Biller v. S-H OPCO Greenwich Bay Manor

United States Court of Appeals
For the First Circuit
No. 19-1865
KARA BILLER, as attorney in fact for Joan M. McKenna;
JOAN M. MCKENNA
Plaintiffs, Appellees,
v.
S-H OPCO GREENWICH BAY MANOR, LLC, a/k/a Brookdale Greenwich
Bay; BROOKDALE SENIOR LIVING COMMUNITIES, INC., a/k/a Brookdale
Senior Living, Inc.; BKD HB ACQUISITION SUB, INC.; BKD TWENTY-
ONE MANAGEMENT COMPANY, INC.; S-H TWENTY-ONE OPCO, INC.
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. John J. McConnell, Jr., U.S. District Judge]
Before
Howard, Chief Judge
Thompson and Barron, Circuit Judges.
Joseph H. Desmond, with whom Morrison Mahoney LLP was on
brief, for appellants.
Anthony R. Leone, II, with whom Leone Law LLC was on brief,
for appellees.
June 5, 2020
THOMPSON, Circuit Judge. Joan M. McKenna and her
daughter, Kara Biller, brought this lawsuit against McKenna's
former assisted living facility, Brookdale Greenwich Bay (we'll
call it "Brookdale"),1 because (they allege) Brookdale agreed to
take responsibility for administering McKenna's thyroid medication
(methimazole) but dropped the ball. Without her medication,
McKenna's thyroid levels spiraled "out of control," she suffered
health complications, and she had to be hospitalized. In answer,
Brookdale sought to have the case sent to arbitration, fingering
an arbitration clause in McKenna's residency agreement. But at
Biller and McKenna's urging, the district court denied arbitration
and kept the case in court. In its view, the arbitration agreement
had expired in 2017, so there was nothing left to enforce.
On appeal, Brookdale argues (as it did below) that the
Federal Arbitration Act (FAA) required the district court to send
this case to arbitration. According to Brookdale, it was the
arbitrator's job to decide when the residency agreement
terminated; and even if the rest of the contract did expire, that
doesn't mean the arbitration clause lapsed along with it. On this
record, we have to agree; given our precedent, we could hardly do
otherwise. As such, we conclude that the arbitration agreement
1 Biller and McKenna also sued several related parent,
holding, and management companies, including Brookdale Senior
Living Communities, Inc., BKD HB Acquisition Sub, Inc., BKD Twenty-
One Management Company, Inc., and S-H Twenty-One Opco, Inc.
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remains in effect and binds McKenna and Biller to arbitrate their
claims.
I. Background2
McKenna moved into Brookdale's Greenwich Bay facility in
March 2016. When she got there, Brookdale gave her a contract
(the parties call it the "residency agreement") that set out a
payment schedule for the services she'd get during her stay --
though Brookdale (and only Brookdale) reserved the "right to modify
fees, rates and charges, [and] amend services provided" without
another writing signed by both parties. The contract said that it
would continue indefinitely, but that either party could terminate
it "immediately upon written notice in the event of [McKenna's]
death or if [she] must be relocated due to [her] health."3
Among other provisions, the residency agreement also
contained an arbitration clause, which read:
Any and all claims or controversies arising
out of, or in any way relating to, this
Agreement or any of your stays at the
2 This appeal arises from an order on a motion to compel
arbitration in connection with a motion to dismiss, so we draw the
relevant facts from "the complaint and the parties' submissions to
the district court" on the motion. Bekele v. Lyft, Inc., 918 F.3d
181, 184 (1st Cir. 2019).
3 There were also other ways to terminate the agreement:
McKenna could end it for any reason by 30 days' written notice,
and the company could do so for various stated reasons (like if
McKenna required care Brookdale couldn't provide, or if her or her
visitors' behavior "interfere[d] with the orderly operation of the
Community." Neither of those other termination provisions are at
issue here, however.
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Community, excluding any action for
involuntary transfer or discharge or eviction,
and including disputes regarding
interpretation, scope, enforceability,
unconscionability, waiver, preemption and/or
violability of this Agreement, whether arising
out of State or Federal law, whether existing
or arising in the future, whether for
statutory, compensatory or punitive damages
and whether sounding in breach of contract,
tort or breach of statutory duties,
irrespective of the basis for the duty or the
legal theories upon which the claim is
asserted, shall be submitted to binding
arbitration, as provided below, and shall not
be filed in a court of law. The parties to
this Agreement further understand that a judge
and/or jury will not decide their case.
The clause added that any arbitration would be held before an
unbiased arbitrator chosen by the parties, and the parties would
divide the costs equally.
Presented with this residency agreement, McKenna's
daughter and attorney-in-fact Kara Biller signed on her mother's
behalf, and McKenna began her stay.
Things didn't go as planned. When McKenna arrived at
Brookdale in March 2016, she was under a doctor's order to take
methimazole to treat a thyroid condition. At the time, her family
members handled her medication; the residency agreement didn't
mention it. Some months later, though (in July 2016), Brookdale
agreed to take on the task of administering McKenna's meds,
including methimazole. But they didn't follow through. According
to the plaintiffs, Brookdale didn't give McKenna methimazole for
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over a year -- from July 2016 until August 2017. As a result, her
thyroid stopped functioning properly and she suffered health
complications.
In July 2017, McKenna was transferred from Brookdale's
assisted living unit to the facility's memory care unit, a locked
ward for patients with dementia. When they moved her, Brookdale
gave McKenna and Biller an updated residency agreement for Biller
to sign.4 A month later, McKenna was admitted to a hospital, where
she and her family first learned that she had not been taking
methimazole. Shortly after she left the hospital, McKenna moved
out of Brookdale for good.
Two years later, she and her daughter sued Brookdale in
Rhode Island state court. Biller and McKenna brought state-law
claims for negligence; negligent hiring, training, and
supervision; corporate negligence; respondeat superior; and breach
4 At the hearing on the motion to compel arbitration, the
record wasn't clear on whether McKenna or Biller ever signed the
proposed 2017 agreement; the only evidence was a draft agreement
signed by Brookdale, with a blank space for McKenna or her
representative. After the district court denied the motion to
compel arbitration, however, Brookdale discovered a fully executed
copy of the July 2017 agreement, which contained a similar
arbitration provision and both parties' signatures. Brookdale
quickly moved the district court to reconsider its denial of the
motion to compel under Rule 59(e) of the Federal Rules of Civil
Procedure, but the district court denied the motion. Brookdale
appeals that ruling as well. But since we conclude that the
district court erred in denying the motion to compel arbitration
based on the evidence presented at the initial hearing, we need
not decide whether it should have granted Brookdale's later request
to reconsider that denial.
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of contract. These claims were all based on Brookdale's alleged
failure to administer methimazole from July 2016 to August 2017.
Brookdale timely removed the suit to federal district
court based on diversity jurisdiction and moved to compel
arbitration. Brookdale argued that the state-law tort claims and
state-law contract claims were unequivocally within the scope of
the arbitration agreement.5 So as Brookdale saw it, the FAA
obligated the district court to refer the claims to an arbitrator.
In opposition, Biller and McKenna did not dispute that
the arbitration agreement purported to cover their state-law tort
and contract claims. Rather, they argued that the arbitration
agreement was not "in effect between the parties" for three
relevant reasons. First, they argued that the July 2017
"relocation to the new unit due to Ms. McKenna's health
terminate[d] the March 2016 residency agreement" that contained
the arbitration clause. Second, they argued that the parties
formed a new, implied-in-fact "common-law" contract in July 2017
that "supersede[d] the earlier agreements between the parties
and . . . d[id] not contain a signed forced arbitration
provision." Third, they argued that "the forced arbitration
provision that the defendants seek to enforce is unconscionable."
5
Preemptively, Brookdale also argued that to the extent that
the plaintiffs disputed the scope or enforceability of the
arbitration agreement itself, the parties had clearly delegated
such disputes to the arbitrator.
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In reply, Brookdale contended that Biller and McKenna
had simply raised further disputes as to the scope or
enforceability of the arbitration agreement itself. Because the
parties had agreed to have an arbitrator decide those threshold
disputes, Brookdale argued, the FAA obligated the district court
to refer them to an arbitrator.
In the alternative, Brookdale argued that even if the
district court were to adjudicate these disputes, it should
conclude that the arbitration clause in the March 2016 residency
agreement remained in effect. In Brookdale's view, the termination
clause in the residency agreement had not been triggered, because
McKenna merely "receiv[ed] different services over time at the
same facility" throughout her stay; and there was no superseding
agreement, because the March 2016 residency agreement contemplated
additional services and fees. Therefore, Brookdale argued, the
2016 agreement was still in effect and compelled arbitration.
After a hearing, the district court denied the motion to
compel arbitration from the bench. It concluded that "there is no
signed agreement containing an arbitration clause which would
otherwise be enforceable by this Court," because "[t]he March '16
agreement terminated when Ms. McKenna was moved to a memory unit
from her assisted living unit where she had been before." The
district court therefore refused to send "any question to an
arbiter." Brookdale timely appealed. See 9 U.S.C. § 16(a)(1)(B).
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II. The FAA
The Federal Arbitration Act provides: "A written
provision in . . . a contract . . . 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." 9 U.S.C. § 2. Designed to counter
"widespread judicial hostility to arbitration," Am. Express Co. v.
Italian Colors Rest., 570 U.S. 228, 232 (2013), the Act makes
arbitration "a matter of contract, and courts must enforce
arbitration contracts according to their terms," Henry Schein,
Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019).
"We review both the interpretation of arbitration agreements and
orders compelling arbitration de novo." S. Bay Bos. Mgmt. v. Unite
Here, Local 26, 587 F.3d 35, 42 (1st Cir. 2009).
"A party seeking to compel arbitration under the FAA
must demonstrate 'that a valid agreement to arbitrate exists, that
the movant is entitled to invoke the arbitration clause, that the
other party is bound by that clause, and that the claim asserted
comes within the clause's scope.'" Dialysis Access Ctr., LLC v.
RMS Lifeline, Inc., 638 F.3d 367, 375 (1st Cir. 2011) (quoting
InterGen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003)). If
the movant makes that showing, the court has to send the dispute
to arbitration "unless the party resisting arbitration
specifically challenges the enforceability of the arbitration
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clause itself . . . or claims that the agreement to arbitrate was
'never concluded.'" Granite Rock Co. v. Int'l Bhd. of Teamsters,
561 U.S. 287, 301 (2010) (quoting Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 444 n.1 (2006) (cleaned up)). Those
issues, which implicate "[w]hether or not a dispute is arbitrable,"
are typically for the court to decide. Dialysis, 638 F.3d at 375.
III. Our Take
Here, the parties dispute when the contract terminated.
Biller and McKenna assume that if (as they urge) it expired in
July 2017, the arbitration clause no longer binds the parties, and
the district court was right to keep this case for itself. As
below, Brookdale disagrees. In Brookdale's view, it was the
arbitrator's job -- not the district court's -- to decide when the
contract terminated. In any event, says Brookdale,
Biller/McKenna's argument rests on a false premise: that the
arbitration agreement expired when the residency agreement did.
In fact, the parties' obligation to arbitrate claims about the
residency agreement and McKenna's stay at Brookdale survives to
this day, even if the rest of the residency agreement expired. We
agree with Brookdale.
To explain why, we start with a gateway issue -- whether
we (rather than the arbitrator) should interpret the arbitration
clause in the first place to decide which disputes it covers
(spoiler alert: we must). Once that's out of the way, we'll take
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Biller/McKenna's "termination" argument on its own terms. In doing
so, we conclude that the plain text of the arbitration clause makes
it the arbitrator's job (not the district court's) to interpret
the residency agreement and decide when it terminated. In any
event, however, even if the residency agreement expired in 2017,
the arbitration agreement would still compel the parties to
arbitrate their disputes "arising out of" or "relating to" the
residency agreement or "any of [McKenna's] stays" at Brookdale's
facility, including Biller and McKenna's claims in this case. We
save Biller and McKenna's last two contentions -- that the parties
overwrote the 2016 arbitration provision with a new agreement, and
that the provision was unconscionable -- for last.
A. Gateway Issue: Who Picks the Decider?
First things first. As a threshold matter, Brookdale
argues that the parties agreed to have an arbitrator interpret the
arbitration clause itself and (therefore) to decide all disputes
about arbitrability. If Brookdale is right, then the arbitrator
must resolve even the gateway question of who (a court or the
arbitrator) should decide the parties' core disputes, including
their fight over contract termination. And as part of that
threshold question, the arbitrator would have to decide (as we do
later) whether the arbitration clause is enforceable at all.
But we see no such agreement. It is true that "parties
may agree to have an arbitrator decide not only the merits of a
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particular dispute but also '"gateway" questions of
"arbitrability," such as whether the parties have agreed to
arbitrate or whether their agreement covers a particular
controversy.'" Schein, 139 S. Ct. at 529 (quoting Rent-A-Ctr.,
W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010)). They must do so,
however, by "clear and unmistakable" evidence. Id. at 530 (quoting
First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).
This standard is "demanding." Patton v. Johnson, 915 F.3d 827,
835 (1st Cir. 2019). And here's the kicker: it "requires more
than simply saying that the arbitrator determines the meaning of
any disputed contractual terms." Peabody Holding Co., LLC v.
United Mine Workers of Am., Int'l Union, 665 F.3d 96, 102 (4th
Cir. 2012) (reaffirming that an arbitration clause "committ[ing]
all interpretive disputes 'relating to' or 'arising out of' the
agreement" does not pass the "clear and unmistakable" test)
(quoting Carson v. Giant Food, Inc., 175 F.3d 325, 329, 330 (4th
Cir. 1999)); accord Commc'n Workers of Am. v. Avaya, Inc., 693
F.3d 1295, 1303 (10th Cir. 2012). So, for example, in AT & T
Technologies, Inc. v. Communications Workers of America, the Court
held that even though the arbitration clause committed "any
differences arising with respect to the interpretation of this
contract or the performance of any obligation hereunder" to
arbitration, it was still "for the court, not the arbitrator, to
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decide in the first instance whether the dispute was to be resolved
through arbitration." 475 U.S. 643, 650–51 (1986).
Likewise, Brookdale's arbitration clause does not supply
clear and unmistakable evidence that the parties agreed to have an
arbitrator decide whether to arbitrate their disputes, because the
clause could reasonably be interpreted to cover only controversies
over the underlying residency agreement and the circumstances of
McKenna's stay at Brookdale but not disputes over the arbitration
provision itself. To be sure, the clause does cover "controversies
. . . relating to[] this Agreement," and "disputes regarding
interpretation, scope, enforceability, unconscionability
. . . and/or violability of this Agreement." But the phrase "this
Agreement" could reasonably (and likely does) refer only to the
underlying residency agreement; indeed, that is how the parties
use the phrase throughout the rest of the contract.6 We have
6
See Appellant's Add. at 26 ("This Agreement ('Agreement')
dated March 18, 2016 is made by and between S-H OpCo Greenwich Bay
Manor, LLC . . . and Joan McKenna."); id. ("We will provide you
with the following Basic Services, which are included in the Basic
Service Rate, subject to the terms of this Agreement"); id. at 27
("The available Select Services and Therapeutic Services as well
as the associated prices are found on Exhibit X and Exhibit Y to
this Agreement"); id. at 28 ("For your safety and comfort, our
associates must be permitted to enter your Suite to provide
services under the terms of this Agreement."); id. at 30 ("You
agree that we may use and disclose Resident Data . . . to provide
to you services covered by this Agreement."); id. ("Unless
prohibited by law, you agree we may offset such refunds by any
amount due under the terms of this Agreement."); id. at 31 ("This
Agreement begins on the date set forth above and continues until
terminated as provided below."); id. 32 ("Either party may
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demanded more specific language before concluding that the parties
delegated all questions of arbitrability to the arbitrator. See
Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 10–12 (1st Cir. 2009)
(finding the arbitration agreement delegated those threshold
questions to the arbitrator because it incorporated rules
authorizing the arbitrator to determine the "existence, scope or
validity of the arbitration agreement"; but noting that "where the
parties merely agree that the validity of the contract should be
subject to arbitration, this does not commit to the arbitrator a
dispute about whether the arbitration clause is valid"). A
"typical, broad arbitration clause" like this one doesn't pass the
test. Carson, 175 F.3d at 330 (quoting Va. Carolina Tools, Inc.
v. Int'l Tool Supply, Inc., 984 F.2d 113, 117 (4th Cir. 1993)).7
terminate this Agreement immediately upon written notice in the
event of your death or if you must be relocated due to your
health."); id. at 36 ("You understand and agree to assume the risks
inherent in this Agreement."); id. ("This Agreement is not
assignable without our prior written consent.").
7
We realize that the Second Circuit has held that "[b]road
language expressing an intention to arbitrate all aspects of all
disputes supports the inference of an intention to arbitrate
arbitrability[.]" Metro. Life Ins. Co. v. Bucsek, 919 F.3d 184,
191 (2d Cir. 2019). But it is far from obvious that a typical
commitment to arbitrate matters "arising out of or relating to"
the parties' underlying contractual relationship evinces a "clear
and unmistakable" intent to arbitrate all aspects of all disputes
between the parties, including the "arcane" question of "the scope
of [the arbitrator's] own powers." First Options, 514 U.S. at
945. Holding that boilerplate to be sufficient would threaten to
flip the presumption in AT & T Technologies and First Options on
its head. In any event, Brookdale does not urge us to apply the
Second Circuit's test. In fact, it does not identify what language
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B. Who Decides When the Contract Terminated?
Since the parties didn't delegate the threshold "who
decides" question to the arbitrator, it's up to us to interpret
the arbitration clause and determine whether it gives the
arbitrator the duty to decide when the residency agreement ended.
We conclude that it does. The arbitration clause gives him or her
the power to decide all "disputes regarding interpretation . . .
of th[e] Agreement" (meaning the residency agreement). And
unfortunately for Biller/McKenna, that describes their dispute
over the contract's "termination" to a T. On the one hand, the
duo argue that the contract expired (and the arbitration clause
with it) by its own terms: the clause providing that either party
could terminate the residency agreement if McKenna had to "be
relocated due to [her] health." In Biller/McKenna's view, the
parties triggered this clause when they transferred McKenna from
the assisted living unit to the memory care unit. Not so, says
Brookdale. The plaintiffs keep using that word ("relocate"), but
in the arbitration clause clearly tasks arbitrator to decide
questions of arbitrability. Instead, it argues flatly that Schein
held that "all disputes over the applicability and enforcement of
arbitration agreements must be delegated to an arbitrator."
Appellant's Br. at 13–14. But of course, Schein did not overrule
(in fact, it reaffirmed) the well-established rule that courts
must decide arbitrability unless the parties "clear[ly] and
unmistakabl[y]" delegated that threshold question to the
arbitrator. 139 S. Ct. at 530–31 (quoting First Options, 514 U.S.
at 944, and "express[ing] no view about whether the contract at
issue . . . in fact delegated the arbitrability question to the
arbitrator").
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it does not mean what they think it means. Rather (Brookdale
elaborates), a resident is not "relocated due to [her] health" if
she does not "leave the facility," and McKenna just "receiv[ed]
different services over time at the same facility" throughout her
stay. To figure out who's right, someone needs to decide what the
word "relocate" means in the residency agreement. As the
arbitration clause makes clear, interpretive disputes like that
must go to the arbitrator.
In fact, our precedent compels that conclusion. Most
recently, in Unite Here Local 217 v. Sage Hospitality Resources,
an employer made a similar argument to the one Biller and McKenna
advance here: that a labor agreement had terminated before the
dispute arose and the union invoked arbitration. 642 F.3d 255,
258–59 (1st Cir. 2011). The parties there had agreed to arbitrate
"any dispute over the interpretation or application" of the labor
agreement, which had a duration clause that said the agreement
would be "in full force and effect . . . until thirty months from
the full public opening" of a hotel. Id. at 257. Just as
McKenna/Biller/Brookdale dispute the meaning of the word
"relocate," the parties in Unite Here disputed the date of the
hotel's "full public opening." Id. at 257–58. We held that their
"dispute over the meaning of language in the duration clause" of
the underlying agreement was "a classic issue of contract
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construction and one the parties clearly contemplated would be
resolved by an arbitrator." Id. at 262. So it is here.
In defense of the order below, Biller and McKenna argue
that it was district court's job to decide when the contract
terminated. That must be so, they say, because before a court can
send any dispute to the arbitrator, the court has to make sure
"there exists a written agreement to arbitrate" that dispute.
Cullinane v. Uber Techs., Inc., 893 F.3d 53, 60 (1st Cir. 2018)
(quoting Combined Energies v. CCI, Inc., 514 F.3d 168, 171 (1st
Cir. 2008)). The FAA only "place[s] arbitration agreements upon
the same footing as other contracts"; it "does not require parties
to arbitrate when they have not agreed to do so." Id. (internal
quotation marks omitted). So, Biller/McKenna explain (correctly),
the question of whether the arbitration clause terminated and no
longer binds the parties is an issue of arbitrability which (when
properly presented and not clearly and distinctly delegated to the
arbitrator), the court must decide. See Granite Rock, 561 U.S. at
299–300; Dialysis, 638 F.3d at 375. So far so good. But here's
where they go off track. According to Biller and McKenna, if the
residency agreement terminated, then the arbitration clause died
with it; there no longer "exists a written agreement to arbitrate,"
Cullinane, 893 F.3d at 60; and the court can't compel arbitration.
Therefore (conclude Biller and McKenna), before the court could
send any dispute between the parties to the arbitrator, it had to
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decide whether the contract (and therefore the arbitration clause)
remains in effect. But that's not correct.
In fact, we faced and rejected the same argument in Unite
Here. See 642 F.3d at 258–60. There, the hotel (like Biller and
McKenna) argued that "whether [the underlying] Agreement was in
effect at the time it was invoked by the Union" was a question of
"arbitrability" for the court to decide. Id. But there, as here
(with the exception of Biller/McKenna's unconscionability
challenge, which we'll discuss later), "the parties d[id] not
contest that the [arbitration] [a]greement was valid, that they
were subject to its requirements, and that the substantive scope
of the arbitration clause" -- covering disputes over how to
interpret the underlying contract -- was "clear." Id. at 262. We
explained that in such cases, the question of when the underlying
contract terminated "concerns neither the validity of the
arbitration clause nor its applicability to the underlying dispute
between the parties"; and as such, it is "not a substantive
question of arbitrability but a 'matter of contract interpretation
. . . for the arbitrator, not the courts, to decide.'" Id.
(quoting Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 453 (2003)
(plurality opinion)); see also Int'l Bhd. of Elec. Workers, Local
1228, AFL-CIO v. Freedom WLNE-TV, Inc., 760 F.2d 8, 10 (1st Cir.
1985) ("Where, however, the determination of whether a contract is
still in effect depends solely upon construction of the collective
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bargaining agreement, the issue of contract termination may
appropriately be decided by the arbitrator.").
But how can that be? -- demand Biller and McKenna. If
the contract terminated, as they say it did, then the arbitration
clause must die with it, and the arbitrator would lack the power
to decide the termination dispute in the first place, wouldn't he?
But that's where they go wrong; in fact, even if the rest of the
residency contract terminated, that would not mean that
arbitration agreement lapsed with it. To see why, we review two
basic principles of arbitration law that help explain the outcomes
in Unite Here, Freedom WLNE-TV, and (ultimately) this case.
C. Post-expiration Arbitration
First off, unless the parties provided otherwise, an
arbitration provision "is severable from the remainder of the
contract." Buckeye, 546 U.S. at 445 (citing Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 402 (1967) (holding that
"except where the parties otherwise intend," "arbitration clauses
as a matter of federal law are 'separable' from the contracts in
which they are embedded")). To avoid arbitration, then, a party
must ordinarily make a targeted, "independent challenge" to the
arbitration clause itself. Large v. Conseco Fin. Servicing Corp.,
292 F.3d 49, 53 (1st Cir. 2002) (quoting Unionmutual Stock Life
Ins. Co. v. Beneficial Life Ins. Co., 774 F.2d 524, 529 (1st Cir.
1985)). When the arbitration-resister "specifically challenges
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the enforceability of the arbitration clause itself" (again,
unless another provision clearly delegated the issue to the
arbitrator) the court must decide that challenge before it can
compel arbitration. Granite Rock, 561 U.S. at 301. So, a
properly-developed argument that the arbitration clause lapsed --
for example, because the arbitration agreement provides that it
will expire on some condition, or because the parties later agreed
to submit their disputes to a court -- would be the court's to
decide. On the other hand, when someone argues (as Biller/McKenna
do in their termination-clause-based challenge) that a broad
arbitration clause is invalid or unenforceable only "on a ground
that directly affects the entire agreement" that challenge is
ordinarily for the arbitrator to decide. Rent-A-Ctr., 561 U.S. at
70–71 (quoting Buckeye, 546 U.S. at 444) ("[A] party's challenge
to another provision of the contract, or to the contract as a
whole, does not prevent a court from enforcing a specific agreement
to arbitrate"; "the basis of challenge [must] be directed
specifically to the agreement to arbitrate before the court will
intervene.").8
Biller and McKenna acknowledge that this severability
principle governs their unconscionability challenge. But in this
8
As we noted above, there is an important exception: when
the challenger argues that no "agreement between the parties 'was
ever concluded,'" the court must decide that challenge. Rent-A-
Ctr., 561 U.S. at 70 n.2 (quoting Buckeye, 546 U.S. at 444 n.1).
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circuit, "[t]he basis of the underlying challenge to the contract
does not alter the severability principle." Unionmutual, 774 F.2d
at 529. And we've applied it to compel arbitration in other cases
where one party asserted the underlying contract terminated. In
Large and Unionmutual, the parties challenging arbitration claimed
that they had rescinded the underlying contract, and the
arbitration agreement with it, based on frustration of purpose,
Unionmutual, 774 F.2d at 529, and their rights under state statute
(claiming that the bank broke the statute's disclosure rules),
Large, 292 F.3d at 53. In both cases, we held that the arbitration
provisions at issue still compelled the arbitrator to decide if
and when the underlying contract was properly rescinded. See id.
Biller and McKenna's challenge -- that the arbitration clause no
longer binds the parties because the rest of the contract
terminated -- is not meaningfully different. Even if the rest of
the parties' contractual rights and obligations ended (whether
based on a general termination clause or a rightful rescission)
that would not mean their duties to arbitrate their contract-
related disputes ended, too.
Second -- although it didn't come up in Unionmutual or
Large -- when deciding (when we must) whether the parties'
arbitration duties have expired, we presume that the arbitration
clause (independent as it is) survives the underlying contract.
In theory, this presumption reflects commercial custom: When two
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parties commit to arbitrate disputes arising under a contract,
they ordinarily mean to bind each other to arbitrate such disputes
even if the grievant doesn't complain until after the contract
expires. See Litton Fin. Printing Div., a Div. of Litton Bus.
Sys., Inc. v. N.L.R.B., 501 U.S. 190, 205, 208 & n.3 (1991) ("We
presume as a matter of contract interpretation that the parties
did not intend a pivotal dispute resolution provision to terminate
for all purposes upon the expiration of the agreement." (citing
Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionary Workers
Union, 430 U.S. 243, 255 (1977))). Taking our cues from Litton
and Nolde Bros., we have compelled parties to a broad arbitration
agreement to arbitrate post-expiration disputes that have their
"real source" in the underlying contract unless "postexpiration
arbitration of the issue was negated expressly or by clear
implication." S. Bay Bos. Mgmt., 587 F.3d at 43 (quoting United
Parcel Serv. v. Unión De Tronquistas de Puerto Rico, Local 901,
426 F.3d 470, 473 (1st Cir. 2005)).
Taken together, these two related principles help
explain our decisions in Unite Here, Freedom WLNE-TV, Large, and
Unionmutual -- and they compel Biller/McKenna to arbitrate their
claims against Brookdale. As in those cases, Biller and McKenna
argue that the arbitration agreement expired only on the grounds
that the contract containing the arbitration agreement terminated.
But as we've explained, to successfully argue that an arbitration
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agreement terminated and no longer governs any claim, Biller and
McKenna had to mount an "independent" challenge to the arbitration
agreement itself, Large, 292 F.3d at 55 (quoting Unionmutual, 774
F.2d at 529) -- for example, by identifying evidence that the
parties intended not only the residency agreement but also their
arbitration obligations to lapse when McKenna relocated (or at
some other time before Brookdale sought to invoke arbitration).
See Litton, 501 U.S. at 204; Nolde Bros., 430 U.S. at 255; S. Bay
Bos. Mgmt., 587 F.3d at 43. They didn't meet that burden here.9
IV. Plaintiffs' Other Arguments
Biller and McKenna present two back-up reasons to affirm
the denial of the motion to compel arbitration. First, they urge
that the parties entered a brand-new agreement in July 2017, when
McKenna moved, and that this new deal superseded the original 2016
residency agreement and extinguished its arbitration clause.
Second, they claim that the arbitration agreement was
unconscionable and unenforceable. No doubt, we "can affirm on any
9 Biller and McKenna argue that Brookdale forfeited its
argument that the arbitration agreement survived the termination
of the contract by not raising the argument in its motion to compel
arbitration below. However, once Brookdale pointed to a valid
agreement to arbitrate that covered their interpretive dispute, it
was Biller and McKenna's burden to make "an independent challenge"
to the arbitration clause itself to explain why it was no longer
enforceable. Large, 292 F.3d at 55; see Rent-A-Ctr., 561 U.S. at
72–73; see also Unite Here, 642 F.3d at 262 (explaining that when
the arbitration agreement covers disputes over the interpretation
of the underlying contract, the issue of when the contract
terminated is presumed to be for the arbitrator).
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ground appearing in the record -- including one that the [district]
judge did not rely on." Rivera-Colón v. AT&T Mobility Puerto Rico,
Inc., 913 F.3d 200, 207 (1st Cir. 2019) (quoting Lang v. Wal-Mart
Stores E., L.P., 813 F.3d 447, 454 (1st Cir. 2016)). But neither
argument convinces us to do so.
A. Replacement Contract
Biller and McKenna first argue that we should affirm
because when the parties had McKenna moved to the memory care unit
and raised her monthly fee (from $4,224 to $5,007) in July 2017,
they impliedly abandoned the March 2016 residency agreement (along
with its arbitration clause) by forming a new, unwritten contract
that wiped out the old one. See Dasher v. RBC Bank (USA), 745
F.3d 1111, 1121 (11th Cir. 2014) ("[C]ontracting parties are free
to revoke an earlier agreement to arbitrate by executing a
subsequent agreement the terms of which plainly preclude
arbitration." (quoting Applied Energetics, Inc. v. NewOak Capital
Mkts., LLC, 645 F.3d 522, 525 (2d Cir. 2011)). Since this
replacement contract had no arbitration provision (the theory
goes), the district court was right keep this case for itself.
Unlike an argument that the main-event contract
terminated by its terms, a claim that two parties later agreed to
extinguish their arbitration pledge (specifically) is for the
courts to decide. See id.; accord Jaludi v. Citigroup, 933 F.3d
246, 255 (3d Cir. 2019) (explaining that "the question of whether
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a later agreement supersedes a prior arbitration agreement is
tantamount to whether there is [still] an agreement to arbitrate"
in the first place); Applied Energetics, 645 F.3d at 525–26. In
Dasher (on which Biller and McKenna mainly rely), the Eleventh
Circuit held that this is true even if the challenger alleges (as
Biller and McKenna do) that the parties agreed to replace both the
underlying contract and the arbitration clause in one fell swoop
-- with a new deal that excludes arbitration. See 745 F.3d at
1121–23 (holding that when a new agreement that "entirely
supersed[es]" the old "is silent on arbitration, arbitration
cannot be compelled even if [the] prior agreement contained an
arbitration clause"). Brookdale doesn't quibble with Dasher's
approach, and we see no reason to, either. Because in the end,
Biller and McKenna give us no reason to think that the parties
ever agreed to replace the 2016 residency agreement with an
"entirely superseding" contract that snuffed out their arbitration
duties. Id.
Under Rhode Island law (which we're urged to apply), a
"substituted contract" claim like theirs rests on a "factual
determination" that two parties "mutual[ly] agree[d]" to
"extinguish" their "rights and obligations" under an earlier
contract and replace them with new ones. Weaver v. Am. Power
Conversion Corp., 863 A.2d 193, 198 (R.I. 2004) (quoting Salo
Landscape & Const. Co. v. Liberty Elec. Co., 376 A.2d 1379, 1382
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(R.I. 1977)). Generally, however, when a later bargain between
the same parties "completely cover[s] the same subject-
matter . . . as an earlier agreement" but "contain[s] terms
inconsistent with the former contract, so that the two cannot stand
together," it replaces the "earlier contract and becomes the only
agreement of the parties on the subject." Carlsten v. The Widecom
Grp., Inc., C.A. No. 97-1425, 2003 WL 21688263, at *8 (R.I. Super.
July 1, 2003)(quoting De Blois v. Boylston & Tremont Corp., 183
N.E. 823, 827 (1933)); see also Jaludi, 933 F.3d at 256 (applying
the same rule "[u]nder Pennsylvania law": that "the later of two
agreements between the same parties as to the same subject matter
generally supersedes the prior agreement"); Applied Energetics,
645 F.3d at 526 (same under New York law).
Biller and McKenna do not contend that the parties
entered a new written agreement, or even an oral one. But they do
suggest that Brookdale's actions -- moving McKenna and raising her
monthly fee -- and Biller/McKenna's choice to go along with them
(agreeing to the move and paying a higher fee) reflected what's
called an "implied in fact" contract: i.e., an agreement gleaned
from the "parties' conduct, actions, and correspondence" rather
than their words. Cote v. Aiello, 148 A.3d 537, 545 (R.I. 2016)
(quoting Marshall Contractors, Inc. v. Brown Univ., 692 A.2d 665,
669 (R.I. 1997)); see also Bailey v. West, 249 A.2d 414, 416 (R.I.
1969) (explaining that "essential elements of contracts 'implied
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in fact' are mutual agreement[ ] and intent to promise, but [where]
the agreement and the promise have not been made in words and are
implied from the facts").
In the end, though, this "new contract" theory doesn't
save Biller and McKenna's claims from arbitration. They offer no
evidence that the parties did anything to "extinguish" the 2016
arbitration agreement, Weaver, 863 A.2d at 198, or strike a new
deal that "completely cover[ed] the same subject-matter" and was
"inconsistent with" that agreement, Carlsten, 2003 WL 21688263, at
*8. Unlike in Dasher, the parties did not sign a new arbitration-
clause-free contract that expressed a "clear and definite" intent
to "entirely supersede" the 2016 residency agreement including the
arbitration clause. 745 F.3d at 1118–20. Brookdale does not
dispute that the changes to McKenna's fees and services reflect
modifications to the underlying contract. See id. at 1120
(distinguishing cases in which the parties merely "amend[ed]
portions of the prior [substantive] agreement" but left the
arbitration clause alone).10 But the arbitration clause itself
10Brookdale adds that the 2016 residency agreement reserved
for Brookdale the "right to modify fees, rates and charges, [and]
amend services provided" without a new written contract. And in
their response, Biller and McKenna made no attempt to address that
point or explain why the changes to McKenna's fees and services
were anything other than "modific[ations]" or "amend[ments]"
contemplated under the original agreement that left the
arbitration provision intact. That language in the original
contract may well provide another ground for concluding that the
changes to McKenna's fees and services did not entirely supersede
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indicates that it would apply even if the terms of the underlying
contract changed: it covered (remember) any dispute "arising out
of, or in any way relating to" not just the 2016 agreement, but
also "any of [McKenna's] stays at the Community" (emphasis added)).
And the chief evidence on which Biller and McKenna rely -- a draft
residency agreement dated to July 2017 -- was unexecuted by Biller
or McKenna, and in any event, it contained an identical arbitration
agreement. So that draft new agreement can't show the parties
meant to end their clear commitment to arbitrate disputes related
to the 2016 agreement or McKenna's stays at Brookdale, either.
Rather, the evidence points to only one conclusion: that the 2016
arbitration agreement remains in effect.
B. Unconscionability
Biller and McKenna finally argue that we should affirm
because the district court could have concluded that the
arbitration agreement was unconscionable under Rhode Island law.
This dispute is also for the courts to resolve, because under the
FAA, an arbitration agreement may still "be invalidated by
'generally applicable contract defenses, such as fraud, duress, or
unconscionability.'" Rent-A-Ctr., 561 U.S. at 68 (quoting Dr.'s
Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Where a
it. But since (as we've already explained) the parties left it
for the arbitrator to interpret terms (like "modify" and "amend")
in the original contract, we don't rely on those provisions here.
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party challenges the validity of an arbitration agreement
specifically, absent a clear intent to commit the dispute to the
arbitrator, the court has to resolve that dispute. Granite Rock,
561 U.S. at 299-300.11 This validity assessment entails
"consideration of the enforceability of the agreement and if it is
void or voidable" under state law. Nat'l Fed'n of the Blind v.
The Container Store, Inc., 904 F.3d 70, 81 (1st Cir. 2018).
Here, Biller and McKenna have not shown the arbitration
agreement in the March 2016 residency agreement is unconscionable.
As we've read it, Rhode Island law requires the party opposing
arbitration to prove both procedural and substantive
unconscionability: procedurally, that the party had no
"meaningful choice" but to sign the contract, and substantively,
that "the challenged contract terms are unreasonably favorable to
the other party." Britto v. Prospect Chartercare SJHSRI, LLC, 909
F.3d 506, 515 (1st Cir. 2018) (quoting E.H. Ashley & Co. v. Wells
Fargo Alarm Servs., 907 F.2d 1274, 1278 (1st Cir. 1990)). The
11
Of course, "the validity of an arbitration clause is itself
a matter for the arbitrator where the agreement so provides."
Awuah, 554 F.3d at 11. (Although, even then, we still must consider
any challenge to "the precise agreement to arbitrate at issue,"
namely the agreement providing for arbitration of the validity of
the arbitration clause. Rent-A-Ctr. 561, U.S. at 71). But as we
have discussed, there is no clear and unmistakable evidence that
the parties agreed to delegate disputes over the enforceability or
unconscionability of the arbitration agreement itself.
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party challenging an arbitration agreement as unconscionable bears
the burden to show both prongs are met. See id.
Biller and McKenna argue that the arbitration agreement
was procedurally unconscionable because (among other things)
McKenna had no meaningful opportunity to negotiate its terms;
Brookdale foisted the agreement on her only after she'd moved in
with all her belongings. But even if the agreement was
procedurally unconscionable (which we don't decide),
Biller/McKenna haven't produced evidence that could reasonably
show the arbitration agreement is unconscionable in substance.
When it comes to substantive unconscionability, Rhode
Island law sets a daunting standard: the "inequality of the
bargain [must be] so manifest as to shock the judgment of a person
of good sense," and the "terms [must be] so unreasonable that 'no
man in his senses and not under delusion, would make on the one
hand, and as no honest and fair man would accept on the other.'"
Grady v. Grady, 504 A.2d 444, 446-47 (R.I. 1986) (quoting Hume v.
United States, 132 U.S. 406, 411 (1889)). On its face, Brookdale's
arbitration agreement doesn't seem to flunk that test: as
Brookdale points out, it says the arbitration will take place in
Rhode Island (in "the county in which the Community is located"),
the arbitrator will be impartial and apply the Rhode Island Rules
of Civil Procedure and Rhode Island law, and the parties will
choose an arbitrator together and split the costs evenly.
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In response, Biller and McKenna take a scattershot
approach. They list twelve one-sentence challenges to support
their position that the arbitration agreement is unconscionable.
We treat the overwhelming majority of them as waived for lack of
development. See United States v. Zannino, 895 F.2d 1, 17 (1st
Cir. 1990) ("[I]ssues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are
deemed waived."). But two arguments call for further discussion.
First, Biller and McKenna argue that the arbitration
agreement is substantively unconscionable because "the parties
share the cost of the arbitrator." The Rhode Island high court
has not spoken directly to the unconscionability of arbitration-
cost-sharing. But, addressing an analogous challenge that an
arbitration agreement prevented the "effective vindication" of
federal statutory rights, the Supreme Court held that "where, as
here, a party seeks to invalidate an arbitration agreement on the
ground that arbitration would be prohibitively expensive, that
party bears the burden of showing the likelihood of incurring such
costs." Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90–
92 (2000). Taking their cues from Green Tree, most state courts,
in their tests for substantive unconscionability, also require the
party alleging that arbitration would be too expensive to produce
evidence of the financial burden the arbitration is likely to
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impose.12 For example, we recently noted that in neighboring
Massachusetts, "an arbitration-fee-splitting arrangement is not
substantively unconscionable when the arbitration fees a plaintiff
would owe amount to less than the damages the plaintiff claims."
Bekele v. Lyft, Inc., 918 F.3d 181, 188 (1st Cir. 2019).
But Biller and McKenna point to no evidence of their
financial condition or of the potential costs of arbitrating their
dispute with Brookdale. Nor do they give us any reason to think
that the courts of Rhode Island -- which gives arbitration a
"favored status," Pepin v. Am. Universal Ins. Co., 540 A.2d 21, 22
(R.I. 1988) (citing R.I. Gen. Laws § 10–3–2) -- would adopt a rule
that fee splitting is always unconscionable in cases like this
one.13 With so little to go on, we can't conclude the fee-splitting
12 See, e.g., Larsen v. Citibank FSB, 871 F.3d 1295, 1316
(11th Cir. 2017) ("[U]nder Washington law, the party challenging
a fee-splitting provision must provide specific information about
the arbitration fees it would be required to pay and describe why
those fees would be prohibitive."); Tompkins v. 23andMe, Inc., 840
F.3d 1016, 1026 (9th Cir. 2016) (describing California law as
"adopt[ing] 'an ability-to-pay approach' to arbitration fees in
the consumer context, requiring a 'case-by-case determination of
affordability' for consumers, and a rejection of the . . .
categorical approach"); Kai Peng v. Uber Techs., Inc., 237 F. Supp.
3d 36, 57 (E.D.N.Y. 2017) (noting correctly that "[c]ourts applying
New York law have refused to find that fee-splitting provisions in
arbitration agreements are unenforceable where plaintiffs have not
affirmatively demonstrated that the fee-splitting provisions would
preclude them from pursuing their rights in the arbitral forum"
(citing Brady v. Williams Capital Grp., L.P., 14 N.Y.3d 459, 467
(2010)).
13In Brookdale Senior Living Communities v. Allen, the United
States District Court for the District of Oregon held that a
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provision makes the arbitration agreement here substantively
unconscionable under Rhode Island law.
Second, Biller and McKenna argue that "the requirement
of confidentiality perpetuates the bad conduct Brookdale engaged
in here and places other people at risk of similar injuries."14 In
similar fee-splitting provision in one of Brookdale's arbitration
agreements, along with other one-sided provisions, rendered the
agreement unconscionable. No. 15-1400-CL, slip. op. at *11 (D.
Or. Dec. 1, 2015). In that case, though, the challenger submitted
an affidavit estimating likely arbitration fees. Id. The court
nonetheless held that "such a showing [was] not necessary . . .
where it is undisputed that the [consumer] would have to pay all
or part of the arbitrator's fees," citing decisions in the Ninth
and D.C. Circuits holding that cost-sharing provisions are
unconscionable as applied to statutory claims because they
"impose[ ] on some consumers costs greater than those a complainant
would bear if he or she would file the same complaint in court."
Id. (citing Ting v. AT & T, 319 F.3d 1126, 1151 (9th Cir. 2003);
Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1485 (D.C. Cir.
1997)). After Green Tree, however, the D.C. Circuit has declined
to extend Cole to common-law claims like Biller/McKenna's, Brown
v. Wheat First Sec., Inc., 257 F.3d 821, 825–26 (D.C. Cir. 2001),
and the Ninth Circuit (based on subsequent state law developments)
has limited the rule in Ting to the employment context, see
Tompkins, 840 F.3d at 1026. Thus, we are not persuaded that the
Rhode Island courts would adopt such a per se rule. So we conclude
that Biller and McKenna have not shown that Brookdale's arbitration
clause is substantively unconscionable for fee-splitting reasons.
14 The confidentiality provision stated:
The arbitration proceeding shall remain confidential in
all respects, including the Demand for Arbitration, all
arbitration filings, deposition transcripts, documents
produced or obtained in discovery, or other material
provided by and exchanged between the parties and the
arbitrator's findings of fact and conclusions of
law . . . . Further, the parties to the arbitration
also agree not to discuss the amount of the arbitration
award or any settlement, the names of the parties, or
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a similar vein, the Ninth Circuit (applying California law) has
held that a contractual provision requiring "all arbitration" to
"remain confidential" was unconscionable as applied to a putative
class of millions of consumers because it unreasonably favored
corporate repeat players like (potentially) Brookdale, who could
learn from the results of prior arbitrations, over first-timers
who (due to the gag provision) would lack access to information
about past arbitrations against the company involving similar
issues. See Ting, 319 F.3d at 1151–52; see also Pokorny v.
Quixtar, Inc., 601 F.3d 987, 1002 (9th Cir. 2010) (reasoning that
an agreement not to discuss the plaintiffs' claims with other
employees could also handicap their "ability to investigate their
claims and engage in meaningful discovery"); Larsen, 871 F.3d at
1319 (invalidating a similar agreement under Washington law
because the company's "informational advantage" could
"discourag[e] consumers from pursuing valid claims").
More recently, however, other courts have recognized
that "[c]onfidentiality can be desirable to customers in some
circumstances," holding that similar mums-the-word provisions
don't always make the arbitration agreement unconscionable.
Iberia Credit Bureau, Inc., v. Cingular Wireless LLC, 379 F.3d
name/location of the Community except as required by
law.
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159, 175 (5th Cir. 2004) (applying Louisiana law and citing
Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d
1, 8 n.4 (1st Cir. 1999), where we noted in dicta that both sides
of a dispute may "prefer arbitration because of the confidentiality
and finality that comes with arbitration"); Caley v. Gulfstream
Aerospace Corp., 428 F.3d 1359, 1378-79 (11th Cir. 2005) (applying
Georgia law). The Ninth Circuit has since joined this club,
applying later developments in California law to uphold
confidentiality provisions similar to Brookdale's and limiting
Ting (if it survives at all) to cases involving thousands or
millions of consumers. See Poublon v. C.H. Robinson Co., 846 F.3d
1251, 1265–67 & n.4 (9th Cir. 2017) (citing Kilgore v. KeyBank,
Nat'l Ass'n, 718 F.3d 1052, 1059 n.9 (9th Cir. 2013) (en banc));
accord Machado v. System4 LLC, 28 N.E.3d 401, 415 (Mass. 2015)
(upholding confidentiality requirement in a contract that affected
only "a relatively small and known quantity" of workers).
Against this background, Biller and McKenna's uphill
attack on the confidentiality provision can't succeed. They don't
address any facts (like the number of residents subject to the
agreement) that bear on the strength of Brookdale's repeat-player
advantage; they don't argue that the confidentiality provision is
broad enough to stymie their evidence-gathering efforts; and, most
importantly, they don't marshal any Rhode Island caselaw
suggesting the Ocean State courts would hold such provisions
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unconscionable despite the state's policy favoring arbitration as
a means of dispute resolution. See Pepin, 540 A.2d at 22. As
such, they haven't established that the arbitration agreement here
signed is unenforceable.
V. Wrap up
For these reasons, the district court's order denying
arbitration is reversed, each side to bear its own costs. We
remand to the district court with instructions to compel
arbitration over all disputes remaining in this case.
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