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Supreme Court Says Physicians Should Arbitrate RICO Claims Against HMOs


HLD, v. 31, n. 6 (June 2003)

Supreme Court Says Physicians Should Arbitrate RICO Claims Against HMOs

In 2000, a group of physicians filed a lawsuit in federal district court against several major managed care organizations, including PacifiCare Health Systems, Inc. (PacifiCare) and United Healthcare, Inc. (United), for their alleged unlawful dealings with the physicians. According to the lawsuit, the health plans engaged in a system-wide effort to cheat the physicians out of payments they deserved for treating the plans' members and violated the Racketeer Influenced and Corrupt Organizations Act (RICO), the Employee Retirement Income Security Act (ERISA), and various prompt pay statutes. PacifiCare and United argued that their agreements with the physicians required arbitration of these disputes, including those arising under RICO. But Judge Federico Moreno of the U.S. District Court for the Southern District of Florida denied their request for arbitration of the RICO claims, finding the agreements' prohibition on punitive damages made them unenforceable as to those claims because they could deny the physicians "meaningful relief" under RICO's treble damages provision. On appeal, the Eleventh Circuit affirmed.

The Supreme Court reversed, ruling that the physicians should arbitrate their RICO claims rather than proceed in court. According to the unanimous decision, authored by Justice Antonin Scalia, it was too early to tell whether the agreements' remedial restrictions actually prevented the award of treble damages under RICO. "In short, since we do not know how the arbitrator will construe the remedial limitations, the questions whether they render the parties' agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance are unusually abstract," Scalia wrote. Under these circumstances, arbitration is the proper course, the Court held.

The Court said the ambiguous terms of the agreements made it "unclear" whether the parties intended the arbitration agreements to exclude treble damages under RICO. "Our cases have placed different statutory treble damages provisions on different points along the spectrum between purely compensatory and strictly punitive awards," the High Court observed. Most recently, in Cook County v. United States ex rel. Chandler, No. 01-1572 (U.S. Mar. 10, 2003), the Court noted that treble damages have a compensatory side that serves remedial ends as well as punitive ones in holding local governments are "persons" under the False Claims Act. "Indeed, we have repeatedly acknowledged that the treble-damages provision contained in RICO itself is remedial in nature," Scalia wrote. Given these uncertainties, the Court concluded it would be "premature" to deny arbitration based on "mere speculation" as to how an arbitrator would interpret the agreements.

PacifiCare Health Sys. Inc. v. Book, No. 02-215 (U.S. Apr. 7, 2003) (6 pages).

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