268 F. Supp. 3d 1167
D.N.M.2017Background
- New Mexico contracted United Health (as Statewide Entity) to manage Medicaid behavioral health services; United Health subcontracted providers but was paid and responsible to the State for provider payments and program integrity.
- La Frontera, an Arizona provider, agreed in summer 2013 to assume services in New Mexico under an HSD emergency procurement; HSD paid initial start-up funds through United Health and La Frontera later executed a July 8, 2013 Participating Provider Agreement with United Behavioral Health (UBH) to receive payments.
- The Participating Provider Agreement contains a broad arbitration clause requiring arbitration of “any disputes or claims arising out of their business relationship” under AAA rules and invokes the FAA.
- La Frontera provided services June–Dec 2013, submitted ~30,000 claims and alleges United Health failed to pay ~$3.9M; La Frontera later signed a December 2013 settlement/release that also contained an arbitration provision.
- La Frontera sued United entities in state court (later removed) alleging fraud, misrepresentation, breach, third-party beneficiary, promissory estoppel, unjust enrichment, Insurance Code/UPA violations; United moved to compel arbitration and to stay proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a valid arbitration agreement exists between La Frontera and United | No valid agreement; the controlling deal was with HSD and the UBH agreement was executed only to get funds | The July 8, 2013 Participating Provider Agreement (UBH–La Frontera) is a binding arbitration agreement governed by the FAA/NMUAA | Court: Valid, enforceable arbitration agreement exists between La Frontera and United Behavioral Health |
| Whether the arbitration clause’s scope covers La Frontera’s claims (including third‑party beneficiary, statutory, tort) | Many claims arise under other agreements (HSD/Statewide Entity) or predate the PPA and therefore fall outside the PPA arbitration clause | The clause is broad—covers any disputes arising from the parties’ business relationship; courts construe such clauses liberally in favor of arbitration | Court: Clause is broad and covers all claims asserted against United Behavioral Health, including third‑party beneficiary and statutory/tort claims |
| Whether the arbitration clause is unenforceable for unconscionability or illusory | Procedurally unconscionable (adhesion; Hobson’s choice to sign to get payment); substantively unconscionable because UBH is unlikely to litigate while La Frontera must arbitrate; illusory reservation of unilateral modification | Clause is bilateral, contains notice/amendment and termination mechanics, and La Frontera is a sophisticated actor — no evidence of coercion; not one‑sided or illusory | Court: Arbitration clause is neither procedurally nor substantively unconscionable and is not illusory |
| Whether non‑signatory entities (United Healthcare Insurance, OptumHealth) can compel arbitration or be covered | La Frontera: no contract with United Healthcare/Optum; PPA does not bind non‑signatories | United: corporate/joint‑venture relationships and intertwined claims estop La Frontera from avoiding arbitration; state contract/agency doctrines permit binding nonsignatories | Court: Under New Mexico law and equitable estoppel doctrine, La Frontera is estopped from avoiding arbitration as to United Healthcare and Optum; all claims against the United entities are arbitrable; proceedings stayed |
Key Cases Cited
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (arbitration is a matter of contract; general defenses to contract formation apply)
- AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643 (1986) (courts decide only threshold arbitrability questions and resolve doubts in favor of arbitration)
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (federal policy favors arbitration; FAA places arbitration agreements on equal footing)
- First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995) (arbitration covers only disputes parties agreed to submit)
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009) (state contract law governs whether nonsignatories can be bound by arbitration agreements)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (gateway challenges to contract validity are for arbitrator unless challenge is to the arbitration clause itself)
- THI of New Mexico at Hobbs Ctr., LLC v. Patton, 741 F.3d 1162 (10th Cir. 2014) (FAA preempts certain state law unconscionability rules disadvantaging arbitration)
- Dumais v. American Golf Corp., 299 F.3d 1216 (10th Cir. 2002) (presumption of arbitrability disappears when parties dispute existence of a valid arbitration agreement)
- Cordova v. World Finance Corp. of N.M., 146 N.M. 256, 208 P.3d 901 (2009) (New Mexico unconscionability principles; one‑sided carve‑outs can be substantively unconscionable)
- Pueblo of Laguna v. Cillessen & Son, Inc., 101 N.M. 341, 682 P.2d 197 (1984) (nonsignatories generally are not bound absent privity or contract language creating the obligation)