Milliman, Inc. v. Health Medicare Ultra, Inc.

• Decision Date: 15 June 2009
• Docket Number: Civil No. 08-2162 (JAG).
• Citation: 641 F.Supp.2d 113
• Parties: MILLIMAN, INC., et al., Plaintiff(s) v. HEALTH MEDICARE ULTRA, INC., et al., Defendant(s).
• Court: U.S. District Court — District of Puerto Rico

641 F.Supp.2d 113

MILLIMAN, INC., et al., Plaintiff(s) v. HEALTH MEDICARE ULTRA, INC., et al., Defendant(s).

Civil No. 08-2162 (JAG).

United States District Court, D. Puerto Rico.

June 15, 2009.

Juan A. Marques-Diaz, McConnell Valdes, San Juan, PR, PHV Joseph W. Voiland, PHV R. Timothy Muth, Reinhart Boerner Van Deuren s.c., Milwaukee, WI, for Plaintiff.

Alberto O. Jimenez-Santiago, Magaly Rodriguez-Quinones, San Juan, PR, for Defendants.

OPINION AND ORDER

GARCIA-GREGORY, District Judge.

Petitioners Milliman, Inc. ("Milliman") and Tracy Aumiller (collectively "Petitioners") bring the present action against Health Care Ultra, Inc. ("HMU"), Juan Caparrós, and Marisol González (collectively "Respondents") requesting that this court issue a declaratory judgment compelling Respondents to enter arbitration under section 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4. For the reasons set forth below, the Court grants Petitioners' request to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

In January of 2007, HMU contracted with Milliman to perform consulting work in anticipation of bidding for a certain Medicare contract. In February of 2007, Milliman sent HMU a letter of agreement. (Docket No. 11, at 2, ¶ 8). Respondents argue that the timing of the agreement, some two weeks prior to the bidding deadline, contained unconscionable terms, which they were forced into signing because Milliman's services could not be replaced within this small time frame. (Docket No. 11, at 2-3, ¶¶ 8-9). HMU signed the letter agreement under which Milliman would perform certain actuarial services. (Docket No. 1, at 3, ¶ 8; Docket No. 29, at 2, ¶ 5). The agreement contained an arbitration clause whereby in the event of any dispute arising out of the contract, the parties would submit themselves to arbitration under the American Arbitration Association ("AAA"). (Docket No. 29, at 2-3, ¶ 6).

The initial plans called for Milliman' final actuary certification to be provided to HMU by May 23, 2007 (Docket No. 1-3, Ex. B, at 7, ¶ 3). This, however, was not done until June 20, 2007, over two weeks after the proposal deadline. (Id. at 10, ¶¶ 16-17). HMU was not granted a filing extension and lost the Medicare contract bid. (Id. at 11, ¶ 18).

In January of 2008, counsel for Petitioners received an e-mail from HMU's counsel. (Docket No. 1, at 3, ¶ 10). This e-mail contained a draft copy of a complaint. (Id. ¶ 10). The draft complaint listed damages totaling five million dollars. (Docket No. 1-3, Ex. B, at 12). After examining the draft complaint, Petitioners considered that there was a dispute arising out of the contract and on January 23, 2008, they initiated an arbitration proceeding with the AAA. (Docket No. 1, at 4, ¶ 11). On September 19, 2008, nearly nine (9) months after the arbitration proceeding commenced, Respondents filed a complaint in state court requesting a preliminary and permanent injunction to stay the arbitration before the AAA. Respondents also requested $5 million in damages as a result of Petitioners' alleged negligent or intentional failure to timely comply with the obligations agreed to in the contract. (Docket No. 1, at 4, ¶ 14; Exh. E).

On October 9, 2008, Petitioners moved this Court for a declaratory judgment compelling Respondents to continue the arbitration proceedings commenced with the AAA. (Docket No. 1). Petitioners filed their brief in support of their motion to compel arbitration on December 11, 2008. (Docket No. 30). Respondents filed their brief in opposition to the motion to compel arbitration on January 21, 2009. (Docket No. 37). On March 9, 2009, Petitioners' request was referred to a Magistrate Judge for a Report and Recommendation. Additionally, this Court requested the Magistrate Judge to address whether this case should be stayed or dismissed in order to avoid piecemeal litigation since there was a complaint pending before the state court.¹ (Docket Nos. 46 and 47).

On May 8, 2009, the Magistrate Judge issued his Report and Recommendation. The Magistrate recommended against granting Petitioners' request for a declaratory judgment. Specifically, the Magistrate Judge found that Petitioners failed to show that the dispute before the AAA was due to any injury, actual or threatened. According to the Magistrate Judge, Petitioners moved to arbitration because of the draft complaint sent to them by HMU's counsel. The Magistrate Judge concluded that Petitioners could not compel arbitration on as of yet unfiled claims by Respondents as they did not present an actual case or controversy. Accordingly, the Magistrate Judge recommended that this Court deny Petitioners' request to compel arbitration because the dispute before the AAA was not ripe.

The Magistrate Judge, nonetheless, concluded that if this Court found that ripeness was not an issue in the case at bar, all the elements necessary to grant a motion to compel arbitration were present because there exists a written agreement to arbitrate; the dispute between Petitioners and Respondents falls within the scope of that arbitration agreement; and Petitioners have not waived their right to arbitration. The Magistrate Judge also noted that Respondents demanded that a jury hear this case on the question of unconscionability. Nonetheless, the Magistrate Judge determined that since Respondents bound themselves to the terms of the arbitration provision, they had waived their right to a jury trial on the unconscionability issue. Finally, the Magistrate Judge found that the present case should not be stayed or dismissed in order to avoid piecemeal litigation. (Docket No. 52).

On May 26, 2009, Petitioners objected to the Magistrate Judge's Report and Recommendation. Petitioners' objected to the Magistrate Judge's conclusion that their request to compel arbitration should be denied for lack of ripeness. (Docket No. 53). Respondents also objected to the Report and Recommendation. They agreed with the Magistrate Judge's recommendation that the present case should be dismissed because of ripeness. Specifically, Respondents stressed that the claim before the AAA is not ripe because they have not yet decided whether to pursue a claim against Petitioners. Respondents aver that they sent Petitioners a draft of a complaint as "a good faith effort to engage in a non-judicial attempt to obtain compensatory remedy through negotiations, and not in a pre litigation process." Furthermore, Respondents argued that since the present case is not ripe, it is inappropriate for this Court to adopt the Magistrate Judge's finding that there is a valid arbitration agreement between the parties. (Docket Nos. 54 and 55). On June 12, 2009, Petitioners opposed Respondents' objections. (Docket No. 56).

STANDARD OF REVIEW

1) Standard for Reviewing a Magistrate-Judge's Report and Recommendation

Pursuant to 28 U.S.C. § 636(b)(1)(B); Fed. R.Civ.P. 72(b); and Local Rule 503; a District Court may refer dispositive motions to a United States Magistrate Judge for a Report and Recommendation. See Alamo Rodriguez v. Pfizer Pharmaceuticals, Inc., 286 F.Supp.2d 144, 146 (D.P.R. 2003). The adversely affected party may "contest the Magistrate Judge's report and recommendation by filing objections `with-in ten days of being served' with a copy of the order." United States of America v. Mercado Pagan, 286 F.Supp.2d 231, 233 (D.P.R.2003) (citing 28 U.S.C. § 636(b)(1)). If objections are timely filed, the District Judge shall "make a de novo determination of those portions of the report or specified findings or recommendation to which [an] objection is made." Rivera de Leon v. Maxon Eng'g Servs., 283 F.Supp.2d 550, 555 (D.P.R.2003). The Court can "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate," however, if the affected parties fail to timely file objections, "the district court can assume that they have agreed to the magistrate's recommendation." Alamo Rodriguez, 286 F.Supp.2d at 146 (citing Templeman v. Chris Craft Corp., 770 F.2d 245, 247 (1st Cir.1985)).

DISCUSSION

This Court notes that Respondents did not specifically object to the Magistrate Judge's finding that all the elements necessary to compel arbitration are present because there exists a written agreement to arbitrate; the dispute between Petitioners and Respondents falls within the scope of that arbitration agreement; and Petitioners have not waived their right to arbitration. Respondents only argued that this Court should not adopt this finding because the case is not ripe. Thus Respondents have waived their right to review the Magistrate Judge's determination that in the present case all the elements necessary to compel arbitration are present. Santiago v. Canon U.S.A., 138 F.3d 1, 4 (1st Cir.1998) (finding that a party's failure to assert a specific objection to a report and recommendation irretrievably waives any right to review by the district court).² Accordingly, if this Court finds that ripeness is not a bar to Petitioners' request for declaratory judgment, this Court will issue an order compelling arbitration as we agree with the Magistrate Judge's conclusion that the elements necessary to compel arbitration are present in the case at bar. See, e.g., Combined Energies v. CCI, Inc., 514 F.3d 168, 171 (1st Cir.2008) (noting that "[w]hen deciding a motion to compel arbitration, a court must determine whether `(i) there exists a written agreement to arbitrate, (ii) the dispute falls within the scope of that arbitration agreement, and (iii) the party seeking an arbitral forum has not waived its right to arbitration'"). Hence this Court must address whether Petitioners' request for declaratory judgment is ripe.³

This Court's jurisdiction extends only to "cases" and "controversies," as authorized by Article III, Section 2, of the United States Constitution. D.H.L. Assocs. v. O'Gorman, 199 F.3d 50, 53 (1st Cir.1999). This means that issues before us must be ripe...