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Blue Cross and Blue Shield of Georgia, Inc. v. DL Investment Holdings, LLC

United States District Court, N.D. Georgia, Atlanta Division

December 14, 2018

Blue Cross and Blue Shield of Georgia, Inc., et al., Plaintiffs,
DL Investment Holdings, LLC, et al., Defendants.


          Michael L. Brown United States District Judge

         Defendants DL Investment Holdings, LLC, Reliance Laboratory Testing, Inc., Medivance Billing Service, Inc., Aaron Durall, and Neisha Carter Zaffuto (collectively, the “Hospital Defendants”) move to compel arbitration of all claims against them in this proceeding. (Mot. to Compel, Dkt. 93.) Alternatively, they seek to stay all claims not sent to arbitration, and, again alternatively, to stay all litigation pending appeal of any order by the Court denying their motion to compel arbitration. (Defs.' Br. in Supp. of Mot. to Compel, Dkt. 111.) As explained below, the Court grants in part and denies in part Hospital Defendants' motion to compel arbitration - sending all claims against all Defendants involving the PPO contract (which contains an arbitration clause) to arbitration. The Court, however, refuses to order arbitration of claims arising under the HMO and PAR contract (which do not contain arbitration clauses). This order gives full force and effect to the parties' agreement to arbitrate and to the federal policy favoring arbitration.

         The Court exercises its discretion not to stay the non-arbitrable claims as the Court finds it feasible to continue the litigation while the arbitration proceeds. Finally, Court finds an appeal of the order denying arbitration of claims under the HMO and PAR contracts would be frivolous. The Court thus refuses to stay this matter pending appeal.

         I. Background Facts

         A. The Parties and the Contracts

          Plaintiffs, a group of Blue Cross & Blue Shield health care plans and third-party administrators, provide insurance benefits to members and their dependents for services at hospitals and medical offices around the country. (Second Am. Compl., Dkt. 28 at ¶ 70.) For purposes of this litigation, they have assigned their claims to Blue Cross and Blue Shield of Georgia.[1]

         Defendant Aaron Durall is the owner and manager of Defendant DL Investment Holdings (“DL Investment”). (Id. at ¶ 145.) He is also the president of Defendant Reliance Laboratories (“Reliance Labs”), a toxicology laboratory in Sunrise, Florida. (Id.) Reliance Labs provides urine drug tests for patients. Defendant Medivance Billing Service (“Medivance”) is also located in Florida, with Defendant Neisha Carter Zaffuto as its president. (Id. at ¶ 13.) Medivance provides billing services to clients, including Reliance Labs. (Id. at ¶¶ 13-14.)[2]

         Since 1998, BCBS has had three contracts with a Georgia hospital known as Chestatee Regional Hospital: (1) a PAR contract, (2) an HMO contract, and (3) a PPO contract. (Id. at ¶¶ 83-85.) In August 2016, DL Investment (then known as Durall Capital) purchased Chestatee Hospital and began running it. (Id. at ¶ 5.) Chestatee assigned all three contracts to DL Investment, meaning DL Investment assumed the rights and obligations set forth in the contracts. (Id. at ¶ 6.) None of the other Hospital Defendants are parties to the contracts.[3]

         The PPO contract contains a broad arbitration agreement. The PPO contract requires BCBS and DL Investment to “meet and confer in good faith to resolve any problems or disputes that may arise under [the PPO].” (PPO Contract, Dkt. 28-3 at 15.) The arbitration clause provides that “[i]n the event that any problem or dispute is not satisfactorily resolved, . . . [the signatories] agree to arbitrate such problem or dispute . . . pursuant to the rules of the American Arbitration Society.” (Id.)

         Neither the PAR contract nor the HMO contract contains an arbitration provision.

         B. The Fraudulent Scheme

         As part of the contracts at issue, BCBS agreed to reimburse Chestatee Hospital for medically necessary urine drug tests performed at the hospital for its patients. (Second Am. Compl. at ¶ 4.) In fact, because Chestatee is a rural hospital, BCBS agreed to pay a premium for tests Chestatee performed. (Id. at ¶ 14.) Reliance Labs, on the other hand, had no contract with BCBS, let alone a contract that entitled it to receive premium reimbursements for urinary tests it conducted. (Id. at ¶ 19.)

         Plaintiffs allege that, after acquiring Chestatee, Defendants began using the hospital in Georgia as a shell through which to funnel laboratory tests that Reliance Labs performed in Florida. (Id. at ¶ 7.) Specifically, they allege Hospital Defendants conspired to submit claims under all three contracts for urine drug tests that Reliance Labs performed while falsely claiming Chestatee had done them. (Id. at ¶ 14.) BCBS alleges that the scheme was profitable for Hospital Defendants because “Chestatee's contracts with Plaintiffs entitled it to substantially more for the tests than Reliance Labs would receive directly.” (Pls.' Resp. to Defs.' Mot. to Compel, Dkt. 104 (“Resp.”) at 5.) BCBS claims that the Hospital Defendants worked together to submit false and misleading claims for urinary drug tests, making BCBS believe that Chestatee had conducted the tests in compliance with the three contracts and causing BCBS to pay claims not covered by the contracts. (Second Am. Compl. at ¶ 22.)

         In total, Plaintiffs claim that Hospital Defendants wrongfully collected more than $100 million from Plaintiffs. (Id. at ¶ 116; Resp. at 5.)

         C. The Arbitration Proceeding

         In November 2017, BCBS sent a letter demanding that Durall Capital confer about their bills for urine tests. (Resp. at 6.) Durall Capital did not respond for two months and then refused to address the allegations. (Id.) In February 2018, BCBS filed a Demand for Arbitration against DL Investment. (Id.) The Demand stated specifically that BCBS Georgia sought to arbitrate only those amounts paid under the PPO contract - the contract containing the arbitration clause - but not amounts paid under the PAR and HMO contracts. (Id.)

         At first, DL Investment disputed the governing arbitration rules, as the PPO contract mistakenly identified the rules of the American Arbitration Society instead of the American Arbitration Association. (Id.) DL Investment refused to arbitrate the claims under the AAA rules, and only agreed to do so if Plaintiffs made certain concessions. (Id. at 7.) DL Investment then filed in state court a petition to compel arbitration of the PPO claims, which Plaintiffs removed to federal court. The Court later granted the motion to compel arbitration. (Id.)[4]

         D. Proceedings Before This Court

         Because the HMO and PAR contracts contain no arbitration provisions, Plaintiffs filed this suit in March 2018 to recover funds paid under those two contracts and to assert claims against parties who were not signatories to any of the three contracts. (Resp. at 7-8.)

         Plaintiffs then moved for a temporary restraining order and preliminary injunction to freeze Defendants' assets. (Pls.' Mot. for TRO & Prelim. Inj., Dkt. 46.) Plaintiffs also moved for expedited discovery. (Pls.' Mot. for Expedited Disc., Dkt. 48.) On July 24, 2018, the Court denied Plaintiffs' motion for injunctive relief but granted limited expedited discovery, so Plaintiffs might trace any ill-gotten gains as required for a preliminary injunction. (July 24, 2018, Minute Entry, Dkt. 63.) Hospital Defendants moved for reconsideration of the Court's order, which the Court denied. (Hosp. Defs.' Mot. for Recons., Dkt. 69; Order on Mot. for Recons., Dkt. 72.)

         Hospital Defendants moved to compel arbitration on September 26, 2018. The parties submitted discovery disputes to the Court on October 1 and 18, 2018, mostly involving the availability of certain bank records. During a November 1, 2018 teleconference that included a witness from the bank, the Court ordered Defendants to produce the bank records. (Tr. of Nov. 1, 2018, Teleconference, Dkt. 109 (“Nov. 1 Tr.”) at 18:13-19:8.) Several days before that deadline, however, Hospital Defendants filed their emergency motion to stay discovery pending ruling on the motion to compel arbitration. (Mot. to Stay, Dkt. 110.) The Court granted Hospital Defendants' requested stay and held a hearing on the motion to compel arbitration.

         II. Analysis and Discussion

          A district court determines whether to grant a motion to compel arbitration based on a two-step inquiry. The first step is to inquire whether the parties agreed to arbitrate the dispute and the second “involves deciding whether legal constraints external to the parties' agreement foreclosed arbitration.”[5] See Klay v. All Defendants, 389 F.3d 1191, 1200 (11th Cir. 2004) (internal quotation marks omitted). The Court must do this in the light of a “liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). As a result, both the Supreme Court and the Eleventh Circuit have explained that district courts must “rigorously enforce agreements to arbitrate.” Klay, 389 F.3d at 1200 (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985)).

         Arbitration, however, is a matter of contract and the strong pro-arbitration policy applies only to disputes that parties have agreed to arbitrate. When a contract between two parties contains no arbitration agreement, a court cannot compel the parties to settle their dispute through arbitration. Id. It's simple: if parties agree to arbitrate their disputes, the Court must enforce that agreement; if they don't, the Court cannot force arbitration.

         There is one exception. A non-party to a contract containing an arbitration agreement may force arbitration “ ‘if the relevant state contract law allows him [or her] to enforce the agreement' to arbitrate.” Lawson v. Life of the S. Ins. Co., 648 F.3d 1166, 1170 (11th Cir. 2011) (quoting Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 632 (2009)). Georgia law - the operative law here - recognizes the doctrine of equitable estoppel as an exception to the general rule that only parties to a contract may enforce the contract. Id. Equitable estoppel allows a non-signatory to an arbitration agreement to compel a signatory (or be compelled by a signatory) to arbitrate in some cases, specifically “(1) when the claims relate to the contract or (2) when the claims against the signatory and the nonsignatory arise out of interdependent and concerted misconduct by those parties.” Autonation Fin. Servs. Corp. v. Arain, 592 S.E.2d 96, 99 (Ga.Ct.App. 2003); see Lawson, 648 F.3d at 1172 n.4.[6]

         Against this legal backdrop, the Court considers Hospital Defendants' motion to compel.

         A. Counts ...

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