Alabama District Court Grants Hospital’s Motion to Compel Arbitration in Dispute Against Third-Party Beneficiary to Medical Services Contract

In 2015, the plaintiff was in a car accident that required emergency room medical treatment at Andalusia Regional Hospital. The plaintiff had health insurance at the time through United HealthCare, which maintained a contract for medical services with Andalusia. The plaintiff alleged that in connection with her treatment, Andalusia failed to submit her bills to United HealthCare or follow other required procedures, in violation of the medical services contract. As a third-party beneficiary, the plaintiff filed a class action lawsuit to enforce the terms of the contract and to recover damages incurred as a result of Andalusia’s alleged contractual violations. Andalusia was not named as a defendant in the class action, though the court later joined Andalusia as the sole defendant and dismissed the plaintiffs’ claims against all other parties.

After being added to the lawsuit, Andalusia moved to compel arbitration pursuant to the arbitration clause within the medical services contract between Andalusia and United HealthCare. The plaintiff opposed, arguing: (1) the arbitration clause does not bind her as a third-party beneficiary; (2) Andalusia’s motion to compel arbitration was untimely; and (3) the arbitration agreement was unconscionable. The court dismissed these arguments and granted Andalusia’s motion to compel arbitration.

Finding first that a valid and enforceable arbitration agreement existed between Andalusia and United HealthCare, the court ruled that the arbitration agreement was binding on the plaintiff as a third-party beneficiary. The court found that because a third-party beneficiary stands in the shoes of the signatories to a contract, the beneficiary is bound by the entirety of the contract that he or she wishes to enforce. Put simply, a “third-party beneficiary cannot accept the benefit of a contract, while avoiding the burdens or limitations of that contract.”

With respect to the timeliness argument, the court did not agree with the plaintiffs’ argument that Andalusia failed to initiate arbitration within one year of written notice of the dispute, as provided in the contract. The court noted that the plaintiff, as master of her own complaint, decided not to name Andalusia as a defendant to the lawsuit originally filed in May 2016, and thus there was no actual dispute between the plaintiff and Andalusia that could be arbitrated until the court joined Andalusia in March 2020. Holding otherwise — which would have required Andalusia to preempt the plaintiff and interject itself into the litigation to secure its arbitration rights — would have “absurd results” that conflict with arbitration law and “erode core values of the American legal system.”

Finally, the court found that the arbitration agreement was not unconscionable. The court recognized that whenever parties operate at different levels of sophistication, there is a risk of disparate bargaining power — a requirement to finding the terms of an agreement unconscionable. However, the court reminded the plaintiff that as a third-party beneficiary, she stands in the shoes of United HealthCare, and there were no concerns of equal bargaining power as between United HealthCare and Andalusia.