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By Lisa Nagele
Oct. 20 — Three former medical plan sales directors may pursue their putative class action claim that AmeriPlan Corp. violated a contractual obligation to pay them “lifetime residual income” on commissions generated by salespeople they recruited, the U.S. Court of Appeals for the Fifth Circuit ruled Oct. 16.
Reversing in part the district court's order compelling arbitration, the Fifth Circuit found that a mandatory arbitration provision AmeriPlan added to its policy manual in 2010 couldn't be harmonized with dispute resolution procedures contained in the plaintiffs' original “sales director agreements.”
The court rejected AmeriPlan's argument that the original provisions applied to “a limited scope of claims not governed by arbitration.” This argument is “at odds with the contracts' broad language” that requires “any claim, controversy or dispute” to be submitted to mediation and then, if unresolved, to be adjudicated in court, the court said.
The Fifth Circuit found that a mandatory arbitration provision AmeriPlan added to its policy manual in 2010 couldn't be harmonized with dispute resolution procedures contained in the plaintiffs' original “sales director agreements.”
Because the claim involved the validity of an arbitration provision, the court applied state contract law. “Only at the second step of the analysis—determining the scope of the arbitration agreement—do courts apply the federal policy favoring arbitration and resolve ambiguities in favor of arbitration,” Judge Gregg J. Costa wrote for the court.
Judges W. Eugene Davis and Jennifer W. Elrod joined the opinion.
According to the court, Robert J. Sharpe, William C. Moen and Gary Downard were “independent business owners” who sold health-care plans through AmeriPlan's network. Each of them reached the “sales director level,” which permitted them to collect “lifetime residual income” through the commissions generated by salespeople they recruited, the court said.
The sales directors claimed that when AmeriPlan terminated their contracts in February 2011, along with approximately 800 other sales professionals, it stopped providing commission payments.
The plaintiffs filed a breach of contract case in federal court in California. Relying on a venue provision in its sales director agreements, the company successfully transferred the case to the U.S. District Court for the Northern District of Texas.
After the sales directors sought class certification, AmeriPlan filed a motion to compel arbitration in accordance with the arbitration clause that was added to the policy manual in 2010.
The plaintiffs argued that the arbitration clause was unenforceable because it couldn't be harmonized with the provisions in the sales director agreements they signed. The court agreed.
Although amended contract provisions would ordinarily supersede any prior conflicting provisions, the court said, there are two reasons why that rule doesn't apply here.
First, their agreements only permitted changes “by written amendment duly executed by all parties,” the court said. Thus, even though the policy manual that contained the arbitration clause could be amended solely by AmeriPlan, those amendments can't override the sales director agreements, it held.
Second, the company is estopped from arguing that the initial provisions are no longer in effect, the court said, because it relied on the venue clause in the sales director agreements to transfer the case to Texas.
According to the court, the agreements contained a detailed, two-step dispute resolution process listing categories of claims that could be adjudicated in court immediately and additional categories that required nonbinding mediation before going to court. The arbitration clause included very similar categories, it said.
“Those expansive dispute resolution provisions cannot be harmonized with the similarly expansive arbitration provision without rendering the dispute resolution provisions meaningless,” the court held.
One additional plaintiff, Cindy Guarisco, had an agreement that included different language, the court said. Her agreement stated, “Any action brought on matters relating to this Agreement shall be maintained in Dallas, Dallas County, Texas.”
This is not incompatible with the arbitration clause because lawsuits often precede or follow arbitration, the Fifth Circuit held, affirming the district court's order compelling arbitration for Guarisco.
Christman Kelley & Clarke PC represented the sales directors. Cowles & Thompson represented AmeriPlan.
To contact the reporter on this story: Lisa Nagele in Washington at email@example.com
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Text of the opinion is available at http://www.bloomberglaw.com/public/document/ROBERT_JOHN_SHARPE_CINDY_GUARISCO_WILLIAM_CHASE_MOEN_GARY_DOWNARD.
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