Arbitration not required in healthcare group's dispute over legal fund compensation

By Nicholas Malfitano | Oct 12, 2016

PHILADELPHIA – Per order of a federal judge, a local healthcare organization has had its request for claim arbitration in a payment dispute with its employees’ legal funding organization denied.

PHILADELPHIA – Per order of a federal judge, a local healthcare organization has had its request for claim arbitration in a payment dispute with its employees’ legal funding organization denied.

Judge Berle M. Schiller said on Oct. 4 the lawsuit filed by The District 1199C National Union of Hospital and Health Care Employees Group Legal Services Fund, through its Administrator Nicole Nicholas, against the North Philadelphia Health System (NPHS) for failure to make timely payments to the Fund, was valid.

The Fund claimed NPHS violated a collective bargaining agreement (CBA), as well as the Employment Retirement Income Security Act (ERISA), by “making some payments late and failing to make other payments as required by the agreement.” NPHS moved to dismiss in citing the collective bargaining agreement requiring the Fund to first arbitrate its claim – a decision Schiller ultimately denied.

“On Dec. 13, 2012, NPHS entered into a five-and-a-half-year CBA with the National Union of Hospital and Health Care Employees, AFSCME, 2 AFL-CIO, and its Affiliate District 1199C (the Union). Article XXII of the CBA provides that NPHS ‘shall contribute monthly the sum of seven and one-half cents (.7-1/2) for each hour paid for employees who have satisfactorily completed their probationary period to a jointly administered group legal services trust fund,” Schiller said.

The CBA further stipulates NPHS make contributions “no later than the 15th day of the month following the date on which the payroll period for the preceding is concluded” and “any dispute which may arise between the parties as to a claim that any payment to the Fund under this Article is overdue shall be handled in accordance with the Arbitration Article of this Agreement.”

Under the Union’s legal services trust agreement, the “failure of an Employer to pay the Contributions required hereunder shall be a violation of the Collective Bargaining Agreement of the said Employer as well as a violation of the Employer’s obligations hereunder” and the Fund’s trustees “may compel and enforce payment of the Contributions in any manner which they may deem proper,” and “shall have the power to enforce the provisions of this Agreement in court or at their option through arbitration.”

Schiller detailed the progress of legal action bringing the case to its current point.

“The Fund sued NPHS on Jan. 19, 2016, alleging that between January 2014 and December 2015, NPHS failed to make timely contributions to the Fund as required by the CBA. NPHS failed to respond, and the Court entered default on Feb. 18 [of this year]. Upon appearance by counsel and appropriate motion, the Court set aside the default on March 29, 2016. Over three months later, NPHS filed the motion now before the Court,” Schiller said.

In their motion to dismiss, NPHS claimed the arbitration clause in the CBA “both robs the Fund of Article III standing and strips the Court of subject-matter jurisdiction.” According to Schiller, “NPHS misses the mark on both counts.”

“First, the Fund has standing to bring its claims. The Fund is an express third party beneficiary of the CBA, which requires NPHS to make regular contributions to the Fund,” Schiller explained. “As such, the Fund has a legally protected interest in the enforcement of the contract. The Fund has alleged that NPHS’s failure to make timely contributions to the Fund violates both the CBA and ERISA.”

Schiller said these are “actual” violations of the Fund’s legal interest in the CBA, allegedly caused by NPHS and “re-dressable by the Court with damages and injunctive relief” – leaving them with standing for legal proceedings.

“The Third Circuit has held that ‘motions seeking the dismissal of a declaratory judgment action on the basis that arbitration is required are not jurisdictional as they raise a defense to the merits of an action,” Schiller said. “Instead, motions to dismiss based on an arbitration clause are properly considered under Rule 12(b)(6) or Rule 56. Therefore, the Court will evaluate the motion to dismiss as a motion to compel arbitration.”

Schiller continued by saying the Fund is not obligated to arbitrate its claims, since arbitration doesn’t apply when “determining whether arbitration agreements between the union and the employer apply to disputes between trustees and employers”, and the CBA and the trust agreement “evidence no intent on the part of the parties to require arbitration of disputes between the trustees and the employers.”

“The CBA’s arbitration provision applies only to disputes between the parties, but the Fund is not a party to the CBA and thus not expressly subject to the arbitration requirement. Only the Union or NPHS can invoke the arbitration process, and it is “unreasonable to infer that the parties to these agreements, or to the trust agreements, intended the trustees to rely on the Union to arbitrate their disputes with the employer,” Schiller said.

Schiller explained there was no legal requirement stating the situation needed arbitration.

“Finally, the Fund may enforce the trust agreement by filing a civil lawsuit. In addition, implying such a condition to multi-employer funds would be ‘unreasonable.’ In sum, the Fund has no legal obligation to arbitrate its claim of delinquent contributions from NPHS,” Schiller stated.

The plaintiff is represented by Jonathan Walters, Mark Timothy Kaltenbach and R. Matthew Pettigrew of Markowitz & Richman, in Philadelphia.

The defendant is represented by John D. Kutzler of Buzby & Kutzler, also in Philadelphia.

U.S. District Court for the Eastern District of Pennsylvania case 2:16-cv-00232

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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