Dartmouth v. Cross Country 09-CV-160-JD 06/10/10 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Dartmouth Hitchcock Medical Center

v. Civil No. 09-CV-160-JD Opinion No.

Cross Country Travcorps, Inc., d/b/a Cross Country Staffing (and their affiliates), and CHG Medical Staffing, Inc., d/b/a RN Network

O R D E R

Dartmouth Hitchcock Medical Center ("DHMC") brought an

action against Cross Country Travcorps, Inc., doing business as

Cross Country Staffing, and their affiliates (referred to

collectively as "Cross Country"), and CHG Medical Staffing, Inc.

doing business as RN Network ("CHG"). CHG moves for summary

judgment, seeking an order that all three claims against CHG be

submitted for binding arbitration.

Standard of Review

Summary judgment is appropriate when "the pleadings, the

discovery and disclosure materials on file, and any affidavits

show that there is no genuine issue as to any material fact and

that the movant is entitled to judgment as a matter of law."

Fed. R. Civ. P. 56(c). The party seeking summary judgment must first demonstrate the absence of a genuine issue of material fact

in the record. See Celotex Corp. v. Catrett,

(1986). A party opposing a properly supported motion for summary

judgment must present competent evidence of record that shows a

genuine issue for trial. See Anderson v. Liberty Lobby, Inc.,

(1986). All reasonable inferences and all

credibility issues are resolved in favor of the nonmoving party.

See

.

Background

This suit arises out of a medical negligence action, Aumand

v. Dartmouth Hitchcock Medical Center, No. 06-cv-434-JL, brought

by the daughter and husband of a patient, Katherine Coffey, who

died following treatment at DHMC. The plaintiffs in that suit

alleged, inter alia, that DHMC provided medical services that

violated the standard of care, which resulted in injury to Mrs.

Coffey's hand and ultimately caused her death. A jury found in

favor of the plaintiffs.

Nurse Ruth Burdett, who caused the injury to Mrs. Coffey's

hand by administering medication improperly, was provided to DHMC

under the terms of two contracts. The first contract, the

"Healthcare Staffing Vendor Management Agreement" ("Vendor

Agreement"), between DHMC and Cross Country, required Cross

Country to provide healthcare professionals to DHMC upon DHMC's

2 request. The second contract, the "Staffing Subcontractor

Agreement" ("Subcontract"), between Cross Country and CHG,

required CHG to provide healthcare professionals to Cross Country

upon Cross Country's request.

The Subcontract contained a provision requiring CHG to

"indemnify, defend, save and hold harmless . . . [DHMC] . . .

from and against any and [sic] liability . . . which directly or

indirectly arise out of any act of negligence or willful acts by

Subcontractor or any of its HCPs." Deft.'s Mot., Exh. 1

("Subcontract"), 5 VIII.C. Similarly, the Vendor Agreement

required Cross Country to "indemnify and hold harmless [DHMC]

from claims and liabilities . . . relating to . . . personal

injuries or death[] directly arising out of the acts or omissions

of [Cross Country] in connection with [its] duties and services

provided under this Agreement." Deft.'s Mot., Exh. 2, 5 16.

The Subcontract provided that "[a] 11 disputes arising from

or relating to this Agreement and not settled between the parties

will be decided before a neutral third party, in accordance with

the Rules of the American Arbitration Association."

5 X.G.

Furthermore, the Subcontract contained a choice of law provision,

which stated that "[t]his Agreement shall be governed by the laws

of the State of Florida without regard to conflicts of law."

at 5 X.O. The Vendor Agreement did not contain any arbitration

or choice-of-law provision.

3 The Subcontract also provided that, "[i]n the event that any

condition or covenant contained in this Agreement is held invalid

or void by any court of competent jurisdiction, such condition or

covenant shall be deemed severable from the rest of this

Agreement."

at 5 X.L.

During the Aumand litigation, DHMC tendered the defense of

that action to CHG. In a letter from Morris Jensby, the general

manager of CHG's third-party claim administrator, CHG agreed to

pay for the defense "under a full reservation of CHG's right to

withdraw said obligation to defend if, in the course of discovery

and litigation, it is determined that no CHG health care provider

. . . committed any negligent or willful act." DHMC's Opp. to

CHG's July 10, 2009, Mot. to Dismiss, Exh. B ("Jensby Letter"),

at I.1 Jensby also stated that "there is no obligation,

contractually or otherwise, for CHG to defend or indemnity [sic]

DHMC for the independent negligence or willful acts of any

person(s) or entities that are not employed directly by CHG."

Id. at 1-2. According to CHG, it had an "obligation to defend

and, potentially, indemnify DHMC," but "[n]othing in this

1Neither CHG nor DHMC attached the March 2007 Jensby letter to their memoranda in support of and in opposition to CHG's motion for summary judgment. Both parties refer to the letter, however, and it was previously filed in support of DHMC's opposition to CHG's July 10, 2009, motion to dismiss. Therefore, the court will consider the document for purposes of deciding the summary judgment motion.

4 agreement to defend or the reservation of rights associated with

this agreement either abrogates or supplements the duty to defend

and indemnify DHMC as a third party beneficiary to the Staffing

Subcontractors Agreement . . . entered into between Cross Country

and CHG on May 17, 2005." Id. at 2.

Following the jury verdict for the plaintiffs in Aumand,

DHMC and CHG each paid part of the damages award to the

plaintiffs. DHMC sued Cross Country and CHG, alleging that they

are obligated under the Vendor Agreement and the Subcontract,

respectively, to defend, indemnify, and hold harmless DHMC. DHMC

also brought a claim for contribution against both defendants,

and a claim for breach of contract against CHG. CHG moves for

summary judgment, seeking an order that all of the claims against

CHG be submitted for binding arbitration.

Discussion

CHG argues that the arbitration provision in the Subcontract

applies to DHMC's claims for indemnification and breach of

contract, and that therefore CHG can compel DHMC to arbitrate

those claims. CHG contends, as a threshold matter, that the

court is obliged, under the Subcontract's choice of law

provision, to construe the arbitration provision using Florida

law. Based upon Florida law, CHG then argues that DHMC was a

third-party beneficiary of the Subcontract, and that it is bound

5 by the arbitration provision. Apparently conceding that the

arbitration provision does not explicitly cover DHMC's

contribution claim, CHG argues that the claim should be submitted

for arbitration with the other two in the interest of judicial

economy.

DHMC argues that the arbitration provision does not apply to

it because it did not sign, nor was it a party to, the

Subcontract. DHMC disputes the applicable law, contending that

the court should apply federal law. Examining the theories under

which federal courts have held that a nonsignatory is bound to an

arbitration agreement, DHMC argues that none apply to it. In the

alternative, DHMC argues that the arbitration clause is

unenforceable against it under Florida law because there is no

binding agreement to arbitrate, no arbitrable issue exists, and

the right to arbitrate was waived. With respect to its claim for

contribution, DHMC argues that no judicial economy would be

achieved by submitting the claim for arbitration along with the

others.

I. Indemnification and Breach of Contract Claims

A. Applicable Law

Section 2 of the Federal Arbitration Act provides that a

"written provision in any . . . contract evidencing a transaction

involving commerce to settle by arbitration a controversy

6 thereafter arising out of such contract or transaction . . .

shall be valid, irrevocable, and enforceable."

.

"The effect of [section 2 of the FAA] is to create a body of

federal substantive law of arbitrability, applicable to any

arbitration agreement within the coverage of the Act." Moses H.

Cone Mem'1 H o s p . v. Mercury Constr. Corp.,

(1983).

The federal substantive law and the federal policy favoring

arbitration apply "[o]nce [an] agreement [to arbitrate] has been

proven and the protagonists identified." McCarthy v. Azure,

(1st Cir. 1994). In this case, however, there is

"a predecessor question of whether there was an agreement at all

to arbitrate." Rosenberg v. Merrill Lynch, Pierce, Fenner &

Smith, Inc.,

(1st Cir. 1999). The court is not

"interpreting the breadth of the agreement," but rather

determining whether CHG and DHMC can be said to have agreed to

arbitrate at all. McCarthy,

. In this instance,

"[r]eference should be made to standard principles of contract

law." Rosenberg, 17 0 F.3d at 19; see also Donaldson Co. v.

Burroughs Diesel, Inc.,

(8th Cir. 2009)

("[S]tate contract law governs the threshold question of whether

an enforceable arbitration agreement exists between litigants; if

[so], the federal substantive law of arbitrability governs

whether the litigants' dispute falls within the scope of the

arbitration agreement."); Fleetwood Enters. Inc. v. Gaskamp, 280

, 1073 (5th Cir. 2002) (same); Bowlbv v. Carter Mfg.

C o .,

(D. Mass. 2001) ("Whether an

agreement to arbitrate exists is a question of state contract

law.").

To determine which state law is relevant, the court applies

the choice of law principles of New Hampshire. See Klaxon Co. v.

Stentor Elec. Mfg. Co.,

(1941); McCarthy,

n.5. New Hampshire honors choice of law provisions

if "the contract bears any significant relationship to that

jurisdiction." Hobin v. Coldwell Banker Residential Affiliates,

Inc.,

(2000) (internal quotation marks and

citation omitted). The Subcontract bears a significant

relationship to Florida because both CHG and Cross Country, the

signatories, have their principal places of business in that

state. See Subcontract, at preamble.

The choice-of-law provision alone would not necessarily

indicate that Florida law should be applied, because DHMC is not

a signatory to the Subcontract. DHMC appears to concede,

however, that it is a third-party beneficiary of the Subcontract.

In any case, that fact is beyond dispute because "the contract

calls for a performance by the promisor which will satisfy some

obligation owed by the promisee to the third party." Tamposi

Assocs., Inc. v. Star M k t . Co.,

(1979) (citing

4A Corbin, Contracts § 776 (1951) ); see also Greenacre Props., Inc. v. Rao,

(Fla. Dist. C t . A p p . 2006) (A

third-party beneficiary relationship exists where "the contract

either expressly creates rights for . . . [the] third party or .

. . the provisions of the contract primarily and directly benefit

the third party or a class of persons of which the third party is

a member."). Under the Subcontract, CHG was obligated to, inter

alia, indemnify and defend DHMC against certain liabilities.

This obligation, in effect, satisfied at least part of Cross

Country's obligation, under the Vendor Agreement, to indemnify

and defend DHMC. Thus, DHMC is a third-party beneficiary of the

Subcontract.

New Hampshire has not decided whether a third-party

beneficiary is bound by a choice of law provision in the

contract. The court must, therefore, attempt "to determine the

rule that the [New Hampshire] Supreme Court would probably

follow." Invest Almaz v. Temple-Inland Forest Prods. Corp.,

(1st Cir. 2001) (internal quotations marks and

citation omitted). "In undertaking this forecast, the court must

look to relevant, i.e., analogous, state court decisions, and may

assay sister state adjudications of the issue." Moores v.

Greenberg,

(1st Cir. 1987). "[A]bsent a

definitive [New Hampshire Supreme Court] ruling, [the court] may

look to . . . considered dicta, scholarly works[] and any other

reliable data tending convincingly to show how the [New Hampshire

9 Supreme Court] would decide the issue at hand." Clarke v. Kv.

Fried Chicken of Cal., Inc.,

, 25 (1st Cir. 1995). "In

conducting this tamisage, the federal court should pay particular

attention to those sources that the state's highest court has

endorsed in the past." Andrew Robinson Int'l, Inc. v. Hartford

Fire Ins. C o .,

(1st Cir. 2008); see also

McCarthy,

n.6 ("Where New Hampshire law is

recondite, we will turn to the types of materials that we believe

the New Hampshire Supreme Court would look to in formulating new

law.").

The New Hampshire Supreme Court has honored a choice of law

provision in a similar situation. In Roberts v. General Motors

Corp.,

(1994), the plaintiff brought a claim against

CMC for breach of a contract between CMC and one of its

franchisees. The plaintiff argued that he should be considered a

third-party beneficiary of the contract, but the New Hampshire

Supreme Court disagreed. The court observed that the contract

contained a choice of law provision providing that Michigan law

would govern any controversy arising under the contract.

. Applying Michigan law, the court held that the plaintiff

was not an intended third-party beneficiary of the contract.

.

In addition, when deciding issues related to a third-party

beneficiary's rights under a contract, the New Hampshire Supreme

10 Court has relied on the Restatement (Second) of Contracts, as

well as the Williston treatise on contracts. See Grossman v.

Murray,

(1999); Arlington Trust Co. v. Estate

of Wood,

(1983). Section 309, comment b, of

the Restatement provides that, "[w]here there is a contract, the

right of a beneficiary is subject to any limitations imposed by

the terms of the contract." Similarly, the Williston treatise

explains that "beneficiaries' rights have generally been held

subject to the conditions of the contract." 13 Samuel Williston

& Richard A. Lord, A Treatise on the Law of Contracts § 37:24

(4th ed. 2010).

Based on Roberts, the Restatement, and the Williston

treatise, it appears that the New Hampshire Supreme Court would

hold that, where a party asserts rights as a third-party

beneficiary to a contract, the controversy will be governed by

the choice of law provision in that contract. Accordingly, the

court will apply the choice of law provision in the Subcontract

and rely on Florida law to construe the Subcontract.

B. Florida Law

Florida law directs a court, when considering whether to

compel arbitration, to consider "(1) whether a valid written

agreement to arbitrate exists; (2) whether an arbitrable issue

exists; and (3) whether the right to arbitration was waived."

11 Sitarik v. JFK Med. Ctr. Ltd.,

(Fla. Dist. C t .

App. 2009) (citing Seifert v. U.S. Home Corp.,

(Fla. 1999)).2 DHMC argues that none of these three elements is

met in this case.

1. Valid Agreement to Arbitrate

There is no dispute that an agreement to arbitrate exists in

the Subcontract. Rather, the parties disagree about whether that

agreement to arbitrate is binding on DHMC.3 The arbitration

clause provides that "[a]11 disputes arising from or relating to

this Agreement and not settled between the parties will be

decided by binding arbitration." Subcontract, 5 X.G. DHMC

contends that the phrase "between the parties" means that the

agreement to arbitrate was only between the parties who signed

the Subcontract, Cross Country and CHG. DHMC points to several

provisions in the Subcontract that suggest that Cross Country and

CHG are the only "parties" to the Subcontract, and argues that

CHG is attempting to force arbitration of a dispute between

2Federal law adopts the same approach. See, e.g., Bowlbv,

(citing Brennan v. King,

(1st Cir. 1998)).

3Florida courts consider the issue of whether the arbitration agreement binds a nonsignatory as part of the issue of whether there was a valid agreement to arbitrate. See Sitarik,

.

12 itself and a non-party, DHMC.

Although the arbitration clause refers explicitly to

"parties," the Subcontract does not define that term. "Florida

courts have generally held that arbitration clauses in contracts

. . . are binding on third party beneficiaries." Hirshenson v.

Spaccio,

(Fla. Dist. C t . App. 2001). Third-

party beneficiaries are bound even where the arbitration

provision refers explicitly only to the signatories to the

contract. See Terminix Int'l Co. v. Ponzio,

, 105 &

109 (Fla. Dist. C t . App. 1997) (third-party beneficiaries were

bound by contract provision requiring arbitration of any

controversy or claim between "[t]he Purchaser and Terminix")).

Therefore, under Florida law, the arbitration clause in the

Subcontract is binding on DHMC.4

4Federal law also "recognizes certain contract and agency principles under which nonsignatories sometimes can be obligated by" arbitration agreements in others' contracts. McCarthy,

(citing In re Oil Spill by Amoco Cadiz,

(7th Cir. 1981) and Fisser v. Int'l Bank,

(2d Cir. I960)). One such principle, equitable estoppel, "precludes a party from enjoying rights and benefits under a contract while at the same time avoiding its burdens and obligations." InterGen N.V. v. Grina,

(1st Cir. 2003). DHMC claims that the provisions of the Subcontract related to indemnification, insurance, and defense should be enforced against CHG to benefit DHMC. See Am. Compl. at 7, 10, 12, 20. Furthermore, DHMC derived benefits from the Subcontract when CHG accepted the tender of the defense in Aumand, and when CHG paid a portion of the Aumand award. Because DHMC has benefitted under the Subcontract, and continues to seek benefits under it, federal law dictates that DHMC cannot avoid the obligation to arbitrate

13 2. Existence of an Arbitrable Issue

DHMC argues that this case does not present an issue for

which the Subcontract requires arbitration. Pointing to the

severability clause in Section X.L., DHMC contends that the

Subcontract envisions that some claims may be resolved by the

court, and that this either creates an ambiguity in the

Subcontract or clarifies that only disputes between CHG and Cross

Country must be arbitrated.5

The severability clause states that the validity of "any

condition or covenant contained in this Agreement" may be decided

by "any court of competent jurisdiction." Subcontract, at 5 X.L.

It does not limit the scope of the arbitration clause, nor does

it render the arbitration clause ambiguous. The severability

clause provides that if a court found that any provision of the

Subcontract were invalid, that decision would not affect other

parts of the Subcontract. DHMC does not dispute the validity of

the arbitration clause, but rather only its applicability.

Therefore, the severability clause does not apply to DHMC's

claims, and DHMC's claims for indemnification and breach of

contract present arbitrable issues.

its claims, which arise under and relate to the Subcontract.

5DHMC' s argument requires interpretation of the arbitration provision which, as discussed above, is guided by federal law and the federal policy favoring arbitration.

14 3. Waiver

DHMC also argues that CHG waived its right to arbitrate

DHMC's claims when it agreed to defend and indemnify DHMC in the

Aumand litigation and neglected to reserve its right to

arbitrate. DHMC maintains that CHG should not be allowed to

agree to defend and indemnify DHMC without demanding arbitration,

and then later force DHMC to arbitrate its claims regarding CHG's

duty to defend and indemnify.

CHG did not, in fact, agree to indemnify DHMC, as DHMC

states. Rather, the Jensby letter states clearly that it was an

"agreement to defend," and refers to CHG's "obligation to defend

and, potentially, indemnify DHMC." Jensby letter at 2 (emphasis

added). Furthermore, the Jensby letter states explicitly that

CHG agreed to defend DHMC but reserved its rights with respect to

the Subcontract. Jensby wrote: "Nothing in this agreement to

defend or the reservation of rights associated with this

agreement either abrogates or supplements the duty to defend and

indemnify DHMC as a third party beneficiary to the Staffing

Subcontractors Agreement . . . entered into between Cross Country

and CHG."

Contrary to DHMC's contention, CHG both reserved

its rights under the Subcontract and stated explicitly that the

agreement to defend did not otherwise alter the provisions of the

Subcontract.

Moreover, when Jensby accepted the tender of defense, DHMC

15 and CHG did not dispute that CHG was obligated to do so. The

arbitration clause, which applies to "disputes arising from or

relating to [the Subcontract] and not settled between the

parties," was not triggered at that time. Subcontract, at 5 X.G.

(emphasis added). Because the arbitration clause was not

relevant then, CHG's acceptance of DHMC's tender did not operate

as a waiver of the right to arbitrate. Therefore, the

arbitration clause remained in effect, and the right to arbitrate

was not waived.6

In sum, the Subcontract contains a valid, written

arbitration agreement that is binding on DHMC. DHMC's claims for

indemnification and breach of contract are arbitrable issues, and

CHG did not waive its right to arbitrate. DHMC's claims against

CHG for indemnification and breach of contract are subject to the

arbitration clause.

II. Contribution Claim

CHG argues that DHMC's claim for contribution from CHG

should be submitted for arbitration along with its claims for

indemnification and breach of contract, because it will save

judicial resources. "'[A] party cannot be required to submit to

6To the extent DHMC is arguing that CHG waived its right to arbitrate simply by paying a portion of the Aumand damages, it has not provided any evidence that the payment was not made subject to the reservation of rights.

16 arbitration any dispute which he has not agreed so to submit.'"

McCarthy,

(citing AT&T Techs., Inc. v. Commc'ns

Workers,

(1986)). Unlike the indemnification

and breach of contract claims, the contribution claim does not

arise from the Subcontract and therefore there was no agreement

by DHMC, imputed by law or otherwise, to arbitrate. Therefore,

the contribution claim against CHG will not be submitted for

arbitration. In addition, CHG has not shown that judicial

resources would be saved by submitting the contribution claim to

arbitration, particularly when the two claims against Cross

Country remain to be decided here.

III. Request for Oral Argument

Finally, CHG's request, pursuant to Local Rule 7.1(d), for

oral argument on its motion for summary judgment is denied. Rule

7.1(d) requires "a written statement by a party outlining the

reasons why oral argument may provide assistance to the court."

CHG states only that it "believes that oral arguments may assist

the Court with its ruling on this motion." This statement does

not comply with Rule 7.1(d), because CHG states only that oral

argument might be helpful, but does not explain why it might be

helpful. Additionally, the parties' written filings are

sufficient, and oral argument would not assist the court in

ruling on this motion.

17 Conclusion

For the foregoing reasons, CHG's motion for summary judgment

(doc. no. 50) is granted with respect to DHMC's claims against

CHG for indemnification and breach of contract, but is denied

with respect to DHMC's claim against CHG for contribution. The

indemnification and breach of contract claims against CHG shall

be submitted for binding arbitration in accordance with the terms

of the Subcontract.

SO ORDERED.

Cl CiW i o ,ih V j Joseph A.. DDiClerico, i C e r i c o , Jr. United States District Judge

June 10, 2 010

cc: Andrew D. Dunn, Esquire Ronald J. Lajoie, Esquire Anil Madan, Esquire Joseph Gardner Mattson, Esquire Ralph Suozzo, Esquire

18