MedValUSA Health Programs v. MEMBERWORKS

• Decision Date: 17 May 2005
• Docket Number: No. 17116, No. 17117.
• Citation: 273 Conn. 634,872 A.2d 423
• Court: Connecticut Supreme Court
• Parties: MedValUSA HEALTH PROGRAMS, INC. v. MEMBERWORKS, INC.

872 A.2d 423

273 Conn. 634

MedValUSA HEALTH PROGRAMS, INC. v. MEMBERWORKS, INC.

Nos. 17116, 17117.

Supreme Court of Connecticut.

Argued October 27, 2004.

Decided May 17, 2005.

Barbara S. Miller, Southport and Robert A. Harris, Bridgeport, for the appellant in Docket No. SC 17116, appellee in Docket No. SC 17117 (plaintiff).

Aaron S. Bayer, Hartford and Jonathan M. Freiman, with whom were Jeffrey R. Babbin, New Haven, Kevin M. Smith and, on the brief, Robert M. Langer, Kevin M. Kennedy and Steven B. Malech, for the appellee in Docket No. SC 17116, appellant in Docket No. SC 17117 (defendant).

SULLIVAN, C.J., and BORDEN, NORCOTT, KATZ, PALMER, VERTEFEUILLE and ZARELLA, Js.

Opinion

BORDEN, J.

This case involves two separate appeals.¹ In the first appeal, the defendant, MemberWorks, Inc., appeals from the judgment of the Superior Court confirming an arbitration award in favor of the plaintiff, MedValUSA Health Programs, Inc., awarding the plaintiff no compensatory damages and $5 million in punitive damages. The defendant claims on appeal that the trial court's confirmation of the arbitration award violated its right to due process under the fourteenth amendment of the United States constitution and violated the state's public policy against excessive punitive damage awards. In the second appeal, the plaintiff appeals from the judgment of the Superior Court denying the plaintiff prejudgment and postjudgment interest on the arbitration award. On appeal, the plaintiff claims that the trial court's decision was an abuse of discretion. We disagree with the claims advanced by both the defendant and the plaintiff in their respective appeals and, accordingly, we affirm the judgment of the Superior Court.

The record reveals the following facts and procedural background. The plaintiff is a Connecticut corporation formed by Andrew Bronfman and Andrew Fineberg to sell discount health care subscriptions for physician, dental, vision, prescription, hearing and other medically-related services to targeted segments of the general public. The defendant is a Connecticut corporation that provides membership service programs that give consumers access to discounts on a variety of products and services in many areas, including the health care industry. The parties entered into a contract whereby the plaintiff agreed to become a wholesale, nationwide vendor of one of the defendant's dental and health plans. After they entered into the contract, relations between the parties deteriorated, prompting them to amend their agreement on April 15, 1999. The amended contract delayed the "start date"² of the agreement and reduced the number of service units that the plaintiff was obligated to purchase within eighteen months of the start date. The amendment also changed the defendant's obligations relating to the number and density of physicians participating in the program by supplementing the original provider network (network 1) made available to the plaintiff with a second provider network (network 2), to which the plaintiff would have access when network 1 provided insufficient coverage within a state. The parties' relationship did not improve and, eventually, the plaintiff notified the defendant that it was shutting down its business operations and "evaluating [its] options with counsel." Subsequently, the plaintiff filed a demand for arbitration with the American Arbitration Association for breach of contract, breach of the implied covenant of good faith and fair dealing, and a violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. The demand alleged that the defendant had breached the original and amended agreements by: (1) failing to communicate to the plaintiff vital information regarding the provider networks; (2) failing to ensure that the provider networks were sufficient to service the needs of the plaintiff's customers; (3) making misrepresentations about the number and distribution of physicians in network 1 and about the admitting privileges of network 2 physicians to network 1 hospitals;³ (4) withdrawing the dental network; (5) failing to deliver fulfillment materials;⁴ (6) refusing the plaintiff's requests for meetings; and (7) refusing to communicate with the plaintiff other than in writing. The plaintiff further alleged that the defendant employed these tactics for the purpose of gaining a competitive edge over the plaintiff, and that the defendant began, at a time not specified in the demand, offering to the general public membership programs modeled after that designed by the plaintiff.

The arbitration panel ruled in favor of the plaintiff on all counts, but awarded no compensatory damages, finding that the plaintiff had failed to establish damages with reasonable certainty. The panel found, however, that, because the defendant had engaged in a number of unfair and deceptive acts in violation of CUTPA, General Statutes § 42-110g (a), the provision within CUTPA providing for the award of punitive damages, justified a punitive damages award of $5 million.⁵ The defendant's unfair and deceptive acts, as found by the panel, may be summarized as follows: (1) the failure to disclose to the plaintiff the nature of its communications with network 1, some of which called into question the availability of that network for the plaintiff's enterprise; (2) the failure to disclose to the plaintiff the availability of other networks; (3) a history of misrepresenting its obligations to the plaintiff under the contract; (4) the refusal to meet with the plaintiff in a timely manner and the unavailability of one of its employees for conference calls; (5) the failure to inform the plaintiff about the elimination of free dental services from the program and its inadequate responses to the plaintiff's requests for information, including inquiries concerning the dental services; (6) the failure to provide the plaintiff with new fulfillment materials necessitated by that elimination; (7) the failure to approve in a timely manner hospital lists for advertising; (8) an insistence that all communications with the plaintiff be in writing; and (9) the preparation and distribution of an inaccurate summary of a meeting with the plaintiff. In addition to punitive damages, the panel awarded the plaintiff $387,794 in attorney's fees and $70,950 in arbitration costs.

The plaintiff timely applied to the trial court to confirm the arbitration award.⁶ Soon thereafter, the defendant moved to vacate the award on three grounds: (1) the award violated Connecticut public policy, embodied in the due process clause of the fourteenth amendment of the constitution of the United States, against excessive punitive damage awards; (2) the award violated the public policy against awarding punitive damages in CUTPA actions in the absence of reckless, intentional or wanton misconduct; and (3) the excessive award evidenced a manifest disregard or patently irrational application of the law in violation of General Statutes § 52-418(a)(4). The court denied the defendant's motion to vacate and granted the plaintiff's application to confirm the arbitration award. Subsequently, in a separate ruling, the court denied the plaintiff's motion for prejudgment and postjudgment interest. These appeals followed. Further facts and procedural history will be set forth where necessary.

I

The defendant claims that the trial court improperly confirmed the arbitrator's award because the award of punitive damages was excessive: (1) in violation of the defendant's right to due process under the fourteenth amendment of the United States constitution; and (2) in violation of well-defined Connecticut public policy.⁷ We disagree. We conclude that, because an arbitration award does not constitute state action and is not converted into state action by the trial court's confirmation of that award, an arbitration panel's award of punitive damages does not implicate the due process clause, regardless of how excessive the award may be. Furthermore, we conclude that, because Connecticut does not have a well-defined public policy against the award of excessive punitive damages, the award does not violate public policy.

A

We first address the defendant's claim that the arbitrator's award of punitive damages violated its right to due process because the award was excessive. See generally BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). The constitutional protections of individual rights and liberties extend only to government actions. Edmonson v. Leesville Concrete Co., 500 U.S. 614, 619, 111 S.Ct. 2077, 114 L.Ed.2d 660 (1991); see also L. Tribe, American Constitutional Law (2d Ed.1988) § 18.1, p. 1688. Since the civil rights cases; see United States v. Stanley, 109 U.S. 3, 4, 3 S.Ct. 18, 27 L.Ed. 835 (1883); the United States Supreme Court has maintained that, against private conduct, "however discriminatory or wrongful ... the [f]ourteenth [a]mendment offers no shield." (Internal quotation marks omitted.) Jackson v. Metropolitan Edison Co., 419 U.S. 345, 349, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974). Therefore, in determining whether a claimant's due process rights have been violated, the threshold inquiry is whether the challenged conduct constitutes state action. This inquiry becomes quite complicated when, as in the present case, the actor is a private entity. See Cremin v. Merrill Lynch Pierce Fenner & Smith, Inc., 957 F.Supp. 1460, 1468 (N.D.Ill.1997) (citing cases). In such a case, the question becomes whether the conduct in question is "fairly attributable" to the state. Lugar v. Edmondson Oil Co., 457 U.S. 922, 937, 102 S.Ct. 2744, 73 L.Ed.2d 482 (1982).

The United States Supreme Court currently employs a two part test to determine whether the conduct of a private actor is fairly attributable to the state. "First, the deprivation must be caused by the exercise of some right or privilege created by the...