Dr. Robert L. Meinders, D.C. v. UnitedHealthcare, Inc. ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 14-3668
DR. ROBERT L. MEINDERS, D.C., LTD.,
individually and as the representa-
tive of a class of similarly-situated
persons,
Plaintiff-Appellant,
v.
UNITEDHEALTHCARE, INC., et al.,
Defendants-Appellees.
Appeal from the United States District Court for the
Southern District of Illinois.
No. 3:14-cv-00548-DRH-DGW — David R. Herndon, Judge.
ARGUED MAY 20, 2015 — DECIDED SEPTEMBER 1, 2015
Before BAUER, FLAUM, and HAMILTON, Circuit Judges.
BAUER, Circuit Judge. Plaintiff-appellant, Dr. Robert L.
Meinders, D.C., Ltd., commenced this action against
UnitedHealthcare, Inc. and UnitedHealthcare of Illinois, Inc.
(collectively, “United”), in Illinois state court. United removed
the case to federal district court and filed a motion to dismiss
2 No. 14-3668
for improper venue under Federal Rule of Procedure 12(b)(3).
The district court granted United’s motion and dismissed the
case. Because the district court premised its dismissal order on
law and facts to which Meinders did not have a full and fair
opportunity to respond, we reverse and remand for further
proceedings consistent with this opinion.
I. BACKGROUND
In April 2014, Meinders filed a putative class action lawsuit
against United in Illinois state court. The complaint alleged
that, at some point in 2013, United sent him and a number of
similarly-situated persons an unsolicited “junk fax” advertising
United’s services, which violated the Telephone Consumer
Protection Act (“TCPA”), 47 U.S.C. § 227, et seq., the Illinois
Consumer Fraud and Deceptive Practices Act, 815 ILCS
§ 505/2, and amounted to common law conversion. United
removed the case to the United States District Court for the
Southern District of Illinois, on the basis of federal question
jurisdiction under 28 U.S.C. § 1331. See Mims v. Arrow Fin.
Servs., Inc., _ U.S. _, 132 S. Ct. 740, 747 (2012) (“Congress did
not deprive federal courts of federal-question jurisdiction over
private TCPA suits.”).
Once in federal court, United moved to dismiss the com-
plaint for improper venue under Rule 12(b)(3) of the Federal
Rules of Civil Procedure. United argued that Meinders had
entered into a “Provider Agreement” with a United-owned
entity, ACN Group, Inc., in 2006, which bound him to arbitrate
his “junk fax” claims in Minnesota. The Provider Agreement
provides in pertinent part:
No. 14-3668 3
In the event of any dispute arising out of or
relating to this Agreement, Provider [Meinders]
and ACN Group shall first attempt in good faith
to resolve the dispute mutually between them …
. If Provider and ACN Group are unable to
resolve a dispute by mutual agreement, then
matters in controversy may be submitted, upon
the motion of either party, to arbitration under
the Commercial Rules of the American Arbitra-
tion Association (AAA). All such arbitration
proceedings shall be administered by the AAA in
Minnesota[.]
United claimed that the alleged “junk fax” it sent to
Meinders related to the Provider Agreement, and thus fell
within the purview of the arbitration clause, because it pro-
vided Meinders with information about new technology
designed to assist United providers in recouping payments
from patients. In support of its authority to enforce the agree-
ment’s arbitration provision, United stated in a footnote, “ACN
Group, Inc. is a United-owned entity that coordinates the
provision of healthcare services by, among other specialists,
chiropractors.”
Meinders contended, in response, that United was neither
a party nor signatory to the Provider Agreement and, there-
fore, that it could not enforce the agreement’s arbitration
provision. Meinders noted that the Provider Agreement
defined the “Parties” to the agreement as only Meinders and
ACN Group, that the agreement did not mention United or
suggest that any entity affiliated with ACN Group was also a
party to the agreement, and that the arbitration clause was
4 No. 14-3668
expressly limited to disputes between Meinders and ACN
Group. Meinders also pointed out that United failed to present
evidentiary support for its claim of ownership of ACN Group
and that, even if it had, corporate ownership does not itself
confer a right upon the parent corporation to enforce an
arbitration agreement where only the subsidiary is a party to
the agreement.
United, “supris[ed]” that Meinders “raised and focused so
heavily on the signatory issue,” filed a reply brief. In its reply,
United argued for the first time that it was entitled to enforce
the Provider Agreement’s arbitration clause based on a
contractual theory of assumption. It also submitted new
evidence—the declaration of Colleen Van Ham, the President
and Chief Executive Officer of UnitedHealthcare of Illinois, Inc.
In her declaration, Van Ham stated “[o]n December 22, 2003,
ACN Group, Inc. (‘ACN’) became a wholly owned subsidiary
of United Healthcare Services, Inc.” She also stated, in support
of United’s assumption theory of enforcement, that “United
has assumed important obligations under the Provider
Agreement, such as [ACN’s] obligation to coordinate and
transmit payments to providers such as the plaintiff in this
lawsuit.”
Meinders moved to strike United’s reply or, in the alterna-
tive, for leave to file a sur-reply addressing United’s assump-
tion theory and Van Ham’s declaration. The district court
denied Meinders’ motion to strike, denied him leave to file a
sur-reply, and struck his proffered sur-reply from the record.
Without oral argument or a hearing, the district court then
granted United’s motion to dismiss for improper venue under
Federal Rule of Civil Procedure 12(b)(3). The court determined
No. 14-3668 5
that United, although not a signatory to the Provider Agree-
ment, was entitled to enforce the agreement’s arbitration clause
on the ground that it “assumed important obligations under
the Provider Agreement such as [ACN Group’s] obligation to
coordinate and transmit payments to providers such as
Meinders.” Meinders appealed.
II. DISCUSSION
Meinders raises two challenges to the district court’s
decision—one is a procedural challenge, the other goes to the
merits. We review de novo a district court’s decision to dismiss
a case for improper venue under Federal Rule of Civil Proce-
dure 12(b)(3).1 See Jackson v. Payday Fin., LLC, 764 F.3d 765, 773
(7th Cir. 2014). Insofar as the district court’s decision is based
upon factual findings, our review is guided by the clearly
erroneous standard. Fyrnetics (H.K.) Ltd. v. Quantum Grp., Inc.,
293 F.3d 1023, 1027 (7th Cir. 2002).
The Federal Arbitration Act (“FAA”) embodies a “liberal
federal policy favoring arbitration.” AT&T Mobility LLC v.
Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 1745 (2011) (quoting
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983)). The FAA operates to place arbitration agreements
1
Because the arbitration clause in this case calls for arbitration outside the
Southern District of Illinois, Rule 12(b)(3) is the appropriate vehicle for
seeking dismissal of Meinders’ suit. Faulkenberg v. CB Tax Franchise Sys., LP,
637 F.3d 801, 808 (7th Cir. 2011) (“[W]e have held that a Rule 12(b)(3)
motion to dismiss for improper venue, rather than a motion to stay or
compel arbitration, is the proper procedure to use when the arbitration
clause requires arbitration outside the confines of the district court’s
district.”).
6 No. 14-3668
on the same footing as other contracts to ensure that judiciaries
enforce agreements to arbitrate. Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 24 (1991); Dean Witter Reynolds v. Byrd, 470
U.S. 213, 219 (1985). The relevant language of the FAA pro-
vides that an arbitration clause in a contract “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.” 9 U.S.C.
§ 2.
An agreement to arbitrate is treated like any other contract.
Gibson v. Neighborhood Health Clinics, 121 F.3d 1126, 1130 (7th
Cir. 1997). A party can be forced to arbitrate only those matters
that he or she has agreed to submit to arbitration, James v.
McDonald’s Corp., 417 F.3d 672, 677 (7th Cir. 2005), and “[i]f
there is no contract there is to be no forced arbitration.” Gibson,
121 F.3d at 1130. In determining whether a valid arbitration
agreement exists between the parties, a federal court should
look to the state law that ordinarily governs formation of
contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
943 (1995); James, 417 F.3d at 677. In the present case, because
the parties have agreed that Illinois law governs the question
of whether the parties have entered into a contract, we look to
the contract law of that state.
Meinders first contends on appeal that the district court
denied him due process by entering judgment against him on
factual and legal issues to which he did not have a full and fair
opportunity to respond. After a review of the record, we agree.
As recounted above, United moved to dismiss Meinders’
case for improper venue on the basis of an arbitration provi-
sion contained in an agreement to which United was neither a
No. 14-3668 7
party nor a signatory. The general rule, of course, is that an
arbitration agreement binds only the parties to that agreement.
See EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002); Ervin v.
Nokia, Inc., 812 N.E.2d 534, 539 (Ill. App. Ct. 2004) (“‘Under
either federal or Illinois law, the right to compel arbitration
stems from an underlying contract and generally may not be
invoked by a nonsignatory to the contract.’” (quoting Caligiuri
v. First Colony Life Ins. Co., 742 N.E.2d 750, 755 (Ill. App. Ct.
2000))). This general rule is not without exception, however.
We have recognized five contract-based doctrines through
which a nonsignatory may be bound by an arbitration agree-
ment entered into by others: “(1) assumption; (2) agency;
(3) estoppel; (4) veil piercing; and (5) incorporation by refer-
ence.” Zurich Am. Ins. Co. v. Watts Indus., 417 F.3d 682, 687 (7th
Cir. 2005) (citing Fyrnetics (H.K.) Ltd., 293 F.3d at 1029).
In its opening motion, United premised its authority to
enforce the Provider Agreement’s arbitration provision on the
ground that a party to the agreement, ACN Group, was a
United-owned entity. See Reese v. Forsythe Mergers Grp., Inc.,
682 N.E.2d 208, 213 (Ill. App. Ct. 1997) (“[A] party seeking to
enforce an agreement has the burden of establishing the
existence of an agreement.”). Meinders, in opposition, pointed
out that United did not provide evidentiary support for its
claim of ownership of ACN Group and that, even if it had,
United’s “ownership theory” did not itself confer a right upon
United to enforce the agreement’s arbitration provision. See
Zurich Am. Ins. Co., 417 F.3d at 688 (“A corporate relationship
is generally not enough to bind a nonsignatory to an arbitra-
tion agreement.”). United, then, in reply argued a new legal
theory (assumption) and presented new evidence (Van Ham’s
8 No. 14-3668
declaration) not raised in its original motion. The district court
denied Meinders leave to respond and, without oral argument
or a hearing, granted United’s motion to dismiss, holding that
“United is entitled to enforce the arbitration clause of the
Provider Agreement” because it “assumed important obliga-
tions under the Provider Agreement such as [ACN Group’s]
obligation to coordinate and transmit payments to providers
such as Meinders.”
As the foregoing makes plain, the district court’s dismissal
order relied on a novel legal theory and new evidence submit-
ted in reply, to which Meinders had no opportunity to re-
spond. United attempts to defend the district court’s handling
of this case by asserting that the district court properly en-
forced Southern District of Illinois Local Rule 7.1(c). We
disagree.
District courts are entitled to “considerable discretion in
interpreting and applying their local rules,” Cuevas v. United
States, 317 F.3d 751, 752 (7th Cir. 2003), and we “will intrude on
that discretion only where we are convinced that the district
court made a mistake.” Bunn v. Khoury Enters., Inc., 753 F.3d
676, 681 (7th Cir. 2014) (internal quotation marks omitted). S.D.
Ill. L.R. 7.1(c) states, in relevant part:
Reply briefs are not favored and should be filed
only in exceptional circumstances. The party
filing the reply brief shall state the exceptional
circumstances. Under no circumstances will sur-
reply briefs be accepted.
The district court denied Meinders’ motion to strike,
holding that United’s reply brief satisfied S.D. Ill. L.R. 7.1(c)’s
No. 14-3668 9
“exceptional circumstances” requirement since “[Meinders]
memorandum in opposition raise[d] a new issue that was not
addressed in [United’s] motion and ignore[d] relevant law and
facts relating to that issue.” The court denied Meinders leave
to file a sur-reply and struck his proffered sur-reply from the
record pursuant to S.D. Ill. L.R. 7.1(c)’s strict prohibition on
sur-reply briefs.
We are hard pressed to find the “new issue” that Meinders
raised in his opposition brief on which the district court
premised its “exceptional circumstances” determination. The
only issues that Meinders’ opposition brief raised were that
United was not a signatory to the Provider Agreement and that
United’s ownership theory did not authorize it, as a non-
signatory, to enforce the agreement’s arbitration provision. At
any rate, once the district court permitted United to file its
reply brief, the court should have granted Meinders leave to
file a sur-reply responding to United’s novel assumption
theory and Van Ham’s declaration. Due process, we have
cautioned, requires that a plaintiff be given an opportunity to
respond to an argument or evidence raised as a basis to dismiss
his or her claims. See, e.g., Smith v. Bray, 681 F.3d 888, 903 (7th
Cir. 2012) (“[D]istrict courts need to ensure that they do not
base their decisions on issues raised in such a manner that the
losing party never had a real chance to respond.”); English v.
Cowell, 10 F.3d 434, 437 (7th Cir. 1993) (“The opportunity to
respond is deeply imbedded in our concept of fair play and
substantial justice.”). When strict adherence to local rules, such
as S.D. Ill. L.R. 7.1(c)’s proscription on sur-reply briefs, threat-
ens to deprive a litigant of the opportunity to respond, the
local rules must give way to considerations of due process and
10 No. 14-3668
fundamental fairness. Accordingly, we hold that the district
court deprived Meinders due process by entering judgment
against him on law and facts to which he did not have a full
and fair opportunity to respond.
As for the merits, both parties acknowledge that the
contractual theory of assumption is one through which a
nonsignatory to an arbitration agreement can enforce the
agreement. The parties disagree, however, as to whether such
an assumption occurred here. All we have in the record on this
point is Van Ham’s vague declaration stating, “United has
assumed important obligations under the Provider Agreement,
such as [ACN Group’s] obligation to coordinate and transmit
payments to providers such as the plaintiff in this lawsuit.”
Meinders raises a host of questions on appeal regarding
Van Ham’s declaration, many of which seek to determine
whether United has indeed assumed ACN Group’s obligations
under the Provider Agreement and, if so, to what extent. He
also seeks to submit testimony in response to Van Ham’s
declaration. Rather than decide the merits on the basis of
Van Ham’s bare-bones declaration, we think the more prudent
course is to allow Meinders to contest Van Ham’s declaration
and delineate the metes and bounds of United’s assumption.
Accordingly, we remand to the district court where these
factual issues may be more appropriately addressed in the first
instance. On remand, the district court should permit discov-
ery to the extent necessary to allow Meinders to submit a full
response to Van Ham’s declaration and United’s assumption
theory. Beyond that, we trust the district court to handle the
proceedings as it sees fit.
No. 14-3668 11
III. CONCLUSION
For the aforementioned reasons, we REVERSE the district
court’s dismissal order and REMAND the case for further
proceedings consistent with this opinion.