Kilgore v. Mullenax, CV–16–238

• Decision Date: 01 June 2017
• Docket Number: No. CV–16–238,CV–16–238
• Citation: 520 S.W.3d 670
• Parties: Joshua KILGORE, Appellant v. Robert MULLENAX and Senior Dental Care, LLC, Appellees
• Court: Arkansas Supreme Court

520 S.W.3d 670

Joshua KILGORE, Appellant

v.Robert MULLENAX and Senior Dental Care, LLC, Appellees

No. CV–16–238

Supreme Court of Arkansas.

Opinion Delivered: June 1, 2017

Smith, Cohen & Horan, PLC, Fort Smith, by: Matthew T. Horan and Stephen C. Smith, for appellant.

Gill Ragon Owen, P.A., Little Rock, by: Dylan H. Potts and Danielle M. Whitehouse, for appellees.

RHONDA K. WOOD, Associate Justice

This case involves the registration of an arbitration award. In deciding this appeal, we must address the following two issues: (1) whether jurisdiction was proper under the Federal Arbitration Act (FAA), and (2) whether the award should have been vacated on public-policy grounds. We conclude the FAA applied and the circuit court did not err in failing to vacate the award on public-policy grounds. We affirm the circuit court's order confirming the award.

I. Factual Background

This appeal arises from a dispute submitted to arbitration. The arbitrator established the following facts by a written opinion. Joshua Kilgore and Robert Mullenax were business partners in an Arkansas dental-management company, Senior Dental Care, LLC (SDC).¹ Kilgore left SDC in 2013. Kilgore signed a settlement agreement, which included both a noncompete clause and a nondisparagement clause. Kilgore and Mullenax agreed to submit any disputes to arbitration in accord with the rules of the American Arbitration Association (AAA).

Shortly after signing the noncompete, Kilgore bought an ownership interest in a Tennessee company that was a direct competitor with Mullenax. Accordingly, Mullenax filed an arbitration claim to enforce the non-compete. In response, Kilgore filed a claim with the Arkansas Insurance Department. He alleged Mullenax was engaged in a kickback scheme. Mullenax spent $7000 defending this unsubstantiated allegation.

The underlying business dispute proceeded to arbitration. The arbitrator first noted that under AAA rules, which the parties agreed would govern the arbitration, the arbitrator had the power to determine jurisdiction. The arbitrator concluded the FAA applied because the agreement and its prohibited activities involved interstate commerce. Turning to the merits, the arbitrator found that Kilgore had violated the noncompete, but did not award damages on that claim. The arbitrator also found that Kilgore had violated the nondisparagement clause by making his report to the Insurance Department. The arbitrator noted that Kilgore's motive for making the report was to gain an advantage in arbitration. The arbitrator awarded Mullenax $7000 on this claim. Later on, the arbitrator awarded Mullenax an additional $136,000 in attorney's fees, expert-witness fees, and expenses.

Mullenax filed a petition to enforce the award in circuit court. In response, Kilgore filed a cross-petition to vacate the award. First, he argued the arbitrator lacked the authority to hear the case under either federal or Arkansas law. Second, he argued his statements to the Insurance Department were protected by Arkansas public policy. The circuit court ultimately confirmed the award. Kilgore then appealed to the court of appeals, which affirmed. See Kilgore v. Mullenax , 2016 Ark. App. 143, 485 S.W.3d 705. We subsequently accepted the case on petition for review. When we grant a petition for review, we consider the appeal as though it had been originally filed in this court. Covenant Presbytery v. First Baptist Church , 2016 Ark. 138, 489 S.W.3d 153.

II. Principles of Law and Analysis

To begin with, our standard of review for arbitration awards is deferential. We have explained that the court's role is limited to determining if the arbitrator acted within its jurisdiction. Hart v. McChristian , 344 Ark. 656, 42 S.W.3d 552 (2001). State and federal courts have concurrent jurisdiction to enforce an arbitration agreement pursuant to the FAA. Ruth R. Remmel Revocable Trust v. Regions Fin. Corp. , 369 Ark. 392, 255 S.W.3d 453 (2007). The party attempting to vacate the arbitration award has the burden of proof. Anthony v. Kaplan , 324 Ark. 52, 58, 918 S.W.2d 174, 177 (1996). Judicial review of an arbitrator's award is more limited than appellate review of a trial court's decision. Ark. Dep't of Parks & Tourism v. Resort Managers, Inc. , 294 Ark. 255, 260, 743 S.W.2d 389, 391–92 (1988). Whenever possible, a court must construe an award so as to uphold its validity, and gross errors of judgment in law or a gross mistake of fact will not serve to vitiate an award unless these mistakes or errors are apparent on the face of the award. Id. "The decision of the arbitration board on all questions of law and fact is conclusive.... The court shall confirm an award unless grounds are established to support vacating or modifying the award." Dean Witter Reynolds, Inc. v. Deislinger , 289 Ark. 248, 251, 711 S.W.2d 771, 772 (1986) (citing Wessell v. Crossett Public Sch. Dist. , 287 Ark. 415, 701 S.W.2d 99 (1985) ).

A. Does the FAA apply?

The parties' written agreement provided that the rules of the AAA would apply to any future arbitration. AAA Rule 7 provides that "the arbitrator shall have the power to rule on his or her own jurisdiction." AAA Commercial Arbitration Rules (available at http://www.adr.org/commercial). The arbitrator here determined that jurisdiction was proper under the FAA. The FAA covers arbitration disputes concerning transactions in interstate commerce. 9 U.S.C. § 2.

The FAA "applies if the transaction involves interstate commerce, even if the parties did not contemplate an interstate commerce connection, and the language of the FAA makes an arbitration provision enforceable in a contract evidencing a transaction involving commerce to the limits of Congress' Commerce Clause power." Gruma Corp. v. Morrison , 2010 Ark. 151, at 8, 362 S.W.3d 898, 903 (internal quotation marks omitted). The United States Supreme Court has noted that "Congress' Commerce Clause power may be exercised in individual cases without showing any specific effect upon interstate commerce if in the aggregate the economic activity in question would represent a general practice subject to federal control." Citizens Bank v. Alafabco, Inc. , 539 U.S. 52, 56–57, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003) (internal quotation marks omitted).

Kilgore argues that the arbitrator and the circuit court were incorrect when they found that the case should be arbitrated under the FAA. Kilgore's central argument is that the settlement agreement between him and Mullenax simply involved a stock transaction in an Arkansas company between two Arkansas individuals. He states the following: "The changes in share ownership in this case did not evidence a transaction in commerce."

The parties agreed that the arbitrator would determine jurisdiction; thus, his decision regarding applicability of the FAA was within his authority. The FAA does not provide Kilgore with an opportunity to relitigate this finding. The arbitrator found that the two businesses at issue were located in different states and traded in goods that crossed state lines. The arbitrator also noted that both businesses received medical supplies and equipment that crossed state lines and found that the businesses were both involved in processing federal Medicaid and Medicare moneys. The arbitrator concluded the following: "Because the agreements and their prohibited activities ‘involve interstate commerce’ and are the type of activities that usually ‘involve interstate commerce,’ the FAA applies to this arbitration." The arbitrator's findings and jurisdictional adjudication are conclusive.² We therefore have no basis to reverse.

B. Should the Circuit Court Have Vacated the Arbitration Award on Public Policy Grounds?

Because the FAA is the governing law, a court's ability to set aside the arbitration order award is limited. See St. John's Mercy Med. Ctr. v. Delfino , 414 F.3d 882, 884 (8th Cir. 2005) ("Our review of an arbitration award under the Federal Arbitration Act is exceedingly limited and deferential."). The United States Supreme Court has held that when an arbitration agreement falls under the FAA, the FAA provides the "exclusive grounds" upon which to vacate an arbitration award. Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 584, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). The FAA provides only for a "limited review needed to maintain arbitration's essential virtue of resolving disputes straightaway.... Any other reading opens the door to the full-bore legal and evidentiary appeals that can render informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process." Id. at 588, 128 S.Ct. 1396 (internal quotation marks omitted).

The FAA provides that a court "must" confirm an arbitration award "unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title." 9 U.S.C. § 9. The grounds provided in section 10 of the FAA for vacatur are as follows:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10.³ Kilgore has not alleged the circuit court should have vacated the arbitrator's award under any of the four listed grounds. Nor has he cited any other provision in the FAA for vacatur. Rather, he contends the court can and should vacate the arbitration award because it violates an Arkansas public-policy providing that "no cause of action shall arise" from a person's furnishing information regarding fraudulent insurance acts...