Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0139n.06
Filed: February 17, 2009
No. 08-5003
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
CROSSVILLE MEDICAL ONCOLOGY, P.C., )
)
Plaintiff-Appellant, ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
v. ) THE MIDDLE DISTRICT OF
) TENNESSEE
GLENWOOD SYSTEMS, LLC, )
)
Defendant-Appellee. )
Before: SUHRHEINRICH, GRIFFIN, and KETHLEDGE, Circuit Judges.
KETHLEDGE, Circuit Judge. Crossville Medical Oncology, P.C. (“Crossville”) appeals the
dismissal of its claims against Glenwood Systems, LLC (“Glenwood LLC”). Crossville argues the
district court erred in holding that Glenwood LLC could enforce an arbitration clause in a contract
to which it was not a signatory. We affirm.
I.
A.
Glenwood LLC is a Connecticut limited liability company that provides medical billing
services. Nat Loganathan formed the company in 1998, and is its sole member and owner. In 2000,
Loganathan formed a Delaware corporation named “Glenwood Systems, Inc.” (“Glenwood Inc.”).
Loganathan was the corporation’s sole shareholder. This Glenwood entity did not conduct any
No. 08-5003
Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC
business, issue any stock or dividends, file tax returns, or maintain a bank account, and had no
employees. According to Loganathan, however, he used the two Glenwood entities’ names
“interchangeably[,]” and Glenwood LLC “[f]rom time to time” did business under the name
“Glenwood Systems, Inc.” J.A. 194, 243.
On January 12, 2004, Crossville entered into a written agreement with “Glenwood Systems,
Inc.” J.A. 29-30. Under the agreement, “Glenwood” would provide medical billing services to
Crossville. The agreement provided that any dispute arising out of the agreement would be resolved
by an arbitrator in Connecticut.
Glenwood LLC then provided billing services to Crossville for several months. Crossville
later claimed that those services were deficient, and terminated the agreement.
B.
Crossville thereafter filed a complaint against “Glenwood Systems, L.L.C., d/b/a Glenwood
Systems, Inc.” in Tennessee state court. Glenwood LLC removed the case to federal court, and filed
an answer and counterclaims. In its answer, Glenwood LLC asserted as an affirmative defense that
“the contract requires the parties to resolve any and all disputes, which arise out of or in connection
with this contract, in arbitration.” J.A. 52.
Over the next several months, Glenwood LLC responded to motions for a default judgment
and to dismiss its counterclaims for lack of standing, and itself filed a motion to extend the discovery
deadline. Eight months after removing the case to federal court, Glenwood LLC moved to refer the
case to arbitration, pursuant to the agreement’s mandatory arbitration clause. The district court
granted the motion. More than a year and a half later, however, and on the day before the arbitration
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Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC
hearing was scheduled to commence, Crossville filed a motion in the district court to return the case
to the court on the ground that Glenwood LLC was not a party to the arbitration agreement.
Crossville also filed a motion for leave to amend its complaint to add claims against Glenwood LLC.
The district court denied Crossville’s motions and dismissed the case without prejudice. This appeal
followed.
II.
A.
“We review de novo a district court’s decisions regarding both the existence of a valid
arbitration agreement and the arbitrability of a particular dispute.” Floss v. Ryan’s Family Steak
Houses, Inc., 211 F.3d 306, 311 (6th Cir. 2000). “In deciding whether [arbitration] agreements are
enforceable, we examine applicable state-law contract principles.” Id. at 314.
B.
Crossville first argues that Glenwood LLC waived its right to arbitrate by engaging in
litigation for eight months before demanding arbitration. A party waives its right to arbitration by
participating in litigation to such an extent that its actions are “completely inconsistent with any
reliance” on its right to arbitrate and cause the opposing party to suffer prejudice. Gen. Star Nat’l
Ins. Co. v. Administratia Asigurarilor de Stat, 289 F.3d 434, 438 (6th Cir. 2002). “[W]aiver of the
right to arbitration is not to be lightly inferred[,]” because “[t]here is a strong presumption in favor
of arbitration[.]” Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350
F.3d 568, 573 (6th Cir. 2003).
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Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC
Here, Glenwood LLC participated in litigation when it filed an answer and counterclaims,
responded to two motions, and filed a motion to extend the discovery deadline. But neither party
had served any discovery requests, exchanged documents, or deposed any witnesses before
Glenwood LLC moved to refer the case to arbitration. Glenwood LLC also asserted the arbitration
agreement as an affirmative defense in its answer. We therefore hold that its actions were not
inconsistent with its right to arbitrate and that Crossville was not prejudiced by Glenwood LLC’s
delay in asserting that right. Consequently, Glenwood LLC did not waive its right to arbitrate.
C.
Crossville also argues that Glenwood LLC cannot enforce the agreement’s arbitration clause
because it was not a signatory to the agreement. This argument is foreclosed by precedent.
“[N]onsignatories may be bound to an arbitration agreement under ordinary contract and
agency principles.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003). Applying
those principles, we rejected an argument identical to Crossville’s in Federated Dep’t Stores, Inc.
v. J.V.B. Indus., Inc., 894 F.2d 862 (6th Cir. 1990). There, the plaintiff argued that the defendant,
JVB Industries, “had no right to compel arbitration of the business destruction claims because JVB
was not a party to the construction contracts.” Federated, 894 F.2d at 870. The plaintiff argued that
only TAB—a separate entity established by JVB’s owner—executed the contracts, and that therefore
only TAB could enforce the arbitration provisions in those contracts. Id. We disagreed, holding that
“JVB and TAB were alter egos” and that JVB was “the real party in interest” to the contracts. Id.
We noted that TAB and JVB “were closely interconnected,” that they “both operated out of the same
office[,]” and that TAB “had no assets and no shareholders or management different from those of
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Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC
JBV.” Id. A single owner “controlled both corporations, and TAB was a mere instrumentality of
JVB.” Id. Thus, JVB “was a proper party to the arbitration[,]” despite the fact that it had not
executed the contracts containing the arbitration provision. Id.
The same is true here. Glenwood Inc. was “closely interconnected” with Glenwood LLC.
The limited liability company’s sole member incorporated Glenwood Inc., and was the corporation’s
sole shareholder and director. The two entities shared an office and address. Glenwood Inc. did not
conduct any business, issue any stock or dividends, file tax returns, or maintain a bank account, and
had no employees. It was a “mere instrumentality” and “alter ego” of Glenwood LLC. Id.
That is true regardless of whether Tennessee, Connecticut, or Delaware law applies in
determining whether the arbitration agreement is enforceable. Each of those states recognizes the
same alter-ego and instrumentality principles applied in Federated. See Cont’l Bankers Life Ins. Co.
of the South v. Bank of Alamo, 578 S.W.2d 625, 631-32 (Tenn. 1979); Young v. Metro. Prop. and
Cas. Ins. Co., 758 A.2d 452, 456-57 (Conn. App. 2000); NAMA Holdings, LLC v. Related World
Market Ctr., 922 A.2d 417, 432-33 (Del. Ch. 2007). Federated therefore controls here.
D.
Finally, Crossville argues that the district court erred in denying its motion to amend its
complaint to “state proper claims against Glenwood LLC.” Appellant’s Br. at 17. As shown above,
however, Glenwood LLC properly invoked the agreement’s arbitration clause. Crossville’s
amendment therefore would have been futile, and the district court did not abuse its discretion in
denying Crossville’s motion.
The judgment of the district court is affirmed.
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