Ekstrom v. Value Health, Inc.

Decision Date31 October 1995
Docket NumberNo. 94-7171,94-7171
PartiesRichard D. EKSTROM, et al., Appellants, v. VALUE HEALTH, INC., Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (No. 94cv00603).

Natalie C. Moritz, Pittsburgh, PA, pro hac vice, argued the cause, for appellants. Vincent J. Curtis, Jr., Rosslyn, VA, was on the briefs, for appellants. Debra B. Todd, Pittsburgh, PA, pro hac vice, entered an appearance, for appellants.

Daniel L. FitzMaurice, Hartford, CT, argued the cause, for appellee, with whom Michael C. Poliner, Washington, DC, was on the brief. George Miron, Washington, DC, entered an appearance, for appellee.

Before: EDWARDS, Chief Judge, and WALD and RANDOLPH, Circuit Judges.

HARRY T. EDWARDS, Chief Judge:

The instant dispute arose from a disagreement over the terms of a merger agreement between two health care management companies. In their merger agreement, the parties provided that any dispute over the terms of the agreement would be resolved pursuant to binding arbitration. Such a dispute did in fact arise and was submitted to arbitration, the result of which proved unsatisfactory to appellants. Subsequently, appellants petitioned the United States District Court for the District of Columbia to vacate the arbitration award. The District Court dismissed the petition for lack of subject matter jurisdiction on the ground that appellants had failed to seek review within 30 days of the arbitration award as required by Connecticut law. Appellants argue that, although Connecticut law governs the substantive terms of the merger agreement, the three-month limitation period prescribed by the Federal Arbitration Act, 9 U.S.C. Sec. 12 (1994) ("FAA"), controls the timeliness of petitions to vacate arbitration awards. Under this view of the law, appellants claim that their petition to vacate was timely.

We affirm the judgment of the District Court, finding no merit in appellants' arguments. In their amended merger agreement, the parties provided that the agreement would be governed by and construed in accordance with the laws of Connecticut. Under Connecticut law, which we find controlling, it is clear that a petition to vacate an arbitration award must be filed within thirty days. This is a jurisdictional limitation, not subject to waiver, and it is therefore viewed as substantive, not procedural. Because the FAA does not prevent the enforcement of agreements to arbitrate under different rules than those stated in the Act itself, the FAA's 90-day limitation period does not preempt the shorter period prescribed by Connecticut law. The District Court therefore properly dismissed appellant's suit.

I. BACKGROUND

The essential facts are undisputed. Appellants are Pennsylvania residents and former shareholders of a Pennsylvania company that was acquired by appellee Value Health, Inc. ("Value Health"), a Delaware corporation whose principal place of business is in Connecticut. Value Health acquired appellants' stock pursuant to an Agreement and Plan of Merger Dated November 4, 1991 ("Merger Agreement"). The "Governing Law" section of the Merger Agreement provided:

This Agreement shall be governed by and construed in accordance with the internal laws of the State of Connecticut, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except that the provisions of Sections 8.12, 8.13, 8.14, 8.15 and 8.16 shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.

Merger Agreement Sec. 8.04, Ex. A to Aff. of Jonathan B. Tropp ("Tropp Aff."), appended to appellee's Motion to Dismiss. The Merger Agreement required Value Health to pay appellants with shares of its stock based on two estimates of "Minimum Merger Consideration." In April 1993, having failed to reach agreement with Value Health on a second estimate, appellants demanded arbitration pursuant to the First Amendment to the Merger Agreement, which provided:

In the event that [the parties] have not agreed on the Minimum Merger Consideration ... [either party may] refer the issue ... to be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Such arbitration proceedings shall be held before a panel of three arbitrators in Washington, D.C. In making their decision the arbitrators shall apply the provisions of the Merger Agreement as amended and supplemented by this Agreement....

First Amendment to Agreement and Plan of Merger ("Amendment") p 7, Tropp Aff. Ex. B, appended to appellee's Motion to Dismiss. The Amendment did not contain a choice-of-law clause, but provided that, except as amended, the terms of the Merger Agreement were to remain in effect. Id. p 13.

In early 1994, a panel of arbitrators designated by the Washington, D.C. office of the American Arbitration Association ("AAA") rendered an award in favor of Value Health. Subsequently, after expiration of the 30-day limitation period under Connecticut law, CONN.GEN.STAT.ANN. Sec. 52-420(b) (West 1991), but within the FAA's three-month limitation period, 9 U.S.C. Sec. 12 (1994), appellants petitioned the District Court to vacate the arbitration award.

Value Health moved to dismiss for lack of subject matter jurisdiction. The District Court granted the motion, holding that, under the Merger Agreement, Connecticut's 30-day time limit governed, and that the FAA's three-month limitation did not preempt it. Ekstrom v. Value Health, Inc Civ. Action No. 94-0603, (D.D.C. July 26, 1994) ("First Order"), reprinted in Joint Appendix ("J.A.") 110. Appellants first moved for reconsideration, and then filed a notice of appeal. On December 21, 1994, the District Court denied appellants' motion to reconsider, Ekstrom v. Value Health, Inc., Civ. Action No. 94-0603, (D.D.C. Dec. 21, 1994) ("Second Order"), reprinted in J.A. 165, and the notice of appeal became effective. 1 FED.R.APP.P. 4(a)(4).

II. ANALYSIS

Our review in this case is de novo because the only judgments in issue involve questions of law. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1220, 113 L.Ed.2d 190 (1991). As an initial matter, we must determine whether to enforce the parties' contractual choice of law. Then, we must decide whether, under the Merger Agreement, the parties intended to be bound by Connecticut law with respect to the timeliness of petitions to vacate arbitration awards. Related to this latter issue is appellant's claim that the FAA's limitations period takes precedence over Connecticut law.

A. Choice of Law

In diversity cases such as this, we look "to the District of Columbia for the applicable choice of law principles." Gray v. American Express Co., 743 F.2d 10, 16 (D.C.Cir.1984). The District of Columbia Court of Appeals has adopted the general rule "that parties to a contract may specify the law they wish to govern, as part of their freedom to contract, as long as there is some reasonable relationship with the state specified." Norris v. Norris, 419 A.2d 982, 984 (D.C.1980).

Here, the parties agree that Connecticut's substantive law on contracts and arbitrability should govern the amended Merger Agreement, except in those few instances where the agreement makes it clear that Pennsylvania law controls. 2 The parties are in no way connected to the District of Columbia, except for their contractual arrangement to use the Washington, D.C. office of the American Arbitration Association to administer actions in arbitration. Moreover, neither party argues that the Merger Agreement should be governed or construed pursuant to the laws of the District of Columbia or Delaware. The parties have an undisputed connection to Connecticut, because Value Health, the surviving entity in the merger, operates principally in Connecticut. That the parties specifically carved out five subsections to which to apply Pennsylvania law only serves to underscore their stated intent to apply Connecticut law to the rest of the Merger Agreement. On the basis of this record, and in light of the controlling choice of law principles under District of Columbia law, we are constrained to enforce the parties' choice of Connecticut law to govern the disputed terms of the Merger Agreement at issue in this case.

B. The Meaning of the Disputed Terms of the Contract

Although appellants generally do not doubt the applicability of Connecticut law, they argue that they did not agree to apply Connecticut law to determine the timeliness of petitions to vacate arbitration awards. Appellants claim that, in selecting the AAA to administer arbitration proceedings, the parties evinced an intention to select a "neutral forum." However, it does not follow from this that the parties also intended to avoid Connecticut law. AAA rules provide for many details of procedure not covered in Connecticut's arbitration law. See generally AMERICAN ARBITRATION ASS'N, COMMERCIAL ARBITRATION RULES (1993); CONN.GEN.STAT.ANN. Secs. 52-408--52-424 (West 1991). Moreover, the AAA rules do not purport to establish the time period within which a party may petition a court for judicial review of an arbitration award. In short, the parties' selection of the AAA to administer arbitration proceedings arising under the Merger Agreement in no way alters the provisions setting forth their understanding on the choice of law to govern and construe the agreement.

In a vain attempt to bolster their argument, appellants also note that neither the choice of law provisions nor the arbitration clause contains an express agreement to apply the 30-day Connecticut time limit. On this point, appellants contend that the "[c]hoice of law provisions in contracts are generally understood to incorporate only substantive law, not procedural law such as statutes of limitation.... ...

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