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Courtyard Gardens Health and Rehabilitation, LLC v. Arnold

Supreme Court of Arkansas

February 18, 2016

COURTYARD GARDENS HEALTH AND REHABILITATION, LLC; SENIOR LIVING COMMUNITIES OF ARKANSAS, LLC; ARKANSAS SNF OPERATIONS ACQUISITION, LLC; ARKADELPHIA HOLDINGS, LLC; SLC PROFESSIONALS, LLC; ARKANSAS NURSING HOME ACQUISITION, LLC; SENIOR VANTAGE POINT, LLC; 2701 TWIN RIVERS DRIVE, LLC; SLC OPERATIONS MASTER TENANT, LLC; SLC PROFESSIONALS HOLDINGS, LLC; ADDIT, LLC; CSCV HOLDINGS, LLC; SLC OPERATIONS HOLDINGS, LLC; EOR-ARK, LLC; SLC OPERATIONS, LLC; VAJ, LLC; JERRY V. KEMPER; AND ANGELA MARLAR, IN HER CAPACITY AS ADMINISTRATOR OF COURTYARD GARDENS HEALTH AND REHABILITATION, APPELLANTS
v.
MALINDA ARNOLD, AS PERSONAL REPRESENTATIVE OF THE ESTATE OF JESSIE JAMES BULLOCK, DECEASED, AND AS ATTORNEY-IN-FACT OF ANNIE BULLOCK, APPELLEE

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          APPEAL FROM THE CLARK COUNTY CIRCUIT COURT. NO. 10CV-13-86. HONORABLE ROBERT McCALLUM, JUDGE.

         Kutak Rock, LLP, by: Mark W. Dossett and Samantha B. Leflar, for appellants.

         Campbell Law Firm, P.A., by: H. Gregory Campbell; and Reddick Moss, PLLC, by: Brian D. Reddick and Robert W. Francis, for appellee.

         KAREN R. BAKER, Associate Justice. WYNNE, J., and Special Justice RYAN ALLEN join in this dissent.

          OPINION

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          KAREN R. BAKER, Associate Justice

          Appellants Courtyard Gardens Health and Rehabilitation, LLC and others[1] (collectively " Courtyard Gardens" ) appeal from a Clark County Circuit Court order denying its motion to dismiss and compel arbitration of claims brought against it by appellee Malinda Arnold, as personal representative of the Estate of Jessie James Bullock, deceased, and as attorney-in-fact of Annie Bullock.[2]

         The complaint alleges that on approximately January 1, 2010, Jessie James Bullock was admitted to Courtyard Gardens, a nursing-home facility located in Arkadelphia, Arkansas. Mr. Bullock remained a resident of the facility until approximately April 10, 2012; he died on April 15, 2012. Mr. Bullock's wife, Annie Bullock, was admitted to Courtyard Gardens on approximately May 6, 2009, and remained a resident of the facility until approximately December 7, 2012. On June 18, 2009, Linda Gulley, the Bullocks' daughter, entered separate admission agreements and optional arbitration agreements on behalf of each parent. The arbitration agreement contained the following provision:

It is understood and agreed by Facility and Resident that any and all claims, disputes, and controversies (hereafter collectively referred to as a " claim" or collectively as " claims" ) arising out of, or in connection with, or relating in any way to the Admission Agreement or any service or health care provided by the Facility to the Resident shall be resolved exclusively by binding arbitration to be conducted at a place agreed upon by the Parties, or in the absence of such an agreement, at the Facility, in accordance with the National Arbitration Forum Code of Procedure, (" NAF" ) which is hereby incorporated into this Agreement, and not by a lawsuit or resort to court process. This agreement shall be governed by and interpreted under the Federal Arbitration Act, 9 U.S.C. Sections 1-16.

         On July 25, 2013, Arnold filed a complaint against Courtyard Gardens in the Clark County Circuit Court. The complaint alleged negligence, medical malpractice, violations of the Long-Term Care Facility Residents' Rights Act, breach of the provider agreement, violations of the Deceptive Trade Practices Act, and negligence against appellant Angela Marlar, in her capacity as administrator of Courtyard Gardens. On August 27, 2013, Courtyard Gardens filed an answer to Amold's complaint and reserved the right to enforce any applicable arbitration agreement after conducting an initial investigation to determine whether a valid arbitration agreement exists.

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          On December 23, 2013, Courtyard Gardens filed a motion to dismiss the complaint and compel arbitration. Courtyard Gardens argued that the arbitration agreement was valid and encompassed all of the claims in Amold's complaint. On January 9, 2014, Arnold filed her response to the motion to dismiss and motion to compel arbitration. In her response, Arnold argued that the arbitration agreement was unenforceable based on impossibility of performance and unconscionability. Specifically, Arnold argued that the arbitration agreement was impossible to perform because the agreement selected the National Arbitration Forum (" NAF" ) to serve has arbitrator and the NAF is now unavailable because it had settled with the Minnesota Attorney General and agreed to no longer conduct any arbitration pursuant to pre-dispute consumer agreements. On July 16, 2014, Courtyard Gardens filed a supplement to its motion to dismiss complaint and compel arbitration. Courtyard Gardens argued that the arbitration agreements only required arbitration in accordance with the NAF Code and did not select the NAF as the actual arbitrator. Further, Courtyard Gardens argued that the circuit court must compel arbitration based on the attached affidavit of Angela Marlar, who explained " Courtyard Gardens' overriding intent in entering these arbitration agreements is simply to have any and all disputes with a resident resolved through arbitration rather than litigation, regardless of the logistics." On July 25, 2014, Arnold filed her response to Courtyard Gardens' supplement. Arnold argued that Ms. Marlar's affidavit violated the parol-evidence rule because it contradicted the terms of the arbitration agreement.

         On July 28, 2014, a hearing was held, and the circuit court denied the motion to compel arbitration. On August 29, 2014, the circuit court memorialized its findings in a written order. In denying Courtyard Gardens' motion to dismiss and motion to compel arbitration, the circuit court found that the parties had entered into a valid arbitration agreement and found that the arbitration agreement was not unconscionable. As to Arnold's defense of impossibility of performance, the circuit court found, as follows:

The Arbitration Agreement is impossible to perform because it incorporates the National Arbitration Forum (" NAF" ) Code of Procedure. Rule 1 of the NAF Code of Procedure requires the NAF to serve as arbitrator of any disputes between the Plaintiff and Defendants. As such, the NAF Code of Procedure is an integral term of the Arbitration Agreement. Because the NAF is no longer in business and is unavailable to serve as arbitrator over this dispute, the Agreement is impossible to perform.

          On September 26, 2014, Courtyard Gardens filed its notice of appeal.

         On appeal, Courtyard Gardens argues that the circuit court erred in finding that the arbitration agreement was unenforceable, thereby denying Courtyard Gardens' motion to compel arbitration. An order denying a motion to compel arbitration is an immediately appealable order under Arkansas Rule of Appellate Procedure--Civil 2(a)(12) (2015). We review a circuit court's order denying a motion to compel arbitration de novo on the record. Searcy Healthcare Ctr., LLC v. Murphy, 2013 Ark. 463, at 3 (citing HPD, LLC v. Tetra Techs., Inc., 2012 Ark. 408, 424 S.W.3d 304).

         The parties agree that the Federal Arbitration Act (" FAA" ) governs the arbitration agreement at issue. In Regional Care of Jacksonville, LLC v. Henry, we explained that Congress enacted

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the FAA, 9 U.S.C. § § 1-16, to overcome judicial resistance to arbitration. 2014 Ark. 361, at 6, 444 S.W.3d 356, 360 (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006)). Section 2 of the FAA provides as follows:

A written provision . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. The Act, which rests on Congress' authority under the Commerce Clause, supplies not simply a procedural framework applicable in federal courts; it also calls for the application, in state as well as federal courts, of federal substantive law regarding arbitration. Preston v. Ferrer, 552 U.S. 346, 349, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (citing Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984)). The primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms. Volt Info. Sci., Inc. v. Bd. of Tr. of Leland Stanford Junior Univ., 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). To this end, the Supreme Court recognizes that parties are generally free to structure their arbitration agreements as they see fit. Id. With the enactment of the FAA, Congress declared a national policy favoring arbitration when the parties contract for that mode of dispute resolution. Preston, 552 U.S. at 349 (citing Southland Corp. 465 U.S. at 16). In DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463, 468, 193 L.Ed.2d 365 (2015), the Court disapproved of the California Court of Appeal's interpretation of an arbitration clause because it resulted in the failure to place arbitration agreements " on equal footing with all other contracts." Id. (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. at 443). The DIRECTV, Inc. Court reasoned that the California court's decision failed to give " due regard . . . to the federal policy favoring arbitration." Id. at 471 (citing Volt Info. Sci., Inc., 489 U.S. at 476). Likewise, as a matter of public policy, arbitration is strongly favored in Arkansas. Hart v. McChristian, 344 Ark. 656, 42 S.W.3d 552 (2001). Arbitration is looked upon with approval as a less expensive and more expeditious means of settling litigation and relieving docket congestion. Id. Any doubts and ambiguities of coverage will be resolved in favor of arbitration. Id. In light of the public policy favoring arbitration, such agreements will not be construed strictly but will be read to include subjects within the spirit of the parties' agreement. Id.

          Despite an arbitration provision being subject to the FAA, courts look to state contract law to determine whether the parties' agreement to arbitrate is valid. GGNSC Holdings, LLC v. Chappel, 2014 Ark. 545, 453 S.W.3d 645. The same rules of construction and interpretation apply to arbitration clauses as apply to agreements generally. Hart, 344 Ark. 656, 42 S.W.3d 552. The construction and legal effect of a written contract to arbitrate are to be determined by the court as a matter of law. Id. Accordingly, we will give effect to the parties' intent as evidenced by the arbitration agreement itself. Id.

         In HPD, LLC v. Tetra Techs., Inc., we explained:

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In deciding whether to grant a motion to compel arbitration, two threshold questions must be answered. First, is there a valid agreement to arbitrate between the parties? Second, if such an agreement exists, does the dispute fall within its scope? In answering these questions, doubts about arbitrability must be resolved in favor of arbitration. Further, the court (rather than the arbitrator) decides these questions of arbitrability, unless the parties clearly and unmistakably delegate that issue to the arbitrator. Based on the principle that arbitration is a matter of contract, the question of " who has the primary power to decide arbitrability" turns upon what the parties agreed about that matter.

2012 Ark. 408, at 6, 424 S.W.3d 304, 308 (internal citations omitted). Here, the circuit court found that the " Arbitration Agreement is valid and encompasses the dispute at issue." The record demonstrates that the circuit court's ruling was correct.

         I. Unavailability of the NAF

         The crux of the disagreement here is the unavailability of the NAF. The parties agree that the NAF is no longer conducting arbitrations of this type. In 2009, after the Attorney General of Minnesota filed an action alleging that the NAF had engaged in violations of consumer-protection laws, the NAF entered into a consent decree barring it from handling consumer arbitrations. CompuCredit Corp. v. Greenwood, 565 U.S. 95, 132 S.Ct. 665, 677 n.2, 181 L.Ed.2d 586 (2012) (Ginsburg, J., dissenting) (citing Press Release by Lori Swanson, Att'y Gen. of Minn. (July 19, 2009)).

          On appeal, Courtyard Gardens asserts that the circuit court erred in finding that the arbitration agreement was unenforceable and denied its motion to compel arbitration. Specifically, Courtyard Gardens argues that the circuit court's decision to deny its motion based on impossibility of performance should be reversed. In response, Arnold argues that because the NAF is unavailable to arbitrate the dispute, the arbitration agreement is unenforceable based on the defense of impossibility of the performance.

         Turning to whether the circuit court erred in finding that Arnold satisfied her burden of proving the affirmative defense of impossibility of performance, we are mindful of the United States Supreme Court's mandate that arbitration agreements be placed on " equal footing with all other contracts." DIRECTV, Inc., 136 S.Ct. at 468. We are also mindful of our public policy in favor of arbitration. In HPD, LLC v. TETRA Techs., Inc., we explained that

[o]ur object is to ascertain the intention of the parties, not from particular words or phrases, but from the entire context of the agreement. It is well settled that a contract should be construed so that all of its parts are in harmony, if that is possible. In seeking to harmonize different clauses of a contract, we should not give effect to one to the exclusion of the other even though they seem conflicting or contradictory, nor adopt an interpretation which neutralizes a provision if the various clauses can be reconciled.

2012 Ark. 408, at 11, 424 S.W.3d at 310-11 (citations omitted). Here, the arbitration agreement provides in pertinent part,

It is understood and agreed by Facility and Resident that any and all claims, disputes, and controversies (hereafter collectively referred to as a " claim" or collectively as " claims" ) arising out of, or in connection with, or relating in any way to the Admission Agreement or any service or health care provided by the

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Facility to the Resident shall be resolved exclusively by binding arbitration to be conducted at a place agreed upon by the Parties, or in the absence of such an agreement, at the Facility, in accordance with the National Arbitration Forum Code of Procedure, (" NAF" ) which is hereby incorporated into this Agreement, and not by a lawsuit or resort to court process. This agreement shall be governed by and interpreted under the Federal Arbitration Act, 9 U.S.C. Sections 1-16.
. . . .
In the event a court having jurisdiction finds any portion of this agreement unenforceable, that portion shall not be effective and the remainder of the ...

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