Fundamental Administrative Services, LLC v. Patton Ex Rel. Estate of Patton

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT December 3, 2012
Elisabeth A. Shumaker
Clerk of Court
FUNDAMENTAL ADMINISTRATIVE
SERVICES, LLC; FUNDAMENTAL
CLINICAL CONSULTING, LLC,
Plaintiffs-Appellants,
and
THI OF NEW MEXICO AT HOBBS
CENTER, LLC; THI OF NEW MEXICO,
LLC,
Plaintiffs,
v. No. 12-2014
(D.C. No. 2:11-CV-00537-LH-CG)
LILLIE MAE PATTON, as the personal (D. N.M.)
representative of the Estate of Willie
George Patton, Sr., deceased,
Defendant-Appellee.
FUNDAMENTAL ADMINISTRATIVE
SERVICES, LLC; FUNDAMENTAL
CLINICAL CONSULTING, LLC,
Plaintiffs-Appellants,
and
THI OF NEW MEXICO AT VIDA
ENCANTADA, LLC; THI OF NEW
MEXICO, LLC,
Plaintiffs,
No. 12-2065
v. (D.C. No. 1:11-CV-00634-MV-RHS)
(D. N.M.)
MARY LOUISE LOVATO, as personal
representative for the wrongful death
estate of Guadalupe Duran, deceased,
Defendant-Appellee.
ORDER AND JUDGMENT*
Before KELLY, O’BRIEN, and MATHESON, Circuit Judges.
In these related appeals, plaintiffs-appellants Fundamental Administrative
Services, LLC (“FAS”) and Fundamental Clinical Consulting, LLC (“FCC”) appeal
from district court orders denying their motions to compel arbitration. Exercising
jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.
I. BACKGROUND
A. The Patton Case, No. 12-2014
In appeal number 12-2014 (“the Patton case”), defendant-appellee Lillie Mae
Patton filed a state court action against FAS and FCC and others for negligence and
misrepresentation related to the care that her husband, Willie George Patton, received
at the Hobbs Center nursing home. Her complaint alleged that FAS was “engaged in
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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the business of owning, operating, managing, and/or maintaining nursing homes and
related healthcare facilities, including Hobbs Center.” 12-2014 Aplt. App. at 46. It
further alleged that nursing home facilities contracting with FAS paid FAS a
management fee of 4% of net operating revenue for each such nursing home.
The complaint alleged that FCC was “engaged in the business of providing
consulting services to nursing homes and related healthcare facilities, including
Hobbs Center.” Id. at 47. It further alleged that “FCC employs the Regional
Director of Operations who is in charge of advising Hobbs Center about how to
increase profits and how to meet budget expectations” and that FCC receives a
management fee of 1% of the nursing homes’ net operating revenue. Id.When Mr. Patton was admitted to Hobbs Center, his step-daughter, Linda
Barry, signed an arbitration agreement on his behalf. The agreement states:
RESIDENT/REPRESENTATIVE UNDERSTANDS THAT BY
SIGNING THIS ARBITRATION AGREEMENT, HE/SHE IS
WAIVING HIS/HER RIGHT TO HAVE CLAIMS, INCLUDING
MALPRACTICE CLAIMS, HE/SHE MAY HAVE AGAINST THE
HEALTH CARE CENTER (INCLUDING ITS PARENTS,
AFFILIATES, AND SUBSDIARY COMPANIES, OWNERS,
OFFICERS, DIRECTORS, MEDICAL DIRECTORS,
EMPLOYEES, SUCCESSORS, ASSIGNS, AGENTS, ATTORNEY
AND INSURERS) BROUGHT AS A LAWSUIT IN COURT
BEFORE A JUDGE OR JURY.
Id. at 42. An authorized agent of Hobbs Center also signed the agreement.
After Ms. Patton filed the state action, four of the defendants—FAS, FCC, THI
of New Mexico at Hobbs Center, LLC (“Hobbs Center”) and THI of New Mexico,
LLC (“THI-NM”)—filed a complaint and a motion in federal court to compel
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arbitration. In response, Ms. Patton asserted (1) that the only entity that could
arguably compel arbitration was Hobbs Center; (2) Ms. Barry did not have the
authority to bind Mr. Patton to the arbitration clause; and (3) the arbitration
agreement was procedurally and substantively unconscionable.
The district court concluded that the arbitration clause was enforceable against
Mr. Patton and the agreement was not procedurally or substantively unconscionable.
The court further determined that Hobbs Center and THI-NM were covered by the
arbitration agreement but that FAS and FCC were not covered. The court therefore
denied the motion to compel arbitration with respect to FAS and FCC and granted the
motion with respect to Hobbs Center and THI-NM.
FAS and FCC filed a notice of appeal from the district court’s decision.
Ms. Patton did not file a cross-appeal.
B. The Lovato Case, No. 12-2065
In appeal number 12-2065 (“the Lovato case”), defendant-appellee Mary
Louise Lovato filed a state court action against FAS and FCC and others for
negligence, wrongful death, misrepresentation, and other state law claims related to
the care her grandmother, Guadalupe Duran, received at the Vida Encantada nursing
home. When Ms. Duran was admitted to Vida Encantada, her daughter, Mary Ann
Atencio, signed an arbitration agreement on her behalf. An authorized agent of Vida
Encantada also signed the agreement. It stated:
RESIDENT/REPRESENTATIVE UNDERSTANDS THAT BY
SIGNING THIS ARBITRATION AGREEMENT, HE/SHE IS
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WAIVING HIS/HER RIGHT TO HAVE CLAIMS INCLUDING
MALPRACTICE CLAIMS, HE/SHE MAY HAVE AGAINST THE
HEALTH CARE CENTER (INCLUDING ITS AGENTS,
EMPLOYEES, SERVANTS, PARENTS, SUBSIDIARIES, AND
AFFILIATES) BROUGHT AS A LAWSUIT IN COURT BEFORE
A JUDGE OR JURY.
12-2065 Aplt. App. at 121.
After Ms. Lovato filed the state action, four of the defendants—FAS, FCC,
THI of New Mexico at Vida Encantada, LLC (“Vida Encantada”) and THI-NM—
filed a complaint and a motion in federal court to compel arbitration. In response,
Ms. Lovato asserted that the arbitration agreement could not be enforced because
(1) it named an unavailable arbitrator; (2) it was procedurally unconscionable;
(3) Ms. Duran’s estate was not bound by the agreement; (4) the only entity that could
arguably compel arbitration was Vida Encantada; and (5) plaintiffs had waived any
right to compel arbitration because more than a year had passed since the state court
suit was filed.
The district court concluded that the unavailability of the arbitrator did not
render the agreement unenforceable, the agreement was not procedurally
unconscionable, and the arbitration clause was enforceable against Ms. Duran’s
estate. Relying on the district court’s analysis in the Patton case, the court
determined that Vida Encantada and THI-NM were covered by the arbitration
agreement but that FAS and FCC were not covered. The court therefore denied the
motion to compel arbitration with respect to FAS and FCC and granted the motion
with respect to Vida Encantada and THI-NM.
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FAS and FCC filed a notice of appeal from the district court’s decision.
Ms. Lovato did not file a cross-appeal.
II. DISCUSSION
A. Legal Background
We review de novo the district court’s decisions denying FAS and FCC’s
motions to compel arbitration, applying the same legal standard employed by the
district court. Avedon Eng’g, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir. 1997).
When considering a motion to compel arbitration, the court must give “‘the
opposing party the benefit of all reasonable doubts and inferences that may arise.’”
DeArmond v. Halliburton Energy Servs., Inc., 81 P.3d 573, 576 (N.M. Ct. App. 2003)
(quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir.
1980)).
Although the Federal Arbitration Act (“FAA”) provides a procedure for parties
to compel arbitration, see 9 U.S.C. § 4, “the existence of an agreement to arbitrate is
a threshold matter which must be established before the FAA can be invoked.”
Avedon, 126 F.3d at 1286-87. “The party attempting to compel arbitration carries the
burden of demonstrating a valid arbitration agreement.” Corum v. Roswell Senior
Living, LLC, 248 P.3d 329, 331 (N.M. Ct. App. 2010). “We look to state law
principles of contract formation to tell us whether an agreement to arbitrate has been
reached.” Avedon, 126 F.3d at 1287.
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FAS and FCC are not signatories to the arbitration agreements at issue in the
Patton and Lovato cases. Under New Mexico law, “[g]enerally, third parties who are
not signatories to an arbitration agreement are not bound by the agreement and are
not subject to, and cannot compel, arbitration.” Horanburg v. Felter, 99 P.3d 685,
689 (N.M. Ct. App. 2004). FAS and FCC may, however, be entitled to enforce the
agreements as third-party beneficiaries. See, e.g., Fleet Mortg. Corp. v. Schuster,
811 P.2d 81, 82 (N.M. 1991).
“Whether a party is a third-party beneficiary depends on if the parties to the
contract intended to benefit the third party.” Id. at 82-83. “The burden is on the
person claiming to be a third-party beneficiary to show that the parties to the contract
intended to benefit him.” Tarin’s, Inc. v. Tinley, 3 P.3d 680, 686 (N.M. Ct. App.
1999). “Such intent must appear either from the contract itself or from some
evidence that the person claiming to be a third party beneficiary is an intended
beneficiary.” Fleet Mortg., 811 P.2d at 83 (internal quotation marks omitted).
B. District Court Decision
In their motion to compel arbitration in the Patton case, FAS and FCC argued
that, although they are not signatories to the agreement, “the Arbitration Agreement’s
plain language expressly covers [Ms. Patton’s] causes of action against [them].”
12-2014 Aplt. App. at 99. They asserted that Mr. Patton “expressly WAIVE[D]
HIS[] RIGHT TO HAVE CLAIMS . . . HE[] MAY HAVE AGAINST [HOBBS]
(INCLUDING ITS PARENTS, AFFILIATES . . . [AND] OWNERS . . . )
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BROUGHT AS A LAWSUIT IN COURT BEFORE A JUDGE OR JURY.” Id.
(internal quotation marks omitted).
In response, Ms. Patton argued that FAS and FCC had “failed to meet their
threshold burden of establishing that an agreement to arbitrate existed” and that only
Hobbs Center was bound by the agreement and able to compel arbitration. Id. at 153.
In reply, FAS and FCC again asserted that “the Arbitration Agreement itself
says that these non-signatory Plaintiffs are parties to the Agreement.” Id. at 174. In
support, they cited the following passage: “This Agreement is between Hobbs [],
[and] its parents, affiliates . . . . (emphasis added).” Id. (internal quotation marks
omitted). They also quoted again from the bold language referenced above and
emphasized that the agreement covered “PARENTS, [AND] AFFILIATES . . .” Id.
(internal quotation marks omitted). Finally, they stated: “As explained in the
complaint [] ¶ 1, THI-NM is the sole member of Hobbs, and FAS and FCC are
affiliates.” Id. at 174-175.
The district court noted that the arbitration agreement does not define the
terms “parents,” “affiliates,” or “owners.” The court looked to a dictionary definition
of those terms and then determined that neither FAS nor FCC was a parent company
or owner of Hobbs Center. The court further determined that the relationship
between FAS and FCC with Hobbs Center was too attenuated and indirect for the
court to determine as a matter of law that they were affiliates. The court denied the
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motion to compel, concluding that “FCC and FAS have not met their burden of
demonstrating that they can compel arbitration under the agreement.” Id. at 307.
C. Analysis
We first address the Patton appeal. Our analysis in that case applies to and
controls our decision in the Lovato case.
On appeal, FAS and FCC do not challenge the district court’s conclusion that
they are not “parents” or “owners.”1 They assert, however, that the district court
erred because they are “affiliates” of Hobbs Center. FAS and FCC also argue that
they are covered by the arbitration agreement because they are “agents” of Hobbs
Center.
1. Affiliate Argument
We agree with the district court that FAS and FCC did not meet their burden
of showing that they could compel arbitration under the agreement because they are
covered as “affiliates.” To prevail on their motion to compel arbitration, FAS and
FCC needed to show what the term “affiliates” means in the arbitration agreement
and how their relationship with Hobbs Center meets that definition.
In their motion to compel, FAS and FCC asserted that the plain language of
the agreement covered them and then quoted the “parents” and “affiliate” language
1
Before the district court, FAS and FCC also argued that they could compel
arbitration based on the doctrine of equitable estoppel. The district court disagreed.
FAS and FCC do not challenge this ruling on appeal. See 12-2014 Aplt. Reply Brief
at 5-6 (“The Opening Brief did not ask this Court to review the equitable estoppel
issue[;] . . . [t]herefore, the equitable-estoppel issue is not before this Court.”).
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without offering any further explanation. See id. at 99. In their reply brief, they
simply asserted that “FAS and FCC are affiliates.” Id. at 175. The only explanation
that they offered as to why they are “affiliates” was a citation to paragraph one of
their complaint, id. at 174.
Paragraph one states:
Plaintiff Hobbs is a Delaware limited liability company. Plaintiff
Hobbs’ sole member is Plaintiff THI-NM, which is itself a Delaware
limited liability company that has a single member, THI of Baltimore,
Inc., a Delaware corporation with its principal place of business in
Maryland. Plaintiff FCC is a Delaware limited liability company, the
sole member of which also is THI of Baltimore, Inc. Thus for purposes
of federal diversity jurisdiction, Plaintiff Hobbs, THI-NM and FCC are
citizens of the States of Delaware and Maryland.
Id. at 6.
This paragraph identifies the citizenship of each of the corporate entities for
diversity purposes. It does mention that FCC and THI-NM both have as their sole
member THI of Baltimore. But it fails to explain how FCC is an “affiliate” of Hobbs
Center. The term “affiliate” is not used or defined anywhere in this paragraph.
Moreover, FAS is not mentioned, although the next paragraph does state that “FAS is
a Delaware limited liability company” and “FAS’s sole member is Fundamental
Long-Term Care Holdings, LLC (“FLTCH”).” Id. at 7. Nothing in the complaint or
the motion to compel explains the relationship between FAS and Hobbs Center or
explains how FAS is an “affiliate” of Hobbs Center.
With little help from FAS and FCC to decide this issue, the district court
consulted the dictionary, using the following definition of “affiliate”: “‘[a] person,
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organization, or establishment associated with another as a subordinate, subsidiary,
or member.’” 12-2014 Aplt. App. at 289 (quoting The American Heritage Dictionary
29 (4th ed. 2006) (emphasis added)). Applying this definition to the allegations
concerning the relationships among FAS, FCC, and Hobbs Center from the Patton’s
state court complaint, the district court could not determine as a matter of law that the
parties contemplated FAS and FCC to be entities covered by the arbitration
agreement.
FAS and FCC now assert that we should use the following definition of
“affiliate”: “a company effectively controlled by another or associated with others
under common ownership or control.” Webster’s Third New Int’l Dictionary 35
(2002). Applying this definition, they contend that “[b]ecause Hobbs Center, [FAS]
and [FCC] share a common non-managing parent company, it follows that [FAS] and
[FCC] are ‘affiliates’ of Hobbs Center within the plain meaning of the arbitration
agreement.” Aplt. Br. at 15.
FAS and FCC raise this argument for the first time on appeal. In the district
court, they did not offer any definition of “affiliates,” nor did they offer this
explanation of the relationship between the various entities.2 We would normally
2
The opening brief offered this additional explanation of the relationships
amongst the various entities:
Fundamental Long Term Care Holdings, LLC (“FLTCH”) is the sole
(non-managing) member of [FAS] and the sole shareholder of THI of
Baltimore, Inc. (“THIB”), which is the sole (non-managing) member of
[FCC]. THIB is also the sole (non-managing) member of [THI-NM],
(continued)
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consider such an argument waived, but given the district court’s sua sponte reliance
on dictionary definitions, we will consider it. We conclude, however, that this
argument does not demonstrate that the district court erred in denying the motion to
compel arbitration.
Although a dictionary can be used to help find the common or ordinary
definition of a term, see, e.g., Battishill v. Farmers Alliance Insurance Company,
127 P.3d 1111, 1113 (N.M. 2006), the dictionary definitions of “affiliate” are
inconclusive in this case, see Carmichael v. The Payment Ctr., Inc., 336 F.3d 636,
639-40 (7th Cir. 2003). FAS and FCC present no legal authority or evidence related
to the contract to support their preferred definition. See Farmington Police Officers
Ass’n Commc’n Workers of Am. Local 7911 v. City of Farmington, 137 P.3d 1204,
1210 (N.M. Ct. App. 2006) (“[W]here the meaning of a material contract term is in
dispute a party seeking affirmative relief based upon its interpretation necessarily
bears the burden of establishing that its interpretation controls.”).3
which, in turn is the sole (non-managing) member of Hobbs Center.
Thus, FLTCH is the direct non-managing parent company of [FAS], the
indirect non-managing parent company of [FCC] and Hobbs Center, and
the ultimate parent company of all three entities.
Aplt. Br. at 2 n.1.
3
Other dictionaries give varying definitions of “affiliate.” Compare Webster’s
Ninth New Collegiate Dictionary 61 (1985) (“an affiliated person or organization”)
with Oxford English Dictionary, http://oed.com (last visited Nov. 6, 2012) (“A person
or organization that is affiliated with a larger body; a member”) with Black’s Law
Dictionary 67 (9th ed. 2009) (“A corporation that is related to another corporation by
(continued)
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In sum, FAS and FCC bear the burden of showing that they are covered by the
arbitration agreement, which requires them, as non-signatories, to demonstrate that
they are third-party beneficiaries to the contract. In their motion to compel
arbitration, FAS and FCC relied on a “plain language” argument and the conclusory
assertion that they were “affiliates.” They failed to explain what “affiliates” means
in the agreement and how that term applies to their relationship with Hobbs Center.
On appeal, they present their preferred dictionary definition without a persuasive
reason why their definition should control. Viewing the motion to compel arbitration
in the light most favorable to Ms. Patton, the non-moving party, we agree with the
district court that FAS and FCC failed to meet “their burden of demonstrating that
they can compel arbitration under the agreement.” 12-2014 Aplt. App. at 307.
2. Agent Argument
We decline to consider FAS and FCC’s second argument that they were
Hobbs’ “agents” because it was not raised before the district court. See, e.g.,
Tele-Commc’ns, Inc. v. Comm’r, 104 F.3d 1229, 1232 (10th Cir. 1997) (“Generally,
an appellate court will not consider an issue raised for the first time on appeal.”).
Perhaps in anticipation of our position on this issue, FAS and FCC argue that it was
the district court’s burden to consider sua sponte whether they could fit within the
shareholdings or other means of control; a subsidiary, parent, or sibling
corporation.”). Some definitions focus on a membership relationship to be an
affiliate, while others emphasize common ownership or control.
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definition of “agent” or any of the other enumerated classes of beneficiaries.
See 12-2014 Aplt. Br. at 21 n.4. We disagree.
As movants to compel arbitration, FAS and FCC had the burden of showing
that they are third-party beneficiaries covered by the arbitration agreement. See
Corum, 248 P.3d at 331 (“The party attempting to compel arbitration carries the
burden of demonstrating a valid arbitration agreement.”); Tarin’s, Inc., 3 P.3d at 686(“The burden is on the person claiming to be a third-party beneficiary to show that
the parties to the contract intended to benefit him.”). The district court correctly
noted that FAS and FCC focused their argument on the terms “parents,” “affiliates,”
and “owners.” See 12-2014 Aplt. App. at 99; 174-175. If FAS and FCC wanted the
district court to consider whether they were “agents,” or any other listed entity
covered by the arbitration agreement, it was their burden to present that argument to
the district court. We will not consider this argument for the first time on appeal.
3. Lovato Appeal
As for the Lovato appeal, the arbitration agreement in that case also stated that
it covered “affiliates,” and that term was not defined in the agreement. 12-2065 Aplt.
App. at 121. FAS and FCC made the same conclusory “plain language” argument in
their motion to compel as they did in the Patton case. Compare 12-2065 Aplt. App.
at 47 with 12-2014 Aplt. App. at 99. Relying on the district court’s analysis from the
Patton case, see 12-2065 Aplt. App. at 304-305, the district court in Lovato
concluded that “FCC and FAS have not met their burden of demonstrating that they
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may compel arbitration under the Arbitration Agreement,” id. at 314. FAS and FCC
raise the same arguments on appeal that they raised in the Patton case. We therefore
reach the same conclusion and affirm the district court’s decision based on our
analysis in the Patton case.
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s judgments in appeal
12-2014 and in appeal 12-2065.4
Entered for the Court
Scott M. Matheson, Jr.
Circuit Judge
4
Ms. Patton submitted a supplemental authority letter pursuant to Rule 28(j) of
the Federal Rules of Appellate Procedure. Attached to the letter was a copy of
Figueroa v. THI of N.M. at Casa Arena Blanca, LLC, et al., No. 30,477, slip op.
(N.M. Ct. App. July 18, 2012), cert. denied, No. 33,762 (N.M. Oct. 3, 2012). The
letter states that this supplemental authority was submitted “because it addresses the
enforceability of the arbitration clause at issue in this case.” The Figueroa court
concluded that the arbitration clause, which was virtually identical to the one in this
case, could not be enforced because it was unconscionable. If this Rule 28(j) letter
was submitted to suggest that we should consider whether the arbitration clause is
unconscionable, that issue is not properly before this court because Ms. Patton did
not file a cross-appeal from the district court’s decision. See Trigalet v. Young,
54 F.3d 645, 647 n.3 (10th Cir. 1995) (holding that court lacked jurisdiction to
consider issue when party did not file a cross-appeal).
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