United States District Court, N.D. Georgia, Atlanta Division
Blue Cross and Blue Shield of Georgia, Inc., et al., Plaintiffs,
DL Investment Holdings, LLC, et al., Defendants.
OPINION AND ORDER
Michael L. Brown United States District Judge
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
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.
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.
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.)
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
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.)
the PAR contract nor the HMO contract contains an arbitration
The Fraudulent Scheme
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.)
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.)
total, Plaintiffs claim that Hospital Defendants wrongfully
collected more than $100 million from Plaintiffs.
(Id. at ¶ 116; Resp. at 5.)
The Arbitration Proceeding
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.)
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.
Proceedings Before This Court
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.)
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.)
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.
Analysis and Discussion
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.” 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)).
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.
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
this legal backdrop, the Court considers Hospital
Defendants' motion to compel.