UHC Management Co., Inc. v. Computer Sciences Corp.

• Decision Date: 05 August 1998
• Docket Number: Nos. 97-2933,97-3061,s. 97-2933
• Parties: 135 Lab.Cas. P 10,192 UHC MANAGEMENT COMPANY, INC., Appellee, v. COMPUTER SCIENCES CORPORATION, Appellant. COMPUTER SCIENCES CORPORATION, a Nevada corporation, Appellant, v. UHC MANAGEMENT COMPANY, INC., a Minnesota corporation, Appellee. UHC MANAGEMENT COMPANY, INC., Appellant, v. COMPUTER SCIENCES CORPORATION, Appellee. COMPUTER SCIENCES CORPORATION, a Nevada corporation, Appellee, v. UHC MANAGEMENT COMPANY, INC., a Minnesota corporation, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 992

148 F.3d 992

135 Lab.Cas. P 10,192

UHC MANAGEMENT COMPANY, INC., Appellee, v. COMPUTER SCIENCES CORPORATION, Appellant.

COMPUTER SCIENCES CORPORATION, a Nevada corporation, Appellant, v. UHC MANAGEMENT COMPANY, INC., a Minnesota corporation, Appellee.

UHC MANAGEMENT COMPANY, INC., Appellant, v. COMPUTER SCIENCES CORPORATION, Appellee.

COMPUTER SCIENCES CORPORATION, a Nevada corporation, Appellee, v. UHC MANAGEMENT COMPANY, INC., a Minnesota corporation, Appellant.

Nos. 97-2933, 97-3061.

United States Court of Appeals,

Eighth Circuit.

Submitted March 9, 1998.

Decided July 7, 1998.

Rehearing Denied Aug. 5, 1998.

Paul Barry Klaas, Minneapolis, MN, argued (James J. Hartnett, Minneapolis, MN, John D. Shivley, Russell O. Stewart, Denver, CO, on the brief), for Appellant.

Timothy E. Branson, Minneapolis, MN, argued (Thomas P. Swigert, on the brief), for Appellee.

Before WOLLMAN and LOKEN, Circuit Judges, and BATAILLON, ¹ District Judge.

WOLLMAN, Circuit Judge.

Computer Sciences Corporation appeals from the district court's ² order confirming the award of an arbitration panel convened pursuant to an arbitration agreement between Computer Sciences and UHC Management Company, Inc. (UHC). We affirm.

I.

UHC is the chief contractor for the United Mine Workers of America Combined Benefit Fund, bearing ultimate responsibility for the processing of claims for medical and vision benefits made by the fund's beneficiaries. In November of 1994, Computer Sciences entered into a subcontract with UHC to process these claims commencing in 1995 and extending through the remainder of UHC's five-year contract with the fund. The agreement contained two separate provisions relevant to this appeal. First, it called for the parties to resolve any disputes through binding arbitration:

7. Disputes--In the event a dispute between United and Contractor arises out of or is related to this Agreement, the parties shall meet and negotiate in good faith to attempt to resolve the dispute. In the event the dispute is not resolved within 30 days of the date one party sent written notice of the dispute to the other party, and if either party wishes to pursue the dispute, either party may submit it to binding arbitration in accordance with the rules of the American Arbitration Association. In no event may arbitration be initiated more than one year following the sending of written notice of the dispute. Any arbitration proceeding under this Agreement shall be conducted in Hennepin County, Minnesota, U.S.A., or in a mutually agreeable location. The arbitrators shall have no authority to award any punitive or exemplary damages, or to vary or ignore the terms of this Agreement, and shall be bound by controlling law.

Independent Contractor Agreement at 5 (emphasis supplied). Second, within a final section labeled "Miscellaneous," the agreement included the following choice-of-law provision:

(c) To the extent not preempted by ERISA or other federal law, this Agreement shall by [sic] governed by and construed under the laws of the State of Minnesota.

Id. at 7.

Computer Sciences began processing claims in January of 1995. UHC quickly became dissatisfied with its performance. On February 22, UHC ordered Computer Sciences to cease work and retained First Health Strategies, Inc. to temporarily assume claim processing for the fund. At that point, UHC maintained hope that Computer Sciences could sort out its difficulties and resume performance in 1996. On August 4, 1995, however, after attempting to work with Computer Sciences to restructure its processing system, UHC formally terminated the agreement.

Each party filed a demand for arbitration, claiming that the other had breached its contractual obligations. These actions were consolidated into a single proceeding convened in Minneapolis on August 13, 1996, before a tribunal of the American Arbitration Association, which issued its decision later that year. See In the Matter of the Arbitration between UHC Management Co., Inc, and Computer Sciences Corp., No. 56 193 00305 95 (A.A.A., Arb. Dec. 30, 1996). The panel found that UHC had effectively terminated the agreement on February 22, 1995, and had breached its obligations by failing to provide the required notice and opportunity to cure. Concluding that Computer Sciences had not sustained its burden of proving damages, the panel awarded it none. Next, the panel concluded that Computer Sciences had also breached the agreement. It awarded UHC damages totaling approximately $1.3 million. Lastly, the panel stated that it would retain jurisdiction regarding that aspect of the dispute involving Computer Sciences's alleged overpayment of claims, conduct a hearing to determine the extent of such overpayments, and thereafter issue appropriate supplemental damages to reimburse UHC for that loss.

UHC filed this action seeking confirmation of the award, asserting jurisdiction both under 28 U.S.C. § 1332 and under the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (1970 & 1998 Supp.). That same day, Computer Sciences also filed suit, invoking diversity jurisdiction and seeking relief under the Minnesota Uniform Arbitration Act, Minn.Stat. Ann. §§ 572.08 et seq. (West 1988 & 1998 Supp.) and Minnesota common law. ³ Specifically, Computer Sciences sought: (1) deletion of the damage award to UHC; (2) correction and modification of the award to include an award of damages to Computer Sciences; (3) prohibition of any additional proceedings by the panel to award supplemental damages; and (4) confirmation of the award as modified to these specifications. After consolidating the actions, the district court denied Computer Sciences's claim and confirmed the award as issued by the panel.

II.

Congress enacted the Federal Arbitration Act (FAA) in order to establish a "national policy favoring arbitration." Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). The FAA accomplishes this by assuring that when parties to commercial transactions agree to resolve their disputes through arbitration, such provisions will be "valid, irrevocable, and enforceable," subject only to ordinary grounds that "exist at law or in equity for the revocation of any contract." Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 683, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (quoting 9 U.S.C. § 2). Thus, the FAA aspires to ensure that commercial arbitration agreements, like other contracts, "are enforced according to their terms." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (additional citations omitted).

The FAA "is something of an anomaly in the field of federal-court jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The FAA does not itself confer jurisdiction. See id. Instead, when a party to an arbitration agreement seeks to have a federal court enforce its provisions, an independent jurisdictional basis is required. See id.; Pryner v. Tractor Supply Co., 109 F.3d 354, 359 (7th Cir.), cert. denied, --- U.S. ----, 118 S.Ct. 294, 139 L.Ed.2d 227 (1997) (arbitration act might be better regarded "not as a source of jurisdiction at all but merely as a prescription of procedures for a class of cases otherwise within federal jurisdiction"). Here, there is no dispute that the requirements for diversity jurisdiction have been met.

Concluding that its review was governed exclusively by the FAA, the district court held that it could modify the award only pursuant to its provisions. See Memorandum Opinion and Order at 10. On appeal, Computer Sciences and its amicus curiae argue that the court erred in applying the FAA in light of the choice-of-law clause set forth above which provides that the agreement is to be governed by and construed under Minnesota law "to the extent not preempted by ... federal law," and the provision within paragraph 7 of the agreement that the arbitrators "shall be bound by controlling law." Thus, it is argued, the court should have applied the Minnesota Uniform Arbitration Act rather than the FAA and should have reviewed Computer Sciences's application for modification and confirmation of the award thereunder in conjunction with controlling Minnesota common law regarding judicial review of arbitration awards.

In Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), the Supreme Court affirmed a California state court's construction of a choice-of-law clause to mean that the parties intended the California rules of arbitration, rather than the FAA, to govern their dispute. See id. at 473, 109 S.Ct. 1248. In so doing, the Court stated:

But it does not follow that the FAA prevents the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. Indeed, such a result would be quite inimical to the FAA's primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted.

Id. at 479, 109 S.Ct. 1248 (citation omitted).

In Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995), the parties had entered into an agreement which included both a state choice-of-law clause and an arbitration provision stating that disputes would be resolved under the rules of the National Association of Securities Dealers (NASD). Whereas NASD rules permit arbitrators to award punitive damages, New York law does not. See id. at 58-59, 115 S.Ct. 1212. In holding that the agreement did not preclude an award of punitive...