Okla. Oncology & Hematology v. Us Oncology

• Decision Date: 15 March 2007
• Docket Number: No. 102,673.,No. 102,612.,102,673.,102,612.
• Citation: 160 P.3d 936,2007 OK 12
• Parties: OKLAHOMA ONCOLOGY & HEMATOLOGY P.C., an Oklahoma Professional Corporation, d/b/a Cancer Care Associates, Appellant, v. US ONCOLOGY, INC., a Delaware Corporation, and AOR Management Company of Oklahoma, Inc., a Delaware Corporation, Appellees.
• Court: Oklahoma Supreme Court

160 P.3d 936

2007 OK 12

OKLAHOMA ONCOLOGY & HEMATOLOGY P.C., an Oklahoma Professional Corporation, d/b/a Cancer Care Associates, Appellant, v. US ONCOLOGY, INC., a Delaware Corporation, and AOR Management Company of Oklahoma, Inc., a Delaware Corporation, Appellees.

No. 102,673.

No. 102,612.

Supreme Court of Oklahoma.

March 15, 2007.

Appeal from the District Court of Tulsa County; The Honorable David L. Peterson, Presiding.

¶ 0 Oklahoma Oncology & Hematology, P.C., d/b/a Cancer Care Associates filed suit against its business manager, AOR Management Company of Oklahoma, Inc., and the business manager's parent corporation, U.S. Oncology, Inc. The suit sought declaratory judgment and damages for multiple contract and tort claims arising out of the management of plaintiff's medical oncology business. The business manager had a pending arbitration complaint. The district court stayed the arbitration. The defendants moved to lift the stay and compel arbitration. Plaintiff opposed arbitration, asserting that there was no valid enforceable arbitration agreement and that the costs of arbitration are so exorbitant as to be unconscionable. Plaintiff requested the district court to conduct an evidentiary hearing before ruling on the motion to compel arbitration. The district court referred all of plaintiff's claims to arbitration without conducting an evidentiary hearing. Plaintiff appealed and filed an original action in the event the order compelling arbitration is determined to be non-appealable. We previously determined the pre-judgment order is a final appealable order. We retained the appeal, consolidated the original action with the appeal, and stayed the arbitration proceeding during the pendency of this appeal.

ORDER COMPELLING ARBITRATION REVERSED AND CAUSE REMANDED WITH INSTRUCTIONS; ORIGINAL JURISDICTION DENIED.

Lana Jeanne Tyree, Cartwright & Tyree, Oklahoma City, Oklahoma, and John H. Tucker, Rhodes, Hieronymus, Jones, Tucker & Gable, PLLC, Tulsa, Oklahoma, for appellant.

James M. Sturdivant and Timothy A. Carnery, Gable & Gotwals, Tulsa, Oklahoma, for appellees.

TAYLOR, J.

¶ 1 The basic question in this appeal and the consolidated original action is whether the district court erred in sending all claims in this suit to arbitration. We find the district court erred in compelling arbitration and reverse the arbitration order. We remand this case to the district court with instructions.

I. The Proceedings Below

¶ 2 The following are basic facts gleaned from the district court filings and the arguments in this Court.¹ Plaintiff/appellant, Oklahoma Oncology & Hematology P.C., d/b/a Cancer Care Associates (CCA), is an Oklahoma professional corporation of Oklahoma-licensed physicians who engage in the practice of medical oncology, hematology, and radiation oncology throughout the state of Oklahoma. CCA has more than sixty full-time, part-time, and contract physicians, and it has offices in Tulsa, Oklahoma City, Norman, Bartlesville, McAlester, Muskogee, Pryor, Enid, Vinita, and Stillwater.

¶ 3 Defendant/appellee AOR Management Company of Oklahoma, Inc. (AOR-OK) is a Delaware corporation incorporated in 1995 to provide business management services in Oklahoma to CCA. AOR-OK was a wholly-owned subsidiary of American Oncology Resources, Inc. (AOR) until it became a wholly-owned subsidiary of defendant/appellee U.S. Oncology, Inc. (USON) in 1999.² Since its inception, AOR-OK has maintained its corporate office in the offices of CCA in Tulsa, Oklahoma.

¶ 4 This controversy has its origin in a business transaction that occurred in 1995, whereby AOR-OK became the business manager for the oncology medical practices of the CCA physicians. The transactional documents executed in March, 1995, included the Management Services Agreement (MSA) between CCA and Oncology and Hematology Management Partnership, a Texas General Partnership (the Texas partnership) and a Purchase Agreement executed by AOR, AOR-OK, CCA, Oklahoma Oncology & Hematology P.C., and more than fifteen physicians.

¶ 5 The MSA is the central contract in this controversy. The MSA was executed by only one person, Alan M. Keller, M.D., a CCA physician. Dr. Keller executed the agreement both on behalf of the Texas general partnership and on behalf of CCA.³ Even though it is a contract between CCA and the Texas partnership, the MSA provided for AOR to succeed to all the rights and obligations of the Texas partnership thereunder, it directed AOR to assign its rights and obligations under the MSA to AOR-OK, and it designated AOR-OK as the business manager for CCA.⁴

¶ 6 The MSA prescribed the duties and obligations of CCA and AOR-OK for the business management of the oncology medical practices of the CCA physicians. The MSA has a forty-year term with automatic renewal every five years thereafter. The MSA fixed AOR-OK's business management fees for the first five years at a "monthly fee" in the amount equal to the "fixed amount" plus seven percent of the adjusted gross revenue. The "fixed amount" for the first sixty months ranged from $325,890 to $359,013 under the schedule in the MSA. However, the "fixed amount" was increased by several amendments to the MSA. The first amendment was in January of 1997 and the last was in October of 1999. Each amendment was in writing and executed on behalf of AOR-OK and CCA. After the first five years, the MSA provided for a "monthly fee" equal to 24.7% of the adjusted gross revenue.⁵

¶ 7 The working relationship between CCA and AOR-OK during the first five years apparently disintegrated after USON became the parent corporation of AOR-OK. According to CCA, USON has taken control of CCA's administrative and financial business, its money and accounts, and its books and records. On January 26, 2005, CCA notified AOR-OK that it considered the MSA to be illegal, against public policy, and void ab initio under Oklahoma law. Two days later, on January 28, 2005, AOR-OK filed an arbitration complaint asking that the business management fee provisions in the MSA be reformed.

¶ 8 In the arbitration complaint, AOR-OK alleged that 1) macro-economic changes in the cancer care industry during the past several years resulted in a substantially lower business management fee for AOR-OK, 2) CCA and AOR-OK have been unable to agree to any changes in the business management fee since 1999, and 3) AOR-OK resigned itself to fulfilling the MSA for substantially less profit than had been anticipated. It further alleged that the change in reimbursement rates in the Medicaid Modernization Act of 2003 directly impacts the amount of the business management fee in the MSA.

¶ 9 The arbitration complaint referred to section 7.2(d) of the MSA as authorizing arbitration for the purpose of rewriting the business management fee provisions in the MSA. Section 7.2(d) provides for the parties to negotiate in good faith concerning a new service arrangement or a new basis for compensation as may be necessary due to change in Medicare/Medicaid law, state law or change in any third party reimbursement system; and if the parties cannot agree to a new service arrangement or basis for compensation, it provides for the matter to be sent to binding arbitration.

¶ 10 The relief sought in the arbitration complaint is "a judgment that would reform the terms of the MSA such that AOR Management [AOR-OK] would be compensated at a level that approximates as closely as possible its economic position that it was in prior to changes caused by the MMA [Medicaid Modernization Act]." The arbitration complaint also seeks "costs and expenses, including reasonable attorneys' fees, for prosecution of this proceeding, as well as any further relief to which it justly may be entitled."

¶ 11 CCA did not answer the arbitration complaint. Instead, it filed suit in the Tulsa County District Court on February 14, 2005. The amended petition asserts that the MSA is contrary to established public policy in that it allows AOR-OK to engage in the unlicensed and unauthorized practice of medicine, to split patient revenues, and to exert dominion and control over CCA's medical practice and financial affairs. It further asserts that USON is treating CCA as if it is a wholly-owned subsidiary of USON by exercising dominion and control over CCA's entire business. The amended petition asks the district court to declare that the MSA was void ab initio and unenforceable and that there is no valid contract between the parties. It also sought a stay of arbitration and an award of compensatory and punitive damages for breach of contract, fraud and deceit, conversion, and misappropriation and embezzlement, together with interest, costs, and attorney fees against both AOR-OK and USON.

¶ 12 CCA also sought an emergency stay of AOR-OK's arbitration proceeding until the district court decides whether the MSA is contrary to Oklahoma law and public policy and void ab initio. The district court stayed the arbitration.

¶ 13 Neither AOR-OK nor USON answered the district court petition. They filed a motion to lift the stay and to compel arbitration. The motion urged arbitration under section 8.6 of the MSA which provides for any controversy, dispute, or disagreement arising out of or relating to the MSA to be submitted to binding arbitration in accordance with Article XI of the Purchase Agreement. Article XI of the Purchase Agreement calls for mediation under the Commercial Mediation Rules of the American Arbitration Association and for binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association.

¶ 14 CCA responded that arbitration proceedings under the Commercial Arbitration Rules of the American Arbitration Association are cost prohibitive. CCA requested an evidentiary hearing on its allegations that 1) there is no valid and enforceable contract between the parties, 2) the costs of arbitration are so excessive as to be unconscionable, and 3) AOR-OK's and USON's...