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Cigna Healthcare of St. Louis, Inc. v. Kaiser

June 21, 2002

CIGNA HEALTHCARE OF ST. LOUIS, INC., ET AL., PLAINTIFFS-APPELLANTS,
v.
TIMOTHY N. KAISER, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 01 C 5130--Ruben Castillo, Judge.

Before Bauer, Posner, and Kanne, Circuit Judges.

The opinion of the court was delivered by: Posner, Circuit Judge

As amended July 31, 2002.

CIGNA HEALTHCARE OF ST. LOUIS, INC., ET AL., PLAINTIFFS-APPELLANTS,
v.
TIMOTHY N. KAISER, ET AL., DEFENDANTS-APPELLEES.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 01 C 5130--Ruben Castillo, Judge.

Before Bauer, Posner, and Kanne, Circuit Judges.

The opinion of the court was delivered by: Posner, Circuit Judge

ARGUED MAY 17, 2002

This appeal from the dismissal of a suit seeking an order to arbitrate requires us to consider the intersection of class actions, arbitration, and Colorado River (parallel-proceeding) abstention. Underlying the appeal is a dispute between a group of affiliated corporations (CIGNA for short) and 288,000 (!) physicians, hospitals, and other providers of health care with which CIGNA, an administrator of employee health-benefits plans, has contracts for the provision of health care to the participants in the plans. Under these "managed care" contracts, as they are known. CIGNA reimburses its contract partners for the health-care services that they provide in fulfillment of its obligations to participants in the plans that it administers.

The providers claim that after making these contracts CIGNA installed a computer program for calculating the amount it owed them that has resulted in systematic underpayment, in breach of their contracts.

In May 2000 the providers filed a class action in an Illinois state court against CIGNA which CIGNA wanted to but could not remove to federal court because one of the named plaintiffs was a citizen of Texas, as is one of the CIGNA affiliates named as defendants. However, many of the managed-care contracts contain an arbitration clause, and in July 2001, just days after the end of the period for providers to opt out if they wanted from the state court suit, CIGNA filed suit in federal district court against the named plaintiffs in the state court suit minus the Texas physician and the rest of the class. It based jurisdiction on diversity of citizenship and sought an order under section 4 of the Federal Arbitration Act (Title 9 of the U.S. Code) to compel arbitration of all disputes arising under managedcare contracts with members of the class that contain an arbitration clause. These are not all the disputes between CIGNA and the class. A number of the managed-care contracts (we don't know how many) do not contain an arbitration clause. But some or all of the providers that had such contracts may have received from CIGNA a document called "Program Requirements" that, CIGNA argues, grafted an arbitration clause onto the contract. Because the arbitrability of the disputes under these contracts would have to be determined on a contract-by-contract basis, CIGNA argues that the arbitrability of those disputes cannot be decided in a class action and so must be resolved by the state court. CIGNA's position is inconsistent, since the suit in the state court, the suit in which it concedes that the issue of the arbitrability of these other disputes must be resolved, is itself a class action. However that may be, a few days after filing its federal class action suit CIGNA moved the state court to order arbitration of the arbitrable disputes not encompassed by the federal suit.

In January 2002 the district judge dismissed the suit on the basis of the abstention doctrine created by Colorado River Water Conservation District v. United States, 424 U.S. 800, 818-20 (1976), precipitating this appeal. By this time, because the state court judge had refused to stay the proceedings before him pending the resolution of CIGNA's federal suit, CIGNA had produced hundreds of thousands of managedcare contracts in response to the providers' discovery requests and these contracts were being held in a document depository in Belleville, Illinois, the site of the state court.

CIGNA was particularly disturbed by the state judge's refusal to stay discovery of the merits of the contract disputes; it argues that discovery with respect to any dispute that is arbitrable is the business of the arbitrators. But at least the state judge did say that he had not by denying the stay intended to prejudge the issue of arbitrability.

The providers' position on that issue is unclear, but clearly they are not yet prepared to concede that all their contractual disputes, or even all that arise out of managed-care contracts that contain an arbitration clause, are arbitrable. The issue of ...


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