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Arbitration Agreement May Be Incorporated Into Another Contract

October 3, 2019

Contracting parties should carefully consider arbitration as their preferred method of dispute resolution when drafting their agreements.  A potential trap for the unwary exists when the reach of one contract’s arbitration clause extends to another contract that is silent on the matter.

Healthcare Contracts Use Incorporation By Reference

It is not uncommon for contracts in the healthcare field and elsewhere to include another contract by reference. The current contract will say something like “the parties hereby incorporate into this contract all of the terms of the contract between them dated [contract date] as if those terms were set forth fully herein.” This is generally done for convenience and consistency when the parties have more than one agreement concerning the same subject matter.

Examples of this Practice

  • payer – provider agreements having multiple facets (e.g., master contract terms, rate agreement, UR/QA protocols),
  • professional service agreements with medical groups that require separate agreements with individual members of the group, and
  • hospital – vendor service and supply agreements having multiple purchase orders the implemented over time.

Recent Second Circuit Case

A recent case decided by the U.S. Second Circuit Court of Appeals held that a an agreement to arbitrate contained in the underlying construction contact between a contractor and an owner would bind the performance bond surety, since the bond incorporated the construction contract by reference. As reported and well analyzed by Gilbert A. Samberg at MintzFederal Ins. Co. v. Metropolitan Transp. Authority, N. 18-3664, 2019 U.S. App. LEXIS 26361 (2d Cir.  Aug. 30, 2019) illustrates that incorporation by reference can extend an arbitration provision to other agreements, including those with non-parties to the first agreement.

Caveat

Efforts to apply an incorporated arbitration provision in the consumer and employment context will not necessarily yield the same result. There, the absence of a clear and knowing agreement to arbitrate all disputes arising under both agreements will weigh heavily against enforcement of the incorporated provision, especially if the party not wanting to be bound did not sign the first agreement.

Takeaway

In the commercial healthcare context, where both parties have signed a contract incorporating another contract’s arbitration provision, often with the advice of counsel, they may well be bound to arbitrate all of their disputes.  If this is the intended result, so be it. If not, as when a party might want different forums for payment rate disputes and quality of care issues, be careful.

(Photo by Josh Frenette on Unsplash)

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