Court Opinion

ID: 6319192
Source: CourtListenerOpinion
Date Created: 2022-03-02 15:02:07.667638+00
Date Added: 2024-06-11T09:01:37.753250
License: Public Domain

Cite as 2022 Ark. App. 103
                    ARKANSAS COURT OF APPEALS
                                        DIVISION IV
                                        No. CV-21-129

                                                  Opinion Delivered March   2, 2022
NORTHPORT HEALTH SERVICES OF
ARKANSAS, LLC, D/B/A PARIS HEALTH
AND REHAB CENTER; AND                             APPEAL FROM THE LOGAN
NORTHPORT HEALTH SERVICES, INC.                   COUNTY CIRCUIT COURT,
                       APPELLANTS                 NORTHERN DISTRICT
                                                  [NO. 42PCV-19-106]
V.

THOMAS CHANCEY, GUARDIAN OF                       HONORABLE DAVID H.
THE ESTATE AND PERSON OF LUCY                     MCCORMICK, JUDGE
CHANCEY, AN INCAPACITATED
PERSON                                            AFFIRMED
                        APPELLEE

                                  RITA W. GRUBER, Judge

        This is an interlocutory appeal from a denial of a motion to compel arbitration.

 Northport Health Services of Arkansas, LLC, d/b/a Paris Health and Rehab Center; and

 Northport Health Services, Inc. (collectively Northport), appeal an order of the Logan

 County Circuit Court denying a motion to compel arbitration based on its finding that the

 arbitration agreement lacked mutuality of obligations. Northport argues that the circuit court

 erred in refusing to enforce the valid arbitration agreement. We affirm.

        On or about September 24, 2018, Lucy Chancey was admitted to Paris Health and

 Rehab Center, a nursing-home facility. She resided there until May 12, 2019. Thomas
Chancey, who is Lucy’s son, signed the admission agreement as the “Responsible Party.”1

Under the section identifying the relationship of the resident to the responsible party,

Thomas is identified as “Relative” and “Son.” The admission agreement contained an

arbitration provision, which provides as follows:

              8. Dispute Resolution Program, Arbitration Agreement, and WAIVER OF
              JURY TRIAL.
              (Read Carefully)

                     A. The Program

                      This Agreement creates a dispute resolution program (the
              “Program”) which shall govern the resolution of any and all claims or
              disputes that would constitute a cause of action in a court of law that
              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 Facility, any parent or subsidiary of Facility, any
              company affiliated with Facility, or any of Facility’s officers, directors,
              managers, employees, or agents acting in such capacity (hereinafter
              referred to as “Disputes”) or that any other person may have arising out
              of the residency. The Disputes whose resolution is governed by the
              Program shall include, but not be limited to, claims for breach of
              contract or promise (express or implied); tort claims; and claims for
              violation of any federal, state, local, or other governmental law, statute,
              regulation, common law, or ordinance. Notwithstanding the foregoing,
              the Program shall not govern (i) any grievance brought either formally
              or informally under the Facility’s grievance policy or with an
              appropriate state or federal agency (ii) an appeal to the appropriate state
              or federal entity regarding an involuntary transfer or discharge (iii) any
              complaint with an appropriate state or federal agency concerning the
              Facility’s compliance with applicable regulations governing care, facility
              services, or residents’ rights (iv) any complaint with an appropriate state
              or federal agency concerning resident abuse, neglect, misappropriation
              of resident property or non-compliance with advance directive
              requirements or (v) any claim or dispute involving solely a monetary

       1
       Lucy executed a durable power of attorney in favor of Thomas on July 14, 2014. The
powers included the authority to sign any forms necessary for admitting Lucy to a hospital.

                                               2
              claim in an amount less than $25,000, and any such claim or dispute
              shall not be deemed a Dispute hereunder.

       B. Arbitration

              All Disputes covered under the Program between you and the Facility shall be
       resolved by binding arbitration. Arbitration is a procedure in which the parties submit
       a Dispute to one or more mutually selected, impartial persons for a final and binding
       decision. The parties expressly agree to settle all Disputes by binding arbitration rather
       than by a judge, jury, or administrative agency.

              Arbitration is a complete substitute for a trial by a judge or a jury. The parties
       hereby specifically waive their rights to a jury trial. Only Disputes that would
       constitute a legally cognizable cause of action in a court of law may be arbitrated.

              THE PARTIES ACKNOWLEDGE THAT BY ENTERING INTO
              THIS ARBITRATION AGREEMENT, THEY ARE GIVING UP
              THEIR RIGHT TO HAVE ANY SUCH DISPUTE DECIDED IN
              A COURT OF LAW BEFORE A JUDGE OR JURY, AND
              INSTEAD ARE ACCEPTING THE USE OF ARBITRATION.

       On October 28, 2019, Thomas, as Lucy’s guardian, filed a complaint against

Northport alleging claims of negligence, medical negligence, and a violation of long-term

care residents’ rights.2 The complaint alleged that Northport had failed to discharge its

obligations of care to Lucy and that as a result, she suffered serious injuries, extreme pain,

suffering, and mental anguish. Northport filed an answer and affirmatively pleaded that

Lucy’s claims are barred from being litigated in court by virtue of the arbitration agreement.

       2
        Lucy died intestate on December 19, 2020, during the course of the proceedings.
After being appointed as the administrator of her estate, Thomas filed a motion in this court
to be substituted as the real party in interest pursuant to Rule 12 of the Arkansas Rules of
Appellate Procedure–Civil, which was granted on December 1, 2021.

                                               3
       Northport filed a motion to compel arbitration on June 26, 2020, arguing that (1)

the Federal Arbitration Act governs arbitration in this case and preempts any Arkansas law

to the contrary; and (2) the arbitration clause is valid and enforceable. Thomas responded,

in part, that the arbitration agreement was invalid and unenforceable due to a lack of

mutuality of obligations as required for a valid contract in Arkansas. Thomas alleged, in part,

that the provision in the arbitration agreement provides that “any claim or dispute involving

solely a monetary claim in an amount less than $25,000, and any such claim or dispute shall

not be deemed a Dispute hereunder.” He contended that this provision impermissibly

shields Northport from litigation and lacks mutuality of obligations because it specifically

designated all of Northport’s likely claims against Lucy, such as collection of money due to

nonpayment, as not subject to binding arbitration but subjected all of Lucy’s likely claims

arising in tort to binding arbitration.

       On November 24, 2020, the circuit court entered an order finding that the

arbitration agreement is invalid and unenforceable because it lacks mutuality of obligations

based on Country Club Gardens, LLC v. Alexander, 2020 Ark. App. 239, 599 S.W.3d 363.

Northport filed a notice of appeal on December 23, 2020.3

       We review a circuit court’s denial of a motion to compel arbitration de novo on the

record. Progressive Eldercare Servs. - Morrilton, Inc. v. Taylor, 2021 Ark. App. 379. While we are

       3
       An order denying a motion to compel arbitration is immediately appealable pursuant
Rule 12(a)(2) of the Arkansas Rules of Appellate Procedure–Civil (2019).

                                                4
not bound by the circuit court’s decision, in the absence of a showing that the circuit court

erred in its interpretation of the law, we will accept its decision as correct on appeal. Id.

       Arbitration agreements are governed by the Federal Arbitration Act (“FAA”), 9

U.S.C. §§ 1–16; however, we look to state contract law to decide whether an agreement to

arbitrate is valid. Robinson Nursing & Rehab. Ctr., LLC v. Phillips, 2019 Ark. 305, at 5, 586

S.W.3d 624, at 629. In deciding whether to grant a motion to compel arbitration, two

threshold questions must be answered: (1) whether a valid agreement to arbitrate between

the parties exists and, (2) if such an agreement exists, whether the dispute falls within its

scope. Id. The same rules of construction and interpretation apply to arbitration agreements

as apply to agreements in general. Id. We have held that, as with other types of contracts, the

essential elements for an enforceable arbitration agreement are (1) competent parties, (2)

subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. Id.

at 6, 444 S.W.3d at 629–30. Northport, as the proponent of the arbitration agreement, has

the burden of proving these essential elements. Id.

       Mutuality of contract means 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 is bound unless both are bound.” Id. at 14, 586 S.W.3d at 633–34. There is

no mutuality of obligation when one party uses an arbitration agreement to shield itself from

litigation, while reserving to itself the ability to pursue relief through the court system. Id.

Thus, under Arkansas law, mutuality requires that the terms of the agreement impose real

liability upon both parties. Id.

                                                5
       In this case, Northport argues that the circuit court erred “in applying a bright line

rule that arbitration agreements containing monetary thresholds are per se invalid instead of

determining whether mutuality of obligations is satisfied” in the arbitration agreement in

this case. Northport contends that had the circuit court properly applied the standard set

forth in Jorja Trading, Inc. v. Willis, 2020 Ark. 133, 598 S.W.3d 1, the arbitration agreement

in this case would establish mutuality of obligations based on ordinary contract principles.

Northpoint suggests that all parties are clearly and unequivocally required to submit any

disputes to arbitration where the amount in controversy is more than $25,000, and all parties

are able to pursue disputes involving an amount in controversy less than $25,000 by any legal

means, including by lawsuit or other legal process. Northport states that pursuant to Jorja

Trading, it would be a violation of the FAA to speculate as to whether one party to the

agreement would receive a greater benefit than another so as to invalidate the agreement.

       Jorja Trading involved an installment-sales contract for the purchase of a vehicle that

contained an arbitration provision. When the purchasers failed to pay, they also surrendered

the vehicle. The car was sold and the purchasers were credited, but a balance remained on

their account. Jorja Trading filed a complaint in the small-claims division of district court

seeking to recover the remaining balance, and the district court entered a judgment in its

favor. The purchasers appealed the district court decision to the circuit court and

counterclaimed, alleging usury and UCC violations; they also sought class certification. Jorja

Trading filed a motion to compel arbitration, which was denied based on lack of mutuality

of obligations in three areas—it reserved the right of both parties to seek self-help remedies,

                                              6
it provided that both parties waive class action-action lawsuits, and it allowed Jorja Trading

to reject the purchasers’ selection of an arbitrator. This court affirmed the denial of the

motion to compel, but the supreme court reversed on a petition for review.

       The supreme court stated that although both parties agreed to arbitrate any disputes

that could not be resolved in small-claims court and agreed on the requirements of

arbitration should it occur, the circuit court found that the three provisions within the

agreement destroyed mutuality because it could not conceive of scenarios in which the

provisions applied bilaterally. The supreme court disagreed, stating that it “has not required

that every provision within a contract be bilateral. We therefore cannot require that every

provision in an arbitration agreement be bilateral without violating the FAA because doing

so would hold arbitration agreements to a more stringent analysis than other contracts.” Jorja

Trading, 2020 Ark. 133, at 5, 598 S.W.3d at 6. Recognizing that both parties had bound

themselves to arbitrate, the supreme court addressed each of the three provisions and

concluded that none destroyed mutuality. The court stated that under Arkansas contract

law, mutuality of obligations “does not require a precisely even exchange of identical rights

and obligations between the contracting parties.” Id. Ultimately, the court concluded that

none of the three provisions destroyed mutuality of obligations.

       Northport urges that we change our analysis used in prior nursing-home cases in light

of Jorja Trading. However, one week after the supreme court handed down its decision in

Jorja Trading, this court addressed the mutuality-of-obligations element in an arbitration

clause related to a nursing home admission agreement. See Country Club Gardens, LLC v.

                                              7
Alexander, 2020 Ark. App. 239, 599 S.W.3d 363 (petition for review denied). In Alexander,

Lake Hamilton Health appealed the denial of its motion to compel arbitration based on lack

of mutuality of obligations. Lake Hamilton Health argued that the arbitration agreement

satisfied the element of mutual obligations because both parties were able to submit any

dispute to arbitration when the amount in controversy was greater than $30,000 and were

able to pursue amounts less than $30,000 by a lawsuit or any other legal process. In affirming

the denial, we relied on Hickory Heights Health & Rehab, LLC v. Adams, 2018 Ark. App. 560,

566 S.W.3d 134, a case in which the same argument was raised. In Adams, we held:

       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. Our supreme
       court has held that such arbitration agreements lack mutuality. See Reg’l Care [of
       Jacksonville, LLLC v. Henry], 2014 Ark. 361, 444 S.W.3d 356; E-Z Cash [Advance Inc.
       v. Harris], 347 Ark. 132, 60 S.W.3d 436 [2001]. Accordingly, it is not a valid and
       enforceable arbitration agreement.

Adams, 2018 Ark. App. 560, at 7, 566 S.W.3d at 138 (affirming the denial of the motion to

compel arbitration).

       We further noted in Alexander that our supreme court in Phillips, supra, addressed the

question of whether the arbitration agreements containing the same language as those in

Adams lacked mutuality of obligations. The supreme court rejected the nursing home’s

argument that the monetary threshold applies equally to the parties. Citing this court’s

decision in Adams with approval, the supreme court in Phillips concluded that the arbitration

                                                8
agreements containing the $30,000 limitation lack mutuality of obligations. The supreme

court explained:

       As in Adams, we believe that the arbitration agreements here serve to shield Robinson
       from defending itself in the court system against the majority of potential claims by
       residents, while reserving its right to utilize the court system for its likely claims.
       Accordingly, these arbitration agreements are not valid or enforceable, and the circuit
       court correctly denied the motions to compel as to these agreements.

Phillips, 2019 Ark. 305, at 16–17, 586 S.W.3d at 635.

       As a result of the supreme court’s holding in Phillips that cited our decision in Adams

with approval, this court affirmed the denial of the of the nursing home’s motion to compel

arbitration in Alexander, holding that the arbitration agreement lacked mutuality of

obligations, was invalid, and was unenforceable. Moreover, in Alexander, we recognized the

supreme court’s decision in Jorja Trading, which had been handed down one week earlier,

noting:

                Last week, our supreme court handed down an opinion that addressed the
       mutuality-of-obligations element in the context of an arbitration clause within an
       installment-sales contract. Jorja Trading, Inc. v. Willis, 2020 Ark. 133, [598 S.W.3d 1].
       There, the supreme court reversed and remanded the circuit court’s order denying
       the appellant’s motion to compel, holding that the installment-sales contract satisfied
       the element of mutuality of obligations. We note that the arbitration clauses at issue
       in Jorja Trading (self-help, class-action waiver, and arbitrator selection) are not the same
       as the provisions in question within the arbitration agreement in the case at bar.
       Further, as set forth above, the supreme court’s holding in Phillips, on which we rely,
       is directly on point and was not overruled in Jorja Trading.

Alexander, 2020 Ark. App. 239, at 7 n.2, 599 S.W.3d at 367 n.2.

       Northport argues that pursuant to Jorja Trading, the reasoning of Adams, Phillips, and

Alexander is not controlling. Although acknowledging that the Jorja Trading decision did not

                                                9
expressly overrule Phillips, Northport contends that the reasoning applied in those cases

cannot be reconciled, and the opinions in those cases did not apply the reasoning in Jorja

Trading. Northport further states that the circuit court looked beyond the language of the

agreements and made assumptions as to the value and likelihood of potential claims by the

parties, which violates the FAA and is preempted by the FAA.

       We obviously cannot ignore the fact that our supreme court in Jorja Trading did not

overrule its decision in Phillips. Northport essentially asks this court to overrule the supreme

court’s decision in Phillips; however, we must follow the precedent set by the supreme court

and are powerless to overrule its decisions. See, e.g., Rice v. Ragsdale, 104 Ark. App. 364, 292

S.W.3d 856 (2009).

       Northport further argues that there is mutuality of obligations even using the

standard set forth in Adams, Phillips, and Alexander. It argues that the agreement in those

cases prevented a resident’s debt from accumulating to greater than $30,000, and no such

language exists in the present case. Northport states that if a resident’s debt accumulates to

greater than $25,000, it is bound to arbitrate any action for recovery. Northport also suggests

that there are other scenarios in which the nursing home could have a dispute against a

resident that could be in excess of the threshold amount, “such as a cause of action for

property damage.” Northport distinguishes the arbitration agreement at issue from those in

Adams, Phillips, and Alexander, stating that the arbitration provision is part of the larger

admission agreement as opposed to a separate contract and involves a lower threshold

amount of $25,000.

                                              10
       These distinctions, however, do not alter the underlying basis of the decisions in those

cases. Each of those decisions hinged on the fact that the monetary threshold value serves to

shield the nursing home from “defending itself in the court system against the majority of

potential claims by residents, while reserving its rights to utilize the court system for its likely

claims.” Phillips, 2019 Ark. 305, at 16−17, 586 S.W.3d at 635. The $5000 difference does not

change the reasoning that the bulk of the residents’ claims would likely exceed this amount,

while the bulk of the nursing home’s claims would likely fall under this amount. The

argument that the nursing home might have a claim in excess of the threshold limit has been

addressed and rejected. In Phillips, the nursing home argued that the resident could

potentially have a claim against a resident greater than $30,000 aside from the daily room

rate, such as in cases involving private nursing or special equipment. It also argued that there

were situations in which the resident could potentially have a claim that would not be subject

to arbitration, such as in the case of a property loss. Phillips, 2019 Ark. 305, at 15–16, 586

S.W.3d at 634. The nursing home in Alexander made a similar argument that there were

situations in which the nursing home could have a claim against a resident that has a value

in excess of $30,000 (i.e., a billing dispute), and a resident could have a claim against the

nursing home that has a value less than $30,000 (i.e., a personal-injury claim, a billing

dispute, or a claim for lost or stolen property). This court rejected the argument,

acknowledging that a similar argument had been rejected in Adams.

       In light of our supreme court’s decision in Phillips, we hold that the arbitration

agreement in the present case is invalid and unenforceable because it lacks mutuality of

                                                11
obligations. Therefore, we hold that the circuit court did not err in denying Northport’s

motion to compel arbitration.

       Affirmed.

       VIRDEN and BARRETT, JJ., agree.

       Hardin, Jesson & Terry, PLC, by: Jeffrey W. Hatfield, Kynda Almefty, Carol Ricketts, and

Kirkman T. Dougherty, for appellants.

       Grayson & Grayson, P.A., by: Keith L. Grayson and Melanie L. Grayson; and Law Office

of Craig L. Cook, by: Craig L. Cook, for appellee.

                                               12