DUNCAN, Circuit Judge:
Appellees Wheeling Hospital and Belmont Hospital (collectively "the hospital plaintiffs"), along with other medical providers, commenced this putative class action in West Virginia state court on May 19, 2010, against the Ohio Valley Health Services and Education Corporation, Ohio Valley Medical Center and East Ohio Regional Hospital, (collectively, the "OV Health System Parties"), and appellant The Health Plan of the Upper Ohio Valley, Inc. ("The Health Plan"). The plaintiffs sued in order to collect amounts allegedly owed to them by employee benefit plans established by the OV Health System Parties, for which The Health Plan acted as administrator.
After pretrial activity described in detail below, The Health Plan moved to dismiss the claims brought against it by the hospital plaintiffs pursuant to an arbitration agreement between the parties. The district court denied this motion, holding that The Health Plan had defaulted on its right to arbitrate. This appeal ensued. After assuring ourselves of appellate jurisdiction, we conclude that the district court erred in its determination that The Health Plan defaulted on its right to arbitrate. We therefore reverse the district court's denial of The Health Plan's motion to dismiss.
Because this appeal turns on the procedural history of the case in the district court, we begin there. Counts I and II of the Complaint set forth breach of contract claims against the OV Health System Parties. Count III sets forth a separate breach of contract claim against The Health Plan premised on its alleged unconditional obligation to pay plaintiffs for the health care services provided to persons covered by the relevant employee benefit plans.
On June 18, 2010, the defendants removed the case to federal court. On June 21, 2010, the district court issued an order and notice regarding discovery and scheduling pursuant to Rules 16(b) and 26(f) of the Federal Rules of Civil Procedure. On June 23, 2010, The Health Plan filed an answer to the Complaint.
On June 25, 2010, the OV Health System Parties, but not The Health Plan, filed a motion to dismiss the claims asserted against them, or in the alternative for summary judgment. They advanced three arguments. First, they argued that the claims should be dismissed pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure because the OVHS & E Health Benefit Plan, a purported indispensable party, had not been joined in the action. Second, the OV Health System Parties argued that they did not owe a payment obligation to plaintiffs under the contracts at issue and, as a result, the claims should be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Finally, the OV Health System Parties argued that plaintiffs' claims should be dismissed for a purported failure to exhaust administrative remedies set forth in the
While the motion to dismiss was pending, plaintiffs filed a motion for remand.
That same day, The Health Plan filed a pleading titled "Response to ... Motion to Dismiss, or in the Alternative, Motion to Join in Result." J.A. 141-42. The Health Plan argued that "[t]o the extent this Court is inclined to grant the [OV Health System Parties' motion to dismiss]," The Health Plan "will be entitled to a dismissal of all claims against it as well." J.A. 141. If the district court concluded that the OVHS & E Health Benefit Plan was an indispensable party, The Health Plan contended, "the Court will have necessarily determined that the Court cannot accord complete relief among the existing parties to the action. As a consequence, dismissal would be appropriate and in fact required as to all defendants, including The Health Plan." Id. "Similarly," the motion continued,
Id. at 141-42. Notably, The Health Plan did not seek a dismissal on the merits under Rule 12(b)(6).
On July 26, 2010, plaintiffs filed a motion to strike The Health Plan's response to the motion to dismiss, and an opposition to its alternative motion to join in result. They argued that The Health Plan's pleading was a "belated and unsupported motion to dismiss and a premature and unsupported motion for summary judgment." J.A. 177. Plaintiffs further contended that The Health Plan's motion should be denied on the merits because, even if the district court were to grant the OV Health System Parties' motion to dismiss, that grant would not preclude or limit plaintiffs' breach of contract claim against The Health Plan.
On July 30, 2010, the parties filed their Report of Planning Conference, in which they were required to consider, inter alia, alternative dispute resolution processes. The Report did not mention The Health Plan's intent to compel arbitration of any of the claims asserted against it. The Report contained proposed scheduling deadlines, including a proposed November 5, 2011 trial date. On August 2, 2010, the district court entered a scheduling order setting dates for, among other things, the close of discovery (August 1, 2011), a pretrial conference (October 17, 2011) and trial (November 1, 2011).
Also on August 2, 2010, The Health Plan filed a response to plaintiffs' motion to strike. Therein, it disputed the plaintiffs' characterization of its motion, and argued that its motion constituted a "timely response to the Ohio Valley Health System Defendants' Motion." J.A. 194.
On September 8, 2010, plaintiffs noticed the deposition of two Health Plan witnesses. On September 14, 2010, plaintiffs served discovery on The Health Plan in the form of interrogatories and requests
On December 2, 2010, the district court entered a memorandum opinion and order on outstanding motions. The district court denied the motion for remand. It granted the OV Health System Parties' motion to dismiss under Rule 12(b)(6): "Because the plaintiffs cannot state a breach of contract action against the OV Health System Parties either directly or as third-party beneficiaries, this Court must dismiss Count I and II of the plaintiffs' complaint for failure to state a claim." J.A. 429. The district court denied the OV Health System Parties' motion to dismiss under Rule 12(b)(7), however, concluding that complete relief could be provided without joining the employee benefit plans because "[t]he plaintiffs contracted for payment in the [Hospital Service Agreements] with the Health Plan. It is The Health Plan's responsibility under the [contract] to pay the plaintiffs for any health care services provided to participants in the employee benefit plans." J.A. 430. Turning to The Health Plan's response to the OV Health System Parties' motion, the district court first denied the plaintiffs' motion to strike. It then denied The Health Plan's alternative motion to join in result for the same reason it had denied the OV Health System Parties' 12(b)(7) motion, holding that under the facts alleged, The Health Plan was contractually obliged to make payments to the plaintiffs. Thus, after the district court's ruling, The Health Plan was the only remaining defendant in the suit.
On January 10, 2011, plaintiffs filed a motion for leave to amend their complaint to add additional plaintiffs, which the district court granted. On January 27, 2011, The Health Plan filed a motion to dismiss the amended complaint with prejudice. The Health Plan's memorandum in support of this motion divides the named plaintiffs in the amended complaint into three distinct categories: (1) physician practice groups; (2) individual physicians; and (3) hospitals, i.e., Belmont Hospital and Wheeling Hospital. The Health Plan argued that it and the hospital plaintiffs had a relationship governed by Hospital Service Agreement contracts. The memorandum contains a "Background" section, which sets forth in detail the terms of those contracts, including the "Disputes and Arbitration" clause contained therein. At the conclusion of the Background section, the memorandum states, "Hospital Plaintiffs' allegations of breach of contract by the Health Plan by nonpayment is plainly encompassed by this arbitration provision ... the Court should compel separate binding arbitrations for each Hospital Plaintiff's claims." J.A. 483. Part I.B. of the memorandum is titled "Pursuant to the Express Terms of the Contracts, Hospital Plaintiffs' Claims must be Submitted to Separate, Binding Arbitrations." J.A. 485. It discusses the Supreme Court's case law regarding the enforcement of arbitration agreements, and then argues:
J.A. 487-88. Plaintiffs opposed The Health Plan's motion to dismiss. They argued, inter alia, that The Health Plan
On June 6, 2011, the district court denied The Health Plan's motion to dismiss. With respect to the portion of The Health Plan's motion directed at the claims of the hospital plaintiffs, the district court found that it constituted a demand for arbitration:
J.A. 1534. The district court went on to find, however, that Health Plan had defaulted on its right to arbitration. After reciting the applicable standard for default of the right of arbitration, the district court concluded that the hospital plaintiffs had "met their heavy burden to show that allowing arbitration at this point in the litigation" would prejudice them. J.A. 1536-37. In support of this conclusion, it found that "The Health Plan engaged in over six months of litigation between amending its answer to include the affirmative defense of arbitration and actually demanding arbitration." Id. at 1537. During that time, it further found, the hospital plaintiffs "had to respond to two dispositive motions by The Health Plan on the merits, forcing the hospital plaintiffs to reveal their legal strategy in opposing those motions." Id. The district court observed, "The Health Plan has participated in oral argument and opposed the hospital plaintiffs' motions, arguing that this Court has proper jurisdiction over this civil action. The Health Plan opposed a motion to compel, which the parties subsequently resolved." Id. The district court also noted that "the plaintiffs assert by affidavit that they incurred more than $250,000 in legal fees and expenses," id., but did not adopt this assertion as a finding of fact.
Based on the above findings of fact, the district court concluded as follows:
Id. This appeal followed.
The Health Plan contends that the district court erred in holding that it had defaulted on its right to arbitrate. Before proceeding to the merits of this appeal, however, we must first assure ourselves that we possess appellate jurisdiction, which turns on whether The Health Plan properly invoked the FAA in its motion to dismiss. We first set forth the proper standard for determining our appellate jurisdiction under the FAA. We then apply that standard, concluding that we possess appellate jurisdiction over this appeal.
Federal courts are courts of limited jurisdiction, and we presume that a
"Ordinarily, courts of appeals have jurisdiction only over `final decisions' of district courts." Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 627, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009) (quoting 28 U.S.C. § 1291). The FAA, however, makes an exception to that finality requirement, providing that "[a]n appeal may be taken from... an order":
9 U.S.C. § 16(a)(1). In Stedor Enter's., Ltd. v. Armtex, Inc., 947 F.2d 727 (4th Cir.1991), we elaborated on the meaning of § 16:
Id. at 730 (internal quotation marks and citations omitted).
We have not addressed the exact issue presented here, whether we have appellate jurisdiction to review a denial of a motion to dismiss that demands arbitration without specifically invoking §§ 3 or 4. However, in Choice Hotels Int'l., Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707 (4th Cir.2001), we addressed a related question, i.e., whether a party had "properly invoked" § 3 of the FAA, under which a party may seek a stay of proceedings pending arbitration, even though it had styled its motion as a motion to dismiss. Id. at 709. We held that "[n]otwithstanding the terms of § 3, ... dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable." Id. "Moreover," we added,
Id. at 709-10 (internal quotation marks and citations omitted). Notably, Choice Hotels concerned whether dismissal was an authorized remedy under § 3, and we did not specifically frame our discussion in the terms of appellate jurisdiction, presumably because the appellee did not challenge our jurisdiction. Nevertheless, the opinion's reasoning with respect to what a defendant must do in order to invoke the
Although we have not considered the specific question of appellate jurisdiction over a motion to dismiss that does not specifically invoke §§ 3 or 4, several other circuits have done so. In their analysis, they have adopted an approach similar to the one we articulated in Choice Hotels, focusing on whether the defendant made it clear that it was seeking enforcement of the arbitration clause contained within an applicable agreement. In Conrad v. Phone Directories Co., 585 F.3d 1376 (10th Cir.2009), the Tenth Circuit adopted a two-step process for determining whether a court of appeals has appellate jurisdiction under § 16(a).
Id. at 1385. Although "an approach that looks exclusively to the caption of a motion may seem tempting," Conrad observed, "it would be unworkable" because it "would violate the spirit of notice pleading embodied in our Federal Rules of Civil Procedure" and "create incentives for litigants to `game' the captions of their motions in an effort to gain an interlocutory appeal where none is warranted." Id. It therefore articulated a second step in the process of determining appellate jurisdiction:
Id. (citations omitted). The Tenth Circuit favored a focus on "the relief requested in the motion," concluding that "[i]f the essence of the movant's request is that the issues presented be decided exclusively by an arbitrator and not by any court, then the denial of that motion may be appealed under § 16(a)." Id. at 1385-86.
Id. at 1386. We find this analysis persuasive.
The second step of the Conrad test thus strikes a balance between form and substance, and is in harmony with the other circuits to have considered the issue.
So viewed, we conclude that The Health Plan clearly stated in its motion to dismiss that it was seeking to enforce the arbitration agreement. As already noted, The Health Plan's memorandum, which was incorporated by reference in the motion, set forth in detail the terms of the "Hospital Service Agreement" contracts between the parties, including the "Disputes and Arbitration" clause. The memorandum specifically argued that the court should compel separate binding arbitrations for each hospital plaintiff's claims pursuant to the express terms of the contracts between the parties. Moreover, The Health Plan did not request a judicial remedy that was inconsistent with the position that the issues involved may be decided only by the arbitrator. For these reasons, we are satisfied that we possess appellate jurisdiction over this appeal.
Turning now to the merits, we must determine whether the Health Plan defaulted on its right to arbitration. "We review a district court's decision as to default of arbitration de novo but defer to the district court's underlying factual findings." Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340, 342 (4th Cir.2009). We thus review a district court's finding of actual prejudice de novo if it is based on a legal determination, but we review it for clear error if it is based on a factual determination. See MicroStrategy Inc. v. Lauricia, 268 F.3d 244, 252-53 (4th Cir.2001).
"Under section 3 of the FAA, a party loses its right to a stay of court proceedings in order to arbitrate if it is `in default in proceeding with such arbitration.'" Forrester, 553 F.3d at 342 (quoting 9 U.S.C. § 3). "Default in this context resembles waiver, but, due to the strong federal policy favoring arbitration, courts have limited the circumstances that can result in statutory default." Id.
"Where a party fails to demand arbitration during pretrial proceedings, and, in the meantime, engages in pretrial
In determining what constitutes actual prejudice, we have emphasized that the amount of "delay and the extent of the moving party's trial-oriented activity are material factors in assessing a plea of prejudice." MicroStrategy, 268 F.3d at 249. (internal quotation marks omitted). We consider each factor in turn.
We first consider the amount of delay. In MicroStrategy, we concluded that the appellant's delay of fewer than six months in seeking arbitration was relatively short, and that nothing in the record suggested that "this delay, in and of itself, caused [the appellee] to suffer actual prejudice." Id. at 250; see also Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 205 (4th Cir.2004) (finding no prejudice in four-month delay); Maxum Founds., Inc. v. Salus Corp., 779 F.2d 974, 982 (4th Cir.1985) (finding no prejudice in three-month delay). Accordingly, we concluded that "[a]ny delay by [the appellant] in asserting its right to arbitration, therefore, is insufficient to support a finding of [default]." MicroStrategy, 268 F.3d at 250.
Here, too, we have found nothing in the record that supports a finding of prejudice to the hospital plaintiffs based on that ground. Indeed, during oral argument, the hospital plaintiffs appeared to recognize that a finding of prejudice could not be based on the delay in this case. Thus, the district court, to the extent it based its conclusion of prejudice on the delay, clearly erred in doing so.
"Whether [The Health Plan] [defaulted on] its right to insist on arbitration by virtue of its litigation activities is a more difficult question." MicroStrategy, 268 F.3d at 250. We look to our precedent for guidance in this regard.
We have held that a party suffered actual prejudice because it was forced to respond to a number of potentially damaging motions, including a motion for partial summary judgment and three motions to dismiss. Fraser, 817 F.2d at 252. In Fraser, judgment on several of the claims which the defendant sought to arbitrate was rendered over two years before the defendant made the arbitration. Id. Further, the passing of two trial dates prior to the date for the hearing on the defendant's motion to compel arbitration showed that the plaintiff had to prepare repeatedly for trial rather than arbitration. Id.
Similarly, in Forrester, we found that plaintiffs had suffered actual prejudice where a defendant waited until the eve of the trial before moving to compel arbitration, and "[b]y that time [plaintiffs] had engaged in extensive pretrial preparations including multiple depositions, a motion for summary judgment, motions in limine, and submission of an array of pre-trial pleadings." 553 F.3d at 343. "This use of the litigation process," we held, caused the plaintiffs actual prejudice because it required them "to expend significant time and money," permitted the defendant to defeat several of the plaintiffs' claims on
By contrast, in Patten, we found that no prejudice arose from the appellant's pre-trial activity, reasoning that although the district court had resolved three motions prior to the appellant's attempt to compel arbitration, none were filed by the appellant and none addressed the merits of any of the appellee's claims. 380 F.3d at 206 ("We are unwilling to include activity that the moving party did not initiate in assessing that party's default."). Moreover, we rejected the argument that prejudice arose from the discovery conducted between the parties, noting that at the time of the appellant's motion to compel arbitration, "the parties' discovery efforts were confined to the exchange of interrogatories and requests for production of documents; significantly, the parties had not noticed depositions." Id. "The minimal nature of the discovery conducted in this case," we concluded, "falls well within the scope of discovery we have previously found insufficient to establish prejudice." Id. at 206-07. Importantly, we observed, "Further, [the appellee] fails to demonstrate that [the appellant] availed itself of discovery procedures unavailable in arbitration, or gained a strategic advantage through its discovery requests." Id. at 207. We concluded that the discovery had not caused prejudice "[b]ecause the written discovery conducted here was limited, the parties had not proceeded with time-consuming and expensive depositions, and [the appellee] demonstrates no resulting disadvantage." Id.
Applying the foregoing cases here, we must determine whether the hospital plaintiffs suffered actual prejudice as a result of the extent of The Health Plan's litigation conduct. In its analysis, the district court took into account the fact that the hospital plaintiffs had to respond to two dispositive motions by The Health Plan on the merits, forcing the hospital plaintiffs to reveal their legal strategy in opposing those motions. The district court also found it significant that The Health Plan participated in oral argument and opposed the hospital plaintiffs' motions, including their motion to remand, in which it argued that the district court had jurisdiction over this civil action. Finally, it noted that plaintiffs had asserted by affidavit that they incurred more than $250,000 in legal fees, although it did not adopt this assertion as a finding of fact. We now examine each of the district court's findings.
Preliminary, we must reject the district court's reliance on The Health Plan's opposition to motions filed by the hospital plaintiffs to support a finding of prejudice. As we stated in Patten, we do not include activity that the moving party did not initiate in assessing that party's default. See id. Thus, the district court could not permissibly conclude that prejudice resulted from The Health Plan's responses to plaintiffs' motions, including The Health Plan's assertion of the district court's jurisdiction.
We must likewise reject the district court's conclusion that The Health Plan's dispositive motions
Nor have the hospital plaintiffs demonstrated that they suffered actual prejudice on the ground that they incurred significant expense as a result of litigation activity initiated by The Health Plan. In Patten, we recognized that expenses incurred in responding to the moving party's litigation activities are relevant in assessing a plea of prejudice, though we noted "that at least one circuit has concluded that incurring the legal expenses inherent in litigation is, without more, `insufficient evidence of prejudice to justify finding a [default].'" 380 F.3d at 208 (quoting PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir.1997)). We concluded that we need not resolve the issue because "closer scrutiny of" the legal expenses at issue "indicates that the amount properly attributable to [the appellant's] conduct during the delay in seeking arbitration is, in fact, much smaller." Id. In the $5862.56 total, the appellant had included state court filing fees, document reproduction and mailing costs, mediator fees, and costs attributable to its response to a subpoena from a nonparty. Id. "Such costs are sums that [the appellee] would have incurred irrespective of the timing or the fact of [the appellant's] motion to compel arbitration," we held, "and [the appellant] offers no argument to the contrary." Id.
The facts here are very similar to those in Patten, and compel the same conclusion. First, it bears note that the district court did not adopt the hospital plaintiffs' assertion regarding its expenses. Even assuming that it credited the hospital plaintiffs' assertion, however, it clearly erred in doing so. The hospital plaintiffs' affidavit failed to specify the portion of that amount spent by the hospital plaintiffs, as distinguished from the amount spent by other plaintiffs. Nor did it indicate what portion of that amount was spent litigating against The Health Plan, as distinguished from the amount that was spent litigating against the OV Health System Parties. It also made no effort to indicate what portion of the $250,000 was incurred as a result of litigation activity initiated by The Health Plan. Notably, to the extent the hospital plaintiffs incurred expenses engaging in affirmative discovery, such expenses would not establish prejudice. Patten, 380 F.3d at 208. Similarly, the hospital plaintiffs cannot be prejudiced by costs that they would have incurred irrespective of the
Finally, the crux of the hospital plaintiffs' claim of prejudice is that The Health Plan's filing of the equivalent of a motion for judgment on the pleadings was inherently prejudicial. Having already concluded that this filing did not cause a substantial delay in the litigation, that there is no proof that the hospital plaintiffs were forced to reveal their legal strategy as a result of the filing, nor any evidence that they incurred significant legal expenses as a result thereof, we must now determine whether the filing of the motion is sufficient by itself to give rise to the actual prejudice that is required by our precedent.
Although some of our sister circuits have held that the nonmoving party is prejudiced when the party seeking to arbitrate "litigate[s] substantial issues on the merits," Southeastern Stud & Components, Inc. v. Am. Eagle Design Build Studios, LLC, 588 F.3d 963, 969 (8th Cir. 2009); see also Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 131 (2d Cir.1997) ("The `prejudice' that supports a finding of [default] can be `substantive' prejudice to the legal position of the party opposing arbitration, such as when the party seeking arbitration loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration" (internal quotation marks omitted)), we have never adopted that position in a binding opinion.
In Fraser, discussed above, we found that the appellee was prejudiced in part because it "had to respond to a number of potentially damaging motions, including a motion for partial summary judgment and three motions to dismiss." 817 F.2d at 252. We noted that judgment was rendered on several of appellee's claims over two years before the appellant demanded arbitration, and that the passing of two trial dates showed that the appellee had to prepare repeatedly for trial rather than for arbitration. Id. Notably, we did not adopt, as we could have, a bright line rule that a party is always prejudiced by the filing of a dispositive motion. Instead, we took into account all of the above factors in determining the existence of prejudice.
Our precedent thus counsels against adopting a bright line rule that the mere filing of a dispositive motion on the merits is inherently prejudicial.
For the foregoing reasons, the judgment of the district court is
REVERSED.
