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Kilgore v. Mullenax

Supreme Court of Arkansas

June 1, 2017



          Smith, Cohen & Horan, PLC, by: Matthew T. Horan and Stephen C. Smith, for appellant.

          Gill Ragon Owen, P.A., by: Dylan H. Potts and Danielle M. Whitehouse, for appellees.

          RHONDA K. WOOD, Associate Justice.

         This case involves the registration of an arbitration award. In deciding this appeal, we must address the following two issues: (1) whether jurisdiction was proper under the Federal Arbitration Act (FAA), and (2) whether the award should have been vacated on public-policy grounds. We conclude the FAA applied and the circuit court did not err in failing to vacate the award on public-policy grounds. We affirm the circuit court's order confirming the award.

         I. Factual Background

         This appeal arises from a dispute submitted to arbitration. The arbitrator established the following facts by a written opinion. Joshua Kilgore and Robert Mullenax were business partners in an Arkansas dental-management company, Senior Dental Care, LLC (SDC).[1]Kilgore left SDC in 2013. Kilgore signed a settlement agreement, which included both a noncompete clause and a nondisparagement clause. Kilgore and Mullenax agreed to submit any disputes to arbitration in accord with the rules of the American Arbitration Association (AAA).

         Shortly after signing the noncompete, Kilgore bought an ownership interest in a Tennessee company that was a direct competitor with Mullenax. Accordingly, Mullenax filed an arbitration claim to enforce the non-compete. In response, Kilgore filed a claim with the Arkansas Insurance Department. He alleged Mullenax was engaged in a kickback scheme. Mullenax spent $7000 defending this unsubstantiated allegation.

         The underlying business dispute proceeded to arbitration. The arbitrator first noted that under AAA rules, which the parties agreed would govern the arbitration, the arbitrator had the power to determine jurisdiction. The arbitrator concluded the FAA applied because the agreement and its prohibited activities involved interstate commerce. Turning to the merits, the arbitrator found that Kilgore had violated the noncompete, but did not award damages on that claim. The arbitrator also found that Kilgore had violated the nondisparagement clause by making his report to the Insurance Department. The arbitrator noted that Kilgore's motive for making the report was to gain an advantage in arbitration. The arbitrator awarded Mullenax $7000 on this claim. Later on, the arbitrator awarded Mullenax an additional $136, 000 in attorney's fees, expert-witness fees, and expenses.

         Mullenax filed a petition to enforce the award in circuit court. In response, Kilgore filed a cross-petition to vacate the award. First, he argued the arbitrator lacked the authority to hear the case under either federal or Arkansas law. Second, he argued his statements to the Insurance Department were protected by Arkansas public policy. The circuit court ultimately confirmed the award. Kilgore then appealed to the court of appeals, which affirmed. See Kilgore v. Mullenax, 2016 Ark.App. 143, 485 S.W.3d 705. We subsequently accepted the case on petition for review. When we grant a petition for review, we consider the appeal as though it had been originally filed in this court. Covenant Presbytery v. First Baptist Church, 2016 Ark. 138, 489 S.W.3d 153.

         II. Principles of Law and Analysis

         To begin with, our standard of review for arbitration awards is deferential. We have explained that the court's role is limited to determining if the arbitrator acted within its jurisdiction. Hart v. McChristian, 344 Ark. 656, 42 S.W.3d 552 (2001). State and federal courts have concurrent jurisdiction to enforce an arbitration agreement pursuant to the FAA. Ruth R. Remmel Revocable Trust v. Regions Fin. Corp., 369 Ark. 392, 255 S.W.3d 453 (2007). The party attempting to vacate the arbitration award has the burden of proof. Anthony v. Kaplan, 324 Ark. 52, 58, 918 S.W.2d 174, 177 (1996). Judicial review of an arbitrator's award is more limited than appellate review of a trial court's decision. Ark. Dep't of Parks & Tourism v. Resort Managers, Inc., 294 Ark. 255, 260, 743 S.W.2d 389, 391-92 (1988). Whenever possible, a court must construe an award so as to uphold its validity, and gross errors of judgment in law or a gross mistake of fact will not serve to vitiate an award unless these mistakes or errors are apparent on the face of the award. Id. "The decision of the arbitration board on all questions of law and fact is conclusive. . . . The court shall confirm an award unless grounds are established to support vacating or modifying the award." Dean Witter Reynolds, Inc. v. Deislinger, 289 Ark. 248, 251, 711 S.W.2d 771, 772 (1986) (citing Wessell v. Crossett Public Sch. Dist., 287 Ark. 415, 701 S.W.2d 99 (1985)).

         A. Does the FAA apply?

         The parties' written agreement provided that the rules of the AAA would apply to any future arbitration. AAA Rule 7 provides that "the arbitrator shall have the power to rule on his or her own jurisdiction." AAA Commercial Arbitration Rules (available at The arbitrator here determined that jurisdiction was proper under the FAA. The FAA covers arbitration disputes concerning transactions in interstate commerce. 9 U.S.C. § 2.

         The FAA "applies if the transaction involves interstate commerce, even if the parties did not contemplate an interstate commerce connection, and the language of the FAA makes an arbitration provision enforceable in a contract evidencing a transaction involving commerce to the limits of Congress' Commerce Clause power." Gruma Corp. v. Morrison, 2010 Ark. 151, at 8, 362 S.W.3d 898, 903 (internal quotation marks omitted). The United States Supreme Court has noted that "Congress' Commerce Clause power may be exercised in individual cases without showing any specific effect upon interstate commerce if in the aggregate the economic activity in question ...

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