In its opinion filed on February 18, 2016, the Supreme Court of Arkansas (“Arkansas Supreme Court”) overturned a lower court’s decision that the nursing home negligence claims brought by the plaintiff were not subject to arbitration pursuant to an arbitration agreement signed by the resident’s daughter when the resident was admitted to the defendant Arkansas nursing home. The Arkansas Supreme Court held that the nursing home arbitration agreement is not unenforceable based on the defense of impossibility of performance.
The Nursing Home Arbitration Agreement
The Arkansas nursing home arbitration agreement stated as follows: “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.”
The Plaintiff’s “Impossibility” Argument
The plaintiff argued that the nursing home arbitration agreement was unenforceable based on impossibility of performance and unconscionability because the agreement selected the National Arbitration Forum (“NAF”) to serve has arbitrator, and the NAF is now unavailable because it had agreed to no longer conduct any arbitration pursuant to pre-dispute consumer agreements.
The plaintiff further argued that because the nursing home arbitration agreement incorporates the NAF Code and because the NAF Code can only be administered by the NAF (the NAF Code of Procedure, Rule 1(A), states: “This Code shall be administered only by the National Arbitration Forum or by any entity or individual providing administrative services by agreement with the National Arbitration Forum”), the arbitration agreement effectively selects the NAF as arbitrator. Thus, because the NAF is unavailable to arbitrate the dispute, the agreement is impossible to perform.
The Arkansas Supreme Court noted that the parties’ arbitration agreement cited to the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (“FAA”) and the Arkansas Supreme Court stated that Section 5 of the FAA specifically contemplates the possibility that a designated arbitrator may be unavailable to arbitrate the dispute and requires the appointment of a substitute arbitrator when the NAF is unavailable: “If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filing a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a single arbitrator.” 9 U.S.C. § 5 (emphasis added).
The Arkansas Supreme Court stated that Section 5 applies to the case it was deciding, and that the lower court “shall” appoint an arbitrator.
The Arkansas Supreme Court further held that the NAF term in the parties’ arbitration agreement was merely an ancillary logistical concern. The Arkansas Supreme Court stated that the “binding arbitration” language, as bolded and capitalized in the arbitration agreement, does not mandate that claims be arbitrated with the NAF but rather it requires arbitration as the sole means of resolving the claims. The fact that the NAF term is absent from the bolded and capitalized language supports the determination that it was the parties’ intent to resolve their disputes through binding arbitration regardless of the availability of the NAF. Furthermore, the mandatory language in the arbitration agreement, “shall,” applies to arbitration, not the NAF or a particular arbitrator, and the arbitration agreement requires the use of the NAF’s Code of Procedure, not that the NAF itself is required to conduct the arbitration. In addition, the parties’ arbitration agreement contains a severability clause that states, “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 Agreement shall be effective” (the unenforceable language of the parties’ arbitration agreement relates to the NAF as arbitrator; once this unenforceable language is severed from the arbitration agreement, the parties must be compelled to resolve their dispute through arbitration).
The Arkansas Supreme Court held that based on the intention of the parties as expressed in the arbitration agreement, and in order to give effect to the arbitration requirement, the sole purpose of the parties’ agreement, the NAF term is merely an ancillary logistical concern and is severable. Therefore, in light of Arkansas’ public policy in favor of arbitration and the requirement that doubts about arbitrability be resolved in favor of arbitration, the Arkansas Supreme Court held that the lower court erred in denying the defendant nursing home’s motion to compel arbitration based on impossibility of performance, and reversed and remanded for the entry of an order compelling arbitration.
The dissent to the majority opinion stated, in part, that the better interpretation is that the designation of a particular arbitral forum’s rules, and the incorporation of those rules into the arbitration agreement, are synonymous with designating that forum as arbitrator, especially when those rules cannot be applied by a different forum.
Source Courtyard Gardens Health and Rehabilitation, LLC v. Arnold, 2016 Ark. 62.
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