Arbitration & Mediation

Second DCA Holds That AAA's Recent Refusal to Accept Pre-Injury Arbitration Agreements is Not a Material Term

By Christopher B. Hopkins, Esq.

We are anxious to report on the recent Second DCA opinion of Manor Care v. Catherine Stiehl as PR of Estate of Halloran, but we will have to build up to that case. This (other) recent Second DCA case conveniently builds a nice bridge between the Georgia cases in our prior posts and that new Manor Care case.

The Second District tackled, head on, whether an arbitration clause is still enforceable despite the fact that the clause refers matters to the American Arbitration Association -- or any other forum -- which cannot or will not hear the case. According to the Second DCA, the basis for compelling arbitration despite the absence of the forum was in front of us the whole time...

The case is New Port Richey Medical Investors, LLC d/b/a Life Care Center of New Port Richey; Forrest L. Preston Developers; Life Care Centers of American d/b/a Life Care Centers of Tennessee d/b/a; Life Care Center of New Port Richey et al. (Wallace, Davis and Silberman).

In this nursing home arbitration case, the resident apparently signed an admission agreement with an arbitration clause which referred any disputes to the AAA and stated that the arbitrators "shall apply the applicanle rules of procedure of the AAA." Of note, the opinion reports, but does not quote, that the agreement says that the AAA was to "administer" the arbitration. We'll get back to that later.

At the hearing, plaintiff's counsel sought to avoid arbitration by claiming that the AAA was an "essential, material term" since there was a choice of arbitrators and choice of procedural rules. That issue too we'll address below.

The court held that the Florida Administrative Code, section 682.04, holds that "...if the agreed method fails or for any reason cannot be followed, the court, on application of party to such agreement or provision shall appoint one or more arbitrators." In short, according to this Panel, if the intended forum is unavailable, the court will appoint a replacement.

Let's get back to the issues noted above. First, for lawyers who draft these agreements, the preferred language is that the AAA (or whatever forum) should not necessarily "administer" the arbitration since you do not know if that entity will exist or be willing to do so. Instead, the better wording for your clause is that the arbitration shall proceed according to their rules. It arguably is not foolproof, but it has worked in Idaho and Florida.

Next, note that the decision describes the situation where the lawyer seeking to avoid arbitration brought up that the AAA no longer accepts pre-injury arbitration agreements, citing the AAA's Healthcare Policy Statement, indicating that the AAA no longer takes such cases after January 1, 2003 (no word in the opinion how it was authenticated). Meanwhile, at least one website reports that the AAA has actually heard cases where a pre-injury agreement was later disputed... (caveat: it's unclear whether all the facts are known regarding the procedure which lead to that Duke case being arbitrated)

Of note, the question of whether something is an "essential material term" likely collides with a frequent tactic to avoid arbitration. Often, the plaintiff claims they did not know what they were signing and did not realize the arbitration clause existed until litigation. Arguably, then, the forum selection language was not such an "essential, material" term if the signor did not even know it was there. No indication whether that was an issue in this case but it is a solid tip for practitioners.

Full post as published by Florida Arbitration Law on August 24, 2009 (boomark / email).