Contract Interpretation

A Mississippi federal court granted a motion to compel arbitration of a claim for reimbursement of medical expenses from the defendant, a company that provides health care sharing plan alternatives to those of Christian faith. The plaintiff had signed a membership agreement stating that he would abide by the defendant’s guidelines, under which members, such as the plaintiff, were required to exhaust an “appeals” process for challenging bill-sharing decisions before resorting to any sort of legal procedures against the defendant. If the appeals process did not resolve the dispute, a “biblically-based mediation and arbitration” clause in the guidelines stated that any and all disputes arising out of the membership agreement shall be settled by “biblically-based mediation.” If that mediation fails, the member may submit the dispute to an independent and objective arbitrator for binding arbitration but otherwise waives his or her right to file a lawsuit.

Addressing the defendant’s motion, the court first held that the provision above constituted a valid arbitration agreement and that the subject dispute fell within the scope thereof. The court noted that the plaintiff had indeed agreed that he “will bring no suit, legal claim or demand of any sort … in the civil court system, with the sole exception of enforcing any favorable arbitration award or mediated agreement.” As such, the court explained that arbitration was required unless a federal statute or policy rendered the plaintiff’s claim non-arbitrable. Because the plaintiff failed to identify any such statute or policy, the court granted the defendant’s motion to compel arbitration.

Pettey v. Medi Share, No. 2:19-cv-00059 (S.D. Miss. Oct. 1, 2019).

The defendants moved to compel arbitration of a complex dispute concerning the parties’ investment in medical marijuana companies. The plaintiff claimed that the defendants breached a non-compete agreement and fiduciary obligations by taking virtually all the business belonging to the parties’ mutual holding company and transferring it to a competing company in which the plaintiff held a substantially smaller interest. The holding company’s operating agreement contained a broad arbitration clause requiring that all disputes, claims, rights, and obligations between the parties arising out of the agreement be resolved by final and binding arbitration. The plaintiff brought suit in New York state court seeking to compensate the holding company for its loss of business. The defendants argued that the plaintiff’s claims were barred by the statute of limitations and laches, and moved to dismiss and/or compel arbitration under the operating agreement.

While agreeing that the defendants had potentially strong affirmative defenses, including a statute of limitations and laches, the court held that the merits of these claims and defenses must be decided by an arbitrator. Although New York law allows courts to rule on “gateway” issues, such as a statute of limitations and laches defenses, the court held that the Federal Arbitration Act (FAA) applied here because the matter involved interstate commerce. Under the FAA, the court explained, threshold questions of these kinds are presumptively reserved for the arbitrator. The arbitration clause in this case also expressly incorporated the American Arbitration Association rules. New York courts generally defer arbitrability questions to the arbitrators in such cases. The court also held that the defendants did not waive their right to move to compel arbitration. Because the defendants insisted throughout the case that it belonged in arbitration, the court held that the plaintiff could not now claim to be prejudiced by the defendants’ request for that relief.

Broumand v. Abbot, No. 655954/2018 (N.Y. Sup. Ct. N.Y. Cty. Oct. 4, 2019).

The dispute involved a long-term health care provider and an assisted living services provider that was based in the same building. The union represented certain housekeeping employees at the location. The long-term health care provider was a signatory to the relevant collective bargaining agreements, and “for years” it applied the terms of the agreements to assisted living employees, including remitting union dues and health fund payments on their behalf. Another company began managing the housekeeping department at the property in 2013. The company signed an assumption agreement with respect to the operative collective bargaining agreement, under which the assisted living provider was not a signatory. The company ultimately stopped applying the 2008 collective bargaining agreement to the assisted living employees, and the union filed a grievance. Arbitration ensued, resulting in the issuance of the arbitration award at issue here.

On appeal, the defendants argued that the district court erred in confirming the arbitration award because the arbitrator exceeded his authority under the 2008 collective bargaining agreement, and, in doing so, the arbitrator violated public policy. The Second Circuit, however, affirmed the district court’s confirmation of the award based on the “strong presumption in favor of enforcing arbitration awards.” The Second Circuit relied on the fact that the collective bargaining agreement broadly authorized the arbitrator to resolve grievances, defined as “a dispute with regard to the application, interpretation or performance of an express term or condition” of the 2008 collective bargaining agreement. The court found that the arbitrator did resolve grievances within the meaning of the collective bargaining agreement here, as the arbitrator determined: (1) prior to 2013, the long-term health care and assisted living providers were treated as a single employer; (2) the assisted living provider was included in the “signatory employers list” of a prior collective bargaining agreement; (3) the long-term health care provider continued to provide those benefits under the 2008 collective bargaining agreement; and (4) the long-term health care provider and the management company violated the collective bargaining agreement by unilaterally removing assisted living employees from the bargaining unit.

The arbitrator also concluded that the long-term health care provider and assisted living provider’s single-employer status continued after the sale because the providers had interrelated operations, common management, centralized control of labor relations, and common ownership. The arbitrator’s determination of who was bound by the collective bargaining agreement by virtue of the parties’ conduct was within the scope of his authority and “an arguable construction of the agreement.” The Second Circuit rejected the defendants’ arguments that the award violated public policy by making the union the bargaining representative for assisted living employees and that the award did not draw its essence from the collective bargaining agreement.

1199 SEIU United Healthcare Workers E. v. Alaris Health at Hamilton Park, No. 18‐2898 (2d Cir. Sept. 17, 2019).

Nevada Revised Statutes section 597.995 requires agreements that include an arbitration provision to also include a specific authorization for the arbitration provision showing that the parties affirmatively agreed to that provision. When a settlement agreement referenced a licensing agreement that included an arbitration provision, the trial court denied the motion to compel arbitration, “concluding the arbitration provision was unenforceable because it did not include the specific authorization required by NRS 597.995.”

In reversing the decision, the Nevada Supreme Court held that the Federal Arbitration Act, 9 U.S.C. § 2, which provides that written provisions for arbitration are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” preempts section 597.995 and that the statute did not void the arbitration clause. The court cited Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996), wherein the “Supreme Court explained that under the FFA, courts may not ‘invalidate arbitration agreements under state laws applicable only to arbitration provisions,’ as Congress has ‘precluded states from singling out arbitration provisions for suspect status’ and requires arbitration provisions to be placed on ‘the same footing as other contracts.'” The parties were thus compelled to arbitrate.

MMAWC, LLC v. Zion Wood Obi Wan Tr., No. 75596 (Nev. Sept. 5, 2019).