The Supreme Court of Arkansas has issued three opinions within the span of four weeks, all on the topic of whether defendants can compel arbitration. Each of the opinions came with a vigorous dissent. The cases offer an interesting look at a state high court that appears to be struggling to deal with FAA case law from SCOTUS; on one hand the court cites recent federal arbitration jurisprudence, but on the other it displays real skepticism about arbitration (at least of consumer disputes) and uses some creativity in its state contract law.
Two of the opinions relate to whether nursing homes can compel arbitration of claims brought by former residents or their estates. In each of those cases, the Supreme Court of Arkansas allowed the nursing home to compel arbitration. First, in Courtyard Gardens Health & Rehabilitation v. Arnold, 2016 Ark. 62 (Feb. 18, 2016), the court held that the agreement’s selection of the National Arbitration Forum (NAF, which no longer administers consumer arbitration) did not make the arbitration agreement impossible to perform, nor was the choice of NAF integral to the agreement. Three justices dissented. [The 11th Circuit just came out the other way on this issue, finding NAF was integral to an arbitration agreement and therefore refusing to compel arbitration in Flagg v. First Premier Bank, 2016 WL 703063 (11th Cir. Feb. 23, 2016).]
Then in GGNSC Holdings v. Lamb, 2016 Ark. 101 (March 10, 2016), the majority compelled arbitration of two nursing home plaintiffs’ claims. Again, the court held that the unavailability of the NAF did not make the arbitration agreement impossible to perform. It also held that the arbitration agreement was not unconscionable. Two justices “strongly” dissented:
The majority’s opinion in this case goes far beyond resolving any doubts in favor of arbitration. It rubber-stamps the arbitration agreements before it based simply on our policy favoring arbitration. This begs the question: Going forward, could there ever be an arbitration agreement the majority determines to be invalid or unenforceable? If today’s decision is any indication, the answer to that question is no.
In a third case, the Supreme Court of Arkansas refused to compel arbitration of a class action alleging breach of contract and deceptive trade practices against a bank. Bank of the Ozarks, Inc. v. Walker, 2016 Ark. 116 (March 17, 2016). The court found the arbitration agreement lacked mutuality and therefore was unenforceable. (“Mutual obligation” is the fifth “essential element” of a contract in Arkansas.) In one of the two provisions causing the lack of mutuality, the arbitration agreement obligated the customer to pay any attorneys’ fees the bank incurred “in good faith” in a dispute. “In imposing all of the costs of arbitration on appellees, the parties in this case are treated differently, and ‘this disparate treatment results in a lack of mutuality.'” The majority stated that it was cognizant of the severability doctrine and of Concepcion and was not violating either. [The court also seemed to hold that the one-sided fee provision precluded the customers from “effectively vindicating” their rights, citing to Green Tree. The court conveniently ignored the subsequent language in Italian Colors, limiting that doctrine, and the fact that the doctrine only applies to federal statutory rights…]
The lone dissenter in Bank of the Ozarks sided with FAA preemption. Citing DIRECTV, the dissenting justice pointed out occasions where the Supreme Court of Arkansas has recognized that “a contract does not lack mutuality merely because every obligation of one party is not met by an equivalent counter obligation of the other party. With the decision in this case, the majority stretches the concept of mutuality of obligation so as to undermine our basic principles of contract law.”
By the way, Arkansas is not the only court compelling arbitration of nursing home disputes. Alabama recently found that a resident’s daughter had apparent authority to bind her mother to the arbitration agreement. Kindred Nursing Centers East, LLC v. Jones, 2016 WL 762450 (Ala. Feb. 26, 2016). (Two justices dissented.) The Fifth Circuit also reversed a district court’s refusal to compel arbitration of residents’ claims against nursing homes in Gross v. GGNSC Southaven, LLC, 2016 WL 1019200 (5th Cir. March 14, 2016). The district court had held there was insufficient evidence that the individual signing the arbitration agreement had been authorized by the resident. The Fifth Circuit found Mississippi law on authority was not so restrictive and remanded for further fact finding.