Cigna Healthcare of St. Louis, Inc. v. Kaiser

• Decision Date: 21 June 2002
• Docket Number: No. 02-1278.,02-1278.
• Citation: 294 F.3d 849
• Parties: CIGNA HEALTHCARE OF ST. LOUIS, INC., et al., Plaintiffs-Appellants, v. Timothy N. KAISER, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

294 F.3d 849

CIGNA HEALTHCARE OF ST. LOUIS, INC., et al., Plaintiffs-Appellants, v. Timothy N. KAISER, et al., Defendants-Appellees.

No. 02-1278.

United States Court of Appeals, Seventh Circuit.

ARGUED May 17, 2002.

DECIDED June 21, 2002.

As amended July 31, 2002.

Brian D. Boyle (argued), O'Melveny & Myers, Washington, DC, Joseph J. Duffy, Stetler & Duffy, Chicago, IL, for Plaintiff-Appellants.

Judy L. Cates, Carr, Korein, Tillery, Kunin, Montroy, Cates, Katz & Glass, Debra Brewer Hayes (argued), Reich & Binstock, Houston, TX, for Defendant-Appellee.

Anthony J. Ashley, Vedder, Price, Kaufman & Kammholz, Chicago, IL, for Northwestern Medical Faculty Foundation, Inc.

Vincent J. Connelly, Mayer, Brown, Rowe & Maw, Chicago, IL, for Evanston Northwestern Healthcare Corp.

Edwin E. Brooks, Katten, Muchin & Zavis, Chicago, IL, for Edward Hospital.

Before BAUER, POSNER, and KANNE, Circuit Judges.

POSNER, Circuit Judge.

This appeal from the dismissal of a suit seeking an order to arbitrate requires us to consider the intersection of class actions, arbitration, and Colorado River (parallel-proceeding) abstention. Underlying the appeal is a dispute between a group of affiliated corporations (CIGNA for short) and 288,000 (!) physicians, hospitals, and other providers of health care with which CIGNA, an administrator of employee health-benefits plans, has contracts for the provision of health care to the participants in the plans. Under these "managed care" contracts, as they are known, CIGNA reimburses its contract partners for the health-care services that they provide in fulfillment of its obligations to participants in the plans that it administers. The providers claim that after making these contracts CIGNA installed a computer program for calculating the amount it owed them that has resulted in systematic under-payment, in breach of their contracts.

In May 2000 the providers filed a class action in an Illinois state court against CIGNA which CIGNA wanted to but could not remove to federal court because one of the named plaintiffs was a citizen of Texas, as is one of the CIGNA affiliates named as defendants. However, many of the managed-care contracts contain an arbitration clause, and in July 2001, just days after the end of the period for providers to opt out if they wanted from the state court suit, CIGNA filed suit in federal district court against the named plaintiffs in the state court suit minus the Texas physician and the rest of the class. It based federal jurisdiction on diversity of citizenship and sought an order under section 4 of the Federal Arbitration Act (Title 9 of the U.S.Code) to compel arbitration of all disputes arising under managed-care contracts with members of the class that contain an arbitration clause. These are not all the disputes between CIGNA and the class. A number of the managed-care contracts (we don't know how many) do not contain an arbitration clause. But some or all of the providers that had such contracts may have received from CIGNA a document called "Program Requirements" that, CIGNA argues, grafted an arbitration clause onto the contract. Because the arbitrability of the disputes under these contracts would have to be determined on a contract-by-contract basis, CIGNA argues that the arbitrability of those disputes cannot be decided in a class action and so must be resolved by the state court. CIGNA's position is inconsistent, since the suit in the state court, the suit in which it concedes that the issue of the arbitrability of these other disputes must be resolved, is itself a class action. However that may be, a few days after filing its federal class action suit CIGNA moved the state court to order arbitration of the arbitrable disputes not encompassed by the federal suit.

In January 2002 the district judge dismissed the suit on the basis of the abstention doctrine created by Colorado River Water Conservation District v. United States, 424 U.S. 800, 818-20, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), precipitating this appeal. By this time, because the state court judge had refused to stay the proceedings before him pending the resolution of CIGNA's federal suit, CIGNA had produced hundreds of thousands of managed-care contracts in response to the providers' discovery requests and these contracts were being held in a document depository in Belleville, Illinois, the site of the state court. CIGNA was particularly disturbed by the state judge's refusal to stay discovery of the merits of the contract disputes; it argues that discovery with respect to any dispute that is arbitrable is the business of the arbitrators. But at least the state judge did say that he had not by denying the stay intended to prejudge the issue of arbitrability.

The providers' position on that issue is unclear, but clearly they are not yet prepared to concede that all their contractual disputes, or even all that arise out of managed-care contracts that contain an arbitration clause, are arbitrable. The issue of arbitrability is at present before the state judge with briefs due this month.

A federal court is authorized to stay proceedings in a lawsuit before it because parallel proceedings are pending in another court, either federal or state. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 19, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Will v. Calvert Fire Ins. Co., 437 U.S. 655, 662-63, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978) (plurality opinion); Finova Capital Corp. v. Ryan Helicopters U.S.A., Inc., 180 F.3d 896, 898 (7th Cir.1999); Burns v. Watler, 931 F.2d 140, 145 (1st Cir.1991). It should not dismiss the proceedings before it, however. See Selmon v. Portsmouth Drive Condominium Ass'n, 89 F.3d 406, 409-10 (7th Cir.1996), and cases cited there. That would be illogical; the fact that a parallel case, especially one brought by the opposing party, is pending says nothing about the merits or propriety of the suit in the abstaining court. Logic aside, a stay "permits the federal court to retain jurisdiction in case the state court action does not meet its anticipated end. A stay has the additional advantage of bringing the case back before the same federal judge if a determination is needed as to the preclusive effects of the state judgment or decisions." Lumen Construction, Inc. v. Brant Construction Co., 780 F.2d 691, 698 (7th Cir.1985). In light of these considerations, the providers' counsel was right to concede at the argument of the appeal that the district judge's order should be reformed from a dismissal to a stay. Id.; LaDuke v. Burlington Northern R.R., 879 F.2d 1556, 1562 (7th Cir.1989); Attwood v. Mendocino Coast District Hospital, 886 F.2d 241, 245-46 (9th Cir.1989); see also Tice v. American Airlines, Inc., 288 F.3d 313, 318 (7th Cir.2002). We note parenthetically that had the district judge stayed the suit rather than dismissing it, we would still have had appellate jurisdiction because "a stay of the federal suit pending resolution of the state suit [would mean] that there would be no further litigation in the federal forum; the state court's judgment on the issue would be res judicata." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., supra, 460 U.S. at 10; see also In re Kozeny, 236 F.3d 615, 618 (10th Cir.2000) (per curiam); Schall v. Joyce, 885 F.2d 101, 104-05 (3d Cir.1989); General Reinsurance Corp. v. Ciba-Geigy Corp., 853 F.2d 78, 80-81 (2d Cir.1988).

Abstention in favor of a parallel proceeding in another court is disfavored, because it deprives the plaintiff of his choice of forum in the likely event that, as just noted, the effect of abstention is to make the decision in the parallel proceeding res judicata in the proceeding that has been stayed. See also Evans Transportation Co. v. Scullin Steel Co., 693 F.2d 715, 718 (7th Cir.1982). But there is no hard and fast rule as to when parallel-proceeding abstention is proper or improper, Moses H. Cone Memorial Hospital v. Mercury Construction Corp., supra, 460 U.S. at 15, 103 S.Ct. 927, and the close relation between the decision to abstain and normal docket control (a district judge is routinely required to decide how fast to move particular cases along) makes it appropriate to give at least some weight to the judge's decision to abstain. Id. at 19, 103 S.Ct. 927; Will v. Calvert Fire Ins. Co., supra, 437 U.S. at 665, 98 S.Ct. 2552; Sverdrup Corp. v. Edwardsville Community Unit School District No. 7, 125 F.3d 546, 550 (7th Cir.1997); Burnett v. Physician's Online, Inc., 99 F.3d 72, 76 (2d Cir.1996).

CIGNA points out that no federal appellate court has ever upheld a decision to abstain in a suit seeking an order to compel arbitration. The reason may just be, however, that such decisions are rare. In re Mercury Construction Corp., 656 F.2d 933, 941 (4th Cir.1981) (en banc), aff'd. under the name Moses H. Cone Memorial Hospital v. Mercury Construction Corp., supra; Ferrari North America, Inc. v. Crown Auto Dealerships, No. 90-8541(KMW), 1995 WL 614558, *4 (S.D.N.Y. Oct. 19, 1995). Apart from a handful that have been reversed, we have found only five: Green Tree Financial Corp. v. Holt, 171 F.R.D. 313, 319 (N.D.Ala. 1997); Pepsico Inc. v. Oficina Central De Asesoria Y Ayuda Tecnica, C.A., 945 F.Supp. 69, 70, 71 (S.D.N.Y. 1996); Lexington Ins. Co. v. Reliance Ins. Co., Civ. A. No. 94-3642, 1995 WL 363744, at *1 (E.D.La. June 16, 1995); Gerling-Konzern Globale Rueckversicherungs-Ag v. Selcke, No. 93 C 4429, 1993 WL 443404, at *3 (N.D.Ill. Oct.29, 1993); E.C. Ernst, Inc. v. Potlatch Corp., 462 F.Supp. 694, 700-01 (S.D.N.Y.1978). It is not as if any appellate court had held that abstention is never appropriate in a suit to compel arbitration. None has. CIGNA cites We Care Hair Development, Inc. v. Engen, 180 F.3d 838 (7th Cir.1999), a case much like this, it is true — except that there was no issue of abstention. The only issue was whether the federal court had jurisdiction to compel...