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Wheeling Hospital, Inc. v. Health Plan of the Upper Ohio Valley, Inc., No. 11-1694

Decided: June 27, 2012

A putative class of plaintiffs which included hospitals, physician practice groups, and individual physicians brought a breach of contract action against, inter alia, the Health Plan of the Upper Ohio Valley (“Health Plan”).  The plaintiffs alleged that the Health Plan, as an administrator of employment benefit plans, had failed to pay the plaintiffs for the health care services provided to patients covered under the various benefit plans.  After several months of litigation, in which the district court had considered and ruled on multiple procedural and substantive motions, the Health Plan made a motion to dismiss the hospital plaintiffs’ claims.  The Health Plan argued that pursuant to a clause in the Hospital Service Agreement contracts between itself and the hospital plaintiffs, the breach of contract claims should have been submitted to arbitration.  Citing the considerable time and resources that had already been invested in the litigation and the unfair prejudice that would disadvantage the hospital plaintiffs, the district court ruled that the Health Plan had defaulted on its right to arbitrate.

On appeal, the Fourth Circuit reversed the trial court’s decision to deny the Health Plan’s motion to dismiss the hospital plaintiffs’ claims.  The court first engaged in a lengthy discussion regarding whether it had jurisdiction to hear the appeal.  Because the Health Plan had not specifically invoked the proper sections of the Federal Arbitration Act (“FAA”) in its motion to dismiss, there was a question of whether the Health Plan could utilize the FAA provision which allows immediate appeal of an order denying a petition to arbitrate.  Relying on “Congress’ deliberate determination that appeal rules should reflect a strong policy favoring of arbitration, however, the court focused on the substance, rather than the form, of the Health Plan’s motion to dismiss.  According to the court, the “Health Plan clearly stated in its motion to dismiss that it was seeking to enforce the arbitration agreement….The memorandum specifically argued that the court should compel separate binding arbitrations for each hospital plaintiffs’ claims pursuant to the express terms of the contracts between the parties.”  Thus, because the denied motion to dismiss was, in effect, a motion to compel arbitration, the Fourth Circuit possessed appellate jurisdiction.

Reviewing the merits of the trial court’s order de novo, the court held that the Health Plan had not defaulted on its right to arbitrate the hospital plaintiffs’ claims.  The court stated that a party loses its right to stay court proceedings in order to arbitrate if it “substantially utilizes the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the stay.”  Expounding on this legal standard, the court stated that even  where the party seeking arbitration has engaged in pretrial  activity, “the dispositive question is whether the party objecting to arbitration has suffered actual prejudice.”  (emphasis in original).

In determining whether the hospital plaintiffs had suffered actual prejudice, the court analyzed both the amount of delay in the Health Plan’s seeking arbitration and the extent of the Health Plan’s “trial-oriented” activities.  In regards to the first consideration, the court found that there was no evidence that the hospital plaintiffs had been prejudiced by the the Health Plan’s six month delay in asserting its right to arbitration.  Whether the Health Plan’s litigation conduct had been prejudicial was a more difficult question for the court because the Health Plan had joined in another defendant’s potentially dispositive motion.  Nevertheless, the court held that there was no evidence that this motion forced the plaintiffs to reveal litigation strategy and that the Health Plan had gained no advantage from it.  The court also rejected the hospital plaintiffs’ argument that it expended considerable expenses due to the Health Plan’s activity because the plaintiffs failed to distinguish the amount of money it spent litigating against the Health Plan as opposed to the other defendants and the amount spent as a response to activity initiated by the Health Plan.  Finally, the court made it clear in a footnote that it did not believe that the Health Plan was attempting to “game the system” with its delayed motion for arbitration; rather, the delay was understandable “given the complicated and uncertain posture of the litigation during its early stages which involved multiple plaintiffs and multiple defendants, only some of whom had entered into arbitration agreements with each other.”

Full Opinion

-John C. Bruton, III