HLD, v. 31, n. 6 (June 2003)
Supreme Court Says Physicians Should Arbitrate RICO Claims
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
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).