Ninth Circuit Defers to Delegation Clause

On August 9, 2022, the Ninth Circuit affirmed an order compelling the Chickasaw Nation to arbitrate various health care reimbursement claims. In doing so, the Ninth Circuit rejected the Chickasaw’s argument that a federal statute or its sovereignty as an Indian tribe entitled it to avoid its arbitration agreement or the clause that delegated to the arbitrator any challenges to the scope and enforceability of the arbitration agreement. Caremark LLC v. Chickasaw Nation, No. 21-16209 (9th Cir. 2022).

Procedural Background

Chickasaw Nation is a sovereign Indian tribe that operates its own healthcare system. Caremark is a pharmacy benefit manager for health-insurance plans. In 2020, the Chickasaw sued Caremark in the Eastern District of Oklahoma for allegedly violating the Indian Health Care Improvement Act (Recovery Act), which allows tribal healthcare providers to recover the costs of healthcare services. Citing the arbitration clause within the parties’ contract, Caremark moved to compel arbitration, and the district court granted the motion. On appeal, the Chickasaw argued that: (1) it was not bound by the arbitration provision because it never waived its tribal sovereign immunity; and (2) the Recovery Act precluded the enforcement of any agreement to arbitrate because it would “prevent or hinder” the Chickasaw’s right of recovery. 25 U.S.C. § 1621e(c).

Issues Presented

When deciding a motion to compel arbitration, it is the court’s responsibility to decide whether the parties formed an arbitration agreement and, unless there has been a delegation to the arbitrator, the enforceability and scope of the arbitration agreement. Accordingly, the Ninth Circuit proceeded to analyze these issues.

Legal Analysis

The court noted that the parties had been in a contractual relationship since 2002 and that each version of the contract, which was renewed annually, included an arbitration clause. The contracts also incorporated the rules of the American Arbitration Association which the court previously held “constitute clear and unmistakable evidence” that the contracting parties agreed to delegate to the arbitrator questions regarding the enforceability and scope of the arbitration agreement. In addition, since 2014, the contract also included a clause that expressly delegated such issues to the arbitrator. It stands to reason that if the Chickasaw had notice of the arbitration clause, then it certainly had notice of the delegation clause. Therefore, the court concluded that the delegation clause was valid and should be enforced.

Since the Chickasaw challenged the enforceability of the arbitration provision on grounds of statutory preemption, instead of challenging the delegation clause specifically, the court could not consider that question because it was a threshold arbitrability issue that the parties delegated to the arbitrator. Since the court found that the delegation clause valid and enforceable, the court deferred the issue to the arbitrator.

Conclusion

The Ninth Circuit affirmed the district court’s decision to compel arbitration and enforce the delegation clause. The appellate court found that the Chickasaw and Caremark intended to delegate questions of arbitral jurisdiction to the arbitrator.