Wheeling Hospital, Inc. v. Health Plan of the Upper Ohio Valley, Inc. ( 2012 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
WHEELING HOSPITAL, INCORPORATED, 
a West Virginia not for profit
corporation; BELMONT COMMUNITY
HOSPITAL, INCORPORATED, an Ohio
not for profit corporation,
Plaintiffs - Appellees,
and
WHEELING PEDIATRICS, LLC, an
Ohio limited liability company;
WOMEN’S HEALTH SPECIALISTS OF
WHEELING HOSPITAL, LLC, a West
Virginia limited liability company,
on behalf of themselves and all  No. 11-1694
others similarly situated; MEDICAL
PARK ANESTHESIOLOGISTS,
INCORPORATED, a West Virginia
corporation; KENNETH C. NANNERS,
M.D.; KENNETH S. ALLEN, M.D.;
WILLIAM H. WRIGHT, M.D.; JUDITH
T. ROMANO, M.D.; WAYT HEALTH
CARE PLLC, a West Virginia
professional limited liability
company, on behalf of themselves
and all others similarly situated,
Plaintiffs,

2 WHEELING HOSPITAL v. HEALTH PLAN
v. 
THE HEALTH PLAN OF THE UPPER
OHIO VALLEY, INCORPORATED, a
federally qualified and
state-certified not for profit health
maintenance organization,
Defendant - Appellant,
and
OHIO VALLEY HEALTH SERVICES AND 
EDUCATION CORPORATION, a West
Virginia not for profit corporation;
OHIO VALLEY MEDICAL CENTER, a
West Virginia not for profit
corporation; EAST OHIO REGIONAL
HOSPITAL, an Ohio not for profit
corporation,
Defendants.

Appeal from the United States District Court
for the Northern District of West Virginia, at Wheeling.
Frederick P. Stamp, Jr., Senior District Judge.
(5:10-cv-00067-FPS-JES)
Argued: May 15, 2012
Decided: June 27, 2012
Before GREGORY, DUNCAN, and DIAZ, Circuit Judges.
Reversed by published opinion. Judge Duncan wrote the opin-
ion, in which Judge Gregory and Judge Diaz joined.
WHEELING HOSPITAL v. HEALTH PLAN 3
COUNSEL
ARGUED: Allen M. Lopus, THORP, REED & ARM-
STRONG, LLP, Pittsburgh, Pennsylvania, for Appellant.
Mark A. Colantonio, FRANKOVITCH, ANETAKIS,
COLANTONIO & SIMON, Weirton, West Virginia, for
Appellees. ON BRIEF: Carl N. Frankovitch, Michael G.
Simon, FRANKOVITCH, ANETAKIS, COLANTONIO &
SIMON, Weirton, West Virginia; Anthony Cillo, COHEN &
GRIGSBY PC, Pittsburgh, Pennsylvania, for Appellees.
OPINION
DUNCAN, Circuit Judge:
Appellees Wheeling Hospital and Belmont Hospital (col-
lectively "the hospital plaintiffs"), along with other medical
providers, commenced this putative class action in West Vir-
ginia state court on May 19, 2010, against the Ohio Valley
Health Services and Education Corporation, Ohio Valley
Medical Center and East Ohio Regional Hospital, (collec-
tively, 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 alleg-
edly 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 arbi-
trate. This appeal ensued. After assuring ourselves of appel-
late jurisdiction, we conclude that the district court erred in its
determination that The Health Plan defaulted on its right to
4 WHEELING HOSPITAL v. HEALTH PLAN
arbitrate. We therefore reverse the district court’s denial of
The Health Plan’s motion to dismiss.
I.
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 rele-
vant employee benefit plans.
On June 18, 2010, the defendants removed the case to fed-
eral 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 Par-
ties 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 Sys-
tem Parties argued that plaintiffs’ claims should be dismissed
for a purported failure to exhaust administrative remedies set
forth in the OVHS&E Health Benefit Plan. Plaintiffs opposed
the motion to dismiss.
WHEELING HOSPITAL v. HEALTH PLAN 5
While the motion to dismiss was pending, plaintiffs filed a
motion for remand.1 On July 12, 2010, The Health Plan filed
an amended answer that asserted the affirmative defense of
arbitration.
That same day, The Health Plan filed a pleading titled "Re-
sponse 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 con-
tended, "the Court will have necessarily determined that the
Court cannot accord complete relief among the existing par-
ties 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,
if the Court is inclined to grant the [OV Health Sys-
tem Parties’ motion] on the basis that Plaintiffs
failed to exhaust [ ] administrative remedies . . . the
Court will have determined that plaintiffs’ claim for
payments cannot proceed at this time. This determi-
nation would likewise extend to the Plaintiffs’
claims against the Health Plan since their claims are
for these same payments. As a consequence, The
Health Plan should likewise be dismissed pending
Plaintiffs’ exhaustion of the aforementioned admin-
istrative remedies.
Id. at 141-42. Notably, The Health Plan did not seek a dis-
missal on the merits under Rule 12(b)(6).
1
On July 16, 2010, The Health Plan filed an opposition to the motion
to remand. It did not make any reference to arbitration in that opposition.
6 WHEELING HOSPITAL v. HEALTH PLAN
On July 26, 2010, plaintiffs filed a motion to strike The
Health Plan’s response to the motion to dismiss, and an oppo-
sition to its alternative motion to join in result. They argued
that The Health Plan’s pleading was a "belated and unsup-
ported 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 Novem-
ber 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 con-
ference (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 plain-
tiffs’ characterization of its motion, and argued that its motion
constituted a "timely response to the Ohio Valley Health Sys-
tem 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 interroga-
tories and requests for production. They also noticed a
30(b)(6) deposition of The Health Plan.
On December 2, 2010, the district court entered a memo-
randum opinion and order on outstanding motions. The dis-
trict court denied the motion for remand. It granted the OV
WHEELING HOSPITAL v. HEALTH PLAN 7
Health System Parties’ motion to dismiss under Rule
12(b)(6): "Because the plaintiffs cannot state a breach of con-
tract action against the OV Health System Parties either
directly or as third-party beneficiaries, this Court must dis-
miss 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 Ser-
vice 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 preju-
dice. 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 Hos-
pital and Wheeling Hospital. The Health Plan argued that it
and the hospital plaintiffs had a relationship governed by Hos-
pital Service Agreement contracts. The memorandum con-
tains a "Background" section, which sets forth in detail the
terms of those contracts, including the "Disputes and Arbitra-
tion" clause contained therein. At the conclusion of the Back-
ground section, the memorandum states, "Hospital Plaintiffs’
8 WHEELING HOSPITAL v. HEALTH PLAN
allegations of breach of contract by the Health Plan by non-
payment 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 arbi-
tration agreements, and then argues:
Here, to give full effect to the intentions and terms
of the agreements between each Hospital Plaintiff
and The Health Plan, the Hospital Plaintiffs’ claims
must be submitted to individual arbitration proceed-
ings. These parties have specifically agreed to
resolve their disputes in arbitration . . . [which] must
be enforced by this Court. . . . This agreement must
be upheld on its terms, and individual arbitrations
ordered. To hold otherwise would rewrite the con-
tracts between the parties. As this litigation violates
the Hospital Plaintiffs’ agreement to arbitrate all dis-
putes related to compensation, the Complaint should
be dismissed with prejudice.
J.A. 487-88. Plaintiffs opposed The Health Plan’s motion to
dismiss. They argued, inter alia, that The Health Plan had
defaulted on any right that it may have had to compel arbitra-
tion.
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 arbi-
tration:
The Federal Arbitration Act ("FAA") requires that a
district court, upon motion by any party, "stay judi-
cial proceedings involving issues covered by written
WHEELING HOSPITAL v. HEALTH PLAN 9
arbitration agreements." Choice Hotels Intern., Inc.
v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709
(4th Cir. 2001); see also 9 U.S.C. § 3. When a party
seeks enforcement of the arbitration clause of an
agreement during proceedings in a district court, a
party sufficiently "invoke[s] the full spectrum of
remedies under the FAA, including a stay under
§ 3." Id. at 710. Accordingly, this Court finds that
The Health Plan’s motion to dismiss because of the
arbitration clause invokes its remedies under the
FAA, and therefore constitutes a demand for arbitra-
tion.
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 arbi-
tration, 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 subse-
quently 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 con-
cluded as follows:
10 WHEELING HOSPITAL v. HEALTH PLAN
The Health Plan utilized "the litigation machinery"
in such a way to prejudice the plaintiffs if this Court
dismissed the action to allow arbitration at this stage
in the litigation. Because this Court finds that The
Health Plan has [defaulted on] its right to arbitrate,
it is not necessary for this Court to decide whether
it would be unconscionable to permit The Health
Plan to assert arbitration clauses in this matter.
Accordingly, The Health Plan’s motion for summary
judgment as to the hospital plaintiffs is denied with
prejudice.
Id. This appeal followed.
II.
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.
A.
Federal courts are courts of limited jurisdiction, and we
presume that a cause lies outside this limited jurisdiction. Bar-
bour v. Int’l. Union, 640 F.3d 599, 605 (4th Cir. 2011) (en
banc), abrogated on other grounds by 28 U.S.C.
§ 1446(b)(2)(B). The burden of establishing the contrary rests
upon the party asserting jurisdiction. Id.
"Ordinarily, courts of appeals have jurisdiction only over
‘final decisions’ of district courts." Arthur Andersen LLP v.
Carlisle, 556 U.S. 624, 627 (2009) (quoting 28 U.S.C.
WHEELING HOSPITAL v. HEALTH PLAN 11
§ 1291). The FAA, however, makes an exception to that final-
ity requirement, providing that "[a]n appeal may be taken
from . . . an order":
(A) refusing a stay of any action under section 3 of
this title,
(B) denying a petition under section 4 of this title to
order arbitration to proceed,
(C) denying an application under section 206 of this
title to compel arbitration,
(D) confirming or denying confirmation of an award
or partial award, or
(E) modifying, correcting or vacating an award[.]
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:
The broad purpose of section 16 was to implement
Congress’ deliberate determination that appeal rules
should reflect a strong policy favoring arbitration.
Congress sought to effectuate this policy in two
ways. First, an order that favors litigation over arbi-
tration—whether it refuses to stay the litigation in
deference to arbitration; refuses to compel arbitra-
tion; denies confirmation to or modifies, corrects, or
vacates an arbitral award; or grants, continues, or
modifies an injunction against arbitration—is imme-
diately appealable, even if interlocutory in nature.
Thus, a party who believes that arbitration is
required by an agreement between the parties need
not suffer the expense and inconvenience of litiga-
tion before receiving appellate review of a district
court judgment that arbitration was inappropriate.
12 WHEELING HOSPITAL v. HEALTH PLAN
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 specifi-
cally 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, . . . dis-
missal is a proper remedy when all of the issues presented in
a lawsuit are arbitrable." Id. "Moreover," we added,
a hypertechnical reading of [the defendant’s] plead-
ings would be inconsistent with the liberal federal
policy favoring arbitration agreements. [The defen-
dant] made it clear during proceedings in the district
court that it was seeking enforcement of the arbitra-
tion clause of the Agreement. This is sufficient to
invoke the full spectrum of remedies under the FAA,
including a stay under § 3.
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 juris-
diction. Nevertheless, the opinion’s reasoning with respect to
what a defendant must do in order to invoke the full spectrum
of remedies under the FAA is instructive with regard to our
appellate jurisdiction.
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
WHEELING HOSPITAL v. HEALTH PLAN 13
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 agree-
ment. 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 juris-
diction under § 16(a).
The first, simplest, and surest way to guarantee
appellate jurisdiction under § 16(a) is to caption the
motion in the district court as one brought under
FAA §§ 3 or 4. See Fed.R.Civ.P. 10(a) ("Every
pleading must have a caption with the court’s name,
a title, a file number, and a Rule 7(a) designation.")
(emphasis added). This simple rule should dispose of
the vast majority of cases in this area, and those hop-
ing to avail themselves of the immediate appeal pro-
vided for in the FAA would do well to follow it.
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 interlocu-
tory appeal where none is warranted." Id. It therefore articu-
lated a second step in the process of determining appellate
jurisdiction:
If a motion denied by the district court is not explic-
itly styled as a motion under the FAA, or the court
suspects that the motion has been mis-captioned in
an attempt to take advantage of § 16(a), the court
must look beyond the caption to the essential attri-
butes of the motion itself. The goal of this inquiry is
to determine whether it is plainly apparent from the
four corners of the motion that the movant seeks
14 WHEELING HOSPITAL v. HEALTH PLAN
only the relief provided for in the FAA, rather than
any other judicially-provided remedy.
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.
If, on the other hand, the movant in the district court
requests a judicial remedy that is inconsistent with
the position that the issues involved may be decided
only by the arbitrator, the movant is no longer pro-
ceeding exclusively under the FAA and has forfeited
their right to interlocutory review under § 16(a).
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.2 Accordingly, when a
2
Even the D.C. Circuit, which has focused on the plain language of
§ 16(a) and construed the provision narrowly, has nevertheless acknowl-
edged that it may construe a motion to dismiss more broadly in some cir-
cumstances, particularly if it were based on the FAA’s requirement that
arbitration agreements be strictly enforced. See Bombardier Corp. v. Nat’l
R.R. Passenger Corp., 333 F.3d 250, 254 (D.C. Cir. 2003). On the facts
in Bombardier, the court declined to construe the motion broadly because
it "exhibited no intent to pursue arbitration—indeed, it sought outright dis-
missal with no guarantee of future arbitration." Id. Similarly, the Second
Circuit dismissed for lack of appellate jurisdiction where a motion to dis-
miss neither explicitly nor implicitly petitioned the district court to compel
arbitration. Wabtec Corp. v. Faively Transp. Malmo AB, 525 F.3d 135,
140 (2d Cir. 2008). The First Circuit in Fit Tech, Inc. v. Bally Total Fit-
ness Holding Corp., 374 F.3d 1 (1st Cir. 2004), found appellate jurisdic-
tion where the movant clearly argued that the case had to be arbitrated,
and noted that if the movant had wanted a dismissal but no decision by
the arbitrator, then it would have refused to entertain the appeal. Id. at 5-
6.
 WHEELING HOSPITAL v. HEALTH PLAN 15
motion is not styled in a dispositive manner, we hold that our
inquiry into appellate jurisdiction should be based on the prin-
ciple articulated in Choice Hotels, as well as Conrad. In other
words, we must determine whether The Health Plan made it
clear within the four corners of its motion to dismiss that it
was seeking enforcement of the arbitration agreement.
B.
So viewed, we conclude that The Health Plan clearly stated
in its motion to dismiss that it was seeking to enforce the arbi-
tration agreement. As already noted, The Health Plan’s mem-
orandum, which was incorporated by reference in the motion,
set forth in detail the terms of the "Hospital Service Agree-
ment" 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.
III.
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 determi-
nation. See Microstrategy Inc. v. Lauricia, 268 F.3d 244, 252-
53 (4th Cir. 2001).
16 WHEELING HOSPITAL v. HEALTH PLAN
"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 arbitra-
tion, courts have limited the circumstances that can result in
statutory default." Id.3 "[D]elay and participation in litigation
will not alone constitute default." Id. at 343. "But a party will
default its right to arbitration if it so substantially utilize[s] the
litigation machinery that to subsequently permit arbitration
would prejudice the party opposing the stay." Id. (internal
quotation marks omitted). "The heavy burden of showing
default lies with the party opposing arbitration." Id. (internal
quotation marks omitted).
"Where a party fails to demand arbitration during pretrial
proceedings, and, in the meantime, engages in pretrial activity
inconsistent with an intent to arbitrate, the party later oppos-
ing a motion to compel arbitration may more easily show that
its position has been compromised, i.e., prejudiced." Fraser,
817 F.2d at 252 (internal quotation marks omitted). "But,
even in cases where the party seeking arbitration has invoked
the ‘litigation machinery’ to some degree, ‘the dispositive
question is whether the party objecting to arbitration has suf-
fered actual prejudice.’" Microstrategy, 268 F.3d at 249
(quoting Fraser, 817 F.2d at 252); Patten Grading & Paving,
Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 205 (4th Cir.
2004) (same)
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
3
In our prior decisions, we have sometimes used the terms "default" and
"waiver" interchangeably. As we emphasized in Forrester, however,
default is distinct from waiver. Accordingly, to achieve uniformity and
prevent confusion, we have substituted the term "default" for the term
"waiver," where appropriate, in our discussion of prior decisions.
WHEELING HOSPITAL v. HEALTH PLAN 17
assessing a plea of prejudice." Microstrategy, 268 F.3d at 249.
(internal quotation marks omitted). We consider each factor in
turn.
A.
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 preju-
dice in three-month delay). Accordingly, we concluded that
"[a]ny delay by [the appellant] in asserting its right to arbitra-
tion, 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 sup-
ports a finding of prejudice to the hospital plaintiffs based on
that ground. Indeed, during oral argument, the hospital plain-
tiffs 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.
B.
"Whether [The Health Plan] [defaulted on] its right to insist
on arbitration by virtue of its litigation activities is a more dif-
ficult question." Microstrategy, 268 F.3d at 250. We look to
our precedent for guidance in this regard.
1.
We have held that a party suffered actual prejudice because
it was forced to respond to a number of potentially damaging
18 WHEELING HOSPITAL v. HEALTH PLAN
motions, including a motion for partial summary judgment
and three motions to dismiss. Fraser, 817 F.2d at 252. In Fra-
ser, 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 suf-
fered 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 judg-
ment, 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 summary judgment, and forced the plain-
tiffs to reveal their trial strategy. Id.
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
WHEELING HOSPITAL v. HEALTH PLAN 19
establish prejudice." Id. at 206-07. Importantly, we observed,
"Further, [the appellee] fails to demonstrate that [the appel-
lant] availed itself of discovery procedures unavailable in
arbitration, or gained a strategic advantage through its discov-
ery requests." Id. at 207. We concluded that the discovery had
not caused prejudice "[b]ecause the written discovery con-
ducted 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.
a.
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.
20 WHEELING HOSPITAL v. HEALTH PLAN
b.
We must likewise reject the district court’s conclusion that
The Health Plan’s dispositive motions4 forced the hospital
plaintiffs to reveal their litigation strategy. Notably, the dis-
trict court failed to explain what litigation strategy had been
revealed, or otherwise provide any reasoning in support of its
finding. Nor did the hospital plaintiffs elaborate on this asser-
tion before the district court. They simply restated the conclu-
sion, pointing to nothing in the record that supports the
contention that the hospital plaintiffs were forced to reveal
any significant elements of their legal strategy in responding
to a 12(b)(7) motion that essentially argued that if relief were
afforded to other defendants, it should also be afforded to The
Health Plan.5 By its nature, such a motion, although it is
potentially dispositive, does not seek relief on the merits, and
would therefore not appear to require a response from the
opposing party that reveals litigation strategy. In the absence
of evidence showing that The Health Plan has gained some
strategic advantage as a result of the hospital plaintiffs’ plead-
ings to date, we are constrained to conclude that the hospital
plaintiffs suffered no actual prejudice on that ground.
4
The district court stated that the plaintiffs have had to respond to two
dispositive motions by the Health Plan on the merits. It did not specify
those motions. Presumably, it was referring to The Health Plan’s motion
to join in result and to its subsequent motion to dismiss. We agree that the
former may be appropriately characterized as a dispositive motion on the
merits. The latter motion, however, cannot be factored into the analysis,
because it was the very vehicle through which The Health Plan sought
enforcement of the arbitration agreements.
5
By contrast, in In re Mirant, 613 F.3d 584 (5th Cir. 2000), a case on
which the hospital plaintiffs place heavy reliance, the court found that the
three motions to dismiss filed by the party that subsequently sought to
invoke arbitration "gave it a full preview of [the non-movant’s] evidence
and litigation strategy, particularly its arguments and evidence in response
to the [movant’s] affirmative defenses." Id. at 592.
WHEELING HOSPITAL v. HEALTH PLAN 21
c.
Nor have the hospital plaintiffs demonstrated that they suf-
fered actual prejudice on the ground that they incurred signifi-
cant 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 com-
pel 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 plain-
tiffs’ assertion, however, it clearly erred in doing so. The hos-
pital 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 litigat-
ing 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.
22 WHEELING HOSPITAL v. 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 timing or the fact of
The Health Plan’s motion. The hospital plaintiffs assert that
"[t]hese legal fees were incurred in large part by virtue of hav-
ing to respond to The Health Plan’s dispositive motion, by
engaging in discovery with The Health Plan, including the
preparation of motions to compel, and by otherwise proceed-
ing on the merits in a case that might have been stayed if The
Health Plan had promptly moved to enforce its arbitration
rights." Appellees’ Br. 37. This conclusory statement does lit-
tle to cure the deficiencies in their affidavit. It was the plain-
tiffs’ burden to prove the expenses they suffered as a result of
The Health Plan’s litigation activity. Because their unsup-
ported conclusory assertions about those expenses are insuffi-
cient to meet that burden, we cannot weigh that factor in their
favor.
d.
Finally, the crux of the hospital plaintiffs’ claim of preju-
dice is that The Health Plan’s filing of the equivalent of a
motion for judgment on the pleadings was inherently prejudi-
cial. 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 non-
moving 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,
WHEELING HOSPITAL v. HEALTH PLAN 23
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 oppos-
ing 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.6
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 preju-
diced by the filing of a dispositive motion. Instead, we took
into account all of the above factors in determining the exis-
tence 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.7 We agree that The Health Plan
engaged in some activity inconsistent with the intent to arbi-
trate, including by filing a motion to join in the other defen-
6
In an unpublished opinion, we cited Distajo for the proposition that
"[t]he actual prejudice required to support a finding of [default] ‘can be
substantive prejudice to the legal position of the party opposing arbitra-
tion." Hasco, Inc. v. Schuyler, Roche & Zwirner, 1998 WL 957454 at *2
(4th Cir. June 4, 1998)
7
As already noted, The Health Plan’s motion sought to join in the OV
Health System Parties’ request for dismissal under Rule 12(b)(7), but it
did not request relief on the merits. Thus, even were we to adopt such a
bright line rule, it is doubtful whether it would be determinative here.
24 WHEELING HOSPITAL v. HEALTH PLAN
dants’ 12(b)(7) motion, and that such activity lessened the
burden on the hospital plaintiffs to show that their position
has been compromised, i.e., prejudiced. But we reiterate that
they have nonetheless shown no actual prejudice that resulted
therefrom. Notably, The Health Plan’s motion to join in result
does not appear to have delayed the litigation, it did not
require the hospital plaintiffs to incur significant additional
expenses, and nor did it cause them to reveal any litigation
strategy. Thus, although we recognize that prejudice to a
party’s legal position may indeed be sufficient to make the
requisite showing of actual prejudice, and that the filing of a
potentially dispositive motion on the merits is a salient con-
sideration in a plea of prejudice, we are compelled to con-
clude, on the facts presented, that the hospital plaintiffs have
failed to meet their burden of showing such prejudice.8
IV.
For the foregoing reasons, the judgment of the district court
is
REVERSED.
8
We are sympathetic to the principle that the party seeking arbitration,
"having learned that the district court was not receptive to its arguments,
should [not] be allowed a second bite at the apple through arbitration," and
that "[t]o hold otherwise would encourage litigants to delay moving to
compel arbitration until they could ascertain how the case was going in
federal district court." Mirant, 613 F.3d at 590 (quotation marks omitted).
On these facts, however, we believe that the hospital plaintiffs have fallen
short of demonstrating that The Health Plan attempted to "game the sys-
tem." Id. The Health Plan plausibly asserted at argument that it asserted
an affirmative defense of arbitration in its answer, but chose to wait to
invoke its right to arbitrate given the complicated and uncertain posture of
the litigation during its early stages, which involved multiple plaintiffs and
multiple defendants, only some of whom had entered into arbitration
agreements with each other. Notably, as The Health Plan also informed
the court at argument, it believed that the litigation could be resolved if
the OV Health System Parties were successful in their efforts to make the
hospital plaintiffs whole for the amounts they claim were owed to them.
We are therefore reluctant, solely on the basis of its motion to join in
result, to conclude that The Health Plan engaged in gamesmanship.