Hancock Med. Ctr. v. Quorum Health Res., LLC

• Decision Date: 25 March 2015
• Docket Number: CIVIL NO.: 1:14cv55-HSO-RHW
• Court: U.S. District Court — Southern District of Mississippi
• Parties: HANCOCK MEDICAL CENTER PLAINTIFF v. QUORUM HEALTH RESOURCES, LLC DEFENDANT

HANCOCK MEDICAL CENTER PLAINTIFF v. QUORUM HEALTH RESOURCES, LLC DEFENDANT

CIVIL NO.: 1:14cv55-HSO-RHW

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI SOUTHERN DIVISION

March 25, 2015

MEMORANDUM OPINION AND ORDER GRANTING [24] MOTION TO STAY AND MOTION TO COMPEL ARBITRATION, DENYING AS MOOT [14] MOTION FOR PARTIAL SUMMARY JUDGMENT, COMPELLING ARBITRATION, AND STAYING CASE PENDING ARBITRATOR'S RESOLUTION OF ARBITRABILITY

BEFORE THE COURT are the Motion for Partial Summary Judgment [14] filed by Plaintiff Hancock Medical Center and the Motion to Stay and to Compel Arbitration [24] filed by Defendant Quorum Health Resources, LLC. Having considered the parties' submissions, relevant legal authorities, and the record, the Court is of the opinion that the Motion to Stay and to Compel Arbitration [24] should be granted, and Plaintiff Hancock Medical Center must submit its claims to arbitration. This matter should be stayed pending the arbitrator's resolution of arbitrability. The Motion for Partial Summary Judgment [14] should be denied as moot.

I. BACKGROUND

According to J. Larry Ladner, the President of the Board of Trustees of Plaintiff Hancock Medical Center ("HMC"), HMC is a community hospital organized under and subject to Mississippi Code Sections 41-13-10 through -53, the statutes regulating community hospitals operating in the State of Mississippi. Decl. of J.Larry Ladner ("Ladner Decl.") ¶¶ 3, 6 [14-1, 1-2 of 67]. In 2001, HMC entered into an agreement with Defendant Quorum Health Resources, LLC ("Quorum"), to provide administrative services to HMC (the "2001 Agreement"). Ladner Decl. ¶ 8 [14-1, 2 of 67]. These administrative services included providing HMC with "special employees," such as HMC's chief executive officer and chief financial officer, "to oversee the execution and performance of the administrative functions" of HMC, preparing and submitting for approval a "management services plan . . . designed to implement the goals and objectives of" HMC, and furnishing "consulting services" to HMC. 2001 Agreement ¶¶ 2.1-2.2, 3.3, 3.6 [14-1, 7-11 of 67]. The 2001 Agreement carried an initial term of five years commencing July 1, 2001, and terminating June 30, 2006, with automatic renewals for successive five year periods unless terminated. 2001 Agreement ¶ 8.1 [14-1, 18 of 67]. The 2001 Agreement did not contain an arbitration provision. See generally 2001 Agreement [14-1, 6-24 of 67].

In January 2012, Quorum and HMC entered into a second Agreement for Hospital Administrative Services (the "2012 Agreement"). Ladner Decl. ¶ 9 [14-1, 2 of 67]. According to HMC, because the 2012 Agreement had an "effective date" of January 1, 2012, the 2012 Agreement did not constitute a continuation of the 2001 Agreement. Opp'n to Mot. to Stay and to Compel Arbitration 16 [31]. The 2012 Agreement set forth provisions requiring Quorum to supply administrative services similar to those Quorum had been responsible for furnishing to HMC under the 2001 Agreement, and also included a provision addressing alternative disputeresolution (the "Arbitration Provision"). 2012 Agreement ¶ 8.1 [14-1, 43 of 67]. The Arbitration Provision stated in pertinent part that

[a]ny controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof, shall be determined by binding arbitration in Hancock County, Mississippi in accordance with the provisions of this Article VIII and the arbitration rules of the American Health Lawyers Association Dispute Resolution Service . . . .

2012 Agreement ¶ 8.1 [14-1, 43 of 67]. The Arbitration Provision also included a clause providing that "[t]he arbitrator shall have the exclusive authority to decide the scope of issues to be arbitrated." 2012 Agreement ¶ 8.4 [14-1, 44 of 67].

HMC terminated the 2012 Agreement on September 4, 2013, due to Quorum's alleged "breaches of material terms and obligations of the 2012 Agreement." Ladner Decl. ¶ 10 [14-1, 2 of 67]. HMC filed the Complaint [1] in this case on February 18, 2014, followed by an Amended Complaint [7] on February 26, 2014. The Amended Complaint advances claims for breach of contract, breach of the covenant of good faith and fair dealing, negligence, breach of fiduciary duty, and corporate waste. Am. Compl. 20-25 [7]. HMC seeks a declaratory judgment declaring that certain provisions of the 2001 Agreement and the 2012 Agreement, including the Arbitration Provision, are void and unenforceable. Id. at 25-27. HMC has filed a Motion for Partial Summary Judgment seeking partial summary judgment as to its request for a declaratory judgment. Mem. in Supp. of Mot. for Partial Summ. J. 7-21 [15]. Quorum opposes HMC's Motion [14] and has moved to stay the case and compel arbitration of the disputes between HMC and Quorum. Mot. to Stay Case and Mot. to Compel Arbitration 1-7 [24].

II. DISCUSSION

A. Legal Standard

The Federal Arbitration Act, 9 U.S.C. §§ 1 to 16 ("FAA"), provides that a written agreement to arbitrate contained in a contract involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."¹ 9 U.S.C. § 2. Section 2 of the FAA "create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage" of the FAA. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). "[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [Section] 2." Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (citation omitted).

Section 4 of the FAA provides for entry of an order compelling arbitration where one party has failed, neglected, or refused to comply with an arbitration agreement. Under section 4,

if a party to an agreement refuses to arbitrate, the opposing party may bring an action to compel arbitration, and after hearing the parties[,] the court "being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue," shall direct the parties to arbitrate. Further, § 4 declares that "[i]f the making of the arbitration agreement or the failure . . . to perform the same be in issue, the court shall proceed summarily to the trial thereof."

Bhatia v. Johnston, 818 F.2d 418, 421 (5th Cir. 1987) (quoting 9 U.S.C. § 4).

The Court must first determine whether, pursuant to section 4, the parties agreed to arbitrate the dispute in question. Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996) (citation omitted). If the Court so finds, it must then determine "whether any federal statute or policy renders the claims non-arbitrable."² Holmes v. Air Liquide USA, L.L.C., 498 F. App'x 405, 406 (5th Cir. 2012) (quoting Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 429 (5th Cir. 2004)).

B. Analysis

"[A]rbitration is a matter of contract . . . ." AT & T Technologies, Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (citation and internal marks omitted). The question of whether the parties agreed to arbitrate involves two considerations: "(1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement." Brown v. Pac. Life Ins. Co., 462 F.3d 384, 396 (5th Cir. 2006) (citation omitted). The "strong federal policy favoring arbitration . . . does not apply to the determination of whether there is a valid agreement to arbitrate between the parties." Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir. 2003) (internal quotations and citation omitted). That determination is controlled by state contract law. Webb, 89 F.3d at 258 ("When deciding whether the parties agreed to arbitrate the dispute in question, courts generally . . . should apply ordinary state-law principles that govern the formation of contracts.").

In seeking to avoid arbitration, HMC contends that it was without authority to bind itself to arbitration because Mississippi governmental entities such as HMC "have only those powers to enter into contractual agreements that are expressly granted to them by the Mississippi legislature, or necessarily implied in their grant of authority." Opp'n to Mot. to Stay and to Compel Arbitration 6 [31]. HMC also argues that "[t]he Mississippi legislature has set forth by statute, specific, limited areas in which governmental entities may agree to binding arbitration[,]" and "[t]hese specific areas are narrowly tailored to construction, repair and engineering agreements to build or repair buildings and roads." Id. at 7. Applying the rule of statutory construction which provides that "where a statute enumerates and specifies the subjects of things upon which it is to operate, it is so construed as excluding from its effect all those not expressly mentioned[,]"³ HMC reasons that "there is no legislative authorization for the arbitration provisions" contained in the 2012 Agreement. Id. HMC supports its argument with citation to opinions of the Mississippi Attorney General and concludes that the Arbitration Provision in the 2012 Agreement is ultra vires and thus unenforceable. Id. at 7-8.

1. There Is a Valid Agreement to Arbitrate Between the Parties

a. HMC Was Authorized to Enter Into the Arbitration Provision

"[A]ny public entity[] has only those powers expressly provided by statute and those which are vested by necessary implication." Smith v. Dorsey, 599 So. 2d 529, 535 (Miss. 1992). "Necessary implication" refers "to a logical necessity andmeans that no other interpretation is permitted by the words of the instrument construed, and it has been defined as an implication which yields so strong a probability of intent that any intention to the contrary cannot be supposed leaving no room for doubt." Clancy's Lawn Care & Landscaping, Inc. v. Mississippi State Bd. of...