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Welborn Clinic v. Medquist

August 29, 2002


Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. EV 00-95-C-Y/H--Richard L. Young, Judge.

Before Bauer, Coffey, and Diane P. Wood, Circuit Judges.

The opinion of the court was delivered by: Diane P. Wood, Circuit Judge


Welborn Clinic entered into a contract with MedQuist, Inc., under which MedQuist agreed to perform medical transcription services for Welborn. Disputes quickly arose over the methods MedQuist used to count the lines it transcribed for billing purposes. Eventually, Welborn filed suit asserting breach of contract, fraud, deceptive trade practices, and conversion. The district court determined that all of Welborn's claims were subject to arbitration under the contract's dispute resolution clause and dismissed the complaint. Because we find that the narrow arbitration clause covers only some of Welborn's claims, we affirm in part and reverse the remainder of the district court's judgment and remand for further proceedings.


To create the medical records necessary for patient care, a medical facility must transcribe the reports, notes, and summaries dictated by health care professionals. In December 1998, Welborn, which historically had transcribed in-house, entered into a written contract with The MRC Group, Inc., under which MRC agreed to perform all transcription services on behalf of Welborn at a charge of 13.2 cents per line transcribed. The form contract was supplied by MRC. Under the heading "Payments and Charges" the contract included § 3.5, labeled "Dispute Resolution," which provided in its entirety:

In the event that any invoice amount is disputed by Client, Client shall deliver written notice of such disputed amount to Vendor within ten (10) days of receipt of the invoice by Client. In the absence of Client timely providing said written notice, Client waives any right to dispute said invoice in the future. Vendor shall promptly deliver to Client any backup or other information which supports the correctness of such disputed amount. Upon receipt of such information, Client shall have ten (10) days in which to examine such information and to pay to Vendor any portion of such disputed amount which Client, in its sole discretion, has determined to be substantiated. Thereafter, if any dispute still remains with respect to any amount, Vendor and Client shall immediately enter into good faith negotiations to resolve it. In the event the parties are unable to resolve such dispute within ten (10) days of entering into negotiations, the dispute shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. Such arbitration shall be conducted in the State of Ohio. The decision reached through arbitration shall be final and binding on both parties.

Soon thereafter, MedQuist acquired MRC and succeeded to all its rights and obligations under the contract.

MedQuist began performing under the contract on March 23, 1999. Almost immediately, Welborn challenged the methods MedQuist was using to count the number of lines transcribed and to calculate its charges. Welborn believed both that MedQuist was inflating its line count and that it had misrepresented key elements of its counting and billing practices before entering into the contract. This prompted Welborn to initiate the dispute resolution procedure by delivering written notice of its disputes to MedQuist and requesting backup information. MedQuist refused to provide any backup. When Welborn subsequently withheld payment of the disputed invoices in October 1999, MedQuist stopped performing under the contract and refused to return any medical records it had in its possession. After several rounds of squabbling, Welborn exercised its right to cancel the contract.

On May 3, 2000, Welborn filed a complaint in the district court alleging breach of contract (Count I), fraud (Counts II, III, and IV), deceptive trade practices (Count V), and conversion (Count VI). It also sought declaratory relief requiring MedQuist to return Welborn's medical records. At a pretrial conference, MedQuist agreed to turn over those records and then moved to dismiss the complaint and compel arbitration. The district court granted MedQuist's motion in its entirety. Welborn appeals, claiming both that MedQuist waived its right to arbitration through its pre-litigation conduct and that some of Welborn's claims are not subject to the narrow arbitration provision.


Like any other contractual right, the right to arbitrate a claim may be waived. Grumhaus v. Comerica Sec., Inc., 223 F.3d 648, 650 (7th Cir. 2000). We will find waiver when "based on all the circumstances, the party against whom the waiver is to be enforced has acted inconsistently with the right to arbitrate." Id. at 650-51 (citations and internal brackets omitted). Welborn contends that MedQuist has waived its right to arbitrate through a series of delay tactics and its refusal to participate in informal dispute resolution.

Welborn first claims that MedQuist's delay tactics are a form of foot-dragging that is inconsistent with the agreement's otherwise valid arbitration clause. A party may waive its contractual right to arbitration either explicitly or through an implicit course of conduct. Grumhaus, 223 F.3d at 650; Hammes v. AAMCO Transmissions, Inc., 33 F.3d 774, 783 (7th Cir. 1994). Welborn argues that MedQuist's withholding of medical records, termination of service, and rejection of attempts informally to negotiate the dispute constitute implied waiver. The only two cases it cites for this proposition, however, are Grumhaus and Hammes, both of which involved situations where the party seeking arbitration had originally filed suit in a judicial forum. Grumhaus, 223 F.3d at 649; Hammes, 33 F.3d at 777. Litigating a claim is clearly inconsistent with any perceived right to arbitration; we do not want parties to forum shop, taking a case to the courts and then, if things go poorly there, abandoning their suit in favor of arbitration. But MedQuist never sought to litigate this case in either state or federal court, never resisted any demands by Welborn to submit to arbitration, and moved to compel arbitration less than two months after the lawsuit was filed. Such conduct seems entirely consistent with a firm commitment to arbitrate.

It is true that lengthy delay can lead to an implicit waiver of arbitration. Grumhaus, 223 F.3d at 651. But such delay is normally evidenced by substantial participation in the opposing party's litigation. See Cabinetree of Wis. Ltd. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995) (removal of case to federal court); St. Mary's Med. Ctr. of Evansville, Inc. v. ...

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