Antitrust Law Daily Wrap Up, PRIVACY—7th Cir.: Dismissal of TCPA class action against UnitedHealthcare reversed, (Sep 2, 2015)

By Edward L. Puzzo, J.D.

A district court’s improper venue dismissal of a Telephone Consumer Protection Act class action brought by a medical provider against UnitedHealthcare must be reversed, because the provider was not given the opportunity to reply to a new argument raised by the insurer in support of its effort to enforce arbitration, the U.S. Court of Appeals in Chicago has ruled (Meinders v. UnitedHealthcare, Inc., September 1, 2015, Bauer, W.).

Medical provider Dr. Robert L. Meinders brought a putative class action in Illinois state court against medical insurer UnitedHealthcare, alleging that unsolicited “junk fax” advertising United sent to him and similarly situated persons violated the Telephone Consumer Protection Act (TCPA). After the case was removed to the federal district court for the Southern District of Illinois, United moved to dismiss for improper venue, based on an alleged obligation of plaintiff to arbitrate the dispute.

United argued that arbitration was required under a Provider Agreement that plaintiff had entered into with ACN Group, which United claimed to own. United claimed that the fax in question fell within the purview of the arbitration clause, because it provided plaintiff with information about new technology designed to assist United providers in recouping payments from patients.

In response, plaintiff argued that United could not enforce the Provider Agreement’s arbitration provision because United was neither a party nor a signatory to the agreement. Plaintiff further argued that United had not presented evidence of ownership of ACN Group, and even if it had, corporate ownership did not itself confer a right upon the parent corporation to enforce an arbitration agreement where only the subsidiary was a party to the agreement.

In its reply, United raised for the first time the contractual theory of assumption, arguing that it was entitled to enforce the Provider Agreement’s arbitration provision since ACN Group had become a wholly owned subsidiary of United Healthcare prior to the date plaintiff had signed the Provider Agreement, and United had assumed ACN Group’s obligations under that agreement.

Plaintiff moved for leave to file a sur-reply addressing United’s assumption theory, but the district court denied the motion, citing Local Rule 7.1(c) of that court, which bars sur-reply briefs. The district court further determined that that the contractual theory of assumption did allow United to enforce the arbitration provision, and therefore granted United’s motion to dismiss for improper venue. Plaintiff appealed, arguing that the lower court denied him due process by entering judgment against him on factual and legal issues to which he did not have a full and fair opportunity to respond.

Procedural issues. The general rule, the appellate court explained, is that an arbitration agreement binds only the parties to that agreement. However, the contractual theory of assumption is one of the exceptions to the general rule.

The appellate court noted that United’s opening motion based its right to enforce the arbitration provision of the Provider Agreement on the ground that it owned AGN Group, the party to the agreement. Later, in its reply brief, United raised for the first time the contractual theory of assumption as the basis of enforcement. Plaintiff was denied the opportunity to respond to this argument based on Local Rule 7.1(c) of that court which bars sur-reply briefs. But that local rule, the appellate court noted, also only permitted reply briefs in exceptional circumstances; yet the district court permitted United to file its reply brief.

The appellate court stated that it was hard pressed to find the new issue that plaintiff had raised in his opposition brief which formed the basis of finding exceptional circumstances which allowed United to file its reply brief. Nevertheless, once the district court had permitted its reply brief, due process required that plaintiff also be allowed to file a sur-reply responding to United's assumption theory, first raised in that reply brief. The appellate court acknowledged the local rule, but further stated that when strict adherence to local rules threatens to deprive a litigant of the opportunity to respond, the local rules must give way to considerations of due process and fundamental fairness. Accordingly, the appellate court held that the district court had deprived plaintiff of due process by entering judgment against him on law and facts to which he did not have a full and fair opportunity to respond. The appellate court therefore reversed the district court’s dismissal order.

Merits. As to the merits, both parties acknowledged that a nonsignatory to an agreement may be able to enforce it based on the contractual theory of assumption, but they disagreed as to whether an assumption occurred in this instance. Accordingly, the appellate court remanded the matter to the district court to permit discovery by both parties and address the factual issues to determine whether assumption occurred here.

The case is Civil Action No. 14-3668.

Attorneys: Phillip A. Bock (Bock & Hatch) for Dr. Robert L. Meinders, D.C., Ltd. Jessica Lynn Ellsworth (Hogan Lovells US LLP) for UnitedHealthcare, Inc., and United Healthcare of Illinois, Inc.

Companies: Dr. Robert L. Meinders, D.C., Ltd.; UnitedHealthcare, Inc.; United Healthcare of Illinois, Inc.

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