La Frontera Ctr., Inc. v. United Behavioral Health, Inc.

• Decision Date: 01 June 2017
• Docket Number: No. CIV 16–0187 JB/WPL,CIV 16–0187 JB/WPL
• Citation: 268 F.Supp.3d 1167
• Parties: LA FRONTERA CENTER, INC., an Arizona nonprofit corporation d/b/a La Frontera New Mexico, Plaintiff, v. UNITED BEHAVIORAL HEALTH, INC., a foreign corporation; United Healthcare Insurance Company, Inc., a foreign corporation; Optumhealth New Mexico foreign corporation d/b/a United Behavioral Health, Inc. and Black and White Corporations, Defendants.
• Court: U.S. District Court — District of New Mexico

268 F.Supp.3d 1167

LA FRONTERA CENTER, INC., an Arizona nonprofit corporation d/b/a La Frontera New Mexico, Plaintiff,

v.UNITED BEHAVIORAL HEALTH, INC., a foreign corporation; United Healthcare Insurance Company, Inc., a foreign corporation; Optumhealth New Mexico foreign corporation d/b/a United Behavioral Health, Inc. and Black and White Corporations, Defendants.

No. CIV 16–0187 JB/WPL

United States District Court, D. New Mexico.

Signed June 1, 2017

Russell A. Kolsrud, Dickinson Wright PLLC, Scottsdale, Arizona, Gregory Moore, Dickinson Wright PLLC, Troy, Michigan, Deborah E. Mann, Stefan R. Chacón, David H. Johnson, Montgomery & Andrews, P.A., Albuquerque, New Mexico, Attorneys for the Plaintiff.

Matthew W. Park, Lewis Roca Rothgerber Christie LLP, Las Vegas, Nevada, John C. West, Lewis Roca Rothgerber Christie LLP, Phoenix, Arizona, Attorneys for the Defendants United Behavioral Health, Inc., United Healthcare Insurance Company, and Optumhealth New Mexico.

JAMES O. BROWNING, UNITED STATES DISTRICT JUDGE

AMENDED MEMORANDUM OPINION AND ORDER ¹

THIS MATTER comes before the Court on the Defendants' Motion to Compel Arbitration, filed March 31, 2016 (Doc. 3)("Motion"). The Court held a hearing on July 26, 2016. The primary issues are: (i) whether Plaintiff La Frontera Center, Inc. entered a binding arbitration agreement with Defendants United Behavioral Health, Inc., United Healthcare Insurance Company, Inc., Optumhealth New Mexico d/b/a United Behavioral Health, Inc., and Black and White Corporations (collectively "United Health"); (ii) whether the arbitration agreement applies to all claims that La Frontera asserts against United Health; and (iii) whether the Court should stay these proceedings pending the resolution of arbitration. The Court concludes: (i) that La Frontera entered an enforceable arbitration agreement with United Behavioral Health; and (ii) that La Frontera's claims against each of the United Health Defendants are subject to mandatory arbitration. Accordingly, the Court grants the Motion and stays proceedings over La Frontera's claims.

FACTUAL BACKGROUND

This case arises from a complaint that La Frontera filed on February 9, 2016, in the Second Judicial District Court, County of Bernalillo, State of New Mexico, alleging various state law tort, contract, and restitutionary claims against United Health. See Complaint for Fraud; Fraudulent Misrepresentation; Negligent Misrepresentation; Breach of Contract; Breach of the Covenant of Good Faith and Fair Dealing; Breach of Contract—Intended Third–Party Beneficiary; and in the Alternative Promissory Estoppel; and Quantum Meruit/Unjust Enrichment, filed March 14, 2016 (Doc. 1)("Complaint"). On March 14, 2016, La Frontera filed in the Second Judicial District Court an amended complaint, adding claims under New Mexico's Insurance Code, N.M. Stat. Ann. §§ 59A–16–20, 59A–16–30, and New Mexico's Unfair Practices Act, N.M. Stat. Ann. §§ 57–12–1 to 57–12–26. See First Amended Complaint for Fraud; Fraudulent Misrepresentation; Negligent Misrepresentation; Breach of Contract; Breach of the Covenant of Good Faith and Fair Dealing; Breach of Contract—Intended Third–Party Beneficiary; Violation of the New Mexico Unfair Practices Act; Violation of the Unfair Claims Practices Section; and in the Alternative, Promissory Estoppel; and Quantum Meruit/Unjust Enrichment, filed March 14, 2016 (Doc. 1–1)("First Amended Complaint"). Also, on March 14, 2016, United Health removed the action to federal court, based on diversity jurisdiction. See Notice of Removal at ¶¶ 5–6, at 2, filed March 14, 2016 (Doc. 1)("Notice of Removal"). The Court draws the facts from La Frontera's First Amended Complaint; the Defendants' Motion; the Plaintiff's Response to Defendants' Motion to Compel Arbitration [Doc. 3], filed May 9, 2016 (Doc. 13)("Response"); and the Defendants' Reply in Support of Motion to Compel Arbitration, filed June 10, 2016 (Doc. 16)("Reply").

1. United Health's Statewide Contract to Provide State and Federally–Funded Behavioral Health and Substance Abuse Services in New Mexico.

The State of New Mexico, Human Services Department ("HSD") and its sixteen-member Inter–Agency Behavioral Health Purchasing Collaborative ("Collaborative")² awarded United Health a contract to act as New Mexico's "Statewide Entity" to establish, operate, and manage behavioral and substance abuse services to children, families, and adults enrolled (henceforward "Enrollees") through the Collaborative's various agency programs. First Amended Complaint ¶¶ 5, at 2–3. To acquire the Statewide Entity contract, United Health represented to the Collaborative that United Health had national experience in implementing successful statewide Medicaid and state-funded programs, as well as expertise in delivering behavioral health managed care. See First Amended Complaint ¶ 23, at 7. United Health executed the Statewide Entity contract on January 22, 2009. See First Amended Complaint ¶ 19, at 6.

Under the Statewide Entity contract, United Health "agreed to implement and manage New Mexico's Medicaid and State funded programs to deliver services and pay providers for supplying behavioral health and substance abuse services to Enrollees" from July 1, 2009, through June 30, 2013. First Amended Complaint at ¶ 13, at 4. The contract also obligated United Health to employ a "dedicated Statewide Contract Compliance Officer," and prohibited United Health "from assigning or delegating this key management function." First Amended Complaint ¶ 24, at 7. Under the contract, United Health promised to

ensure that quality behavioral health services, including services funded by Medicaid and various State funding sources, are provided to Medicaid and non-Medicaid consumers; provider network and out-of-network providers are reimbursed timely and accurately; and that services would be delivered to promote prevention, recovery, resilience, and the efficient use of available resources.

First Amended Complaint ¶ 26, at 7. The Statewide Entity contract recognized "that United would deliver services through subcontracted providers," but United Health undertook responsibility to fulfill all of the contract's performance requirements. First Amended Complaint ¶ 31, at 8. HSD, on the Collaborative's behalf, paid United Health approximately $370 million annually to perform as New Mexico's Statewide Entity. See First Amended Complaint ¶ 13, at 4. HSD paid United Health on the first Friday of every month based on the total number of Enrollees with United Health. See First Amended Complaint ¶ 34, at 9.

United Health had problems with its subcontractors. See First Amended Complaint ¶¶ 35–49, at 10–12. Within six months of executing the Statewide Entity contract, "the Collaborative fined United $1 million for not timely paying its subcontracted providers for the services they rendered to United's Enrollees." First Amended Complaint ¶ 35, at 10. Moreover, in 2012, United Health learned of suspected billing errors, but United Health did not notify its subcontracted providers of these suspected billing errors. See First Amended Complaint ¶ 37, at 10. Nor did United Health notify the Collaborative that it had detected certain billing errors until September or October 2012. See First Amended Complaint ¶ 37, at 10. In December 2012, and January 2013, United Health investigated several of its subcontracted behavioral health and substance abuse providers, and identified, in a pre-audit investigation, "what United called billing errors by its subcontracted providers during United's entire tenure as New Mexico's Statewide Entity." First Amended Complaint ¶ 38, at 10–11.

United Health gave the Collaborative the results of this pre-audit investigation in January 2013, and the Collaborative contracted with the Public Consulting Group, Inc. ("PCG") to conduct a confidential audit of fifteen of United Health's subcontracted providers. See First Amended Complaint ¶¶ 38–39, at 10–11. The PCG audit concluded that United Health overpaid fifteen of its subcontracted providers $37.3 million over a three-and-a-half year period. See First Amended Complaint ¶ 40, at 11. "On June 24, 2013, it was publically announced that New Mexico received ‘credible allegations’ that 15 of United's contracted non-profit providers of behavioral health service had defrauded the program out of $36 million over a three-year period." First Amended Complaint ¶ 40, at 11. United Health's fraud, waste, and abuse detection and prevention system did not detect such fraud and abuse in 2009, 2010, 2011, or most of 2012, see First Amended Complaint ¶ 37, at 10, despite United Health's promise under the contract to "monitor its subcontracted providers and, when necessary, use corrective measures for (i) compliance with clinical requirements; and (ii) compliance with non-clinical claims processing regulations, rules, and policies specified in the Statewide Contract," First Amended Complaint ¶ 29, at 8.

United Health attempted to correct course by replacing its then-existing subcontractors with Arizona-based providers. See First Amended Complaint ¶¶ 42–49, at 12–13. First, United Health sought and received, effective September 4, 2012, a six-month extension of its Statewide Entity contract with the Collaborative, extending the contract's terms through December 31, 2013. See First Amended Complaint ¶ 44, at 12. Next, in October 2012, United Health represented to the Collaborative that it could "solve the institutional fraud problem" by terminating its existing subcontractors and "substituting Arizona providers to assume wholesale management of New Mexico's behavioral health services." First Amended Complaint ¶ 45, at 12. HSD characterized this period as a "Behavioral Health Emergency." First Amended Complaint ¶ 47, at 13.

2. United Health and La Frontera Execute Several Participation Provider Agreements.

In November 2012 and January 2013, United Health's Chief Executive Officer, Andy Sekel, contacted La...