Northport Health Services of Arkansas, LLC, D/B/A Paris Health and Rehab Center And Northport Health Services, Inc. v. Thomas Chancey, Guardian of the Estate and Person of Lucy Chancey, an Incapacitated Person , 2022 Ark. App. 103 ( 2022 )

Cite as 2022 Ark. App. 103ARKANSAS 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.
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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.
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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,
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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.
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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
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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.
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