Arbitrability of False Advertising Claim

By C, Susan | Dispute Resolution Journal, August 1998 | Go to article overview

Arbitrability of False Advertising Claim


C, Susan, Dispute Resolution Journal


he 5th Circuit held that under the Texas General Arbitration Act, a false advertising claim did not fall within the scope of an arbitration clause in a medical services agreement providing for arbitration of all disputes "arising out of or relating to this agreement" Dr. Ford, an orthopedic surgeon, had a medical services contract with NYLCare Health Plans and its parent corporation, to provide health services to the HMOs' health plan beneficiaries. Dissatisfied with the way the HMOs were managing physicians and health care, and with the accuracy of their advertising to consumers, he brought suit alleging tortious interference with business relations, negligence, negligent misrepresentation, fraud, breach of good faith and fair dealing, unjust enrichment, a right to an accounting, and false advertising in violation of the Lanham Act. Dr. Ford alleged that despite promises of quality care, the HMOs' plan actually reduced the quality of care because of medical decisionmaking by relatively unqualified persons, burdensome internal procedures, and incentive programs designed to lower medical costs and the expense of needed medical services.

The HMOs petitioned the court to dismiss and to compel arbitration under the Texas General Arbitration Act and the Federal Arbitration Act. The district court dismissed some claims, ordered arbitration of the claim for breach of the duty of good faith and fair dealing, and denied arbitration with respect to the Lanham Act claim.

On the HMOs' appeal, the 5th Circuit affirmed the denial of arbitration of the false advertising claim. First, it held the parties intended Texas law and the Texas General Arbitration Act, not federal law or the FAA, to govern the scope of the arbitration clause. That clause specified it was to be governed by the Texas Act, and other provisions in the clause leaned heavily in favor of applying Texas law. …

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