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La Frontera Center, Inc. v. United Behavioral Health, Inc.

United States District Court, D. New Mexico

March 20, 2017

LA FRONTERA CENTER, INC., an Arizona nonprofit corporation d/b/a LA FRONTERA NEW MEXICO, Plaintiff,
v.
UNITED BEHAVIORAL HEALTH, INC., a foreign corporation; UNITED HEALTHCARE INSURANCE COMPANY, INC., a foreign corporation; OPTUMHEALTH NEW MEXICO foreign corporation d/b/a UNITED BEHAVIORAL HEALTH, INC. and BLACK AND WHITE CORPORATIONS, Defendants.

          Russell A. Kolsrud Dickinson Wright PLLC Scottsdale, Arizona and Gregory Moore Dickinson Wright PLLC Troy, Michigan and Deborah E. Mann Stefan R. Chacón David H. Johnson Montgomery & Andrews, P.A. Albuquerque, New Mexico Attorneys for the Plaintiff

          Matthew W. Park Lewis Roca Rothgerber Christie LLP Las Vegas, Nevada and John C. West Lewis Roca Rothgerber Christie LLP Phoenix, Arizona Attorneys for the Defendants United Behavioral Health, Inc., United Healthcare Insurance Company, and Optumhealth New Mexico

          MEMORANDUM OPINION AND ORDER

         THIS MATTER comes before the Court on the Defendants' Motion to Compel Arbitration, filed March 31, 2016 (Doc. 3)(“Motion”). The Court held a hearing on July 26, 2016. The primary issues are: (i) whether Plaintiff La Frontera Center, Inc. entered a binding arbitration agreement with Defendants United Behavioral Health, Inc., United Healthcare Insurance Company, Inc., Optumhealth New Mexico d/b/a United Behavioral Health, Inc., and Black and White Corporations (collectively “United Health”); (ii) whether the arbitration agreement applies to all claims that La Frontera asserts against United Health; and (iii) whether the Court should stay these proceedings pending the resolution of arbitration. The Court concludes (i) that La Frontera entered an enforceable arbitration agreement with United Behavioral Health; and (ii) that La Frontera's claims against each of the United Health Defendants are subject to mandatory arbitration. Accordingly, the Court grants the Motion and stays proceedings over La Frontera's claims.

         FACTUAL BACKGROUND

         This case arises from a complaint that La Frontera filed on February 9, 2016, in the Second Judicial District Court, County of Bernalillo, State of New Mexico, alleging various state law tort, contract, and restitutionary claims against United Health. See Complaint for Fraud; Fraudulent Misrepresentation; Negligent Misrepresentation; Breach of Contract; Breach of the Covenant of Good Faith and Fair Dealing; Breach of Contract -- Intended Third-Party Beneficiary; and in the Alternative Promissory Estoppel; and Quantum Meruit/Unjust Enrichment, filed March 14, 2016 (Doc. 1)(“Complaint”). On March 14, 2016, La Frontera filed in the Second Judicial District Court an amended complaint, adding claims under New Mexico's Insurance Code, N.M. Stat. Ann. §§ 59A-16-20, 59A-16-30, and New Mexico's Unfair Practices Act, N.M. Stat. Ann. §§ 57-12-1 to 57-12-26. See First Amended Complaint for Fraud; Fraudulent Misrepresentation; Negligent Misrepresentation; Breach of Contract; Breach of the Covenant of Good Faith and Fair Dealing; Breach of Contract -- Intended Third-Party Beneficiary; Violation of the New Mexico Unfair Practices Act; Violation of the Unfair Claims Practices Section; and in the Alternative, Promissory Estoppel; and Quantum Meruit/Unjust Enrichment, filed March 14, 2016 (Doc. 1-1)(“First Amended Complaint”). Also, on March 14, 2016, United Health removed the action to federal court, based on diversity jurisdiction. See Notice of Removal at ¶¶ 5-6, at 2, filed March 14, 2016 (Doc. 1)(“Notice of Removal”). The Court draws the facts from La Frontera's First Amended Complaint; the Defendants' Motion; the Plaintiff's Response to Defendants' Motion to Compel Arbitration [Doc. 3], filed May 9, 2016 (Doc. 13)(“Response”); and the Defendants' Reply in Support of Motion to Compel Arbitration, filed June 10, 2016 (Doc. 16)(“Reply”).

         1. United Health's Statewide Contract to Provide State and Federally-Funded Behavioral Health and Substance Abuse Services in New Mexico.

         The State of New Mexico, Human Services Department (“HSD”) and its sixteen-member Inter-Agency Behavioral Health Purchasing Collaborative (“Collaborative”)[1] awarded United Health a contract to act as New Mexico's “Statewide Entity” to establish, operate, and manage behavioral and substance abuse services to children, families, and adults enrolled (henceforward “Enrollees”) through the Collaborative's various agency programs. First Amended Complaint ¶¶ 5, at 2-3. To acquire the Statewide Entity contract, United Health represented to the Collaborative that United Health had national experience in implementing successful statewide Medicaid and state-funded programs, as well as expertise in delivering behavioral health managed care. See First Amended Complaint ¶ 23, at 7. United Health executed the Statewide Entity contract on January 22, 2009. See First Amended Complaint ¶ 19, at 6.

         Under the Statewide Entity contract, United Health “agreed to implement and manage New Mexico's Medicaid and State funded programs to deliver services and pay providers for supplying behavioral health and substance abuse services to Enrollees” from July 1, 2009, through June 30, 2013. First Amended Complaint at ¶ 13, at 4. The contract also obligated United Health to employ a “dedicated Statewide Contract Compliance Officer, ” and prohibited United Health “from assigning or delegating this key management function.” First Amended Complaint ¶ 24, at 7. Under the contract, United Health promised to

ensure that quality behavioral health services, including services funded by Medicaid and various State funding sources, are provided to Medicaid and non-Medicaid consumers; provider network and out-of-network providers are reimbursed timely and accurately; and that services would be delivered to promote prevention, recovery, resilience, and the efficient use of available resources.

         First Amended Complaint ¶ 26, at 7. The Statewide Entity contract recognized “that United would deliver services through subcontracted providers, ” but United Health undertook responsibility to fulfill all of the contract's performance requirements. First Amended Complaint ¶ 31, at 8. HSD, on the Collaborative's behalf, paid United Health approximately $370 million annually to perform as New Mexico's Statewide Entity. See First Amended Complaint ¶ 13, at 4. HSD paid United Health on the first Friday of every month based on the total number of Enrollees with United Health. See First Amended Complaint ¶ 34, at 9.

         United Health had problems with its subcontractors. See First Amended Complaint ¶¶ 35-49, at 10-12. Within six months of executing the Statewide Entity contract, “the Collaborative fined United $1 million for not timely paying its subcontracted providers for the services they rendered to United's Enrollees.” First Amended Complaint ¶ 35, at 10. Moreover, in 2012, United Health learned of suspected billing errors, but United Health did not notify its subcontracted providers of these suspected billing errors. See First Amended Complaint ¶ 37, at 10. Nor did United Health notify the Collaborative that it had detected certain billing errors until September or October 2012. See First Amended Complaint ¶ 37, at 10. In December 2012, and January 2013, United Health investigated several of its subcontracted behavioral health and substance abuse providers, and identified, in a pre-audit investigation, “what United called billing errors by its subcontracted providers during United's entire tenure as New Mexico's Statewide Entity.” First Amended Complaint ¶ 38, at 10-11.

         United Health gave the Collaborative the results of this pre-audit investigation in January 2013, and the Collaborative contracted with the Public Consulting Group, Inc. (“PCG”) to conduct a confidential audit of fifteen of United Health's subcontracted providers. See First Amended Complaint ¶¶ 38-39, at 10-11. The PCG audit concluded that United Health overpaid fifteen of its subcontracted providers $37.3 million over a three-and-a-half year period. See First Amended Complaint ¶ 40, at 11. “On June 24, 2013, it was publically announced that New Mexico received ‘credible allegations' that 15 of United's contracted non-profit providers of behavioral health service had defrauded the program out of $36 million over a three-year period.” First Amended Complaint ¶ 40, at 11. United Health's fraud, waste, and abuse detection and prevention system did not detect such fraud and abuse in 2009, 2010, 2011, or most of 2012, see First Amended Complaint ¶ 37, at 10, despite United Health's promise under the contract to “monitor its subcontracted providers and, when necessary, use corrective measures for (i) compliance with clinical requirements; and (ii) compliance with non-clinical claims processing regulations, rules, and policies specified in the Statewide Contract, ” First Amended Complaint ¶ 29, at 8.

         United Health attempted to correct course by replacing its then-existing subcontractors with Arizona-based providers. See First Amended Complaint ¶¶ 42-49, at 12-13. First, United Health sought and received, effective September 4, 2012, a six-month extension of its Statewide Entity contract with the Collaborative, extending the contract's terms through December 31, 2013. See First Amended Complaint ¶ 44, at 12. Next, in October 2012, United Health represented to the Collaborative that it could “solve the institutional fraud problem” by terminating its existing subcontractors and “substituting Arizona providers to assume wholesale management of New Mexico's behavioral health services.” First Amended Complaint ¶ 45, at 12. HSD characterized this period as a “Behavioral Health Emergency.” First Amended Complaint ¶ 47, at 13.

         2. United Health and La Frontera Execute Several Participation Provider Agreements.

         In November 2012 and January 2013, United Health's Chief Executive Officer, Andy Sekel, contacted La Frontera to discuss a potential replacement of one of United Health's then-existing statewide subcontractors. See First Amended Complaint ¶ 51, at 14. Also, in January 2013, the HSD Director of Behavioral Health Services and the Collaborative's CEO, Diana McWilliams, contacted La Frontera to gauge La Frontera's “interest in helping New Mexico salvage its behavioral health and substance abuse delivery programs that were nearing collapse.” First Amended Complaint ¶ 52, at 14. In February 2013, representatives from United Health, HSD, and PCG met with La Frontera in Tuscon, Arizona, to discuss La Frontera's bringing its behavioral health operations expertise to New Mexico. See First Amended Complaint ¶ 53, at 14. La Frontera expressed concerns about expanding its operations into New Mexico, see First Amended Complaint ¶ 54, at 14-15, but “United claimed that its management expertise as the Statewide Entity and its implementation of New Mexico's fully operational statewide program would provide a seamless transition for La Frontera to assume operations of United's existing operating facilities, ” First Amended Complaint at ¶ 56, 15. Moreover, “McWilliams expressed concern that the delivery of behavioral health and substance abuse services for New Mexico's most vulnerable substance abuse population of enrollees could be disrupted if La Frontera and other Arizona providers did not help out during the Emergency.” Response at 2. La Frontera agreed to assist the Collaborative and United Health to provide care to United Enrollees, and La Frontera formed, at its own expense, a team to organize and implement a transition into New Mexico. See First Amended Complaint ¶¶ 57-58, at 15. At this point -- January or February 2013 -- “neither HSD nor United/Optum had presented any proposed contract or discussed any terms or conditions of potential agreements, other than that La Frontera would take over for one or more New Mexico providers and would be paid New Mexico Medicaid rates for its services.” Response at 3 (citing Affidavit of Daniel J. Ranieri, Ph.D ¶ 9, at 3 (sworn May 6, 2016), filed May 9, 2016 (Doc. 13)(“Ranieri Aff.”)).

         On June 27, 2013, HSD and La Frontera executed “an emergency, no-bid procurement Human Service Department Professional Services Contract for La Frontera to temporarily assume responsibilities for delivering services in place of United's . . . subcontracted providers.” First Amended Complaint ¶ 59, at 15. The no-bid emergency procurement contract made La Frontera a “participating provider” under United Health's statewide contract with the Collaborative. First Amended Complaint ¶ 62, at 16. HSD agreed under the contract to reimburse La Frontera's start-up costs until La Frontera could directly bill United Health for services rendered to United Health's Enrollees. See First Amended Complaint ¶ 59, at 15-16. HSD paid these start-up funds directly to United Health, which agreed to disburse them to La Frontera. See First Amended Complaint ¶ 59, at 16. To this end, “McWilliams had given direction to [United Health] to pay La Frontera $1, 000, 000 to help defray La Frontera's anticipated costs . . . associated with La Frontera's transition into facilities formerly operated by United's subcontracted providers.” Response at 3 (alterations added)(citing Ranieri Aff. ¶ 11, at 3).

         During negotiations regarding the formation of a provider agreement between United Health and La Frontera, United Health represented to La Frontera that, when La Frontera replaced United Health's then-existing subcontractors, the transition would be seamless, because

(i) United's claims and encounter processing system would easily link to La Frontera's system to ensure lower administrative costs and timely payment; (ii) there would be onsite readily available Enrollee information; (iii) Enrollee medical records would be easily accessible onsite; and (iv) to complete the “turnkey” transition, each site would be staffed with experienced employees and fully licensed and credentialed professionals.

First Amended Complaint ¶ 72, at 19. United Health also directed La Frontera to retain existing employees for terminated providers for at least ninety days and to ensure that all existing employees were re-credentialed, “even though the employees had already been recently credentialed by United under the terms of the Provider Manual.” First Amended Complaint ¶ 74, at 19.

         At the time La Frontera assumed responsibility to deliver services for each terminated United Health subcontractor, United Health directed La Frontera to execute several “Participation Provider Agreements.” See First Amended Complaint ¶¶ 62-63, at 16. See United Behavioral Health Facility Participating Provider Agreement §§ 2.1-9.17, at 1-15 (dated July 8, 2013), filed March 21, 2016 (Doc. 3-1)(“Participating Provider Agreement”). United Health presented La Frontera with the Participating Provider Agreements on a take-it-or-leave it basis, “for the purpose of paying La Frontera for its services negotiated by HSD.” Response at 3-4 (citing Ranieri Aff. ¶ 14, at 3-4). La Frontera had to execute a Participating Provider Agreement as “a condition of payment per the HSD/La Frontera non-procurement contract.” Response at 4. Further, when United Health first presented La Frontera with a Participating Provider Agreement, La Frontera “was only days away from taking over facilities in New Mexico and needed the $1 million authorized by HSD for transition.” Response at 4. United Health and La Frontera executed the first Participating Provider Agreement on July 8, 2013.

         Response at 4 (citing Ranieri Aff. ¶ 15, at 4). La Frontera executed subsequent Participation Provider Agreements during the period beginning in July, 2013, and spanning through October 30, 2013. See First Amended Complaint ¶ 62, at 16. Under these agreements, La Frontera promised to assume responsibility for delivering services at various New Mexico facilities that HSD assigned through United Health to La Frontera and to meet the service delivery needs of United Health's Enrollees. See First Amended Complaint ¶ 64, at 17. United Health, in turn, promised to pay La Frontera for services delivered. See First Amended Complaint ¶ 64, at 17.

         The Participating Provider Agreement that United Behavioral Health and La Frontera executed and made effective on July 8, 2013, contains an arbitration clause. See Motion at 2; Participating Provider Agreement § 7.1, at 11-12. The arbitration clause provides:

It is agreed that prior to any other remedy available to the parties, UBH, Payor, and/or Provider [La Frontera] shall provide written notice of any disputes or claims arising out of their business relationship (the “Dispute”) to the other party within thirty (30) days of the final decision date, action, omission or cause from which the Dispute arose, whichever is later (the “Dispute Date”). . . . If the parties are unable to resolve the Dispute within thirty (30) days following receipt of the notice of Dispute . . . then said party shall issue a notice of arbitration to the other parties. . . . Any arbitration proceeding under this Agreement shall be submitted to binding arbitration in accordance with the rules of the American Arbitration Association (“AAA”). . . . The parties acknowledge that because this Agreement affects interstate commerce the Federal Arbitration Act applies.

Motion at 2-3 (first, third, and fourth alterations in original, second alteration added)(quoting Participating Provider Agreement § 7.1, at 11-12).

         3. La Frontera Incurs Losses as a United Subcontractor from June 27, 2013, through December 31, 2013.

         La Frontera encountered several difficulties in working as a United Health subcontractor from June 27, 2013, through December 31, 2013. First, when La Frontera's transition team initiated operations in Las Cruces, New Mexico, it discovered that United Health's representations regarding its processing system, information available onsite, and credentialing were false. See First Amended Complaint ¶ 73, at 19; Motion at 2 (“With regard to the formation of the Agreement, [La Frontera] alleges that [United Health] made numerous fraudulent and negligent misrepresentations to [La Frontera] for the purpose of inducing [La Frontera] to enter into the Agreement.”)(alterations added). These misrepresentations caused La Frontera increased expenses, and “added at least three months of additional structure and implementation work by La Frontera to effectuate the transition.” First Amended Complaint ¶ 75, at 20. Second, United Health did not disclose that La Frontera “would have to utilize the same facilities as the terminated providers by first renegotiating facility leases at unfavorable terms . . . .” First Amended Complaint ¶ 78, at 20. Third, “United's claims processing system would not accept La Frontera's claims, ” First Amended Complaint ¶ 75, at 20, and United Health had failed to disclose its “claim payment system was not capable of paying La Frontera's claims without significant technical modifications that United subsequently claimed were not possible, ” First Amended Complaint ¶ 78, at 20. To overcome some of these difficulties, from July through December 2013, “the Collaborative and La Frontera worked together to try to ensure that the transition process did not disrupt or delay services to United's Enrollees.” First Amended Complaint ¶ 79, at 20.

         “La Frontera lost money every month it operated in New Mexico.” First Amended Complaint ¶ 80, at 21. La Frontera submitted unpaid claims for services rendered to United Health and to “one of United's other companies, Netwerkes Clearing House, Inc.” First Amended Complaint ¶ 81, at 21. United promised to supply expertise to cure its claims processing issues, “but made no reasonable effort to enable its system to pay La Frontera for the services rendered to United's Enrollees during the Emergency” -- i.e., during the time that La Frontera provided services from June 27, 2013, through December 31, 2013, pursuant to the HSD emergency, no-bid procurement agreement. First Amended Complaint ¶ 84, at 22.

         La Frontera submitted all of its unpaid claims to United Health, and United Health received all of La Frontera's unpaid claims “no later than January 2014.” First Amended Complaint ¶ 84, at 22. In March, 2014, United Health asked La Frontera to resubmit all of its unpaid claims; La Frontera resubmitted all 30, 000 of its unpaid claims. See First Amended Complaint ¶ 86, at 22. United Health's claims payment system rejected all of La Frontera's claims. See First Amended Complaint ¶ 86, at 22. United Health again asked La Frontera to resubmit its unpaid claims over a ten-day time period, but without submitting more than 5, 000 unpaid claims per day. See First Amended Complaint ¶ 87, at 22. La Frontera edited 30, 000 claims to conform to United Health's edits, but United Health rejected all of La Frontera's unpaid claims as untimely submitted. See First Amended Complaint ¶ 87, at 22. La Frontera was not paid $3.9 million plus interest that United Health owes La Frontera for services delivered to United Health's Enrollees during the time that La Frontera provided services from June 27, 2013, through December 31, 2013, pursuant to the HSD emergency, no-bid procurement agreement. See First Amended Complaint ¶ 87, at 22. From June through December 2013, United Health either underpaid or failed to pay its Arizona-based providers for services rendered to United Health's Enrollees. See First Amended Complaint ¶ 47, at 13.

         “In December 2013, La Frontera was desperately low on funds.” Response at 4. La Frontera sought payment from United Health, and, “[a]s a condition of payment (obligation already owed by United to La Frontera)[, ] La Frontera was forced to sign a Settlement Agreement and Release with [United Health].” Response at 4. See Settlement Agreement and Release By and Between United Behavioral Health and La Frontera, Inc. at 22-25 (dated December 19, 2013), filed May 9, 2016 (Doc. 13)(“Settlement Agreement”). The Settlement Agreement contains a broad release that ostensibly applies to claims for payment that La Frontera incurred between July 8, 2013, and December 31, 2013. Settlement Agreement ¶¶ 1-3, at 22-23. Anticipating arbitration of La Frontera's claims, United Health plans to rely on the Settlement Agreement to argue that its release “bars most, if not all, of the payment claims that [La Frontera] is now pursuing.” Reply at 2 n.1. The Settlement Agreement itself contains a separate arbitration provision. See Response at 3; Settlement Agreement at ¶ 8, 24. The Settlement Agreement's arbitration provision provides:

Any controversy or claim arising out of or relating to this Settlement Agreement or the Subject Matter shall be resolved by confidential arbitration administered by the American Arbitration Association under its Commercial Arbitration rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Settlement Agreement ¶ 8, at 24.

         Despite the Settlement Agreement, La Frontera continued to seek payment from United Health. See Response at 4-5. “United put La Frontera off throughout 2014.” Response at 4. La Frontera's 2015 attempts to seek reimbursement of its unpaid claims also proved fruitless. See Response at 5.

         PROCEDURAL BACKGROUND

         On March 14, 2016, La Frontera filed a First Amended Complaint in state court, alleging nine separate state law tort, contract, statutory, and restitutionary claims against United. See First Amended Complaint ¶¶ 89-165, at 22-36. These claims arise from the circumstances surrounding the formation and performance of several provider agreements that United Health and La Frontera executed. See First Amended Complaint ¶¶ 89-165, at 22-36. Also, on March 14, 2016, United Health filed a Notice of Removal, removing La Frontera's action to federal court, based on diversity jurisdiction. See Notice of Removal ¶¶ 5-6, at 1-2. One week later, on March 21, 2016, United Health filed the Motion.

         1. United Health's Motion.

         United Health moves the Court, pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (“FAA”), the New Mexico Uniform Arbitration Act, N.M. Stat. Ann., §§ 44-7a-1 to 44-7a-32 (“NMUAA”), and the Participating Provider Agreement into which La Frontera entered with United, to compel arbitration and to stay this action pending resolution of the arbitration. See Motion at 1. United Health points to the Participating Provider Agreement, indicating that the agreement requires that disputes “arising out of [United Health and La Frontera's] business relationships” be submitted to arbitration. Motion at 1, 3 (citing Participating Provider Agreement § 7.1, at 11). United Health contends that, because “all of [La Frontera's] claims relate to either the formation or performance of the [Participating Provider Agreement], La Frontera's claims necessarily ‘aris[e] out of their business relationship.'” Motion at 3 (first and second alterations added, third alteration in original)(quoting Participating Provider Agreement § 7.1, at 11). Consequently, United Health asserts that La Frontera's claims “must be submitted to binding arbitration.” Motion at 3.

         United Health asserts that, “[u]nder controlling federal and New Mexico law, arbitration is mandatory upon demand in cases, like this one, where the claims fall within the scope of the arbitration agreement.” Motion at 3 (citing 9 U.S.C. § 2; N.M. Stat. Ann. § 44-7A-7). United Health relies on the proposition from Parris v. Valero Retail Holdings, Inc., 727 F.Supp.2d 1266 (D.N.M. 2010)(Browning, J.), that “‘Congress, the New Mexico Legislature, and federal and New Mexico courts have expressed a strong public policy favoring arbitration.'” Motion at 3 (quoting Parris v. Valero Retail Holdings, Inc., 727 F.Supp.2d at 1281). United Health further contends that “[c]ourts take a liberal policy toward arbitration and resolve ‘any doubts concerning the scope of arbitrable issues . . . in favor of arbitration.'” Motion at 4 (first alteration added, second alteration in Motion)(quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). “Once a party files a motion to compel arbitration, ” United Health alleges, “the court's role is limited to determining whether an agreement to arbitrate exists and whether the dispute falls within its scope.” Motion at 4 (citing N.M. Stat. Ann. § 44-7A-7). United Health argues that, upon concluding that an arbitration agreement exists and encompasses the dispute, courts have no discretion, but only the power to order arbitration to occur. See Motion at 4 (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985)(alteration in Motion)(“[T]he [Federal Arbitration] Act leaves no place for the exercise of discretion by a District Court, but instead mandates that District Courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”)).

         United Health additionally argues that arbitration provisions which require arbitration of disputes arising from the parties' business relationships are construed broadly. See Motion at 4 (internal citations omitted). In support of this thesis, United Health asserts that arbitration provisions “have been held to govern claims arising from the contract, those that did not arise from the contract, such as statutory claims, and claims that arose prior to the execution of the contract.” Motion at 4 (citing Aztec Med. Servs. v. Burger, 792 So.2d 617, 622-24 (Fla. App. 2011); Kan. City Urology, P.A. v. United Healthcare Servs., 261 S.W.3d 7, 11 (Mo. App. 2008); Lakeland Anesthesia, Inc. v. United Healthcare of La., Inc., 871 So.2d 380, 392 (La.App. 2004)). United Health presses that fraudulent inducement claims are also subject to arbitration, except when a fraudulent inducement claim specifically alleges that an arbitration clause was induced by fraud. See Motion at 4-5 (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443-49 (2006); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406 (1967); NCR Corp. v. Hoppe Specialty Co., No. CIV 93-0791 LH/DJS, 1994 WL 510999, at *2 (D.N.M. Jan 28, 1994)(Hansen, J.)). United Health concludes, therefore, that because La Frontera's “claims arise in their entirety from the circumstances surrounding the formation and performance of the Agreement it entered into with [United Health, La Frontera's] claims necessarily arise from its business relationship with [United Health] and are subject to binding arbitration.” Motion at 5 (alterations added). United Health asserts that the Court should order arbitration and stay the proceedings until the arbitration's resolution. See Motion at 5.

         2. La Frontera's Response.

         La Frontera responds in opposition to United Health's Motion, asserting that “[t]here is no valid, enforceable agreement to arbitrate.” Response at 1. La Frontera states that “whether a valid agreement to arbitration exists” is a threshold question, Response at 5 (citing 9 U.S.C. § 2), and further contends that, “[w]hile there is a presumption in favor of arbitration, that presumption disappears when the parties dispute the existence of a valid arbitration agreement, ” Response at 5 (alteration added)(citing Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir. 2002)(McKay, J.); Heye v. Am. Golf Corp., 2003-NMCA-138, 80 P.3d 495, 498). La Frontera contends that “[a]greements to arbitrate may accordingly be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Response at 5 (citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). After setting forth general propositions regarding the unenforceability of arbitration agreements, La Frontera forwards three arguments to support its view that the Court should not compel arbitration. See Response 6-12.

         First, La Frontera argues that the Participating Provider Agreement's arbitration clause does not bind the parties. See Response at 6-8. La Frontera asserts that the Participating Provider Agreement is not controlling, because it “was executed solely for the money to flow from HSD through United to La Frontera.” Response at 7. La Frontera contends that the controlling agreement between the parties was negotiated “in the midst of the New Mexico behavioral health emergency, ” Response at 7, and La Frontera states that the controlling agreement's terms were simple:

La Frontera agreed (i) to timely and appropriately assume responsibility for delivering services at various New Mexico facilities assigned by HSD through United to La Frontera; and (ii) to meet the service delivery needs of United's Enrollees. For its part, United promised HSD that United would pay La Frontera for delivering these services during the Emergency.

         Response at 7. According to La Frontera, its agreement with HSD is controlling. See Response at 7.

         Second, La Frontera contends that the Participating Provider Agreement is unconscionable and, hence, unenforceable. See Response at 7-10. La Frontera concedes that New Mexico law does not require a showing of both procedural and substantive unconscionability to invalidate a contract. See Response at 8 (citing Cordova v. World Finance Corp., 2009-NMSC-021, ¶ 24, 208 P.3d 901, 907). Nevertheless, La Frontera makes arguments sounding in both procedural and substantive unconscionability. See Response at 8-10.

         Regarding substantive unconscionability, La Frontera asserts that “an unconscionable agreement is one ‘that is unreasonably favorable to one party while precluding a meaningful choice of the other party.'” Response at 8 (quoting Cordova v. World Finance Corp., 2009-NMSC-021, ¶ 24, 208 P.3d at 907). La Frontera argues that the Participating Provider Agreement is unfair, because, as it is a services contract, “the most likely claim either party would ever file under the agreement would be a claim for damages by La Frontera for [United Health's] failure to pay.” Response at 9. La Frontera then explains that, if La Frontera failed to perform under the contract, United Health would not likely sue or seek arbitration, “because [United Health] can simply terminate the agreement and decline to allow La Frontera to continue providing services to Medicaid beneficiaries.” Response at 10. La Frontera emphasizes that, “[a]lthough the provision appears to require both parties to arbitrate any disputes, the only colorable dispute likely to be subject to the provision is a claim by La Frontera that United failed to pay.” Response at 10. La Frontera states that, where arbitration agreements appear fair, but really “adversely affect only one party to the agreement, ” they are unconscionable. Response at 10 (citing Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 2013-NMCA-077, ¶¶ 22-25, 306 P.3d 480, 489-90).

         La Frontera also stresses that the Participating Provider Agreement contains a provision which marks a significant departure from New Mexico's six-year statute of limitations for actions arising from written contracts. See Response at 9 (citing N.M. Stat. Ann. § 37-1-3(A)). Participating Provider Agreement § 7.1 states that “the parties knowingly and voluntarily waive any right to a Dispute if arbitration is not initiated within one year after the Dispute Date, ” where “Dispute Date” is defined as “the final decision date, action, omission, or cause from which the Dispute arose, whichever is later.” Participating Provider Agreement § 7.1, at 11. La Frontera argues that this arbitration agreement's provision severely limits La Frontera's rights. See Response at 9.

         La Frontera next states that, “[w]hen looking at procedural unconscionability, the Court ‘examines the particular factual circumstances surrounding the formation of the contract, including the relative bargaining strength, sophistication of the parties, and the extent to which either party felt free to accept or decline terms demanded by the other.'” Response at 8 (quoting Cordova v. World Finance Corp., 2009-NMSC-021, ¶ 23, 208 P.3d at 907-08). La Frontera explains that, before it began providing service in New Mexico, HSD advised La Frontera that, to obtain the one million dollar transition payment that HSD authorized, La Frontera had to execute the Participating Provider Agreement with United Health. See Response at 7. La Frontera presses that “[t]here was no negotiation of any terms and conditions that [United Health] included in the [Participating Provider Agreement].” Response at 7 (alterations added).

         La Frontera accordingly argues:

It is fundamentally unfair to bind La Frontera to the arbitration term in the [Participating Provider Agreement], which was executed solely as a condition of payment for services promised by La Frontera to HSD. . . . La Frontera had no choice but to execute the [Participating Provider Agreement] if La Frontera was to be paid.

Response at 8. As a result, La Frontera contends that the arbitration agreement is procedurally unconscionable and therefore unenforceable. See Response at 8.

         Third, La Frontera asserts that the Court should not compel arbitration of all of La Frontera's claims, because not all of the claims that La Frontera asserts in its First Amended Complaint arise from the Participating Provider Agreement. See Response at 10-12. La Frontera maintains its argument that its claims arise, not under the Participating Provider Agreement, but rather under a contract it entered with HSD before executing the Participating Provider Agreement. La Frontera explains that

the essence of [its] claims is that there were multiple agreements among the parties, but the only properly negotiated terms and conditions were for La Frontera to take over provision of behavioral health services from one or more of [United Health's] New Mexico providers and for [United Health] to pay La Frontera for the services at 100% of New Mexico's Medicaid rates.

Response at 10. La Frontera further argues that one of its claims “is based on its status as a third party beneficiary of [United Health's] Statewide Contract with the Collaborative.” Response at 10 (citing First Amended Complaint ¶¶ 130-142, at 31-33). La Frontera relatedly argues that the Court should not compel arbitration of its promissory estoppel and quantum meruit/unjust enrichment claims, because those claims “are not based on any written agreements with [United Health].” Response at 11. See First Amended Complaint ¶¶ 155-65, at 35-36. La Frontera further contends that “[t]he facts underpinning La Frontera's claims do not require performance or interpretation of the [Participating Provider Agreement], ” nor arise out of that agreement. Thus, La Frontera concludes that the Court should not compel arbitration of all or certain of its claims. Response at 12. See id. at 11 (citing CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165, 172 (3rd Cir. 2014)).

         Last, La Frontera states that a stay is unnecessary. See Response at 12. La Frontera argues that United Health “made no showing of a need for a stay.” Response at 12. Further, La Frontera explains that, “[e]ven where there is a combination of arbitrable and nonarbitrable claims, litigation can proceed in piecemeal fashion and the entire action does not need to stay pending arbitration.” Response at 12 (citing Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1517 (10th Cir. 1995)). Accordingly, La Frontera requests that the Court deny United Health's Motion in its entirety. See Response at 12.

         3. United Health's Reply.

         United replies in support of its Motion, arguing that La Frontera's attempts to circumvent the Participating Provider Agreement's arbitration clause fail. See Reply at 1-12. United Health begins by reiterating its view that the arbitration agreement, which became effective on July 8, 2013, is legally binding. See Reply at 2-3. United Health also reiterates its view that the Participating Provider Agreement's arbitration clause “applies to all disputes and claims between the parties, regardless whether the claims are based on the terms of the Agreement.” Reply at 3 (emphasis in original). United Health restates both the FAA's and New Mexico's “strong policy favoring arbitration.” Reply at 3. United Health then turns to its overarching reply that La Frontera's “sole argument to invalidate the arbitration provision (as being unconscionable) fails, and all of [La Frontera's] claims fall within the broad scope of the arbitration provision.” Reply at 4.

         United Health replies to La Frontera's unconscionability arguments. See Reply at 4-9. United Health notes that La Frontera has the burden to prove that the arbitration agreement is unconscionable. See Reply at 4 (citing Strausberg v. Laurel Healthcare Providers, LLC, 2013-NMSC-032, ¶ 39, 304 P.3d 409, 419). United Health asserts that La Frontera cannot sustain its burden, first, because La Frontera “provides no evidence that would render the Agreement procedurally unconscionable” and, second, regarding substantive unconscionability, because “the arbitration provision in the Agreement applies to [United Health and La Frontera] in precisely the same manner.” Reply at 4 (alterations added).

         With respect to La Frontera's procedural unconscionability argument, United Health argues that La Frontera offers no evidence of procedural unconscionability. See Reply at 5-7. United Health contends that “[c]ourts applying New Mexico law have routinely rejected [that defense] . . . where the party seeking to avoid an arbitration provision . . . argues merely that it had no choice but to sign the contract.” Reply at 5 (citing Guthmann v. LaVida Llena, 1985-NMSC-106, ¶ 18, 709 P.2d 675, 679; Barron v. Evangelical Lutheran Good Samaritan Soc'y, 2011-NMCA-094, ¶ 45, 265 P.3d 720, 732-33; THI of N.M. at Vida Encantada, LLC v. Archuleta, 2013 WL 2387752, at *17 (D.N.M. April 30, 2015)(Hansen, J.)). United Health contends that La Frontera provides no evidence that it, or its President and CEO, Ranieri, was rushed into signing the contract without an opportunity to read it, that La Frontera or Ranieri signed the agreement under duress, that Ranieri was misled regarding the agreement's terms, or that United Health employed any high pressure tactics against La Frontera or Ranieri. See Reply at 5. Moreover, according to United Health, La Frontera is a “large, sophisticated corporation that provides an array of behavioral health services through several facilities, ” and, hence, is not the contracting party that ordinarily is a victim for whom unconscionability offers a sound defense. Reply at 6 (citing Guthmann, 1985-NMSC-106, ¶ 21, 709 P.2d at 680).

         In reply to La Frontera's substantive unconscionability defense, United first states that the defense “analyzes whether the particular terms of the contract are unfairly and unreasonably one-sided in favor of the drafter.” Reply at 7 (citing Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 2013-NMCA-077, ¶ 13, 306 P.3d 480, 486; Fiser v. Dell Computer Corp., 2008-NMSC-046, ¶ 20, 188 P.3d 1215, 1221). United asserts that La Frontera relies exclusively on cases in which the challenged arbitration provision was one-sided -- i.e., where the arbitration agreement requires the non-drafting party to arbitrate its likely claims, but reserved to the drafting party the option to pursue its likely claims through litigation. Reply at 7-9 (citing Response at 8-10 (citing Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 2013-NMCA-077, 306 P.3d 480; Cordova v. World Finance Corp., 2009-NMSC-021, 208 P.3d 901)). United Health indicates that the Participating Provider Agreement's arbitration clause, by contrast, is not one-sided, because it requires both parties to submit all claims arising from their business dealings to arbitration without exception. See Reply at 8 (citing Participating Provider Agreement § 7.1, at 11-12).

         United Health also replies to La Frontera's argument that the arbitration provision is effectively one-sided, because, according to La Frontera, United Health is unlikely to pursue a claim against La Frontera. See Reply at 8. United Health attacks La Frontera's premise, arguing that, in fact, United Health

could initiate a variety of claims against [La Frontera] through arbitration, including . . . (i) the recovery of overpayments made to [La Frontera] by mistake or due to inaccurate or fraudulent billing submissions . . . and (ii) declaratory relief to establish [United Health's] right to terminate the Agreement as a result of a breach by [La Frontera].

Reply at 8 (alterations added). United Health contends that, because the Participating Provider Agreement's arbitration clause requires it to submit these claims to arbitration, the clause is not unfairly one-sided and, hence, not substantively unconscionable. See Reply at 8. United Health additionally argues that substantive unconscionability occurs where an arbitration agreement “except[s] the drafting party from the requirement to arbitrate certain types of claims.” Reply at 8 (emphasis in original)(citing Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 2013-NMCA-077, ¶¶ 28-30, 306 P.3d at 491; Cordova v. World Finance Corp., 2009-NMSC-021, ¶¶ 24-25, 208 P.3d at 908). United Health asserts that the Participating Provider Agreement's arbitration clause contains no such exception, and, on that ground, advances the stronger thesis that “the issue of which party is more likely to initiate a claim . . . is wholly relevant.” Reply at 9. Consequently, United Health concludes that the Participating Provider Agreement's arbitration clause is not substantively unconscionable. See Reply at 9.

         United Health additionally replies to La Frontera's argument that the Participating Provider Agreement's arbitration clause does not apply to all of La Frontera's claims. See Reply at 9-11. United Health clarifies that La Frontera “bears the burden of proving that its claims do not fall within the scope of the arbitration provision . . . .” Reply at 9 (citing AT&T Techs, Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 650 (1986)). United Health also reasserts it view that the Court should construe the arbitration agreement liberally, resolving doubts regarding the arbitration agreement's scope in the favor of arbitration. Reply at 9 (citing AT&T Techs, Inc. v. Commc'ns Workers of Am., 475 U.S. at 650). United Health then adverts to the Participating Provider Agreement's arbitration clause, stating that the clause “applies to all disputes or claims by either party ‘arising out of their business relationship.'” Reply at 9 (emphasis in original)(quoting Participating Provider Agreement § 7.1, at 11).

         In reply to La Frontera's assertion that certain of La Frontera's claims are not based on the Participating Provider Agreement's terms, United contends that “the law is clear that [La Frontera's] claims need not be based on the terms of the Agreement in order to fall within the broad scope of the arbitration provision.” Reply at 9 (citing Zink v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 13 F.3d 330, 332 (10th Cir. 1993)(Tacha, J.); Merrick v. UnitedHealth Grp., Inc., 127 F.Supp.3d 138, 150 (S.D.N.Y. 2015)(Ramos, J.); Aztec Med. Servs. v. Burger, 792 So.2d at 623; Kan. City Urology, P.A. v. United Healthcare Servs., 261 S.W.3d at 11; Lakeland Anesthesia, Inc. v. United Healthcare of La., 871 So.2d at 391-92 & 396 n.3 (La. Ct. App. 2004)). United Health contends that “all of the claims that it seeks to litigate in this action are based on [United Health's] alleged failure to pay claims that [La Frontera] submitted to [United Health] for medical services [La Frontera] provided.” Reply at 11 (alterations added)(citing Response at 11). United Health argues that such claims “unquestionably involve ‘the business relationship' between [United Health and La Frontera]” and, as a result, are not shielded from arbitration, even though some of La Frontera's claims either do not sound directly in the Participating Provider Agreement's terms or arise from conduct that predates that agreement. Reply at 11 (alterations added)(quoting Participating Provider Agreement at § 7.1, 11).

         Last, United Health clarifies that it requests a stay pursuant to FAA § 3, which, in its entirety, provides:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3. United Health argues that it is not “seeking to prevent any non-arbitrable claims from going forward, ” because, in United Health's view, “all of [La Frontera's] claims are subject to arbitration.” Reply at 12 (alteration added). Consequently, United Health argues that the Court should enter an order compelling La Frontera to submit its claims to binding arbitration and stay the proceedings pending resolution of the arbitration. See Reply at 12.

         4. The Hearing.

         On July 26, 2016, the Court held a hearing on United Health's Motion. See Draft Transcript of Hearing at 1:1-2, taken July 26, 2016 (Court)(“Tr.”).[2] Upon the Court's invitation, United Health presented its theory of the case, tacking closely to the arguments that it made in its Motion and Reply. See Tr. at 2:6-7:4 (Park). United Health argued that, under the FAA, the Court must resolve two inquiries only: (i) whether there is a valid agreement to arbitrate; (ii) whether, if there is a valid agreement to arbitrate, the agreement's scope covers the claims involved in the lawsuit. See Tr. at 2:11-18 (Park). Addressing those questions in reverse order, United Health argued that the Court should conclude each question in the affirmative. See Tr. at 2:19-7:4 (Park). United Health asserted that all of La Frontera's claims arise out “of the business relationship” with United Health and, therefore, the July, 2013, arbitration agreement covers all of La Frontera's claims against United Health. See Tr. at 3:6-8 (Park). United Health then argued that the arbitration agreement is neither substantively nor procedurally unconscionable, see Tr. at 3:22-6:18 (Park), summarizing that “this is a bilateral arbitration agreement that both parties executed freely and fairly, ” Tr. at 6:19-21 (Park). United Health also stressed that La Frontera could not have overlooked the Participating Provider Agreement's arbitration clause, because the Participating Provider Agreement includes, directly above the signature line, a bolded, all-caps warning that the agreement contains an arbitration clause. See Tr. at 5:20-25 (Park).

         The Court then asked Mr. Park, who had entered an appearance for “United, ” whom he represents. See Tr. at 1:22-23 (Park); Tr. at 2:7-8 (Court). Mr. Park stated that he represents all defendants in the case. See Tr. at 2:9-10 (Park). Mr. Park explained that La Frontera has a business relationship with all the United Health Defendants and that the arbitration agreement governs all La Frontera's claims against United Health arising from their business relationship. See Tr. at 7:19-8:2 (Park).

         The Court then inquired into the corporate relationship between Defendants United Behavioral Health and United Healthcare Insurance Company. See Tr. at 8:3-8 (Court). Mr. Park explained that the corporate relationship between those companies was a parent-subsidiary relationship, but acknowledged that “it could be a sister corp relationship.” Tr. at 8:9-15 (Park). The Court again inquired whether Mr. Park represents all Defendants, and Mr. Park confirmed that he did. See Tr. at 9:1-3 (Court, Park). After recognizing that, in New Mexico, Optumhealth does business as United Behavioral Health, the Court then asked whether the arbitration agreement at issue was between (i) United Behavioral Health and La Frontera; (ii) United Healthcare Insurance Company and La Frontera; or (iii) both United Behavioral Health and United Healthcare Insurance Company and La Frontera. See Tr. at 9:13-20 (Court). The Court also inquired whether there is at issue one or two agreements between United Health and La Frontera. See Tr. at 9:13-20 (Court). Mr. Park clarified his understanding that there was one arbitration agreement between La Frontera, and all of the United Health parent, subsidiary, and sister corporations. See Tr. at 9:21-10:3 (Park).

         Upon the Court's invitation, La Frontera indicated its view that “the United Behavioral Health, Inc., is a corporation, United Healthcare Insurance Company, Inc., is a corporation. And they do business in New Mexico as Optumhealth.” Tr. at 10:20-23 (Kolsrud). The Court then looked to the July 8, 2013, Participating Provider Agreement, which indicates the contracting parties as United Behavioral Health and La Frontera. See Tr. at 11:24-12:4 (Court). See also Participating Provider Agreement at 16. The Court asked La Frontera whether there is “a contract between La Frontera and United Healthcare Insurance Company, Inc.” Tr. at 11:24-12:4 (Court). La Frontera indicated that there was not a contract between these two entities. See Tr. at 12:5 (Kolsrud). The Court then asked La Frontera whether it is “disputing that [the July 8, 2013, arbitration agreement] covers or doesn't cover United Healthcare Insurance Company, Inc.” Tr. at 12:6-8 (Court). La Frontera was “not sure if [the Participation Provider Agreement's arbitration clause] does or not [cover United Healthcare Insurance Company] . . . [because La Frontera was] not sure . . . which entity was conducting which portion of the management business at that time.” Tr. at 12:9-13 (Kolsrud).

         Mr. Park again attempted to shed light on the corporate relationship between the United Health entities, explaining that “Optumhealth New Mexico is a joint venture between United Behavioral and United Healthcare.” Tr. at 22:23-24 (Park). Mr. Park stated that United Behavioral Health and United Healthcare Insurance Company came together to create Optumhealth New Mexico, and, in New Mexico, United Behavioral Health does business as Optumhealth New Mexico. See Tr. at 23:1-5. The Court then reiterated its concern that, looking at the Participating Provider Agreement's face, it is ...


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