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Managed Health Care Administration, Inc. v. Blue Cross and Blue Shield of Alabama

Supreme Court of Alabama

September 1, 2017

Managed Health Care Administration, Inc., and Alabama Psychiatric Services, P.C.
v.
Blue Cross and Blue Shield of Alabama

         Appeal from Jefferson Circuit Court (CV-15-901979)

          PER CURIAM.

         Managed Health Care Administration, Inc. ("MHCA"), and Alabama Psychiatric Services, P.C. ("APS") (hereinafter collectively referred to as "the plaintiffs"), appeal the Jefferson Circuit Court's denial of their motion to compel Blue Cross and Blue Shield of Alabama ("Blue Cross") to arbitrate MHCA's and APS's claims against Blue Cross and Blue Cross's counterclaims against the plaintiffs. We reverse and remand.

         Facts and Procedural History

         This case involves several contracts between various parties, some of whom are not parties to this appeal. Generally, beginning in 1986, Blue Cross contracted with APS, a subsidiary of MHCA, to provide mental-health services to Blue Cross's insureds. In 1991, Blue Cross's contract with APS was transferred to MHCA. In 1995, Blue Cross and MHCA entered into a new contract in which MHCA agreed to provide or arrange for mental-health services to Blue Cross's insureds ("the 1995 contract").

         In 2006, Blue Cross and MHCA entered into yet another contract in which MHCA agreed to provide or arrange for mental-health services to Blue Cross's insureds ("the 2006 contract"). The 2006 contract included the following arbitration provision:

"Any disputes arising out of or relating to this Agreement shall be submitted to Arbitration in accordance with the rules of the American Arbitration Association then in effect, and the award rendered by the arbitrators shall be binding as between the parties and judgments on such award may be entered in any court having jurisdiction thereof."

         The affidavit testimony of Edward Harris, Blue Cross's vice president of business development, states: "In late 2012, Blue Cross decided to replace MHCA, as its behavioral health benefits management vendor, with New Directions Behavioral Health, L.L.C." To that end, on September 23, 2013, Blue Cross and New Directions Behavioral Health, L.L.C. ("New Directions"), entered into a contract in which New Directions agreed to "arrange for the provision of all Covered Services to Members in accordance with the terms and conditions set forth in this Agreement" ("the Blue Cross-New Directions 2013 contract"). The Blue Cross-New Directions 2013 contract recognizes that Blue Cross "has utilized for years and is currently using [MHCA] and its subsidiary [APS] to provide its Members with behavioral health and substance use treatment." The Blue Cross-New Directions 2013 contract delegates to New Directions certain of Blue Cross's obligations to its insureds. In turn, the Blue Cross-New Directions 2013 contract permits New Directions to sub-delegate those delegated duties to a third party. The affidavit testimony of Harris states that Blue Cross asked New Directions to sub-delegate to MHCA certain of New Directions' delegable duties. The Blue Cross-New Directions 2013 contract includes an extensive dispute-resolution process that applies to "any dispute between [Blue Cross] and New Directions arising out of or related to this Agreement or the Parties' rights under this Agreement, " which includes the following arbitration provision:

"[T]he Parties will refer the matter to binding arbitration pursuant to the Commercial Rules of the American Arbitration Association ('AAA'). Each Party will select one arbitrator and a third arbitrator will be selected by the two designated arbitrators. If there is no agreement on the third arbitrator, the President of the AAA will select the third arbitrator. A majority decision by the arbitrators and umpire will be final and binding on both Parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction. The cost of the arbitration will be paid as determined by the arbitrators."

         On October 1, 2013, pursuant to the authority granted it under the Blue Cross-New Directions 2013 contract and at the request of Blue Cross, New Directions entered into a contract which MHCA in which New Directions sub-delegated to MHCA certain of New Directions' obligations under the Blue Cross- New Directions 2013 contract ("the New Directions-MHCA 2013 contract"). Specifically, New Directions sub-delegated to MHCA its responsibility to manage the network of service providers that had been used to provide mental-health services to Blue Cross's insureds since 1986. The New Directions-MHCA 2013 contract includes an extensive dispute-resolution process that applies to "any dispute arising out of or related to this Agreement or the Parties' rights under this Agreement, " which includes the following arbitration provision:

"[T]he Parties will refer the matter to binding arbitration pursuant to the Commercial Rules of the American Arbitration Association ('AAA'). Each Party will select one arbitrator and a third arbitrator will be selected by the two designated arbitrators. If there is no agreement on the third arbitrator, the President of the AAA will select the third arbitrator. A majority decision by the arbitrators and umpire will be final and binding on both Parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction. The cost of the arbitration will be paid as determined by the arbitrators."

         Harris's affidavit testimony states that, "once the [Blue Cross-New Directions 2013 contract] and the [New Directions-MHCA 2013 contract] were executed, Blue Cross and MHCA terminated the [1995 contract and the 2006 contract] by mutual agreement."

         Thereafter, a disagreement arose concerning the amount of compensation MHCA was to receive for its services. On May 15, 2015, the plaintiffs sued Blue Cross and several fictitiously named defendants alleging fraudulent misrepresentation, fraudulent suppression, breach of an implied contract, and promissory estoppel; the plaintiffs amended their initial complaint on November 4, 2015. The plaintiffs made their first discovery request of Blue Cross in August 2015. Blue Cross did not produce the requested Blue Cross-New Directions 2013 contract until March 23, 2016.

         On April 1, 2016, Blue Cross filed an amended answer to the plaintiffs' complaint and counterclaims against MHCA alleging unjust enrichment and breach of the 2006 contract. On May 16, 2016, MHCA filed a motion to dismiss Blue Cross's counterclaims.

         On June 8, 2016, the plaintiffs filed with the American Arbitration Association ("AAA") a demand for arbitration based on the arbitration provisions in the 2006 contract and in the New Directions-MHCA 2013 contract. On June 9, 2016, the plaintiffs filed in the circuit court a motion to stay the proceedings in the circuit court and to compel arbitration of all the pending claims and counterclaims based on the arbitration provisions in the 2006 contract and in the New Directions-MHCA 2013 contract. The plaintiffs argued in their motion to compel arbitration that

"the full extent of the contractual relationship between [Blue Cross] and New Directions is now known and it is clear that [Blue Cross] is bound to the terms of the [New Directions-MHCA 2013 contract] (including the [alternative dispute resolution] provision) ...

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