Ford v. NYLCare Health Plans of the Gulf Coast, Inc.

                         REVISED 5/29/98

              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT

                      _____________________

                           No. 97-20109
                      _____________________



KENNETH FORD, Dr.,

                                               Plaintiff-Appellee,

                              versus

NYLCARE HEALTH PLANS OF THE
GULF COAST, INC., ET AL.,

                                                       Defendants,

NYLCARE HEALTH PLANS OF THE
GULF COAST INC.; NEW YORK
LIFE INSURANCE COMPANY,

                                           Defendants-Appellants.
_________________________________________________________________

      Appeal from the United States District Court for the
               Southern District of Texas, Houston
_________________________________________________________________

                           May 26, 1998

Before JOLLY, WIENER, and STEWART, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

     In this appeal, we consider whether an agreement providing for

the arbitration of all disputes “arising out of or relating to” the

agreement may be invoked to compel arbitration of a cause of action

that does not depend as a legal matter on the agreement.       The

appellants, NYLCare Health Plans of the Gulf Coast, Inc., and its

parent corporation, New York Life Insurance Co., are federally
qualified health maintenance organizations (“the HMOs”).1               Dr.

Kenneth Ford, like many other physician-specialists, entered into

an agreement with the HMOs to provide certain medical services to

beneficiaries covered under their health plans.         Dissatisfied with

the way the HMOs were managing physicians and health care, and with

the accuracy of the HMOs’ advertising to consumers, Dr. Ford

brought this   action    against   the   HMOs   for,   inter   alia,   false

advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a).

Based on the arbitration clause in their agreement with Dr. Ford,

the HMOs petitioned the district court to compel arbitration of the

lawsuit under the Texas General Arbitration Act (“TGAA”) and the

Federal Arbitration Act (“FAA”).         The district court denied the

petition with respect to the false advertising claim, and the HMOs

appeal.   We conclude that, under the TGAA, the arbitration clause

in the agreement between Dr. Ford and the HMOs does not reach the

false advertising claim.    We therefore affirm.

                                    I

                                    A

     The facts of this case revolve around the agreement between

Dr. Ford and the HMOs.   Dr. Ford, an orthopedic surgeon, signed the

agreement in December 1986. The agreement continues in effect from

year to year until either party elects to terminate it.            Neither


    1
     NYLCare was formerly known as “Sanus Texas Health Care Plan,
Inc.” Throughout this opinion, NYLCare and New York Life will be
referred to collectively as “the HMOs.”




                                    2
Dr. Ford nor the HMOs have done so, and it remains in effect to

this day.    Dr. Ford entered into this agreement with the HMOs to

provide medical services to those beneficiaries covered by the

HMOs’ health plan who require the attention of a specialist.                In

return for these services, the HMOs agreed to compensate Dr. Ford

according to a rate schedule maintained by the HMOs.           The agreement

forbids Dr. Ford from seeking any payment for his services except

from the HMOs and, then, subject to their payment procedures and

schedules.

     As a specialist under the agreement, Dr. Ford is permitted to

treat a beneficiary covered by the HMOs’ plan only upon proper

referral by another physician who has contracted with the HMOs to

provide   primary   care   services       to   that   beneficiary.   When    a

specialist like Dr. Ford believes a beneficiary requires the

attention of another specialist, referral is permissible only in

cases involving “medical emergencies,” a term defined by the

agreement as the “sudden and unexpected onset of a condition of

sufficient seriousness that failure to receive immediate medical or

surgical care would jeopardize the life or seriously impair the

health of the patient.”     This requirement may be waived only upon

approval by HMO personnel. Even then, the referred specialist must

also have contracted with the HMOs and have the referral approved

by the primary care physician.        “Incentive Withhold Pools” created

by the agreement provide that 25% of all payments to primary care

physicians and specialists are withheld to pay for medical cost




                                      3
overruns.   The agreement likewise establishes a “Referral Services

Pool,” from which referral costs are paid. Annual surpluses in the

referral pool are returned to physicians, while annual deficiencies

are compensated by drawing funds from the incentive withhold pools.

     The agreement also contains an arbitration clause. It states,

in relevant part:

     Any controversy or claim arising out of or relating to
     this Agreement, or the breach thereof shall be settled by
     arbitration in accordance with the Texas General
     Arbitration Act, and judgment upon the award rendered may
     be enforced in any Court of the State of Texas having
     jurisdiction thereof . . . . The arbitration proceeding
     shall be conducted in Harris County, Texas. . . .

The front page of the agreement further states, underlined and in

bold type: “NOTICE: THIS AGREEMENT IS SUBJECT TO ARBITRATION UNDER

THE TEXAS GENERAL ARBITRATION ACT.”   The scope of the arbitration

clause is the focus of this litigation.

                                 B

     On May 15, 1996, Dr. Ford brought this action against the

HMOs2 based generally on his dissatisfaction with the way the HMOs

administered physicians in their provision of health care services

and the way the HMOs advertised the benefits of their plan to

consumers. Dr. Ford claimed that these practices constituted false


    2
     In addition to NYLCare and New York Life, Dr. Ford also sued
Aetna Health Plans of Texas, Inc., Aetna Life and Casualty Co.,
MetraHealth Care Plan of Texas, Inc., MetraHealth Insurance Co.,
United Healthcare Corp., Travelers Insurance Co., and Metropolitan
Life Insurance Co.    These defendants did not have arbitration
clauses in their agreements with Dr. Ford and are not parties to
this appeal.




                                 4
advertising under section 1125(a) of the Lanham Act and violated

the Texas Insurance Code and Texas Deceptive Trade Practices Act

(“TDTPA”).     In support of these claims, he alleged that the HMOs

make tall promises to consumers about the quality of health care

their plan is designed to provide, but that the plan actually

results   in    a   reduced   quality   of   care   because   of   medical

decision-making by relatively unqualified individuals, burdensome

internal procedures, and incentive programs designed to minimize

medical costs at the expense of needed health care measures.

Rather than using premiums to provide effective health care as

promised, Dr. Ford alleged, the HMOs divert needed funds to fill

“overflowing corporate coffers” and to pay “bloated executive

salaries.”     Dr. Ford also alleged claims for tortious interference

with business relations, negligence, negligent misrepresentation,

fraud, breach of good faith and fair dealing, unjust enrichment,

and a right to an accounting.           Because the HMOs had entered

agreements similar to Dr. Ford’s with many other specialist-

physicians,3 Dr. Ford sought to bring these claims in a class

action on behalf of himself and all other specialist-physicians who

had contracted with the HMOs under a managed care plan.

     The HMOs filed a motion to dismiss Dr. Ford’s claims and a

petition to compel arbitration.         On January 3, 1997, the court


    3
     At oral argument, the HMOs confirmed that the agreements they
maintained with other physicians were “virtually identical” to Dr.
Ford’s.




                                    5
dismissed the claims based on the Texas Insurance Code, the TDTPA,

negligence, negligent misrepresentation, unjust enrichment, and the

right to an accounting.   The court then ordered arbitration of the

claim for breach of the duty of good faith and fair dealing.     It

refused, however, to compel arbitration of the false advertising

and tortious interference claims.     The court reasoned that these

claims would exist in the absence of the agreement between Dr. Ford

and the HMOs and, therefore, did not arise out of or relate to that

agreement.   The court did not specify whether federal or state law

governed its analysis.    The HMOs appeal this order.   They contend

that although the district court basically employed the correct

test to determine whether those claims were arbitrable, it applied

the test incorrectly.     Based on the allegations in Dr. Ford’s

complaint, the HMOs argue, the false advertising and tortious

interference claims are related to the agreement between the

parties and thus come within the scope of the arbitration clause.

     Dr. Ford, in an effort to better limit the case to an easily

definable class action, has since agreed to send the tortious

interference claim to arbitration.4     Thus, we consider only the

arbitrability of the false advertising claim in this appeal.

“Resolving this dispute is a matter of contract interpretation and



      4
       Dr. Ford explained at oral argument that he limited the
action to physicians who had contracted with the HMOs solely to
assure an easily identifiable list of plaintiffs for whom the HMOs
could provide telephone numbers and addresses.




                                  6
therefore is subject to de novo review by this court.”                  Neal v.

Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990).

                                    II

     Ordinarily,   “the   first   task   of   a   court    asked   to    compel

arbitration of a dispute is to determine whether the parties agreed

to arbitrate that dispute.”         Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth,    Inc.,   473    U.S.     614,   626    (1985).        And,

ordinarily, “[t]he court is to make this determination by applying

the ‘federal substantive law of arbitrability, applicable to any

arbitration agreement within the coverage of the FAA.’”                     Id.

(citations omitted).      The arbitration clause in the agreement

between Ford and the HMOs in this case, however, states that

controversies would be subject to arbitration in accordance with

the Texas General Arbitration Act.       This provision is significant

evidence that the parties intended the scope of the clause to be

determined according to Texas law.       Citing Atlantic Aviation, Inc.

v. EBM Group, Inc., 11 F.3d 1276 (5th Cir. 1994), the HMOs argue

that such references to Texas law are irrelevant because, even if

the parties had chosen Texas law to govern arbitration, the FAA

preempts any otherwise applicable state law if the agreement

involves commerce.5

                                    A



    5
     The parties apparently agree that the agreement here involves
commerce.




                                    7
      We will consider as a threshold matter, therefore, whether

parties   may    designate     state    law    to   govern   the   scope   of   an

arbitration clause in an agreement otherwise covered by the FAA.

Clearly, they can.        The federal policy underlying the FAA “is

simply to ensure the enforceability, according to their terms, of

private agreements to arbitrate.”             Volt Information Sys., Inc. v.

Board of Trustees of the Leland Stanford Junior Univ., 489 U.S.

468, 476 (1989) (emphasis added). Indeed, the FAA was specifically

designed to place arbitration agreements “‘upon the same footing as

other contracts.’”       Scherk v. Alberto-Culver Co., 417 U.S. 506,

510-11 (1974) (quoting H.R. Rep. No. 96, 68th Cong., 1st Sess., 1,

2   (1924)).      And,   “as   with    any    other   contract,    the   parties’

intentions control” the ultimate interpretation of an arbitration

clause. Mitsubishi, 473 U.S. at 626. For “[a]rbitration under the

[FAA] is a matter of consent, not coercion, and parties are

generally free to structure their arbitration agreements as they

see fit.”      Volt, 489 U.S. at 479; see also Drake Bakeries, Inc. v.

Local 50, Am. Bakery & Confectionery Workers Int’l, AFL-CIO, 370

U.S. 254, 256 (1962) (“the issue of arbitrability is a question for

the courts and is to be determined by the contract entered into by

the parties”); Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d

704, 709 (7th Cir. 1994) (Posner, C.J.) (“short of authorizing

trial by battle or ordeal or, more doubtfully, by a panel of three

monkeys, . . . parties are as free to specify idiosyncratic terms




                                        8
of arbitration as they are to specify any other terms in their

contract”).

     Applying these principles, the Supreme Court has recognized

that parties may use choice-of-law provisions to designate state

law to provide the procedural rules under which arbitration will be

conducted.    See Volt, 489 U.S. at 476.      In Volt, the parties had

entered into an agreement with a general choice-of-law clause

providing that the agreement be governed by the law of the place

where the subject of the agreement was located, which in that case

was California.      See   id.   at   470.   The   issue   was    whether   a

procedural rule in the California Arbitration Act, not available

under the FAA, should be interpreted to apply to the arbitration

agreement.    The Court held that it should, stating:

     Just as [the parties] may limit by contract the issues
     which they will arbitrate, . . . so too may they specify
     the rules under which that arbitration will be conducted.
     Where, as here, the parties have agreed to abide by state
     rules of arbitration, enforcing those rules according to
     the terms of the agreement is fully consistent with the
     goals of the FAA, even if the result is that arbitration
     is stayed where the [FAA] would otherwise permit it to go
     forward.

Id. at 479.    As the above-quoted passage demonstrates, the Court

expressly analogized the parties’ freedom to limit contractually

the scope of the arbitration clause with their freedom to select

the rules under which arbitration will be conducted.             It follows,

then, that if the parties may select the rules of arbitration

through the use of choice-of-law provisions, so too may they

specify the law governing interpretation of the scope of the




                                      9
arbitration   clause.   Indeed,   we   think   that   to   disregard   the

parties’ choice of law in this respect “would be quite inimical to

the FAA’s primary purpose of ensuring that private agreements to

arbitrate are enforced according to their terms.”          Id.6

     Consequently, the issue we must address here is whether the

parties intended state law to govern the scope of their agreement

to arbitrate.    If the agreement between Dr. Ford and the HMOs

demonstrates their intent to have the scope of the arbitration

clause determined by Texas law, we must respect that choice.           Only


     6
      The HMOs’ reliance on our decision in Atlantic Aviation for
the proposition that substantive federal law governs the scope of
an arbitration clause whenever the agreement involves commerce is
misplaced.   That case concerned whether parties could invoke a
choice-of-law provision to limit the jurisdiction of federal courts
to hear the appeal of an order vacating an arbitration award and
directing a rehearing. See 11 F.3d at 1279. The jurisdiction of
the federal courts is generally a matter for Congress to decide,
not private parties or state law. Recognizing this principle, the
court held that “the FAA governs judicial review of arbitration
proceedings notwithstanding any choice of law provision or state
law to the contrary.” Id. at 1280. The court did not, however,
extend its reasoning beyond the issue of jurisdiction. Compare,
e.g., Gateway Tech., Inc. v. MCI Telecomm. Corp., 64 F.3d 993,
996-97, 997 n.3 (5th Cir. 1995) (upholding parties’ contractual
choice to expanded review of the arbitration award by federal
courts). Thus, Atlantic Aviation does not control the case before
us.   Although parties cannot use a choice-of-law provision to
divest federal courts of jurisdiction, this limitation does not
prevent parties from selecting state law to govern the scope of
their agreement to arbitrate.      And although Atlantic Aviation
relied in part on earlier cases suggesting that the involvement of
commerce under the FAA was dispositive with respect to the law
governing arbitrability even where the parties contemplated state
law to apply, see, e.g., Mesa Operating Ltd. Partnership v.
Louisiana Interstate Gas Corp., 797 F.2d 238 (5th Cir. 1986), those
cases did not survive Volt, which, as discussed above, expressly
held otherwise. Atlantic Aviation, decided five years after Volt,
should not be read to revive these cases in any way.




                                  10
by rigorously enforcing arbitration agreements according to their

terms,    do    we   “give   effect   to      the   contractual    rights    and

expectations of the parties, without doing violence to the policies

behind the FAA.”      Volt, 489 U.S. at 479.

                                        B

      We thus consider the agreement between Dr. Ford and the HMOs

to determine whether the parties contemplated Texas law to govern

the scope of the arbitration clause. We begin with the arbitration

clause itself, focusing on whether any choice-of-law provision in

the clause is relevant to the issue at hand.              See Mastrobuono v.

Shearson Lehman Hutton, Inc., 514 U.S. 52, 64 (1995) (holding that

choice-of-law provision in arbitration clause covered arbitration,

while general choice-of-law clause in contract covered the other

rights and duties of the parties).            The clause in this case states

that arbitration of any claim must be settled “in accordance with

the Texas General Arbitration Act.”             On its face, this provision

would seem to designate the TGAA as the law governing all aspects

of arbitration under the agreement.            Although the HMOs proposed at

oral argument that the provision could be read to make the TGAA

applicable only to the procedural aspects of arbitration, they

conceded that nothing in the arbitration clause supported such

limited application. Nor does anything in the TGAA suggest that it

would not apply to issues such as the scope of the arbitration

clause.   It consists of more than procedural rules.              Like the FAA,

the   TGAA     contains   substantive       provisions   governing    both   the




                                      11
validity and enforceability of arbitration agreements.   See, e.g.,

Tex. Civ. Prac. & Rem. § 171.001.       The HMOs simply furnish no

reason to believe that Texas law and the TGAA apply to anything

less than every aspect of arbitration under their agreement with

Dr. Ford.

     Nothing in the remainder of the arbitration clause or the body

of the agreement indicates otherwise.   The arbitration clause goes

on to provide that any arbitration proceedings under the agreement

“shall be conducted in Harris County, Texas.”    Judgment upon any

arbitration award may be enforced only in a “Court of the State of

Texas having jurisdiction thereof.” Disagreements over arbitrators

are to be resolved by “any judge of any Court of the State of

Texas, having jurisdiction and located in Harris County.”   As for

the main body of the agreement, the first page announces in bold

type: “NOTICE: THIS AGREEMENT IS SUBJECT TO ARBITRATION UNDER THE

TEXAS GENERAL ARBITRATION ACT.” The rest of the agreement contains

only general references to other applicable laws.   The first page

notes that physicians must provide or arrange for basic health care

services as required by what the agreement defines as the “HMO

Laws”:   the Health Maintenance Organization Act of 1973, 42 U.S.C.

§§ 300e, et seq., and the Texas Health Maintenance Organization

Act, Tex. Ins. Code ch. 20A.   Finally, in a general choice-of-law

clause of sorts, the agreement provides that it “shall be governed

in all respects by the HMO Laws and any other applicable laws or

regulations.”




                                 12
      Examining the agreement as a whole, we are persuaded that the

parties intended Texas law and the TGAA to govern the scope of the

arbitration clause.       The clause itself specifies that arbitration

is to be governed by the TGAA.      Other provisions in the arbitration

clause lean heavily in favor of applying Texas law to determine the

arbitrability of disputes under the agreement. Nothing else in the

agreement suggests that the parties intended federal law or the FAA

to apply.     Indeed, the only provision in the entire agreement

possibly making a law applicable to arbitration other than Texas

law   can,   at   best,   be   characterized   as    an   extremely   general

choice-of-law clause.      And it, in relevant part, simply makes the

unremarkable observation that the agreement generally is governed

by all applicable laws or regulations.

      Finally, to the extent that the general choice-of-law clause

could conceivably be read to create an ambiguity, we construe

ambiguous contract language against the party who drafted it.             See

Mastrobuono, 514 U.S. at 62 (applying the common law rule to

interpretation of arbitration clauses).             If the HMOs drafted an

ambiguous document, they cannot now claim the benefit of the doubt.

“The reason for this rule is to protect the party who did not

choose the language from an unintended or unfair result.”              Id. at

63.   As in Mastrobuono, “[t]hat rationale is well-suited to the

facts of this case.”       Id.    Thus, we hold that Texas law and the

TGAA govern the scope of the arbitration clause in this case.

                                     III




                                     13
       Having determined that the arbitrability of Dr. Ford’s false

advertising claim is governed by Texas law and the TGAA, we turn

now to interpret the scope of the arbitration clause under Texas

law.    Texas courts favor arbitration.         Monday v. Cox, 881 S.W.2d

381, 384 (Tex. App. 1994).        Whether a claim falls within the scope

of an arbitration agreement under Texas law depends on the factual

allegations of the complaint instead of the legal causes of action

asserted.      See X.L. Ins. Co., Inc. v. Hartford Accident & Indem.

Co., 918 S.W.2d 687, 689 (Tex. App. 1996, writ requested).               A tort

claim, like Dr. Ford’s false advertising claim, see Chevron Chem.

Co. v. Voluntary Purchasing Groups, Inc., 659 F.2d 695, 700-01 (5th

Cir. Unit A Oct. 1981) (false advertising claims under Lanham Act

are based on the common law tort), is arbitrable if it is “so

interwoven with the contract that it could not stand alone, but is

not arbitrable if it is completely independent of the contract and

could be      maintained   without    reference   to   a   contract.”      X.L.

Insurance Co., 918 S.W.2d at 689; accord Valero Energy Corp. v.

Wagner & Brown, 777 S.W.2d 564, 566 (Tex. App. 1989, writ denied).

                                        A

       The    HMOs   contend   that   the   allegations    in   the   complaint

supporting Dr. Ford’s false advertising claim are interwoven with

the agreement sufficiently to make the claim arbitrable, even under

Texas law.7      In particular, the HMOs cite Dr. Ford’s allegations

          7
         We agree with the HMOs that there is no perceptible
difference between the federal and Texas standards in this respect.




                                       14
that the HMOs promise consumers “cost effective and high quality

health care” but instead provide a “labyrinthine system that

ultimately denies effective health care” by constructing elaborate

payment systems designed to discourage physicians from providing

necessary care and by rejecting physician-recommended procedures.

The HMOs further cite Dr. Ford’s allegations of a reduced quality

of care resulting from the referral systems and financial incentive

pools established in the agreement.   The HMOs argue that although

Dr. Ford certainly could have stated a false advertising claim

without referencing the agreement in the factual allegations of his

complaint, he did not.   Thus, they conclude, his false advertising

claim cannot exist without the agreement.

     The HMOs’ argument, we think, fundamentally misconceives the

test for whether a tort claim is sufficiently related to the

agreement to be arbitrable.   To be sure, the test focuses on the

factual allegations in the complaint instead of the legal labels

attached to the causes of action.     See X.L. Insurance Co., 918

S.W.2d at 689.   It does so, however, not to identify whether the

facts in support of the action will implicate the agreement as an

item of evidence, but to uncover whether an action formally labeled



Whether described as “touch[ing] matters covered by” the agreement,
see Mitsubishi, 473 U.S. at 624 n.13, or “interwoven with” the
agreement, see X.L. Insurance Co., 918 S.W.2d at 689, a tort claim
is “related to” the agreement only if reference to the agreement is
required to maintain the action. This is true notwithstanding the
fact that the tort claim may implicate the agreement as a factual
matter.




                                 15
a tort is in essence a breach of contract claim or based on a

breach of contract.      See, e.g., Valero Energy Corp., 777 S.W.2d at

566 (“[The plaintiff] here is asserting a tort claim that is

directly related to its rights under the contract.                      It could have

just as easily alleged a breach of contract action under the fact

situation presented.”).           Because a breach of duty owed under a

contract may involve tortious conduct, a dispute arising out of a

contractual relationship may give rise to both breach of contract

and   tort   claims    at   the     same    time.        See    id.       Basing    the

arbitrability of an action merely on the legal label attached to it

would allow artful pleading to dodge arbitration of a dispute

otherwise “arising out of or relating to” (or legally dependent on)

the underlying contract. To avoid this contrivance, courts look at

the facts giving rise to the action and to whether the action

“could be maintained without reference to the contract,”                           id.

(emphasis    added),    not,   as    the        HMOs   contend,    to    whether   the

complaint happens to reference the contract.

      A couple of Texas cases directly illustrate the point.                        For

example, in Fridl v. Cook, 908 S.W.2d 507 (Tex. App. 1995, writ

dismissed    w.o.j.),   the    court       considered     the     arbitrability      of

various   tort   claims     under    an     arbitration        clause    essentially

mirroring the one in Dr. Ford’s agreement.                 The plaintiff alleged

claims based on fraud and tortious interference with contract.

Because the complaint referenced the contract between the plaintiff

and   defendants,     the   defendants          argued   that     the    claims    were




                                           16
arbitrable because they “related to” the contract.                The court

rejected the argument.    With respect to the fraud claim, the court

stated:

          We do not see that this is a claim “arising out of
     or relating to” the contract. [The defendants] may have
     honored their contractual obligations in every respect,
     and yet be liable for fraudulently inducing [the
     plaintiff] to obtain business outside the contract so as
     to avoid full payment of commissions. We believe this
     claim is distinguishable from the fraud claim which this
     Court found subject to arbitration in Merrill Lynch,
     Pierce, Fenner & Smith, Inc. v. Wilson, 805 S.W.2d 38, 40
     (Tex. App.--El Paso 1991, no writ). There, Merrill Lynch
     could not be liable for fraud unless it had breached its
     obligations under the brokerage contract with Wilson, its
     client. Here, the fraud claim may be pursued even if no
     breach of the [] contract occurred. . . .

Id. at 513.   The court also applied this same analysis in holding

that the tortious interference claim did not fall within the scope

of the arbitration clause.       Examining the legal elements of a

tortious interference claim, the court concluded that the existence

of   the   contract   between   the        plaintiff   and   defendants   was

unnecessary to establish the claim.            See id.   The fact that the

complaint specifically referred to, and related as a factual matter

to, the contract containing the arbitration clause was irrelevant.

The tort action did not depend, as a legal matter, on the contract

and, therefore, was not “related to” the contract within the

meaning of the arbitration clause.

     Similarly, in Heartshire Braeswood Plaza Ltd. Partnership v.

Bill Kelly Co., 849 S.W.2d 380 (Tex. App. 1993, writ denied), the

court refused to compel arbitration of a tort claim that was




                                      17
legally independent of the contract containing the arbitration

agreement.    Again, the relevant arbitration clause provided for

arbitration of any dispute “arising out of or relating to” the

contract between the parties.             See id. at 383.     The plaintiff

alleged that it had entered the contract with the defendant--

involving a “Gardens” project--only because it had been promised

another project--involving the “Landing.”            See id. at 391.      The

plaintiff advanced several tort claims against the defendant in

connection with the Landing project.           Holding that these claims

were not arbitrable, the court observed that the plaintiff “need

not even refer to the contracts involving the Gardens in order to

maintain the claims regarding the Landing.”          Id.    Thus, Heartshire

demonstrates that the test for whether a tort claim “relates to” a

contract depends on whether the claim could be maintained without

reference    to   the   contract,   not    simply   whether   the   complaint

references the contract.

                                      B

     Applying this test to Dr. Ford’s false advertising claim, we

conclude that it does not arise out of or relate to his agreement

with the HMOs.     The basic elements Dr. Ford must allege to sustain

a false advertising claim are: (1) that the HMOs made a false or

misleading statement as to their services; (2) that there is actual

deception or a tendency to deceive a substantial portion of the

intended audience; (3) that the deception is material in that it is

likely to influence purchasing decisions; (4) that the advertised




                                     18
services involve interstate commerce; and (5) that there is a

likelihood of injury to Dr. Ford.     See Seven-Up Co. v. Coca-Cola

Co., 86 F.3d 1379, 1383 n.3 (5th Cir. 1996).8        None of these

elements depends, as a legal matter, on the agreement between Dr.

Ford and the HMOs.

     As the district court correctly determined, Dr. Ford could

maintain this action without reference to the agreement.         The

action is based on the manner in which the HMOs advertised their

services to consumers.     The competitive injuries alleged by Dr.

Ford come in the form of patients and revenue lost as a result of

consumers being misled into participating in the HMOs’ health plan

instead of going directly to the doctor of their choice and seeking

reimbursement through the traditional health insurance route.9 Dr.

Ford clearly would suffer the same injuries regardless of the

agreement or a breach thereof.    Although the policies, practices,

and procedures implemented by the HMOs, as they appear in the terms

of the agreement, would undoubtedly be relevant evidence in support

     8
        Section 43(a) of the Lanham Act provides, in relevant part:

     Any person who . . . in commercial advertising or
     promotion, misrepresents the nature, characteristics,
     qualities, or geographic origin of his or her or another
     person’s goods, services, or commercial activities, shall
     be liable in a civil action by any person who believes
     that he or she is likely to be damaged by such act.

15 U.S.C. § 1125(a).
    9
     Dr. Ford, like the other doctors providing services under the
HMOs’ plan, maintains a private practice outside his relationship
with the HMOs.




                                 19
of Dr. Ford’s claims (e.g., to show that the HMOs use procedures

resulting in care different from that advertised), this evidence

could likewise be established with witness testimony and documents,

which exist independent of the agreement. In other words, the fact

that an agreement exists between Dr. Ford and the HMOs is legally

irrelevant and indeed can be treated as nonexistent as far as his

false advertising claim is concerned.   In fact, the agreement will

likely play, even as a purely evidentiary matter, a very minor role

in the ultimate litigation of Dr. Ford’s false advertising claim.

Thus, we hold that Dr. Ford’s false advertising claim does not

arise out   of or relate to his agreement with the HMOs and,

therefore, is not subject to the agreement’s arbitration clause.

                                IV

     For the foregoing reasons, the judgment of the district court

is

                                                  A F F I R M E D.




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