Physician Consortium Services, LLC vs Molina Healthcare, Inc. , 414 F. App'x 240 ( 2011 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 10-13427 ELEVENTH CIRCUIT
FEBRUARY 11, 2011
Non-Argument Calendar
JOHN LEY
________________________
CLERK
D.C. Docket No. 1:10-cv-21208-JLK
PHYSICIAN CONSORTIUM SERVICES, LLC,
a Florida limited liability company,
HS1 NETPASS, LLC,
a Florida limited liability company,
CARE NETPASS, LLC,
a Florida limited liability company,
Plaintifs-Appellees,
versus
MOLINA HEALTHCARE, INC.,
a Delaware corporation,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(February 11, 2011)
Before HULL, MARTIN and COX, Circuit Judges.
PER CURIAM:
The Defendant appeals the district court’s order denying its motion to compel
arbitration of the claims asserted by the Plaintiffs in this diversity action. We
conclude that arbitration should be compelled.
I. STATEMENT OF THE CASE
The Plaintiffs entered into a contract to sell Florida NetPass, LLC, a Florida
health-care company, to Molina Healthcare of Florida, Inc. (Molina-Florida) a
subsidiary of the Defendant (Molina-Delaware).
Molina-Delaware contends that it was a party to the Purchase Agreement–to
the arbitration provisions at least–but the Plaintiffs contend that Molina-Delaware is
not a party to the Purchase Agreement or to the arbitration agreement contained in the
Purchase Agreement. We conclude that we need not decide whether Molina-
Delaware was a “party” to the contract in the usual sense of that word.
The contract contains an arbitration clause which provides, in pertinent part,
that “any claim by a Party or an Indemnitee against another Party or Indemniteee . .
. arising out of or relating to this agreement or the breach thereof which is not
resolved amicably by the parties involved in the claim shall be resolved exclusively
by arbitration . . . .” (R.1-1, Purchase Agreement at 54.)
The Purchase Agreement requires that Molina-Delaware guarantee
performance of the contract by Molina-Florida: “[Molina-Delaware] unconditionally
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guarantees all obligations of Buyer (or its permitted assigns) under this Agreement
. . . .” (Id. at 52-53.) Molina-Delaware signed the contract and delivered a written
Guaranty guaranteeing performance of the contract by Molina-Florida. The Guaranty
contains no arbitration agreement, though it references the contract.
The Purchase Agreement contains recitals of the parties to the agreement in a
traditional form and Molina-Delaware is named as a party in the recitals. Molina-
Delaware signed the Purchase Agreement and the Guaranty. Attached to the
Purchase Agreement is Exhibit A, which is incorporated by reference. It defines
“Party” in a way that the Plaintiffs argue excludes Molina-Delaware. The definition
is arguably ambiguous, but we need not discuss it because we assume arguendo that
Molina-Delaware is not a party to the Purchase Agreement. The Guaranty includes
a clause stating that “Sellers shall have the right to proceed against the Guarantor
without first proceeding against the Buyer.” (Id., Exhibit “D” Guaranty at 2.) The
word “proceed” is not defined.
The Plaintiffs (the Florida sellers) filed a one-count complaint against Molina-
Delaware claiming damages for Molina-Florida’s breach of the contract that Molina-
Delaware guaranteed. Molina-Florida was not sued. The claim for damages alleges
that Molina-Florida breached the Purchase Agreement in ways which, they allege,
reduced the final purchase price.
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Molina-Delaware filed a motion to compel the Plaintiffs to arbitrate their
claims pursuant to the arbitration clause in the Purchase Agreement. They sought to
compel arbitration on two grounds: first, that they were a party to the contract; and
second, that they were entitled to compel arbitration under equitable estoppel
principles. The district court denied the motion. The court, struggling with the task
of discerning the meaning of poorly-drafted documents, concluded that Molina-
Delaware was not a party to the Purchase Agreement and that, even though the
Guaranty was made “subject to” the Purchase Agreement by reference, the plain
language of the Guaranty included no arbitration provision. The district court further
concluded that Molina-Delaware was not entitled to compel arbitration under
equitable estoppel principles because the Guaranty is an agreement separate and
distinct from the Purchase Agreement and creates its own obligations running from
Molina-Delaware to the Plaintiffs. Molina-Delaware gave notice of appeal,
perfecting this interlocutory appeal.
II. STANDARD OF REVIEW
We review de novo an order denying a motion to compel arbitration. Becker
v. Davis, 491 F.3d 1292, 1297 (11th Cir. 2007) (citation omitted).
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III. DISCUSSION
Molina-Delaware raises three arguments on appeal: first, that the district court
erred in holding that the plain language of the Purchase Agreement precluded Molina-
Delaware from compelling arbitration by focusing too narrowly on the definition of
the term “Party” as defined in the Exhibit to the Purchase Agreement; second, that the
district court erred in treating the Guaranty and Purchase Agreement as two separate
and distinct documents, thereby overlooking precedent holding that claims on a
guaranty are subject to the arbitration provisions of the principal agreement; and
third, that Molina is entitled to compel arbitration under equitable estoppel principles.
Because we conclude that Molina-Delaware is entitled to relief on equitable estoppel
principles, we do not address Molina-Delaware’s other arguments.
Assuming arguendo that Molina-Delaware is not a party to the Purchase
Agreement, Molina-Delaware is permitted to compel arbitration under equitable
estoppel principles.
The scope, validity, and enforceability of arbitration agreements, including the
right of non-signatories to compel arbitration, is governed by state contract law.1
1
The term “non-signatory” is usually used to describe persons or entities that are not parties
to the contract; the term is not a good fit here because Molina-Delaware signed the contract, but we
do not address the question of whether it was a party to the contract. We will nevertheless use the
term “non-signatory” when the decision we are discussing uses that term.
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Arthur Anderson LLP v. Carlisle, 129 S. Ct. 1896, 1902 (2009). The applicable law
in this case is Florida law. Prior to Arthur Anderson some courts in this circuit
assumed that federal law controlled. Florida courts have recognized that a non-
signatory may compel arbitration by a signatory to an arbitration agreement “when
each of the signatory’s claims against a non-signatory make reference to or presume
the existence of a written agreement.” Armas v. Prudential Secs., Inc., 842 So. 2d
210, 212 (Fla. 3d DCA 2003) (citing MS Dealer Serv. Corp. v. Franklin, 177 F.3d
942, 947 (11th Cir. 1999)). In other words, “if a party relies on the terms of a written
agreement in asserting the party’s claims, that party is equitably estopped from then
seeking to avoid an arbitration clause within the agreement.” Becker, 491 F.3d 1300.
That is the situation here.
Federal courts have also held that “[w]hen the charges against a parent
company and its subsidiary are based on the same facts and are inherently
inseparable, a court may refer claims against the parent to arbitration even though the
parent is not formally a party to the arbitration agreement.” J. J. Ryan & Sons, Inc.
v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-21 (4th Cir. 1988).
Plaintiffs’ claims against Molina-Delaware are based entirely on the terms of
the Purchase Agreement. The Guaranty in this case obligates Molina-Delaware to
pay any money owed Plaintiffs under the Purchase Agreement. Thus, a determination
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of liability will necessarily require an analysis of the Purchase Agreement and a
determination as to whether Molina-Florida has breached the Purchase Agreement.
Plaintiffs argue that because the arbitration provision is narrowly tailored, it
falls outside the line of cases holding that non-signatories may compel arbitration
under equitable estoppel principles. In support of this proposition, Plaintiffs cite
World Rentals & Sales, LLC v. Volvo Constr. Equip. Rents, Inc., 517 F.3d 1240 (11th
Cir. 2008). In World Rentals, we held that an arbitration clause that explicitly
excluded disputes between two parties could not be relied upon to compel arbitration
under equitable estoppel principles. Id. at 1246-47. World Rentals is distinguishable
because Molina-Delaware was not explicitly excluded by the arbitration provision in
the Purchase Agreement. Moreover, in MS Dealer this court was faced with an
arbitration provision which, like this one, was by its language restricted to
controversies between the parties to the contract. In MS Dealer, we concluded that
equitable estoppel was appropriate because the party’s claims against the non-party
were “intimately founded in and intertwined with the obligations imposed by the
[agreement containing the arbitration clause].” 177 F.3d at 948 (quotation and
citation omitted). It is clear from the record that the claims against Molina-Delaware
are “intimately founded in and intertwined with” the Purchase Agreement.
Furthermore, the claim against Molina-Delaware is both based on the same facts and
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is inherently inseparable from the alleged breach of the Purchase Agreement by
Molina-Florida.
The Plaintiffs are attempting an “end run” to avoid their agreement to arbitrate.
We conclude that Florida courts would, on these facts, hold that Plaintiffs are
equitably estopped from avoiding arbitration of its claims against Molina-Delaware.
We therefore reverse the district court’s order denying arbitration and remand with
instructions to compel arbitration.
REVERSED AND REMANDED WITH INSTRUCTIONS.2
2
The Defendant’s Motion to Supplement the record is DENIED. The Plaintiffs’ Motion to
Strike References in the Initial Brief of Appellant to a Matter Outside the Record and to Strike the
Material from Appellate Record is DENIED.
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