In Maine Community Health Options v. Albertsons Cos., Inc., No. 20-35931 (9th Cir. Mar. 31, 2021), deciding an issue of first impression for the circuit, the judges – following different routes – holds that there is diversity jurisdiction over an action under Section 7 of the Federal Arbitration Act (FAA), 9 U.S.C. § 7, seeking enforcement of a third-party subpoena issued by arbitrators.
“Maine Community Health Options (Health Options), an insurer, is engaged in arbitration with Navitus Health Solutions, LLC, a pharmacy benefits manager, over the latter’s billings. In the arbitration, Health Options sought to obtain information from Navitus about billings by pharmacies within Navitus’s network, including the Albertsons Companies, alleging the information would show overcharges. Navitus claimed not to have the information, and the arbitrators issued a subpoena directing Albertsons to provide the requested documents.”
Health Options filed in federal district court under Section 7 to enforce the subpoena. Because the FAA does not confer subject-matter jurisdiction on federal courts, and the underlying matter was brought under state law, the only basis for jurisdiction was diversity. “[T]he district court found that Health Options failed to show the amount in controversy exceeded $75,000” under 28 U.S.C. § 1332(a) “and dismissed the action for want of subject matter jurisdiction.”
The majority opinion, by Judge Hurwitz, adopts the approach followed by the Second Circuit in such cases. In cases not involving monetary relief, the panel majority observes, the amount in controversy is “measured by the value of the object of the litigation.” The value can be determined either from the perspective of the party seeking the relief or the party trying to avoid it (the “either viewpoint” rule).
Because Albertson’s claimed cost of compliance was $1,400, it was on Health Options to establish an “object” exceeding $75,000. “Health Options does plausibly allege that the subpoenaed information will likely affect more than $75,000 of its claims against Navitus. The jurisdictional amount requirement is but 4 percent of the total relevant billings from Albertsons to Navitus. In its supplemental pleading, Health Options provided an expert declaration that the subpoenaed information will likely document more than $75,000 in Health Options’ alleged damages.”
Judge Watford, concurring, agrees that there is subject-matter jurisdiction, “but … arrive[s] at that conclusion by a different path.” Rather than focus on the conflict between the plaintiff and the third-party, Judge Watford would keep the analysis on the case between the parties in arbitration.
Sections 3 and 4 of the FAA, Judge Watford would hold, “defin[e] the range of controversies that Congress deemed important enough, from a federalism standpoint, to warrant federal courts interceding to ensure that agreements to arbitrate such controversies ‘are enforced according to their terms’ …. Considering the structure of the FAA as a whole, it seems evident to me that Congress envisioned a § 7 petition not as a freestanding lawsuit, but as an adjunct to the ‘underlying substantive controversy’ between the parties in arbitration.” Thus, according to the concurrence, the multi-million dollar claim in arbitration actually represented the amount in controversy.