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Optimum Laboratory Services LLC v. East El Paso Physicians Medical Center, LLC

United States District Court, W.D. Oklahoma

June 20, 2017

OPTIMUM LABORATORY SERVICES LLC, an Oklahoma limited liability company, Plaintiff,



         This case involves three disputes. First and at bottom is the dispute over the merits: are Defendants liable to Plaintiff? Second: Did the parties agree to arbitrate their dispute? Third-and decisive to the Court's decision today: Who-the arbitrator or this Court?- gets to decide whether the parties agreed to arbitrate their claims? Because the Court determines that the parties in fact agreed to let an arbitrator and not this Court answer that question, the Court will GRANT Defendants' Motions to Compel [Docs. 10 & 11].

         I. Background

         Given the answer to that third question, the Court need not dive into the details of the underlying disagreement between the parties. Suffice it to say that Plaintiff Optimum Laboratory Services (“Optimum”) contracted to upgrade the lab services at Defendant East El Paso Physicians' Medical Center (“Foundation”). The parties' Management Services Agreement for Clinical Diagnostic Laboratory Services (the “Agreement”)[1] also called for Optimum to manage and provide clinical lab services at Foundation in exchange for a cut of the fees generated. Foundation was in turn supposed to provide the lab space and a Medical Director who would oversee compliance with regulations under state and federal law. Also included in the Agreement, as discussed in more detail below, were provisions requiring mediation, and if necessary arbitration, should any dispute under the Agreement arise. Optimum alleges that Foundation breached the Agreement in September 2016 when, in response to an adjacent lab company's failure to abide by regulations, Foundation closed Optimum's lab space and shut down Optimum's lab services. This, and Foundation's alleged failure to pay Optimum hundreds of thousands of dollars owed under the Agreement, has apparently damaged Optimum to the tune of more than $7 million.

         Optimum thus brings suit against Foundation for breach of contract, negligence, tortious interference with business relations, conversion, and indemnification. It also names Foundation's CEO, Don Burris, as a Defendant to the negligence and tortious interference claims. In response, Foundation asks the Court to order arbitration under the Federal Arbitration Act (“FAA”), or in the alternative, to transfer this case to the United States District Court for the Western District of Texas. Doc. 10. Mr. Burris requests the same, as well as that this Court dismiss him for lack of personal jurisdiction. Doc. 11. For the reasons that follow, Defendants' Motions to Compel Arbitration are GRANTED and the Court will order arbitration. Consequently, the Court need not address whether venue is proper or whether it has jurisdiction over Mr. Burris.

         II. Standard of Review

         In resolving a motion to compel arbitration, the Court “accept[s] as true . . . factual allegations . . . that relate to the underlying dispute between the parties.” Schnabel v. Trilegiant Corp., 697 F.3d 110, 113 (2d Cir. 2012). “A party to an arbitration agreement seeking to avoid arbitration generally bears the burden of showing the agreement to be inapplicable or invalid.” Harrington v. Atl. Sounding Co., Inc., 602 F.3d 113, 124 (2d Cir. 2010) (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91-92 (2000)).

         III. Arbitrability

         Both Defendants, Foundation and its CEO Don Burris, have moved this Court under the Federal Arbitration Act (“FAA”) to compel Optimum to enter mediation and, if necessary, arbitration. Defendants argue, moreover, that an arbitrator should hear any challenges to the Agreement. Optimum disagrees. It insists nothing in the agreement calls for an arbitrator to decide issues of arbitrability, and even if there were, that specific agreement between the parties is itself contractually invalid.

         A. Applicability of the FAA

         The FAA governs all arbitration agreements in which the underlying transaction involves commerce. Foster v. C.F. Turley, Jr., 808 F.2d 38, 40 (10th Cir. 1986). The Act's § 2, its “primary substantive provision, ” Rent-A-Center, 561 U.S. 63, 67 (2010), gives an arbitration agreement legal validity by requiring a court to enforce it:

A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such 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.

         Arbitration agreements are therefore to be treated like any other enforceable contract, which courts are able to do with the FAA's enforcement provisions. Under § 3, a party may apply to a federal court for a stay of the trial of any action “upon any issue referable to arbitration under an agreement in writing for such arbitration.” 9 U.S.C. § 3. Defendants have requested one such stay. Aggrieved by Optimum's failure to mediate and/or arbitrate this dispute, they have also invoked § 4 to request the court “for an order directing that such arbitration proceed in the manner provided for in [their] agreement.” Id., § 4. Under the FAA, the Court may order the parties to arbitrate so long as there is no factual issue concerning the making of that agreement or the party's failure to adhere to that agreement. Id.

         But federal dictates aside, only those disputes that the parties have contracted to arbitrate should wind up in arbitration. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). After all, “[t]he FAA reflects the fundamental principle that arbitration is a matter of contract.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. at 67. The first question is thus arbitrability, that is, whether the parties have agreed to submit a particular dispute to arbitration. First Options, 514 U.S. at 944. In other words, does the arbitration agreement at hand apply to the present dispute? And if so, is the arbitration agreement itself valid? The Court determines the latter by “apply[ing] ordinary state law principles that govern the formation of contracts.” Id. Consequently, arbitration agreements, like any other contract, are invalidated by defenses such as “fraud, duress, or unconscionability.” Rent-A-Center, 561 U.S. at 68. Assuming no party disputes that there is a valid arbitration agreement, there is a “general presumption that a particular issue is arbitrable.” Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 ...

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