I am a true arbitration nerd.  But, when SCOTUS takes a THIRD arbitration case for its upcoming term, I wonder if the Justices are more obsessed with arbitration than I am.  (Reminder of the other two here.)  If they hear about the same total number of cases as this year (69), arbitration will make up more than 4% of their docket.  Now, 4% isn’t huge.  For reference, intellectual property cases made up less than 4% of cases filed in federal district courts last year, and there were three I.P. cases decided by SCOTUS (two on inter partes review and the WesternGeco case).  At least I.P. cases have a category in the annual judiciary report, though.  That’s more than arbitration can say.  And still, it has three cases before the Supremes.

Enough stats, what is this case?  It is Henry Schein Inc. v. Archer and White Sales Inc., in which SCOTUS is going to resolve the circuit split over the “wholly groundless” doctrine.  Given how the NLRB decision just came out, I don’t think I’m stepping too far out on a limb if I predict: “wholly groundless” will be grounded.  (Maybe even “grounded wholly?”  Seriously, there has got to be some good word play possible, but I am too tired from watching the World Cup to develop it.)  Put simply, that doctrine will not stand in the way of any future delegation clauses.

(Thanks to Mark Kantor for being the first to tell me certiorari was granted in this case.)

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Switching gears, there are three new decisions from state high courts on the arbitrability of claims against nursing homes.  Two enforce the arbitration clauses, and one decidedly does not.

Nebraska and Colorado issued the pro-arbitration decisions, in both cases reversing a trial court’s refusal to enforce arbitration agreements.  In Colorow Health Care, LLC v. Fischer, 2018 WL 2771051 (Colo. June 11, 2018), the district court denied the nursing home’s motion to compel arbitration because it was not in bold text, as required by a state statute.  Without any discussion of the FAA (which would have been a much easier ground for reversal), the Colorado Supreme Court found that the statute only requires substantial compliance, and the defendant had substantially complied (by including the right language, in a larger font size than required, just not in bold). In Heineman v. Evangelical Lutheran Good Samaritan Society, 300 Neb. 187 (June 8, 2018), the district court had found the arbitration agreement lacked mutuality, violated the state arbitration statute, and violated public policy (because of the CMS rule on arbitration).  On appeal, the Supreme Court of Nebraska found mutuality, found the FAA applied and preempted the state arbitration statute, and noted that the CMS rule had been enjoined.

A week later, though, Nebraska rejected arbitrability in a different case against a nursing home.  In Cullinane v. Beverly Enterprises-Nebraska, Inc., 300 Neb. 210 (June 15, 2018), the issue was whether the arbitration agreement signed by the deceased’s husband was enforceable.  He admitted he signed all the admission documents, but stated in an affidavit that he understood he had to agree to arbitrate for his wife to be admitted to the facility.  He also stated that he did not understood he was waiving his wife’s right to a jury trial, and would not have signed if he had known that and that arbitration was optional.  Applying the FAA and state contract law, the Nebraska Supreme Court found the district court was not “clearly wrong” when it found the husband was fraudulently induced to executing the arbitration agreement for his wife.  Critically, the facility had not introduced any affidavit contradicting the alleged statements made at the time of admission.

The Supreme Court of Nebraska gave an unpleasant surprise to its trial court judges last week: they cannot enforce arbitration agreements sua sponteBoyd v. Cook, 298 Neb. 819 (Feb. 2, 2018).

The case involved a messy shareholder dispute.  A key contract to the dispute contained an arbitration provision covering “any dispute or controversy arising out of” the agreement.  The suit began in April of 2014, and eventually included many parties and at least a dozen claims.  In 2016, the trial court granted partial summary judgment.  But then it had apparently had enough.  In January of 2017, the trial court “dismissed sua sponte all of the claims in the case” other than one, based on the arbitration provision in the contract.  It found it lacked jurisdiction.

After confirming its appellate jurisdiction, and noting that arbitration clauses can never defeat a court’s subject matter jurisdiction (Dude! Don’t get your hackles up), the Nebraska Supreme Court got around to the good stuff.  It found that because arbitration is a contractual right “it necessarily follows that this right may be enforced only by a party to the contract.”  Therefore, “it is improper for a court to try to enforce such a contractual right on behalf of the parties.”  Trial courts will have to resort to other tactics in getting irritating cases off their dockets.

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If the Boyd case can be described as parties ignoring their rights to arbitrate, then a Vermont case can be described as a party ignoring its potential right to litigate.  In Adams v. Barr Law Group, 2018 WL 671444 (Feb. 2, 2018), a law firm tried to recover unpaid fees from its client in arbitration.  The client participated in arbitration (without counsel) for seven months.  Then, one week before the hearing, it alleged for the first time that the arbitration agreement was unenforceable, because the law firm did not fully explain to the client the ramifications of agreeing to arbitration.  The arbitrator denied the motion to dismiss and issued an award in favor of the law firm.  The client then moved to vacate the award and lost.  On appeal, the Vermont Supreme Court explained that the client had waived its right to object to arbitration by participating fully for seven months without raising the issue.  It noted that the requirement is “designed to avoid unnecessary investments in time and resources of exactly these types.”

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Finally, another post script to the SCOTUS preview : a new cert petition raises the circuit split over the “wholly groundless” doctrine.  Maybe the Court will finally bite on one of my favorite issues!

The high courts of two states have allowed non-signatories to compel arbitration in recent weeks.  The cases show courts are addressing non-signatory issues using different standards and raise important drafting issues for joint ventures and business affiliates.

In Locklear Automotive Group, Inc. v. Hubbard, 2017 WL 4324852 (Alabama Sept. 29, 2017), the Supreme Court of Alabama found most of the claims against the non-signatory must be arbitrated.  [But before we get into the merits, I have to ask: what the heck is going on in Alabama?  Is some plaintiffs’ lawyer trolling for cases against dealerships? This is the third arbitration case   involving claims against dealerships coming out of that state’s high court in the last two months!]  Seven plaintiffs brought separate actions alleging that personal financial information they provided the dealership was not safeguarded.  All seven plaintiffs were the victims of identity theft.  They sued the dealership’s LLC, as well as the corporate entity which is the sole member of that LLC (the non-signatory).

Each plaintiff had at some point signed an arbitration agreement with the dealership, but not with the non-signatory.  The court separated plaintiffs into three groups.  The first group, made up of five plaintiffs, established that defendants had waived any argument to enforce the delegation clause at the trial court.  However, the non-signatory was able to compel arbitration with this group using an estoppel theory because: a) the language of the arbitration agreement was not limited to disputes between the signing parties; and b) the claims against the non-signatory were intertwined with the claims against the dealership.  The second group involved a single plaintiff, against whom the non-signatory had preserved its delegation argument.  Therefore the court enforced the delegation clause, sending the issue of arbitrability to an arbitrator.  Finally, in the third group, the court refused to compel arbitration of a plaintiff’s claims because the signed arbitration agreement related to a previous purchase, not the credit application that resulted in identity theft.

West Virginia reached a similar result, albeit through a different analysis, in Bluestem Brands, Inc. v. Shade, 2017 WL 4507090 (W. Va. October 6, 2017).  In that case, Bluestem (aka Fingerhut) had teamed up with banks to offer credit to its customers for Fingerhut purchases.  The credit agreements between the banks and consumers called for arbitration of any disputes.  In response to a credit collection case, Ms. Shade (such a great name for a plaintiff alleging bad deeds) claimed that Bluestem violated West Virginia law with its credit program.  Ms. Shade did not assert claims against the banks.  When Bluestem moved to compel arbitration under the “alternative estoppel” theory, the court held that it could compel arbitration if “the signatory’s claims make reference to, presume the existence of, or otherwise rely on the written agreement.”  (Note that W. Va. did not require the language of the arbitration agreement to encompass more than the signing parties, like Alabama above.)  The court found that Ms. Shade’s claims all were “predicated upon the existence of the credit” agreement, so it was appropriate to compel arbitration of the claims.

So, we have two high courts applying different standards for estoppel.  And we have the Bluestem case reaching the oppose result of a recent federal court in a very similar factual circumstance (the Sunoco case, involving jointly marketed credit cards).  This leaves less than clear guidance for lawyers who are trying to craft arbitration agreements that can stick, no matter the type of case, or who the plaintiff is that is attacking the product.

Just as I predicted, SCOTUS reversed the Kentucky Supreme Court’s decision in Kindred this morning.  The interesting piece, though, is that the seven member majority went out of its way to cut off some of the “on trend” methods that state courts have been using to avoid arbitration clauses.

The Kentucky decision can be summarized easily.  The case  involved nursing homes attempting to compel arbitration of wrongful death and personal injury claims by estates of deceased residents.  In each case, a relative with power of attorney had signed an admission document that included arbitration when the resident entered the nursing home.  However, the Kentucky court refused to infer the agent’s “authority to waive his principal’s constitutional right to access the courts and to trial by jury” unless that power is “unambiguously expressed” in the power-of -attorney document.  (You may recall this is the decision that analogized entering into an arbitration agreement to: putting a child up for adoption, aborting a pregnancy, and entering into personal servitude.  If that doesn’t cry out “judicial hostility to arbitration,” I don’t know what does.)

Justice Kagan, writing for the seven-member majority, found Kentucky’s “clear statement rule” preempted by the Federal Arbitration Act.  “[T]he court did exactly what Concepcion barred: adopt a legal rule hinging on the primary characteristic of an arbitration agreement–namely, a waiver of the right to go to court and receive a jury trial.”  In response to Kentucky’s attempt to paint its rule as broader than arbitration, the Court said No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees.”

That preemption aspect of the decision seems to confirm what I have been saying about the impact of DirecTV: states are in much better position to defend their anti-arbitration “general contract rule” if they can point to at least one non-arbitration circumstance in which it has been applied.  (The decision added a footnote to clarify this isn’t an absolute necessity: “We do not suggest that a state court is precluded from announcing a new, generally applicable rule of law in an arbitration case.” But that’s like saying it is conceivable that your mother will appreciate a new vacuum for mothers day, but we don’t recommend it.)

The Court’s decision to clearly state that courts cannot invalidate arbitration agreements based on their (necessary) waiver of the right to a jury trial also cuts off a trendy argument in state courts.  New Jersey courts, for example, have invalidated arbitration agreements in recent years based on their failure to clearly advise consumers they are waiving their rights to jury trials (SCOTUS denied cert in the key NJ case, Atalese.)  Those NJ decisions are now shaky precedent, IMHO.

The decision then went beyond the basic preemption analysis.  Respondents had argued the FAA had no application to contract formation, that only state law controlled that question.  SCOTUS quickly disabused the respondents, and all state courts, of that notion, reasoning that the purpose of the FAA would be completely undercut by the rule: “If the respondents were right, States could just as easily declare everyone incompetent to sign arbitration agreements.  (That rule too would address only formation.)” In doing so, the Court cut off another avenue for avoiding the FAA.  (In my view, though, the slippery slope argument relied on by SCOTUS also cuts against the formation/validity  distinction used to separate which issues are decided in court and which by arbitrators.)

[As usual, Justice Thomas dissented based on his position that the FAA does not apply in state courts.]

Demonstrating just how difficult it can be to separate questions about the “formation” of an arbitration agreement from the “validity” of that agreement, the Fifth Circuit found this month that when an argument was applied to two of the parties’ three agreements, it related to their formation, but when the same argument was applied to the third agreement, it related to its validity.

In Lefoldt v. Horne, 2017 WL 1326241 (5th Cir. April 11, 2017), the plaintiff, a community hospital, had engaged the defendant to provide auditing services.  The parties signed contracts in 2009, 2010, and 2012.  However, only the 2009 agreement was reflected in the minutes of the hospital’s board.  In 2014, the hospital filed for bankruptcy, and its trustee sued the auditor for professional malpractice.  In response, the auditor moved to compel arbitration, based on arbitration provisions in all three contracts.

In order to determine whether the dispute was arbitrable, the Fifth Circuit had to confront two confounding rules. First was Mississippi’s “minutes rule,” which the hospital raised as a defense to arbitrability.  The “minutes rule” appears to require  that a public board reflect actions taken in the minutes of its meetings, and, if an agreement to contract is not reflected in those minutes, the contract is not enforceable.  The second issue the Fifth Circuit had to address was the first footnote in SCOTUS’s Buckeye Check Cashing decision, which distinguished disputes over a contract’s validity from those over “whether any agreement between the alleged obligor and oblige was ever concluded.”  That matters because issues of validity can be sent to an arbitrator, which those over formation generally cannot.

The court found the issue of whether Mississippi’s “minutes rule” was one about formation or validity “a close question.” However, it concluded that the minutes rule raised an issue of the very formation of the 2010 and 2012 service contracts.  That decision allowed the court to decide whether those contracts were formed, and it found they were not validly formed, so the trustee did not have to arbitrate issues under those two contracts.

However, the court found that because the hospital board recorded the auditing contract in its 2009 minutes, the application of the “minutes rule” in that instance involved the validity of the 2009 contract. The court found an arbitrator should decide “whether and how the minutes rule applies to the 2009 engagement letter and the scope of the arbitration clause,” unless the district court finds a delegation clause on remand.

This case is a great example of how the current arbitration jurisprudence may have gotten off course.  Should it be this difficult for a court to decide whether a particular argument should be heard by a court or an arbitrator?  See my post from five years ago (has it really been that long?!) on the thin line between formation and validity.

One of the few “get out of arbitration free” cards that SCOTUS offers litigants is this: find another federal statute that clearly entitles plaintiff(s) to a court trial. In a recent 8th Circuit case, that court carefully considered, and then rejected, the argument that the Age Discrimination in Employment Act (ADEA) constituted that type of “get out of arbitration free” statute.

The claims in McLeod v. General Mills, Inc., 2017 WL 1363797 (8th Cir. Apr. 14, 2017), stem from a 2012 reduction in force at General Mills.  In exchange for severance packages, terminated employees released the company from claims relating to their termination, and agreed to individual arbitration of future disputes.  In McLeod, 33 of those employees sued the company alleging violations of the ADEA.  In response, the company moved to compel arbitration on an individual basis.

The Chief Judge of the District of Minnesota denied General Mills’ motion. He found that the plain language of the statute at issue “requires General Mills to defend the validity of the plaintiffs’ release agreements in court, not in an arbitral forum.” The statute reads: “any dispute that may arise over whether any of the requirements, conditions, and circumstances set forth in [Section 626(f)(1) ] have been met, the party asserting the validity of a waiver shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary.” 29 U.S.C. § 626(f)(3) (emphasis added).

On appeal, the Eighth Circuit reversed. It found that the statute relied upon by the district court was not applicable, because General Mills was not asserting the validity of a waiver within the meaning of that statute.  Furthermore, the Eighth Circuit concluded that the ADEA does not grant employees the substantive right to a jury trial or to a class action, but only provides procedural rights that can be waived.

**Yikes – three weeks since my last post. Where was I?  In arbitration of course!

While the Supreme Court has put off hearing a more contentious arbitration case until the fall (presumably in hopes that it will have nine justices by then), tomorrow it will hear the nursing home arbitration case from Kentucky.  I look forward to listening to the questions and trying to figure out why the Justices granted a review on the merits…  Instead of repeating my analysis of the Kentucky case, here are some recent state court arbitration cases of interest (in addition to the three I posted about a few weeks ago).

West Virginia.  Remember when West Virginia was the thorn in the FAA’s side?  When it was the leader of the pack of anti-arbitration states?  Well, not in West Virginia CVS Pharmacy v. McDowell Pharmacy, Inc., 2017 WL 562826 (W. Va. Feb. 9, 2017).   The lower court had refused to compel arbitration of disputes between retail pharmacies and a pharmacy benefit management company.  Applying West Virginia law, the lower court found there was no arbitration agreement, because the parties did not validly incorporate the manual that contained the arbitration provision.   The West Virginia Supreme Court, however, applied Arizona law, as provided in the contract, and that made all the difference.  It found the arbitration agreements were adequately incorporated, and that their reference to AAA rules was sufficient to delegate questions of arbitrability to the arbitrator.  No cert likely here.

Missouri.  The Supreme Court of Missouri took a safe bet in siding (partially) against the arbitrator in State ex rel Greitens, 2017 WL 587296 (Mo. Feb. 14, 2017), since the Supreme Court has denied cert petitions in many cases stemming from the master settlement agreement between states and tobacco companies.  (E.g., this most recent one.)  In this case, the state’s highest court found the arbitration panel exceeded its power when it deprived Missouri of its share of $50 Million in tobacco settlement payments for 2003.  The case is too complicated to explain in this post, but know that this is one of those rare examples of a court modifying an arbitration award, as opposed to just confirming or vacating it.  No cert likely here either.

Iowa.  I never get to write about Iowa (which my daughter called “why-owa” after a long road trip through farm country), but its supreme court issued a decision in late 2016 about nursing home arbitration that merits mention here.  In Roth v. Evangelical Lutheran Good Samaritan Society, 886 N.W.2d 601 (Iowa 2016), Iowa’s highest court answered a certified question from the federal district court.  In short, it found that Iowa’s statutes do not require judicial resolution of loss of consortium cases, and in this case the children of the decedent were not bound by the decedent’s arbitration clause because the “claims belong to the adult children and they never personally agreed to arbitrate.”  (Hard to make a bet on certiorari in this case, since it is headed back to federal trial court…)

Alabama.  In Hanover Ins. Co. v. Kiva Lodge Condominium Owners’ Assoc., 2016 WL 5135201 (Ala. Oct. 21, 2016), the Supreme Court of Alabama found that when the parties adopted the following addendum to their contract, the first party who filed an action was able to dictate the forum: “Notwithstanding anything in this Addendum to the contrary, either party may pursue any claim or dispute in a court of law, or through mediation and arbitration.”  That amended language was added to the parties’ A201 General Conditions, right after language indicating that “any claim arising out of or related to the Contract… may at the election of either party…be subject to arbitration.”  After the condo association brought their claims in court and requested a referral to arbitration, the defendants argued that the case should stay in court.  The trial court sent the claims to arbitration and the supreme court affirmed that result, finding “the addendum provides that once a party elects arbitration as a method for resolution of a dispute…the other party cannot neutralize that choice by insisting on litigation in court…In short, Kiva Lodge has proven the existence of a binding mandatory arbitration agreement between the parties.”  This will not end up at the Supreme Court, but it’s an important drafting lesson for all of us.

The Ninth, Sixth, and Third Circuits all recently issued decisions about whether putative class or collective actions could proceed despite the existence of arbitration clauses.  In two of those decisions, the courts found the arbitration agreements did not allow for class arbitration and therefore dismissed the claims.  In the third, the court found the arbitration agreement was not applicable to the dispute.

In Opalinski v. Robert Half Int’l, 2017 WL 395968 (3d Cir. filed Jan. 30, 2017), the Third Circuit again tackled arbitrability issues in a case that has gotten the runaround for five years (district court, then arbitrator, then district court, then appellate court, back to district court, now back to appellate court).  The case involves a collective action complaint alleging violations of the Fair Labor Standards Act.  The arbitration clause between the employees and employer provides for AAA arbitration.  In its most recent decision, the district court dismissed the action, finding the arbitration clause did not allow class arbitration.  On appeal, the Third Circuit reiterated that courts (not arbitrators) should decide whether class arbitration is available.  It found that in this case the parties’ arbitration clause does not indicate they agreed to class arbitration.  In particular, the court found the absence of any explicit mention of class arbitration was dispositive, and outweighed the fact that the parties agreed to arbitrate disputes arising under statutes that allow class litigation.

In another employment dispute, Poublon v. C.H. Robinson Co., 2017 Wl 461099 (9th Cir. Feb. 3, 2017), a class of employees asserted that the employer had misclassified them as exempt from overtime pay and asserted a Private Attorneys General Act (PAGA) claim.  The arbitration agreement provided “neither You nor the Company may bring any Claim combined with or on behalf of any other person or entity, whether on a collective, representative, or class action basis.” It ended with a severability clause, so that if any part of the arbitration agreement was invalid, the rest of it would be enforced.  The employer moved to compel arbitration and dismiss class or representative claims.  The district court found the arbitration clause was unconscionable and denied the employer’s motion.  The Ninth Circuit reversed, finding only two aspects of the arbitration clause were unconscionable/unenforceable and those could be severed, allowing the rest of the arbitration clause to be enforced.  (The two stinkers: waiver of a representative PAGA claim (see Iskanian); and a provision allowing only the employer to go to court for injunctive or equitable relief.)

While the two classes of employees above were not able to continue prosecuting claims as a group (and had to go to arbitration), a class of consumers won the right to stay in court in Stevens-Bratton v. TruGreen, Inc., 2017 WL 108032 (6th Cir. Jan. 11, 2017).  In that case the class representative had hired a lawn care company for one year.   More than six months after the service contract had been terminated, the class representative received numerous telemarketing calls from the company, even though her number was on the Do-Not-Call Registry.  She then sued for violation of the TCPA.  In response, the lawn care company moved to compel arbitration, based on its service contract with the class representative, which “expressly waive[d] any ability to maintain any Class Action.”  The district court compelled arbitration, and the 6th Circuit reversed.  Although there is usually a presumption in favor of an arbitration agreement surviving the expiration of the rest of a contract, the court was not convinced that the dispute “had its real source in the contract.”  It found that the lawn care service contract was “irrelevant to this case,” since it had completely expired before the calls took place and the lawn services provided were not at issue in the TCPA claim.

Three state supreme courts tackled arbitration law in recent weeks: Alabama, North Carolina, and Rhode Island.  Rhode Island reversed a construction arbitration award because it disagreed with the arbitrator’s analysis.  North Carolina found that an arbitration agreement in a doctor-patient setting was unenforceable as a breach of the doctor’s fiduciary duty.  And Alabama strictly enforced an arbitral venue, even though that precluded class action.

Continuing its streak of hewing closely to the lead of federal courts on arbitration, the Supreme Court of Alabama held that plaintiffs have to arbitrate with the Better Business Bureau, even though the BBB does not conduct class action arbitration proceedings.  University Toyota & University Chevrolet Buick GMC v. Hardeman, _ So. 3d __, 2017 WL 382651 (Ala. Jan. 27, 2017).  The plaintiffs were a putative class of customers harmed by two car dealerships’ decision to stop honoring their earlier agreement to provide free oil changes.  The arbitration clause between the dealerships and purchasers called for arbitration of all disputes pursuant to the FAA, and said “either party may demand arbitration by filing with the Better Business Bureau.”  When the plaintiffs filed their demand, the BBB responded that it did not conduct class arbitrations.    The plaintiffs then withdrew their demand and filed in court, asking either to keep their fight in court or go to a forum that allowed class arbitration.  The trial court sent the plaintiffs to the AAA to decide whether class actions were available.  On appeal, the supreme court reversed in a 7-1 decision.  The majority quoted heavily from SCOTUS decisions stating that arbitration agreements should be enforced according to their terms, and found that the BBB forum was an integral part of the arbitration agreement that must be given effect.  The lone dissenter argued that, because the availability of class arbitration was for the arbitrator, it should be decided by a forum that at least retains that option.

Without any consideration of the Federal Arbitration Act, the Supreme Court of Rhode Island vacated an arbitration award.  Nappa Construction Management, LLC v. Flynn, __ A.3d __, 2017 WL 281812 (R.I. Jan. 23, 2017). (Maybe an allergy to the FAA is contagious… remember nearby New Hampshire last year?)  In a dispute between the owners of a automobile repair facility and the construction company that was hired to build it, the arbitrator issued an award that analyzed the parties’ contract and found the construction company was owed money.  The trial court refused to vacate the award, finding the arbitrator grounded his analysis in the contract and did not manifestly disregard the law.  On appeal, the Supreme Court of Rhode Island cited only cases from its own court, including labor cases, and found that the arbitrator had exceeded his authority (and the award failed to draw its essence from the agreement) by finding that the owners had effectively terminated the contract, when there was no evidence that the owners actually terminated the contract.  The court also accused the award of reaching an “irrational result.”  Two justices dissented, noting the “exceptionally deferential standard of review” for arbitration awards.  They did not, however, cite to the line from Sutter, as I would have, that even “grave error” by an arbitrator is not sufficient to vacate an award if the arbitrator in fact analyzed the contract.  (Maybe no one argued the FAA applied?  A commercial construction contract would almost certainly involve interstate commerce…)

Finally, the Supreme Court of North Carolina refused to enforce the arbitration agreement between a doctor and patient, finding that the agreement “was obtained as a result of defendants’ breach of fiduciary duty that they owed to” the patient.  King v. Bryant, __ S.E.2d __, 2017 WL 382910 (N.C. Jan. 27, 2017).  The patient had brought a medical malpractice action against his surgeon, and the surgeon tried to enforce the arbitration agreement between them.  The arbitration agreement called for application of the FAA and arbitration under health care procedures of the AAA.

The N.C. trial court refused to compel arbitration, finding the agreement was only an “agreement to agree,” and started off a crazy game of appeals court-district court ping pong involving this case.  The court of appeals reversed and remanded.  On second thought, the trial court refused to enforce the agreement because the surgeon had a fiduciary duty to disclose the arbitration agreement to his patient as a material term, and because he did not it was unenforceable.  The court of appeals affirmed, noting the application of the FAA, but finding the agreement unconscionable.  The supreme court then remanded to the trial court for further findings of fact regarding the existence of a physician-patient relationship when the agreement was signed, and the trial court complied.  Finally, the case returned to the supreme court, which held that the doctor owed a fiduciary duty to the patient and breached it “by failing to make full disclosure of the nature and import of the arbitration agreement to him at or before the time that it was presented for his signature.”  Recognizing the possibility of an argument that its holding is preempted by the FAA, the court noted “we would have reached the same result on these facts with respect to any agreement that substantially affected [the patient’s] substantive legal rights.”  However, the opinion cites no N.C. cases to support that statement, which may be fatal under the DirecTV analysis.  Two justices wrote separate dissents, based largely on FAA preemption.  (“This jiggery-pokery is precisely the type of impermissble ‘rationalization’ admonished by the United States Supreme Court. Such a tortured attempt to obviate the FAA fails.”)

What is the take away here?  It is that there is still a huge amount of variation in how a given arbitration dispute will be handled, depending on what court hears the dispute.  And the preemption rules set out in Concepcion and DirecTV are either not well understood, or are being intentionally avoided.

If you ever wanted an “Exhibit A” for how drafting arbitration agreement(s) could go very, very wrong, the Tenth Circuit has just provided it. In Ragab v. Howard, __ F.3d __, 2016 WL 6832870 (10th Nov. 21, 2016), a majority of the panel concluded that because the parties had six differing arbitration agreements, they had never reached a meeting of the minds on arbitration and their dispute would stay in court.

The parties had six agreements that governed their business relationship. Each agreement had an arbitration agreement.  But, those arbitration agreements did not provide for the same set of rules to govern the arbitration, or the same method of choosing an arbitrator, or the same notice period before arbitration, or the same opportunity to recover attorneys’ fees.  Even so, when Mr. Ragab sued the defendants for misrepresentation and statutory violations, the defendants moved to compel arbitration.

Mr. Ragab’s claims fell within the scope of all six arbitration agreements, so the differing terms could not be brushed aside by implicating just a few agreements. Applying Colorado contract law, the district court found that there was no meeting of the minds as to how claims would be arbitrated, and denied the motion to compel.

The Tenth Circuit noted that “whether parties can be compelled to arbitrate given conflicting arbitration provisions” was a novel question under Colorado law, but that New Jersey, Florida, and California courts had already concluded that “irreconcilable” differences across arbitration provisions made them unenforceable. It reasoned that the courts that have granted motions to compel in similar circumstances found “the contracts themselves provided the solution,” via a merger clause.  Because the six agreements at issue in this case did not allow one to override the others, the court found it could not “arbitrarily pick one to enforce because doing so could violate the other five.”  Therefore, it concluded “there was no meeting of the minds” on arbitration, and affirmed the district court.

The dissenting judge pointed out that there is no “doubt that the parties before [the court] did intend to arbitrate. All six – yes, six – of the parties’ interrelated commercial agreements contain arbitration clauses.”  That judge urged a solution whereby the court would treat the procedural details surrounding arbitration as nonessential terms, and enforce the basic agreement to arbitrate.

For anyone involved with drafting contracts, this is an important lesson.  If the parties intend their choice of arbitration to be binding and enforceable, the arbitration agreements in interrelated agreements must be compatible.