About Us  |  Contact Us

Arbitration provisions in side consulting agreement controlled doc’s claims from day job

By Lisa Milam-Perez, J.D.

A district court should have let an arbitrator decide whether a physician’s numerous claims against a medical center were arbitrable, the Tenth Circuit said, reversing a decision that had placed only one of his seven claims within the province of the arbitrator. Along with his day job as surgical director of the medical center’s intensive care unit, the physician had entered into a side consulting deal with the employer. Although there was no arbitration clause in the staff bylaws that governed his regular position, the consulting agreement had an arbitration provision—one that expressly stated questions of arbitrability would go to an arbitrator, and expressly incorporated JAMS Rules to that effect. That agreement controlled. Addressing a matter of first impression in the circuit, the appeals court held that once a court finds a clear and unmistakable intent by the parties to arbitrate arbitrability, as here, the court must decline to reach the merits of an arbitrability dispute regarding the substantive claims at issue (Belnap v. Iasis Healthcare, January 5, 2017, Holmes, J.).

Two contracts, of sorts. The physician’s employment relationship with the medical center was governed by its written bylaws for medical and dental staff, which set forth rules for investigating physician misconduct (and the due process rights afforded in the course of such investigations) and provided for suspension of physicians for misconduct. There is no arbitration provision attached to the bylaws.

Three years into his employment, the surgeon separately entered into an independent contractor consulting agreement with the medical center as it was looking to develop a new surgical center. His “management services agreement” did contain an arbitration clause (part of a larger dispute resolution procedure), to be conducted “in accordance with the rules of JAMS,” and with an express provision that threshold questions of arbitrability would be resolved by an arbitrator.

Suspension, litigation. When the medical center suspended him based on allegations of sexual harassment, the physician requested a hearing in accordance with the medical staff bylaws, and the medical center’s board of trustees vacated his suspension in full. But the medical center had already reported his suspension to the National Practitioner Data Bank. It subsequently voided the report, but it never notified other organizations privy to the report that it had been retracted, and it did not correct the factual record to his liking.

The physician sued, asserting a number of claims, including conspiracy in restraint of trade, breach of contract (the medical staff bylaws), and defamation. Contending that the management services agreement and its dispute resolution provision governed the dispute, the defendants (the medical center, its parent company, and several individual medical center officials) moved to compel arbitration. The physician’s complaint allegations referenced the agreement, they urged—and at any rate, if there is any doubt as to whether its arbitration provision applies, its express terms provide that arbitrability is for an arbitrator to decide.

All claims go to arbitrator. The district court denied the motion to compel in large part, finding that only one of the claims fell within the scope of the management services agreement’s arbitration clause—his cause of action for combination and conspiracy in restraint of trade, which made numerous references to the new surgical center—and only as to the defendants who were signatories to the management services agreement. As for the notion that pursuant to the agreement’s arbitration provision, an arbitrator was to resolve arbitrability, the court said it first had to decide whether the agreement even applied to the physician’s claims.

The Tenth Circuit reversed in part—at least as to the medical center, the only defendant to have been a signatory to the management services agreement. By incorporating the JAMS Rules into the agreement, the parties demonstrated their “clear and unmistakable intent to delegate questions or arbitrability to an arbitrator,” the appeals court said, rejecting the physician’s parsing of the agreement in a bid to show the parties had not in fact adopted the JAM Rules but merely presented them as one option.

Caselaw support. There was a solid body of caselaw backing up this holding, the Tenth Circuit said, discussing relevant persuasive opinions from other circuits in its lengthy opinion. One other circuit court and two circuit panels (albeit in unpublished decisions) have expressly held that incorporation of the JAMS Rules clearly and unmistakably delegates questions of arbitrability to an arbitrator. Similarly, all of the circuits to have addressed the question as to incorporation of the identical provisions of the AAA Rules have so held as well. And while other circuits have intimated that the Tenth Circuit deviated from the norm on this point, the appeals court’s own reading of its precedent took a different view.

The same went for the threshold analysis of whether a plaintiff’s claims even fall within the scope of the arbitration agreement, the appeals court said, finding such questions to be within the province of an arbitrator if the parties had agreed as such. The Tenth Circuit refused to adopt the “wholly groundless” approach that has found favor in the Fifth, Sixth, and Federal Circuits, finding it to be in tension with the Supreme Court’s arbitration precedent.

“Although a question of first impression in our court, a majority of our sister circuits have concluded that a finding of clear and unmistakable intent to arbitrate arbitrability—which may be inferred from the parties’ incorporation in their agreement of rules that make arbitrability subject to arbitration—obliges a court to decline to reach the merits of an arbitrability dispute regarding the substantive claims at issue.” The First, Second, Fourth, Eighth, Ninth, Eleventh, and D.C. Circuits have all held that an arbitrator must initially decide issues of arbitrability in such instances; these holdings are consistent with the Supreme Court’s stance, and the Tenth Circuit’s own, it reasoned. Consequently, the district court here was required to abstain from conducting its own analysis regarding the arbitrability of the physician’s claims, and to leave it to an arbitrator to decide arbitrability, as to all of his claims.

Nonsignatories. However, the non-medical center defendants could not compel the physician to arbitrate his claims against them, as they had never signed the management services agreement. The other defendants argued that they were entitled to benefit from the protections of the arbitration provision as principals and agents of the medical center, positing agency and parent-subsidiary estoppel theories, among other arguments. Looking to Utah law, the appeals court found neither theory applied.

The Utah Supreme Court has recognized instances in which nonsignatory estoppel applies, but the defendants didn’t pursue that tack. And, although it was unsettled whether the state high court would recognize the defendants’ parent-subsidiary estoppel approach, the appeals court predicted that the state high court would not likely embrace the theory, which has no footing in Utah law. Concluding that the nonsignatory defendants’ agency theory also lacked merit, the Tenth Circuit held their motion to compel arbitration had been properly denied.