Jack Nelson Jones Professional Association
December 10-16, 2018
HICKORY HEIGHTS HEALTH AND REHAB, LLC; CENTRAL ARKANSAS NURSING CENTERS, INC.; NURSING CONSULTANTS, INC.; AND MICHAEL MORTON, APPELLANTS v. LEMARION ADAMS AS GUARDIAN OF IDA ADAMS, APPELLEE
2018 Ark. App. 560 RAYMOND R. ABRAMSON, Judge
This case arose from Pulaski County Circuit Court, 6th Division, Honorable Timothy Davis Fox, presiding. Hickory Heights Health and Rehab, LLC; Central Arkansas Nursing Centers, Inc.; Nursing Consultants, Inc.; and Michael Morton (“Hickory Heights”) jointly appealed the order of the Pulaski County Circuit Court denying their motion to compel arbitration. The Court of Appeals affirmed.
Hickory Heights was a nursing-home facility where Ida Adams was a resident at the time her son and guardian, Lemarion Adams, filed suit on her behalf (hereinafter “Adams”), alleging claims for negligence, medical malpractice, breach of contract, and a violation of the Arkansas Deceptive Trade Practices Act. In response, Hickory Heights filed a motion to compel arbitration by Adams and to stay the proceedings. It attached an arbitration agreement signed by Lemarion at the time of Ida’s admission to Hickory Heights. The arbitration agreement provided in part as follows:
It is understood and agreed by Facility and Resident and/or responsible party that any and all claims, disputes, and controversies 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 that would constitute a cause of action in a court of law that the Facility may have now or in the future against you or any of your representatives, or that you or any of your representatives may have now or in the future against the Facility, as defined above, and involving an amount of or greater than thirty-thousand dollars and no cents ($30,000) shall be resolved exclusively by binding arbitration and not by a lawsuit or resort to court process. …
By signing this agreement, the Parties acknowledge their understanding and agreement that all disputes will be resolved by binding arbitration:
THE PARTIES FURTHER ACKNOWLEDGE THAT THEY ARE GIVING UP AND WAIVING THEIR CONSTITUTIONAL RIGHT TO HAVE THEIR DISPUTES DECIDED IN A COURT OF LAW BEFORE A JUDGE AND A JURY AND ARE INSTEAD ACCEPTING THE USE OF ARBITRATION.
Adams filed a response and argued that the arbitration agreement was invalid for two reasons: (1) the agreement lacked mutuality of obligation among the parties because it allowed Hickory Heights to sue in court for the types of claims it would likely have against residents, but it required injured residents to arbitrate their likely claims; and (2) the agreement was unconscionable and therefore unenforceable as a matter of law. The circuit court entered an order without written opinion denying the motion to compel. Hickory Heights appealed the order arguing that the circuit court erred in denying its motion because the agreement mutually obligated the parties and was not unconscionable. As an initial matter, the Court of Appeals noted that, when a circuit court denies a motion to compel arbitration without expressly stating the basis for its ruling, then that ruling encompasses the issues presented to the circuit court by the briefs and arguments of the parties. On appeal, the Court reviewed the ruling de novo on the record.
The parties herein agreed that the Federal Arbitration Act (FAA) applied in this case. The FAA was enacted to overcome judicial resistance to arbitration, establishing a national policy favoring arbitration when parties contracted for that mode of dispute resolution. The Court noted that Arkansas also strongly favors arbitration as a matter of public policy, as a less expensive and more expeditious means of settling litigation and relieving docket congestion. However, as the Court held, although an arbitration provision is subject to the FAA, courts look to state contract law to decide whether the parties’ agreement to arbitrate is valid.
The Court noted that the threshold inquiry whether a valid agreement to arbitrate existed was set out by the Arkansas Supreme Court which established that the essential elements for an enforceable arbitration agreement were (1) competent parties, (2) subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligation.
The Court observed that, in Arkansas, mutuality of contract meant that an obligation must rest on each party to do or permit to be done something in consideration of the act or promise of the other; that is, neither party could be bound unless both were bound. A contract, therefore, that left it entirely optional with one of the parties as to whether that party would perform the promise would not be binding on the other. No mutuality of obligation would exist when one party used an arbitration agreement to shield itself from litigation while it kept for itself the ability to use the court system.
Hickory Heights argued that the agreement mutually obligated the parties to submit any disputes to arbitration when the amount in controversy was more than $30,000. It maintained that the agreement did not specifically exclude a type of claim from its scope nor did it require only one party to forgo its right to the court system.
Adams argued that the agreement shielded Hickory Heights from litigation while reserving its ability to pursue relief against its residents through the court system. Specifically, he asserted that the agreement relegated residents’ likely claims—tort claims—to binding arbitration but allowed Hickory Heights to retain the right to litigate its likely claims such as billing and collection matters through the court system. He pointed out that the maximum debt that Ida would likely accumulate to Hickory Heights would be $9,400, noting the admission agreement required payment of her monthly bill in advance on the first day of the month, and that delinquency of forty days would result in Ida’s discharge. The daily rate of $235 times 40 equaled $9,400. He further noted the agreement denied liability for any property not delivered to an employee for safekeeping, and Hickory Heights could refuse safekeeping of any personal property over $50.
In making his argument, Adams relied on Regional Care, 2014 Ark. 361, where, as here, the arbitration agreement mandated arbitration of any dispute arising out of the nursing home residency but preserved the facility’s ability to sue in court for disputes concerning billing. In the case at bar, the Court also concluded that the arbitration agreement lacked mutuality. The Court agreed that Hickory Heights’ argument that the agreement supplied the necessary mutuality was disingenuous. Even though the arbitration agreement did not explicitly exclude a type of claim from its scope or require only one party to forgo its right to the court system, the arbitration provision was obviously drafted to shield Hickory Heights from defending itself in the court system against the majority of residents’ potential claims while maintaining its right to utilize the court system for its likely claims against residents. The Court noted that the Arkansas Supreme Court has previously held that such arbitration agreements lacked mutuality and, therefore, were not valid and enforceable arbitration agreements. Since no valid arbitration agreement existed due to lack of mutuality of obligation, the Court did not address Hickory Heights’ other arguments and affirmed the decision of the circuit court.