Court Opinion

ID: 6331429
Source: CourtListenerOpinion
Date Created: 2022-04-14 10:01:53.747986+00
Date Added: 2024-06-11T09:23:11.060315
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

JOAN DONOFRIO,                          )
                                        )
                 Plaintiff,             ) C.A. No. N21C-07-122 MAA
                                        )
            v.                          )
                                        )
PENINSULA HEALTHCARE                    )
SERVICES, LLC, a Delaware Limited       )
Liability Company, ONIX GROUP,          )
LLC, a Delaware Limited Liability       )
Company, and LONG TERM CARE             )
CORP., a Delaware Corporation,          )
                                        )
                 Defendants.            )

                               Submitted: March 4, 2022
                                Decided: April 8, 2022

  Upon Defendants’ Motion to Dismiss Plaintiff's Complaint Pursuant to Delaware
                       Superior Court Civil Rule 12(b)(1)
                              GRANTED in part.

                              MEMORANDUM OPINION

Benjamin A. Schwartz, Esquire (Argued), of SCHWARTZ AND SCHWARTZ, Dover,
Delaware, Attorney for Plaintiff.

Maria R. Granaudo Gesty, Esquire, of BURNS WHITE LLC, Wilmington, Delaware
(Argued), Attorney for Defendants.

Adams, J.
         Plaintiff Joan Donofrio (“Plaintiff”) brought a medical malpractice action

against Defendants Peninsula Healthcare Services, LLC, Onix Group, LLC, and

Long Term Care Corp. (collectively, “Defendants”) for injuries sustained at

Defendants’ long-term care facility. Defendants moved to dismiss under Superior

Court Civil Rule 12(b)(1) for lack of subject matter jurisdiction pursuant to an

agreement to arbitrate. Plaintiff contends that the arbitration agreement is invalid

and unenforceable.

         For the reasons stated below, the Court holds there is a valid and enforceable

arbitration agreement covering Plaintiff’s claims. The Court, therefore, stays the

case pending the outcome of arbitration.

                                  II. BACKGROUND

    A.      Relevant Facts

         Plaintiff was admitted to Cadia Rehabilitation Renaissance (the “Facility”) on

November 30, 2019 for physical therapy from a hip fracture. The Facility is owned

and operated by Defendants.

         Upon admission to the facility, Plaintiff’s daughter, Chris Johnson,

accompanied her. The Facility presented Plaintiff with admission documents.

Plaintiff signed above the “Resident” line, and Chris signed above the “Responsible

Party” line.1

1
         Pl.’s Resp. Br. Ex. A.

                                            2
      Two days later, on December 2, 2019, the Facility presented Plaintiff with

additional admission documents.      These documents included the “Receipt of

Admission Documentation        Acknowledgement       Form,”2    “Authorization    for

Services,”3 “Consent for Treatment,”4 “Advance Directives,”5 “Authorization for

Release,”6 and a “Binding Arbitration Agreement”7 (the “Agreement”). Plaintiff

signed each document. Plaintiff’s Resident Sheet and Advanced Directives form

indicated that Plaintiff was her own responsible party and that she did not have a

power of attorney for healthcare.8 Plaintiff’s counsel confirmed at the Motion to

Dismiss hearing on February 1, 2022 that Plaintiff did not have a power of attorney

when she signed the Agreement.9

      The Agreement provides, in part:

      ANY,       DISPUTE,        DISAGREEMENT,             CONTROVERSY,
      DEMAND, OR CLAIM, INCLUDING BUT NOT LIMITED TO,
      LEGAL CLAIMS, arising between them regarding any service or
      health care provided to Resident by Facility, even if such dispute arises
      after the Resident’s stay at the Facility has ended shall be submitted to
      BINDING ARBITRATION and EXCLUSIVELY RESOLVED BY
      ARBITRATION, except as otherwise set forth below.10

2
      Defs.’ Br. Ex. B.
3
      Defs.’ Br. Ex. E.
4
      Defs.’ Br. Ex. F.
5
      Defs.’ Br. Ex. G.
6
      Defs.’ Br. Ex. I.
7
      Defs.’ Br. Ex. A.
8
      Defs.’ Br. Ex. D, G.
9
      Transcript of Oral Argument at 41:7-11.
10
      Defs.’ Br. Ex. A.

                                         3
          On December 10, 2019, Plaintiff fell and sustained injuries at the Facility.

Plaintiff then brought a medical negligence action against Defendants for those

injuries.

     B.      Procedural Posture

          Plaintiff commenced this action by filing a Complaint against Defendants on

July 16, 2021. Defendants filed their Answer on September 13, 2021 and included

as an affirmative defense that the Court lacked subject matter jurisdiction pursuant

to a valid and enforceable arbitration agreement. Defendants also moved for review

of Plaintiff’s Affidavit of Merit to determine whether it complied with 18 Del. C. §

6853.

          On September 20, 2021, Defendants filed a Motion to Dismiss pursuant to

Superior Court Civil Rule 12(b)(1) for lack of subject matter jurisdiction.

Defendants filed their brief in support of the motion on October 28, 2021. Plaintiff

filed their opposition to the Motion to Dismiss on November 29, 2021. The Court

heard oral argument on the motion on February 2, 2022.11

11
       On March 4, 2022, Plaintiff filed a letter addressing the recently enacted
Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.
Plaintiff argued that the new law conflicts with the federal presumption in favor of
arbitration. The new law, however, is irrelevant to the case at bar because the case
does not involve allegations of sexual assault or sexual harassment. The federal law
also does not impact Delaware’s history of public policy favoring arbitration. See
D.I. 29.

                                            4
                          IV. STANDARD OF REVIEW

      Pursuant to Superior Court Civil Rule 12(b)(1), the Court must dismiss an

action if it appears from the record that the Court does not have jurisdiction over the

claims.12 The burden of establishing the Court’s subject matter jurisdiction rests

with the party seeking the Court’s intervention.13 In reviewing a motion to dismiss

for lack of subject matter jurisdiction, the Court may consider documents outside of

the pleadings14 and “need not accept Plaintiff’s factual allegations as true.”15

      Delaware courts lack subject matter jurisdiction over claims the parties

contractually agreed to arbitrate.16 Although this Court cannot compel arbitration,

the Court can determine whether an enforceable arbitration agreement exists for

12
      Super. Ct. Civil R. 12(b)(1).
13
      Sun Life Assurance Co. of Canada - U.S. Operations Hldgs., Inc. v. Gp. One
Thousand One, LLC, 206 A.3d 261, 265 (Del. Super. 2019) (citing Appriva
Shareholder Litigation Co., LLC v. EV3, Inc., 937 A.2d 1275, 1284 n.14 (Del.
2007)).
14
      Dewey v. Amazon.com, Inc., 2019 WL 3384769, at *2 (Del. Super. July 25,
2019) (citing NAMA Hldgs., LLC v. Related World Market Center, LLC, 922 A.2d
417, 429 n. 15 (Del. Ch. 2007)).
15
      Appriva Shareholder Litigation Co., LLC v. EV3, Inc., 937 A.2d 1275, 1285
n.14 (Del. 2007) (quoting Philips v. County of Bucks, 1999 WL 600541, at *1 (E.D.
Pa. Aug. 9, 1999) (“Unlike the standards employed in Rule 12(b)(6) analysis, the
guidelines for the Court’s review of a Rule 12(b)(1) motion are far more demanding
of the non-movant. The burden is on the Plaintiffs to prove jurisdiction exists.
Further, the Court need not accept Plaintiffs factual allegations as true and is free to
consider facts not alleged in the complaint.”)).
16
      West IP Commc’ns, Inc. v. Xactly Corp., 2014 WL 3032270, at *5 (citing
Aquila of Del., Inc. v. Wilmington Trust Co., 2011 WL 4908406, at *1 (Del. Super.
Oct. 10, 2011) (internal quotations omitted)).

                                           5
purposes of subject matter jurisdiction.17 Delaware’s public policy has a strong

presumption in favor of arbitration.18 This policy aligns with federal policy favoring

arbitration as evinced in the Federal Arbitration Act (“FAA”). Accordingly, any

doubt as to arbitrability should be resolved in favor of arbitration.19

                                  V. DISCUSSION

      To resolve Defendants’ motion to dismiss, the Court must engage in a three-

step inquiry. First, the Court must determine whether this Court or an arbitrator

should decide substantive arbitrability.20 Second, the Court must determine whether

a valid and enforceable arbitration agreement exists.21 Finally, the Court must

determine whether Plaintiff’s claim falls within the scope of the arbitration

agreement.22

17
       Jones v. 810 Broom St. Operations, 2014 WL 1347746, at *1 (Del. Super.
June 25, 2014).
18
       Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396 (Del.
2010) (citing SBC Interactive, Inc. v. Corporate Media Partners, 714 A.2d 758, 761
(Del. 1998); NAMA Hldgs., 922 A.2d at 429 (“[T]he strong public policy in favor of
arbitration embodied in federal law is given equal respect in this State…”); Dewey,
2019 WL 3384769, at *3 (“The FAA evinces a strong federal policy favoring
enforcement of arbitration agreement.”).
19
       Parfi Hldg. AB v. Mirror Image Internet, Inc., 817 A.2d 149, 156 (Del. 2002).
20
       GTSI Corp. v. Eyak Tech., LLC, 10 A.3d 1116, 1119 (Del. Ch. 2010).
21
       Parfi, 817 A.2d at 155.
22
       Id.

                                           6
     A.     The Court Decides Substantive Arbitrability.

          As a threshold matter, the Court must determine whether substantive

arbitrability should be decided by the Court or an arbitrator.23 “The question of

whether the parties agreed to arbitrate is generally one for the courts to decide and

not for the arbitrators.”24 It is presumed that substantive arbitrability is an issue for

judicial determination unless there is “clear and unmistakable evidence” to the

contrary.25

          The “clear and unmistakable” standard can be satisfied by an express

provision that substantive arbitrability will be determined by an arbitrator.26 Absent

such an express provision, the Supreme Court of Delaware in James & Jackson, LLC

v. Willie Gary, LLC27 articulated a two-pronged test for determining whether the

“clear and unmistakable” standard is satisfied: 1) a statement that generally refers

all disputes to arbitration; and 2) a reference to a set of rules, such as the American

Arbitration Association (“AAA”), that would empower arbitrators to decide

arbitrability.28

23
       West IP Commc’ns, Inc., 2014 WL 3032270, at *6.
24
       DMS Properties-First, Inc. v. P.W. Scott Assocs., Inc., 748 A.2d 389, 392
(Del. 2000).
25
       James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 79 (Del. 2006)
(quoting First Options Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
26
       GTSI Corp., 10 A.3d at 1119.
27
       906 a.2D 76 (Del. 2006).
28
       Julian v. Julian, 2009 WL 2937121, at *5 (Del. Ch. 2009).

                                           7
      Here, the first prong is met because the Agreement generally refers all

disputes to arbitration. The Agreement states that “any dispute, disagreement,

controversy, demand, or claim, including but not limited to legal claims, arising

between them regarding any service or health care provided…shall be submitted to

binding arbitration and exclusively resolved by arbitration.” Delaware courts have

found similar language to satisfy the first prong of the Willie Gary test.29

      The second prong, however, is not met. The Agreement does not reference

any rules empowering an arbitrator to decide arbitrability.          The Agreement,

therefore, does not meet the Willie Gary test, and this Court may determine

substantive arbitrability.30

29
        See Legenda Natural Gas II Hldgs., LP v. Hargis, 2012 WL 4481303, at *5
(Del. Ch. Sept. 28, 2012) (“Here, the language ‘any dispute, controversy or claim
arising out of or relating to this [Employment] Agreement’ generally refers all
disputes to arbitration.”); Orix LF, LP v. Inscap Asset Mgmt., LLC, 2010 WL
1463404, at *7 (Del. Ch. Apr. 13, 2010) (“Delaware courts have found the use of
both ‘arising out of’ and ‘relating to’ language in an arbitration provision to be a
broad mandate.”).
30
        Though Delaware courts have expanded the Willie Gary test to include a third
prong, it is inapplicable here. The third prong requires the Court to determine
whether a non-frivolous argument in favor of substantive arbitrability exists. If the
first two prongs are satisfied and there is a non-frivolous argument for substantive
arbitrability, the Court must defer to the arbitrator. If, however, there are no non-
frivolous arguments, even if the first two prongs are satisfied, the Court may
determine substantive arbitrability. Riley v. Brocade Commc’ns Sys., Inc., 2014 WL
1813285, at *1 (Del. Ch. May 6, 2014). The Court here finds that the Agreement
does not satisfy the one of the initial prongs of the Willie Gary test. Thus, the Court
will not address the third prong.

                                           8
     B.      There is a Valid and Enforceable Arbitration Agreement.31

          The Agreement provides that the Federal Arbitration Act (“FAA”) governs.32

The FAA states that “[a] written provision…to settle by arbitration a controversy…

shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law

or in equity for the revocation of any contract.”33 Under the FAA, courts apply

ordinary state-law principles governing contract formation when determining

whether a valid arbitration agreement exists.34       Arbitration is a “creature of

contract”35 and a party “cannot be forced arbitrate a claim absent a contractual or

equitable duty to do so.”36 As the party seeking to enforce an arbitration agreement,

Defendants have the burden of establishing a valid arbitration agreement.37

31
       This Court has recently upheld an identical arbitration agreement in Skinner
v. Peninsula Healthcare Services, LLC, 2021 WL 77824, at *3 (Del. Super. Mar. 1,
2021). Though Skinner was a wrongful death claim, the Court specifically addressed
the threshold matter of whether “a valid binding arbitration agreement exists.” The
court held that the arbitration agreement, identical to the one here, was enforceable.
32
       Defs.’ Br. Ex. B.
33
       9 U.S.C. § 2.
34
       Skinner, 2021 WL 778324, at *3 (citing First Options Chi., 514 U.S. at 944);
see also AffiniPay, LLC v. West, 2021 WL 4262225, at *5 (Del. Ch. Sept. 17, 2021).
35
       Aquila of Del., Inc., 2011 WL 1487060, at *1.
36
       Behm v. Am. Intl. Group, Inc., 2013 WL 3981663, at *5 (Del. Super. July 30,
2013) (citing NAMA Hldgs., 922 A.2d at 430).
37
       Skinner, 2021 WL 778324, at *3 (citing First Options Chi., 514 U.S. 938).

                                           9
      i.     The Agreement is supported by consideration.

      Under Delaware law, a valid contract requires mutual assent to definite terms

supported by consideration.38 Courts determine mutual assent using an objective

standard based on overt manifestations of assent.39 “Where the putative contract is

in the form of a signed writing, that document generally offers the most powerful

and persuasive evidence of the parties’ intent to be bound.”40

      Here, Plaintiff contends that the Agreement fails for lack of consideration.

The Restatement (Second) of Contracts provides that the exchange of reciprocal

promises constitutes consideration.41 Consistent with that principle, courts have held

that mutual promises to arbitrate by both parties is sufficient consideration.42

      In the Agreement, both parties promise to arbitrate disputes. Specifically, the

Agreement states:

       “Cadia Healthcare Renaissance (“Facility”) and Joan Donofrio
      (“Resident”) understand and agree that ANY DISPUTE,
      DISAGREEMENT, CONTROVERSY, DEMAND, OR CLAIM,
      INCLUDING, BUT NOT LIMITED TO, LEGAL CLAIMS, arising
      between them regarding any service or health care provided to Resident
      by Facility…shall be submitted to BINDING ARBITRATION and
      EXCLUSIVELY RESOLVED BY ARBITRATION, except as

38
       Eagle Force Hldgs., LLC v. Campbell, 187 A.3d 1209, 1229 (Del. 2018).
39
       Id. at 1229-30.
40
       Eagle Force, 187 A.3d at 1230 (citing Seiler v. Levitz Furniture Co. E.
Region, 367 A.2d 999, 1005 (Del. 1976)).
41
       Restatement (Second) of Contracts § 71.
42
       Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002) (“When both
parties have agreed to be bound by arbitration, adequate consideration exists and the
arbitration agreement should be enforced.”).

                                          10
      otherwise set forth below. This Agreement does not apply to (a)
      collection actions instituted by the Facility, (b) Resident’s due process
      rights before state or federal regulatory or administrative agencies.”

The Agreement binds both parties to arbitration.         Thus, the mutual promises

exchanged constitutes sufficient consideration.

      Plaintiff contends that, although both parties agreed to arbitrate, Defendants

carved out an exception for themselves in the Agreement which functionally

unshackles them from binding arbitration.         Specifically, Plaintiff refers to the

language in the Agreement that provides, “[t]his Agreement does not apply to (a)

collection actions instituted by the Facility.” As a result of this exception, Plaintiff

claims there is only Plaintiff’s unilateral promise to arbitrate, not a mutual one.

      The Court disagrees. Though the Agreement provides an exception for the

Facility, the exception is a narrow one and compels the Facility to arbitration for all

claims other than a collection action.         Other courts interpreting arbitration

agreements have held that parties who agree to arbitrate may exclude certain claims,

such as collection actions, from the scope of the arbitration agreement.43 The

43
      See Riley v. Premier Healthcare Management, LLC, 255 A.3d 1282 (Pa.
Super. Ct. May 28, 2021) (TABLE) (holding that the exclusion of collection actions
from the arbitration agreement was permissible); Salley v. Option One Mortg. Corp.,
592 Pa. 323 (Pa. 2007) (“parties who agree to arbitrate some claims may exclude
others from the scope of the arbitration agreement.”).

                                          11
Agreement also provides an arbitration exception for the Plaintiff in the very next

clause.44

      Mutual promises do not require equal promises to constitute consideration.

Absent fraud or unconscionability, contract law does not inquire into consideration’s

value nor equivalency.45 Plaintiff here is not arguing fraud or unconscionability.

Consistent with Delaware’s public policy interest in contractual freedom, parties are

free to set and agree to their own terms. Thus, the Court holds that the Agreement

is supported by valid consideration by exchanging reciprocal promises.

      ii.    Plaintiff possessed capacity when she executed the Agreement.

      Plaintiff also claims that she does not recall signing the admission documents.

Plaintiff does not deny that she signed the Agreement, nor does Plaintiff contest the

authenticity of her signature. Rather, Plaintiff claims incapacity. Plaintiff alleges

that because she was on painkillers when she signed the Agreement, she was unable

to understand the significance of the document.

44
       Defs.’ Br. Ex. A. “This Agreement does not apply to (a) collection actions
instituted by the Facility, (b) Resident’s due process rights before state or federal
regulatory or administrative agencies.”
45
       Restatement (Second) of Contracts §79.

                                         12
      Under Delaware law, adults are presumed to possess capacity.46 The party

alleging incapacity bears the burden of proving otherwise.47 To prove incapacity,

Plaintiff must prove that she was unable to understand in a reasonable manner the

nature and consequences of the transaction, or that she was unable to act in a

reasonable manner in relation to the transaction and the other party had reason to

know of this condition.48 “A party’s capacity to enter into a contract is often best

judged by the observations and impressions of parties who witnessed the

complaining party’s actions.”49

      To prove incapacity, Plaintiff claims that she was “on strong painkillers…on

the day in question.”50 Plaintiff did not identify the painkillers nor their effects that

would render Plaintiff incapacitated. Defendants’ Reply Brief clarifies that Plaintiff

was administered Tramadol HCl 50mg pain medication on December 2, 2019.51

Defendants also assert that Plaintiff was not adjudicated incompetent prior to signing

the Agreement, Plaintiff signed several other important documents that day, and

Defendants’ medical observation notes on the day in question indicate that Plaintiff

46
      Bettis v. Premier Pool & Property Mgmt., LLC, 2012 WL 4662225, at *2 (Del.
Ch. Sept. 26, 2012) (quoting McAllister v. Schettler, 521 A.2d 617, 621 (Del. Ch.
1986).
47
      Id.
48
      Barrows v. Bowen, 1994 WL 198724, at *4 (Del. Ch. 1995).
49
      Donelson v. Colonial Parking, Inc., 2014 WL 4102482, at *2 (Del. Super.
July 23, 2014).
50
      Pl.’s Resp. Br. 14.
51
      Defs.’ Reply 7.

                                           13
was “alert and oriented x3” throughout that day, including after she received the pain

medication.52 Plaintiff’s counsel stated at the hearing on the Motion that he was

unaware of any medical side effects of Tramadol that would render a patient unable

to understand a document.53 Plaintiff, therefore, has not met her burden of proving

incapacity.

      iii.    Plaintiff possessed authority when she executed the Agreement.

      Plaintiff also attempts to nullify the Agreement by arguing that Plaintiff

lacked authority to execute contracts on her behalf. Plaintiff claims that Defendants

had “actual knowledge” that Plaintiff “relied heavily on the assistance of her

daughter in reviewing important documentation” and “accepted that [her daughter]

was acting as her mother’s Power of Attorney.”54

      The Court finds that Plaintiff did not have a power of attorney and was her

own responsible party. Thus, Plaintiff possessed authority to execute the Agreement

on her behalf. On Plaintiff’s “Advance Directives” sheet, executed on December 2,

2019, “none” is written over the space indicating whether Plaintiff had a power of

attorney or guardian.55 Plaintiff also executed other admission documents on her

own behalf, including the “Receipt of Admission Documentation Acknowledgement

52
      See Defs.’ Reply Ex. C.
53
      Transcript of Oral Argument at 32:7-10.
54
      Pl.’s Resp. 14.
55
      Defs.’ Br. Ex. G. Plaintiff’s resident sheet also indicates that Plaintiff is her
own responsible party. Defs.’ Br. Ex. D.

                                          14
Form,” “Authorization for Services,” “Consent for Treatment,” “Advanced

Directives” and others.56 Plaintiff’s counsel confirmed at the hearing on the Motion

that Plaintiff did not have a power of attorney.57

     C.        The Arbitration Agreement Covers Plaintiff’s claims.

          The scope of the Agreement covers Plaintiff’s claims. The Agreement states

that “any dispute…arising between [the Facility and Plaintiff] regarding any service

or health care provided to Resident by Facility…shall be submitted to binding

arbitration and exclusively resolved by arbitration.”58 Plaintiff’s claims are for

injuries and alleged negligence arising from care received at the Facility. Plaintiff’s

claims, therefore, fall within the scope of the Agreement.

     D.        Plaintiff’s Remaining Contentions.

          Lastly, Plaintiff attempts to void the Agreement by alleging it violates federal

regulation 42 C.F.R. § 483.70(n) and that Defendants waived their right to enforce

arbitration by actively participating in this litigation.

          i.     Noncompliance with 42 C.F.R. § 483.70 does not render the
                 Agreement unenforceable.

          Plaintiff claims the Agreement fails to comply with federal regulation 42

C.F.R. § 483.70 for nursing and long term-care facilities. The regulation provides

56
     Defs.’ Br. Ex. B, E, F, G, I.
57
     Transcript of Oral Argument at 41:7-11 (“I don’t think that [Plaintiff] had her
power of attorney.”).
58
     Defs.’ Br. Ex. A.

                                             15
certain requirements that nursing and long-term care facilities must comply with to

participate in Medicare and Medicaid. Plaintiff claims that because the Agreement

violates provisions in 42 C.F.R. § 483.70(n) governing arbitration agreements, the

Agreement is void.

      Courts interpreting this regulation have made clear that violations of 42 C.F.R.

§ 483.70(n) do not void an otherwise valid agreement. The regulation concerns the

eligibility of nursing facilities to receive Medicare and Medicaid funding. It does

not excuse a party from a contractual obligation, create a private cause of action or

standard of care, nor concern enforcement of private contractual disputes.59 Failure

to comply with the regulation does not render an arbitration agreement

unenforceable.60 Rather, it impacts the facility’s eligibility for federal subsidies.61

59
       BLC Lexington SNF, LLC v. Craig, 2020 WL 4721240, at *9 (E.D. Ky. Aug.
13, 2020) (“Even if the regulation was in effect at the time, it is not clear that
excusing a private party from a contractual obligation is the appropriate remedy; the
regulation relates ontly to eligibility for federal funding.”); Riley, 2021 WL
2287464, at *9; Fansler v. North American Title Insurance Co., 2020 WL 5793750,
at *3 (Del. Super. Sept. 29, 2020); Frantz v. HCR Manor Care Inc., 64 Pa. D. &
C.4th 457, 467-68 (2003).
60
       Northport Health Servs. of Arkansas, LLC v. U.S. Dept. of Health and Human
Servs., 438 F.Supp.3d 956, 966-67 (W.D. Ark.) (“Thus, if the failure to comply with
the procedural requirements in [42 C.F.R. § 483.70(n)] were a basis for holding an
agreement to arbitrate invalid and unenforceable, the Rule would indeed conflict
with the FAA.”).
61
       Id.

                                           16
      The regulation is enforced through administrative remedies, such as denial of

payment or monetary penalties, not by voiding an otherwise valid contract.62 Thus,

if a facility entered into an arbitration agreement in violation of the regulation, the

agreement would still be enforceable, “absent a showing of generally applicable

contract defenses” as stated in 9 U.S.C. § 2 of the FAA.63

      The Court, therefore, does not need to address Plaintiff’s arguments regarding

42 C.F.R. § 483.70(n) violations because, even if the Agreement violated certain

provisions within the regulation, such violations would not nullify the Agreement.

      ii.    Defendants did not waive their right to enforce the Agreement by
             “actively participating in litigation.”

      “A party may waive its right to arbitration by…actively participating in

litigation as to an arbitrable claim.”64 Given the strong public policy favoring

arbitration, “waiver is not to be lightly inferred.”65 A finding of waiver is meant to

prevent the “unfairness of allowing a party to litigate while keeping the arbitration

arrow in its quiver, only to unleash it when things begin to go badly.”66 Delaware

62
       Northport Health Servs. of Arkansas, LLC v. U.S. Dept. of Health and Human
Servs., 14 F.4th 856, 866 (8th Cir. 2021).
63
       Id.
64
       Parfi Hldg., 842 A.2d at 1260 n. 39.
65
       James Julian, Inc. v. Raytheon Service Co., 424 A.2d 665, 668 (Del. Ch.
1980).
66
       Margolis Edelstein v. Frontier Mining, et. al., C.A. No. 14C-01-217 JAP (Del.
Super. June 30, 2017).

                                          17
courts have found waiver where the party asserting arbitration engaged in litigation

for several months or years before invoking arbitration.67

          Here, Defendants have made no secret of their intent to arbitrate. Defendants

raised the arbitration agreement at the earliest opportunity – in their Answer. Even

prior to that, Defendants notified Plaintiff via e-mail of their intent to arbitrate

pursuant to the Agreement by making a demand for arbitration.68 Defendants shortly

thereafter filed their Motion to Dismiss for lack of subject matter jurisdiction.

Defendants maintain they have not engaged in any discovery that they would not be

entitled to once the matter is transferred to arbitration. The Court, therefore, finds

that Defendants did not waive arbitration.

     E.      The Court Stays the Case Pending the Outcome of Arbitration.

          Plaintiff requests that if the Court finds the Agreement valid, the Court stay

the case pending the outcome of arbitration. Defendants take no position on a stay.

The FAA provides that where there is an arbitration agreement and on application

of one of the parties, the court shall stay the action until arbitration has occurred.69

Given this provision from the FAA and Plaintiff’s request, the Court stays the case

pending arbitration.

67
      Id. See also Ballenger v. Applied Digital Solutions, Inc., 2002 WL 749162, at
*7 (Del. Ch. Apr. 24, 2002).
68
      Defs.’ Reply Ex. D.
69
      9 U.S.C. § 3.

                                            18
                              VI. CONCLUSION

     For the reasons stated above, the Court will stay the case pending the outcome

of arbitration. IT IS SO ORDERED.

                                       19