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Empire Blue Cross and Blue Shield v. Janet Greeson's A Place for US Inc.

filed: February 2, 1993.


Appeal from the United States District Court for the Central District of California. D.C. No. CV-92-5001-DWW. David W. Williams, District Judge, Presiding.

Before: James R. Browning, Cecil F. Poole and John T. Noonan, Jr., Circuit Judges. Opinion by Judge Noonan.

Author: Noonan

NOONAN, Circuit Judge:

At issue is a preliminary injunction granted by a federal district court enjoining an arbitration ordered by a court of the state of California.

The suit for the injunction was brought by Empire Blue Cross and Blue Shield, a New York corporation, and Blue Cross and Blue Shield of Connecticut, Inc., a Connecticut corporation (the Insurers) against two Los Angeles hospitals, Bellflower Doctors Hospital and Los Angeles Doctors Hospital (the Hospitals) together with Janet Greeson's A Place For Us, Inc. (APFU), all California corporations. Jurisdiction is based on diversity of citizenship and on allegations made under RICO, 18 U.S.C. § 1961, et seq. Holding that grant of the injunction was in violation of the Anti-Injunction Act, 28 U.S.C. § 2283, we vacate the injunction.


The relevant relationship between the Hospitals and the Insurers was created by a program designed by APFU. Under the program originated by Janet Greeson, the author of It's Not What You Are Eating, It's What's Eating You, the Hospitals provided in-patient psychiatric treatment for patients with a variety of psychiatric disorders, especially severe depression, often symptomatically expressed by a sharp increase or decrease in appetite. The subscribers to the plans of the two Insurers were flown to California to participate in this program at one or other of the Hospitals. The billing of the Hospitals was normally done for the Insurers by Blue Cross of California (BCC), the California member.

The Insurers and BCC were members of the Blue Cross and Blue Shield Association (Association), a separate not-for-profit Illinois membership corporation. Through the Association the Insurers facilitated the processing of the out-of-state claims by the Inter-Plan Service Bank, a clearing house for the transfer of funds between independent Blue Cross plans. BCC would pay the Hospitals and then expect reimbursement from the Insurers for their subscribers.

In 1991 the Insurers began to believe that the APFU program was a fraud and that what was presented as psychiatric treatment of severe depression was little more than a fat farm, a weight loss program without medical necessity or legitimacy. The Insurers refused to pay outstanding claims for the treatment.

The Hospitals had contracts with BCC which provided that in the event of a dispute over payment, there should be arbitration. Confronted by the Insurers' refusal to pay, the Hospitals invoked these contracts and on January 9, 1991 filed a demand for arbitration with the American Arbitration Association (AAA), naming approximately 40 Blue Cross plans throughout the country, including the Insurers, as respondents. The Insurers and other plans objected that they were not signatories to the contracts. On May 15, 1992 the Hospitals filed in the state court a Petition For Order Compelling Arbitration, naming only BCC as a respondent. The state court granted the petition on June 2, 1992, ordering that arbitration between the Hospitals and BCC before the AAA be completed by March 2, 1993.

On August 26, 1992 the Insurers moved in the federal district court against the Hospitals, bringing this suit alleging fraud and violation of RICO. They also sought a preliminary injunction to prevent their claims being submitted to the arbitration ordered by the state court.

On September 8, 1992 the district court granted the requested preliminary injunction and on September 24 issued findings of fact and Conclusions of law in its regard. The court found that the Insurers were not signatories to the contracts between the Hospitals and BCC and that the Hospitals had presented no evidence to show that BCC was in fact the agent of the Insurers to bind them to arbitration of the claims. The court found as a matter of law that the Insurers had demonstrated a substantial likelihood of success on the merits of their suit for fraud and violations of RICO. The court further concluded as a matter of law that the Insurers would be "irreparably harmed" unless the injunction issued because they would be deprived of due process and trial by jury, would face the possibility of inconsistent results arising from the arbitration hearing and the federal suit, and would have to participate in multiple actions addressing the same or similar facts and issues raised in the federal suit. The injunction forbade the Hospitals from proceeding against the Insurers in the arbitration involving the Hospitals and BCC.

The Hospitals ...

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