Court Opinion

ID: 902020
Source: CourtListenerOpinion
Date Created: 2013-06-13 01:09:35.665315+00
Date Added: 2024-06-11T12:37:25.376486
License: Public Domain

#25953-rev & rem-SLZ

2011 S.D. 95

                        IN THE SUPREME COURT
                                OF THE
                       STATE OF SOUTH DAKOTA

                                ****

LEWELLYN WRIGHT and DELLA
RICHARDS, SPECIAL CO-
ADMINISTRATORS OF THE
ESTATE OF KATHERINE G. WRIGHT,            Plaintiffs and Appellees,

     v.

GGNSC HOLDINGS LLC d/b/a GOLDEN
HORIZONS and GOLDEN LIVING,
GGNSC-RAPID CITY BLACK HILLS LLC,
d/b/a GOLDEN LIVING CENTER –
BLACK HILLS, SOUTH DAKOTA –
BEVERLY ENTERPRISES, INC.
d/b/a BEVERLY HEALTHCARE –
BLACK HILLS, BEVERLY ENTERPRISES, INC.,
JEFFERY L. GENGLER, FRANCES K.
FRANKE and JOHN DOES 1-10,
NAMES UNKNOWN AND ADDRESSES
UNKNOWN, and JOHN DOES 11-30,
NAMES UNKNOWN AND ADDRESSES
UNKNOWN,                                Defendants and Appellants.

                                ****

                 APPEAL FROM THE CIRCUIT COURT OF
                   THE SEVENTH JUDICIAL CIRCUIT
                 PENNINGTON COUNTY, SOUTH DAKOTA

                                ****

                   THE HONORABLE JANINE M. KERN
                              Judge

                                ****

                                          CONSIDERED ON BRIEFS
                                          ON NOVEMBER 14, 2011

                                          OPINION FILED 12/28/11
CAROL A. PAHLKE
Rapid City, South Dakota

and

KYLE J. LONG of
The Robert Pahlke Law Group
Scottsbluff, Nebraska         Attorneys for plaintiffs
                              and appellees.

JEANELLE R. LUST
KEVIN R. McMANAMAN of
Knudsen, Berkheimer,
 Richardson & Endacott, LLP
Lincoln, Nebraska             Attorneys for defendants
                              and appellants.
#25953

ZINTER, Justice

[¶1.]        The parties’ arbitration agreement provided that arbitration would

occur “in accordance with the National Arbitration Forum Code of Procedure,” but

the National Arbitration Forum (NAF) became unavailable to administer its Code

and the arbitration. Defendants-Appellants (collectively “GGNSC”) moved the

circuit court to appoint a substitute arbitrator under Section 5 of the Federal

Arbitration Act (FAA). The circuit court concluded that a substitute arbitrator

could not be appointed under Section 5 because the NAF Code of Procedure was

integral to the parties’ agreement to arbitrate and the NAF was unavailable to

administer its Code. Considering the language of the arbitration agreement, the

language of the NAF Code, and the federal policy expressed in the FAA, we reverse.

We hold that Section 5 applies, and that absent some other defense, Section 5

requires the appointment of a substitute arbitrator.

                            Facts and Procedural History

[¶2.]        In October 2004, Katherine Wright was admitted to a GGNSC nursing

home in Rapid City. Katherine’s husband, Lewellyn Wright, signed a Resident and

Facility Arbitration Agreement on Katherine’s behalf. Katherine transferred to

another nursing home, but returned to the GGNSC facility a few months later.

Upon her readmission, Lewellyn signed another Resident and Facility Arbitration

Agreement.

[¶3.]        The agreements were identical. In bold, capital letters, the

agreements (the “agreement”) provided:

             THE PARTIES UNDERSTAND AND AGREE THAT THIS
             CONTRACT CONTAINS A BINDING ARBITRATION

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             PROVISION WHICH MAY BE ENFORCED BY THE
             PARTIES, AND THAT BY ENTERING INTO THIS
             ARBITRATION AGREEMENT, THE PARTIES ARE
             GIVING UP AND WAIVING THEIR CONSTITUTIONAL
             RIGHT TO HAVE ANY CLAIM DECIDED IN A COURT OF
             LAW BEFORE A JUDGE AND A JURY, AS WELL AS ANY
             APPEAL FROM A DECISION OR AWARD OF DAMAGES.

In accordance with this provision, the agreement provided that all disputes

regarding Katherine’s care would be resolved “exclusively by binding arbitration . . .

and not by a lawsuit or resort to court process.” The agreement also provided that

the arbitration would occur “in accordance with the National Arbitration Forum

Code of Procedure.”1 To obtain the NAF Code of Procedure, a footnote informed the

reader to contact the NAF. The footnote provided: “Information about the National

Arbitration Forum, including a complete copy of the Code of Procedure, can be

1.    The arbitration agreement provided:

             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, which is hereby incorporated into this Agreement
             [footnote 1], 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.

      (Emphasis added.)

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obtained from the Forum . . . .” The footnote provided the NAF’s contact

information and website address.2

[¶4.]         Katherine died while in the nursing home. In April 2008, the special

co-administrators of Katherine’s estate, Della Richards and Lewellyn Wright

(collectively “Wright”), brought this action for wrongful death in circuit court.

GGNSC moved to compel arbitration. Wright objected and started discovery

regarding the authenticity of Lewellyn’s signatures on the arbitration agreement.

Almost two years later, Wright abandoned the invalid signature defense and began

discovery regarding Katherine’s competency and Lewellyn’s authority to enter into

the agreement.

[¶5.]         At some point before the arbitration motion was decided by the circuit

court, the Minnesota Attorney General filed suit against the NAF. The NAF

subsequently entered into a settlement in which it agreed to discontinue arbitrating

consumer disputes. Therefore, the NAF became unavailable to administer an

arbitration of this dispute.

2.      The arbitration agreement also contained a severance clause. The parties
        devote significant briefing to the fact that the severance clause provided that
        if any portion of the arbitration agreement was unenforceable, the remainder
        of the agreement would be effective. Reliance on severance-clauses in similar
        cases has subjected those cases to criticism. See, e.g., Stewart v. GGNSC-
        Canonsburg, L.P., 9 A.3d 215, 220 (Pa. Super. Ct. 2010) (criticizing Jones v.
        GGNSC Pierre LLC, 684 F. Supp. 2d 1161 (D.S.D. 2010), for relying on the
        arbitration agreement’s severance clause to require arbitration by a
        substitute arbitrator without first determining whether the provision
        designating the NAF was integral to the contract). We do not rest our
        opinion on the existence of a severance clause. In our view, the NAF Code
        and the other language of the arbitration agreement are sufficiently clear to
        decide the issue.

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[¶6.]        The circuit court conducted a day-long hearing on the motion to compel

arbitration. Six depositions, four live witnesses, and ninety-five exhibits were

submitted. The hearing related to Wright’s arguments that Lewellyn had no

authority to execute the arbitration agreement and that Katherine was not bound

by it. The unavailability of the NAF was not an issue. However, after briefing was

completed, the circuit court raised the unavailability of the NAF as a potential bar

to arbitration.

[¶7.]        Following further briefing on this new issue, the circuit court denied

GGNSC’s motion to compel arbitration because the NAF was no longer available.

GGNSC appeals the court’s order allowing the case to proceed in circuit court.

                                       Decision

[¶8.]        GGNSC argues that the NAF and its Code of Procedure were not

integral to the parties’ agreement to arbitrate, and therefore, Section 5 of the FAA

required the appointment of a substitute arbitrator. “[W]e review de novo the

circuit court’s interpretation of an arbitration agreement.” Masteller v. Champion

Home Builders, Co., 2006 S.D. 90, ¶ 9, 723 N.W.2d 561, 563.

[¶9.]        The parties agreed to arbitrate any dispute “arising out of, or in

connection with, or relating in any way to . . . any service or health care provided”

by GGNSC. Wright’s complaint involved a dispute about the service and health

care Katherine received. Such disputes were to be resolved “exclusively by binding

arbitration . . . and not by a lawsuit or resort to court process.” The boldface type in

the agreement informed the parties that the residential care agreement required

binding arbitration and that Wright was giving up the right to have “any claim

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decided in a court.” The words “arbitration” or “arbitrate” appeared eighteen times

in the agreement.

[¶10.]        But the agreement also provided that the arbitration was to occur “in

accordance with the National Arbitration Forum Code of Procedure.” Furthermore,

the NAF Code contained a rule that the Code could not be administered by any

entity other than the NAF, and the NAF was unavailable to perform its

administrative duties. Therefore, the question is whether Section 5 of the FAA

requires this dispute to be arbitrated by a substitute arbitrator when the NAF is

unable to administer its Code.

[¶11.]        There is no dispute the FAA applies. The agreement provided that it

was to be governed by and interpreted under the FAA. The FAA also governs

because the nursing home services were provided as a part of GGNSC’s business

operating in interstate commerce. See Prima Paint Corp. v. Flood & Conklin Mfg.

Co., 388 U.S. 395, 401-02, 87 S. Ct. 1801, 1804-05, 18 L. Ed. 2d 1270 (1967) (noting

that a contract evidencing a transaction in interstate commerce falls within the

provisions of the FAA). And because this agreement fell “within the scope and

coverage of the Federal Arbitration Act . . . [, it] must be enforced in state . . .

courts.” KPMG LLP v. Cocchi, 565 U.S. ___, 132 S. Ct. 23, ___ L. Ed. 2d ___ (2011).

[¶12.]        Section 5 of the FAA requires that upon request of a party, the court

shall appoint a substitute arbitrator when there is an agreement requiring

arbitration and for any reason there is a vacancy or lapse in the naming of an

arbitrator.

              If in the agreement provision be made for a method of naming or
              appointing an arbitrator or arbitrators or an umpire, such

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             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 filling 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 . . . .

9 U.S.C. § 5 (2010).

[¶13.]       GGNSC argues that Section 5 fills the gap created by the

unavailability of the NAF and requires the appointment of a substitute arbitrator.

Wright, however, emphasizes that the arbitration agreement required that the

arbitration occur in accordance with the National Arbitration Forum Code of

Procedure. Wright argues that Section 5 does not apply because the NAF Code of

Procedure was “integral” to the arbitration agreement and that Code cannot be

applied by a substitute arbitrator. Courts that have considered identical and

analogous arbitration agreements are divided on the issue.

[¶14.]       Courts applying Section 5 in similar circumstances have utilized two

approaches. Most cases apply the approach adopted by the Ninth and Eleventh

Circuit Courts of Appeals. Under that approach, if the designated forum becomes

unavailable, Section 5 requires the appointment of a substitute arbitrator unless

“the choice of forum is an integral part of the agreement to arbitrate” and not

merely an “‘ancillary logistical concern.’” Reddam v. KPMG LLP, 457 F.3d 1054,

1060 (9th Cir. 2006) (quoting Brown v. ITT Consumers Fin. Corp., 211 F.3d 1217,

1222 (11th Cir. 2000) (quoting Zechman v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 742 F. Supp. 1359, 1364 (N.D. Ill. 1990))). Stated conversely, a substitute

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arbitrator need not be appointed under Section 5 if “it is clear that the failed term is

not an ancillary logistical concern but rather is as important a consideration as the

agreement to arbitrate itself.” Zechman, 742 F. Supp. at 1364.3 Under the other

approach, courts look to whether designation of an arbitrator or arbitration forum is

tantamount to a forum selection clause.4 Because the parties here do not contend

that this agreement was tantamount to a forum selection clause, we apply the

“integral v. ancillary” approach.

[¶15.]         The circuit court analyzed the conflicting cases, including a number of

cases involving the unavailability of the NAF. The court concluded that designation

of the NAF’s Code was integral to the arbitration agreement for two reasons. First,

the court relied on cases finding an arbitral designation integral when the

agreement designated both the administrator and the applicable rules. See, e.g.,

Carr v. Gateway, Inc., 241 Ill. 2d 15, 944 N.E.2d 327 (2011). The circuit court

acknowledged that the Wright-GGNSC agreement only specified that the NAF Code

of Procedure was to govern the arbitration and did not expressly designate an NAF

arbitrator or an NAF-administered arbitration. But the court concluded that

3.       In re Salomon Inc. Shareholders’ Derivative Litigation, 68 F.3d 554 (2d Cir.
         1995), is an example of an arbitral forum designation that was as important a
         consideration as the agreement to arbitrate. That case involved a Wall Street
         securities dispute. The parties had designated the New York Stock Exchange
         as the arbitral forum to resolve such matters.

4.       The Second and Fifth Circuit Courts of Appeals note that exclusive
         designation of an arbitration administrator, or restricting application of the
         rules to a particular administrator, may be tantamount to a forum selection
         clause. See Salomon, 68 F.3d at 559; Nat’l Iranian Oil Co. v. Ashland Oil
         Inc., 817 F.2d 326 (5th Cir. 1987). In those cases, the particularized expertise
         of the designated arbitrator or the unique location of the arbitral forum was
         critical to the arbitration agreement. That is not our case.

                                            -7-
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express designation of the NAF Code of Procedure was an implicit selection of an

“NAF arbitrator.” The court further noted that Rule 1A of the NAF Code of

Procedure provided that the “Code shall be administered only by the National

Arbitration Forum.” And because the NAF was unavailable to administer its Code,

the court concluded that a non-NAF administered arbitration was not contemplated

by the parties’ agreement. Second, the court observed that under NAF Rule 47B,

costs and expenses were to be assessed against a party seeking resolution of the

underlying dispute through any “lawsuit, administrative proceeding, or other

action.” Because the court assumed that use of a substitute arbitrator would trigger

this penalty provision, the court again concluded that the parties’ agreement did not

contemplate a non-NAF administered arbitration. For both reasons, the circuit

court concluded that designation of the NAF’s Code was integral to the parties’

agreement to arbitrate and Section 5 of the FAA could not be applied.

[¶16.]       We arrive at the opposite conclusion for two reasons. First, “[t]he

Federal Arbitration Act reflects an ‘emphatic federal policy in favor of arbitral

dispute resolution.’” KPMG LLP, 565 U.S. at ___, 132 S. Ct. at 25 (quoting

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.

Ct. 3346, 3356, 87 L. Ed. 2d 444 (1985)). South Dakota has also “consistently

favored the resolution of disputes by arbitration. . . . It is an overriding policy that

arbitration will be favored, when provided for in a contract provision, as a means to

the resolution of disputes.” Thunderstik Lodge, Inc. v. Reuer, 1998 S.D. 110, ¶ 14,

585 N.W.2d 819, 822 (internal citations omitted); see also Rossi Fine Jewelers, Inc.

v. Gunderson, 2002 S.D. 82, ¶ 7, 648 N.W.2d 812, 814. For these reasons,

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“questions of arbitrability must be addressed with a healthy regard for the federal

policy favoring arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp.,

460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983). And under “[t]he

Arbitration Act . . . , as a matter of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration, whether the problem at

hand is the construction of the contract language itself or an allegation of waiver,

delay, or a like defense to arbitrability.” Id. at 24-25, 103 S. Ct. at 941.

[¶17.]       Second, we read the NAF Code differently than the circuit court. In

our view, the NAF Code did not require the appointment of an “NAF arbitrator.”

Further, the Code did not preclude a substitute arbitrator, in a non-NAF

administered arbitration, from using the same substantive law and procedural rules

as would have been applied under the NAF Code. Finally, we do not believe that

the penalty provision in the NAF Code was intended to apply when the NAF

became unavailable and a resolution of the dispute was sought through arbitration

by a substitute arbitrator.

[¶18.]       Under the NAF Code, an “NAF arbitrator” was not required. NAF

Code of Procedure Rules 2F and 21 governed the selection of arbitrators. Those

rules provided for the mutual selection of any arbitrator, and in the absence of an

agreed arbitrator, a selection process was specified. But the specified selection

process did not restrict who could act as an arbitrator (other than the arbitrator

could not be a director or officer of the NAF). Further, Wright has cited no

provision that required the appointment of an “NAF arbitrator.” On the contrary,

Wright notes that the question in this case is whether an “independent arbitrator”

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can apply NAF rules. We conclude the circuit court erred in determining the

arbitration agreement contemplated that only an “NAF arbitrator” could arbitrate

the parties’ dispute.

[¶19.]       We acknowledge that the NAF rules did provide that only the NAF

could “administer” its Code of Procedure. But we find that point of little

significance. A review of the NAF Code reflects that NAF administration involved

what is commonly provided by many arbitration services available today. See

generally Wilson v. Dell Fin. Servs., L.L.C., No. CIV.A. 5:09-CV-00483, 2010 WL

503093, at *2 (S.D.W. Va. Feb. 8, 2010) (identifying the NAF, the American

Arbitration Association (AAA), and the Judicial Arbitration and Mediation Services

(JAMS) as three general arbitration administrators); N.C. Gen. Stat. Ann. § 1-569.1

cmt. 1 (2011) (listing the AAA, JAMS, NAF, Center for Public Resources (CPR),

NASD Regulation, Inc., American Stock Exchange, New York Stock Exchange, and

International Chamber of Commerce as arbitration services). More importantly,

Wright has not identified any unique NAF administrative provision that would

have substantively affected the outcome of this arbitration. The NAF Code did not

require the application of any particular substantive law. It required that the

arbitrator apply the “applicable substantive law.”

[¶20.]       Procedurally, the NAF’s responsibility to administer its Code is of even

less significance. Wright concedes that the NAF Code of Procedure merely covered

“the topics of civil procedure that . . . public codes cover,” and it regulated “how to

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litigate the parties’ dispute.”5 In those circumstances, both Wright’s and GGNSC’s

authorities recognize that although a substitute arbitrator may not administer the

NAF Code, a competent substitute arbitrator can apply the NAF’s rules of

procedure that public codes cover. See Carr, 241 Ill. 2d at 31, 944 N.E.2d at 335

(“[I]t is possible in some cases for a substitute arbitrator to use the rules specified in

an arbitration agreement and where that is so, the mere designation of particular

rules to govern an arbitration will not prevent the naming of a substitute arbitrator

under [S]ection 5.” (citing Reddam, 457 F.3d at 1060; Brown, 211 F.3d at 1222;

Zechman, 742 F. Supp. at 1365)); see also Adler v. Dell Inc., No. 08-CV-13170, 2009

WL 4580739, at *5 (E.D. Mich. Dec. 3, 2009) (“The court instructs the parties to

confer and agree on an alternative arbitrator who will apply the rules of NAF under

its Code of Procedure, if possible.”); Levy v. Cain, Watters & Assocs., P.L.L.C., No.

2:09-CV-723, 2010 WL 271300, at *11 (S.D. Ohio Jan. 15, 2010) (ordering same).6

5.    This concession belies Wright’s later assertion that the Code of Procedure has
      numerous provisions that “substantively affect the rights of the parties.”

6.    We disagree with the circuit court and Wright’s contrary cases. See, e.g.,
      Stewart, 9 A.3d 215; Grant v. Magnolia Manor-Greenwood, Inc., 383 S.C. 125,
      678 S.E.2d 435 (2009). In Stewart, a Pennsylvania superior court examined
      an identical nursing home arbitration agreement and found its designation of
      the NAF Code integral to the agreement. 9 A.3d at 217. That court reasoned
      that the parties had agreed the arbitration proceedings would be conducted
      pursuant to the NAF Code, and under that Code “the arbitrators would be
      members of the NAF, who are the only people authorized to administ[er] and
      apply the NAF code.” Id. at 220. As previously discussed, we see no
      impediment to a substitute arbitrator applying the same substantive law and
      using common procedural rules like those found in the NAF Code.

      In Grant, the South Carolina Supreme Court considered an agreement
      requiring “binding arbitration administered by the National Health Lawyers
      Association.” 383 S.C. at 128, 678 S.E.2d at 437. That court found this
                                                         (continued . . .)
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[¶21.]       We conclude that designation of the NAF Code of Procedure did not

require an “NAF arbitrator”; a substitute arbitrator could apply common procedural

rules like those found in the NAF Code of Procedure and public domain; and a

substitute arbitrator would be required to apply the same substantive law.

Therefore, the parties’ contractual expectations regarding both the substantive and

procedural aspects of arbitration would not be frustrated by the appointment of a

substitute arbitrator.

[¶22.]       Wright and the circuit court, however, also relied on the penalty

provision in the NAF Code. The penalty applied if Wright commenced or pursued

resolution of the dispute by a “lawsuit, administrative proceeding, or other action.”

Some courts have concluded that the use of a substitute arbitrator constitutes

pursuit of a prohibited alternative action. When an arbitration forum’s code of

procedure penalizes such alternatives, those courts conclude that the penalty

provision reflects the parties’ intent that the designated arbitration forum was

integral to the agreement to arbitrate. See, e.g., Carr, 241 Ill. 2d at 32-33, 944

N.E.2d at 336-37 (interpreting a penalty provision that prohibited the parties from

resolving the dispute “in a forum other than [the] NAF”).

________________________
(. . . continued)
         designation integral because: the parties could not vary the “rules on
         communications, service, counting of days, publication and form of the award,
         release of documents, or administration”; the parties were “bound by a panel
         of arbitrators selected by the service”; and the designation of the American
         Health Lawyers Association “affect[ed] the substantive outcome of the
         resolution.” Id. at 131-32, 678 S.E.2d at 439. Wright and GGNSC, however,
         could vary rules under the NAF Code of Procedure, and they could select the
         arbitrator. In addition, Wright has not demonstrated how a substitute
         arbitrator could substantively affect the outcome of this arbitration.

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[¶23.]         In this case, we find reliance on such cases misplaced. First, the

penalty language in Carr applied to dispute resolutions in any forum other than the

NAF. Therefore, that language effectively prohibited substitute arbitrations in

other arbitral forums. In contrast, the penalty provision in this case applied only if

a party resorted to a “lawsuit, administrative proceeding or other action.” Clearly,

substitute arbitration is not a lawsuit or administrative proceeding, and it is

unclear whether the parties intended the phrase “other action” to include

arbitration before a substitute arbitrator.7 But even if the phrase “other action”

could be interpreted to prohibit a non-NAF arbitration when the NAF was

available, the parties could not have intended that penalty to apply to a substitute

arbitration if the NAF became unexpectedly unavailable. After all, the parties

agreed that the agreement would be governed by the FAA, and Section 5 of the FAA

provided for the appointment of a substitute if the designated arbitrator failed.

[¶24.]         We finally observe that “[w]hether the agreement to arbitrate is entire

or severable turns on the parties’ intent at the time the agreement was executed, as

determined from the language of the contract and the surrounding circumstances.”

Great Earth Cos. v. Simons, 288 F.3d 878, 890 (6th Cir. 2002). Therefore, courts

7.       Because the phrase “other action” follows the words lawsuit or administrative
         proceeding, other actions may have been intended to be limited to actions
         similar to lawsuits or administrative proceedings, which would not include
         arbitration. See generally State v. Douglas, 70 S.D. 203, 212-13, 16 N.W.2d
         489, 494 (1944) (applying the canon noscitur a sociis: “Where any particular
         word is obscure or of doubtful meaning, taken by itself, its obscurity or doubt
         may be removed by reference to associated words and the meaning of a term
         may be enlarged or restrained by reference to the whole clause in which it is
         used.”).

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have also looked to whether there is a “factual basis for the plaintiff’s assertion that

the specification of the [arbitration organization] was so material to the contract

that it must fail if they are unavailable.” Owens v. Nat’l Health Corp., 263 S.W.3d

876, 886 (Tenn. 2007); see also New Port Richey Med. Investors, LLC v. Stern ex rel.

Petscher, 14 So. 3d 1084, 1087 (Fla. Dist. Ct. App. 2009) (noting that the plaintiff

“did not present any evidence in the circuit court that the choice of the AAA as the

forum for any arbitration proceedings was an integral part of the agreement to

arbitrate”); Brown, 211 F.3d at 1222 (finding “no evidence that the choice of the

NAF as the arbitration forum was an integral part of the agreement to arbitrate”);

Zechman, 742 F. Supp. at 1365 (stating that the parties may not have contemplated

the CBOT arbitration mechanism).

[¶25.]       In this case, Lewellyn could not have intended the NAF Code to be

integral to the agreement to arbitrate. Wright never raised the unavailability of the

NAF Code as a defense. The circuit court raised the issue sua sponte after the

matter had been fully litigated and briefed on Wright’s other defenses. Because the

NAF Code was not important to Lewellyn at the time he was litigating defenses to

arbitration, it could not have not been important to him at the time he signed the

arbitration agreement. See Jones, 684 F. Supp. 2d at 1168 (appointing a substitute

arbitrator under an identical arbitration agreement in part because the testimony

of the plaintiff did not suggest the NAF rules were integral to the plaintiff’s decision

to sign the arbitration agreement).

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                                      Conclusion

[¶26.]        The FAA embodies an emphatic federal policy in favor of arbitral

dispute resolution. Additionally, the relevant cases hold that when a designated

arbitral forum becomes unavailable, courts should appoint a substitute arbitrator

under Section 5 unless it is clear that the designated forum was not an ancillary

logistical concern but was as important a consideration as the agreement to

arbitrate itself.

[¶27.]        In this case, there is nothing in the language of the agreement that

suggests the NAF’s Code of Procedure was as important as the agreement to

arbitrate. On the contrary, the arbitration agreement was primarily concerned with

the resolution of all disputes “exclusively by binding arbitration . . . and not by a

lawsuit or resort to court process.” This provision was emphasized in boldface type

and in eighteen references to arbitrators and arbitration. Although the

administrator of the designated code of procedure became unavailable, even one of

Wright’s primary authorities recognizes that designating an arbitral service and the

rules to be applied does not alone make that designation integral to the agreement.

Carr, 241 Ill. 2d at 30, 944 N.E.2d at 335. “If [that] were so, [S]ection 5 of the

Arbitration Act would not apply in any case where the parties specif[ed] an

arbitrator that later becomes unwilling or unable to handle the arbitration.” Id.

[¶28.]        Further, this is not a case in which the record suggests that the

experience of the NAF in the nursing home field was vital to the parties and no

other arbitrator could perform the arbitration. Cf. Salomon, 68 F.3d 554. Our

review of the Code reflects that any competent arbitrator could follow rules of

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procedure like those in the NAF Code – rules similar to rules of civil procedure that

attorneys routinely follow. Even more importantly, a substitute arbitrator would be

required to follow the same substantive law that would have been applied if the

NAF Code were available. Under these circumstances, we conclude that

designation of the NAF’s Code of Procedure was an ancillary logistical concern that

was not as important to the agreement as the agreement to arbitrate. Therefore,

the appointment of a substitute arbitrator was required under Section 5 of the FAA.

[¶29.]         Reversed and remanded for the appointment of a substitute

arbitrator.8

[¶30.]         GILBERTSON, Chief Justice, and KONENKAMP, SEVERSON, and

WILBUR, Justices, concur.

8.       The circuit court’s decision was based solely on the unavailability of the NAF.
         The court did not reach Wright’s other pending defenses to arbitration. Our
         decision does not preclude the circuit court’s consideration of those other
         defenses on remand.

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