
38

-27-

made the Traditional Contract applicable to BAV HMO insureds.

The

court is therefore persuaded that reading the Traditional Contract
to apply to BAV HMO insureds for whom plaintiff's facilities were
out-of-network

would

not

only

render

all

language

in

the

Traditional Contract referring to "traditional indemnity business"
meaningless,

but

also

contractual agreements,

would

conflict

with

the

parties'

other

i.e.,

the agreements governing their HMO

and PPO business.
Because the claims asserted in this action all seek payment
for healthcare services provided to BAV HMO Plan insureds, because
the

Traditional

Contract

by

its

plain

terms

applies

only

to

traditional indemnity business, and because defendant has failed to
cite any provision in the Traditional Contract that could plausibly
be read to govern claims for services provided to BAV HMO Plan
insureds who did not exist and were not even contemplated in 2005
when the Traditional Contract was executed,

the court concludes

that defendant has failed to show that causes of action asserted in
this lawsuit arise from claims issues governed by the Traditional
Contract,

or

that

resolution

of

plaintiff's

causes

require interpretation of the Traditional Contract.

of

action

Accordingly,

the court concludes that plaintiff's claims do not fall within the
scope of the arbitration agreement contained in the Traditional
Contract

and,

therefore,

that

the

parties

have

arbitrate the disputes at issue in this action.

-28-

not

agreed

to

2.

Do Legal Constraints External to the Parties' Agreement
Foreclose Arbitration?

Having determined that plaintiff and defendant did not agree
to arbitrate the claims asserted in this action, the court need not
reach the second question of the arbi trabili ty analysis,
whether

legal

constraints

foreclose arbitration?

external

to

the

parties'

See OPE International,

i.e. ,

agreement

258 F.3d at 445

(citing Webb, 89 F.3d at 257-58).
III.

Conclusions and Order

For the reasons stated in §II.B., above, the court concludes
that whether the plaintiff's breach of contract claim falls within
the scope of the arbitration provision contained in the valid and
existing Traditional Contract from 2005 is a question for the court
For the reasons stated in§ II.C.,

to decide.
concludes

that

defendant

establishing

that

asserted

this

in

the

has

failed

parties

action.

above,

to

carry

agreed

to

arbitrate

Accordingly,

its

Defendant

the court
burden
the

of

claims

Health

Care

Service Corporation's Motion to Dismiss Pursuant to Rule 12(b) (3)
for Improper Venue and Motion to Compel Arbitration (Docket Entry
No. 8) is DENIED.
SIGNED at Houston, Texas, on this 17th day of November, 2017.

SIM LAKE
UNITED STATES DISTRICT JUDGE
-29-