Doe v. Carmel Operator, LLC

• Decision Date: 15 January 2021
• Docket Number: Supreme Court Case No. 21S-CT-15
• Citation: 160 N.E.3d 518
• Parties: Jane DOE I, as Legal Guardian of the Person and Estate of Jane Doe II, an Incapacitated Adult, Appellant v. CARMEL OPERATOR, LLC d/b/a Carmel Senior Living, et al., Appellees
• Court: Indiana Supreme Court

160 N.E.3d 518

Jane DOE I, as Legal Guardian of the Person and Estate of Jane Doe II, an Incapacitated Adult, Appellant

v.CARMEL OPERATOR, LLC d/b/a Carmel Senior Living, et al., Appellees

Supreme Court Case No. 21S-CT-15

Supreme Court of Indiana.

Argued: September 24, 2020

Filed January 15, 2021

ATTORNEY FOR APPELLANT, Ashley N. Hadler, Garau Germano, P.C., Indianapolis, Indiana.

ATTORNEYS FOR APPELLEES CARMEL OPERATOR, LLC AND SPECTRUM RETIREMENT COMMUNITIES, LLC, Katherine M. Haire, Reminger Co., LPA, Indianapolis, Indiana, Rafael P. McLaughlin, Reminger Co., LPA, Fort Wayne, Indiana.

ATTORNEYS FOR APPELLEE CERTIPHI SCREENING, INC., Chad J. Kaldor, Littler Mendelson, P.C., Columbus, Ohio, Peter T. Tschanz, Littler Mendelson, P.C., Indianapolis, Indiana.

ATTORNEYS FOR APPELLEE MICHAEL DAMON SULLIVAN, David G. Field, Jeffrey M. Kraft, Schultz & Pogue, LLP, Indianapolis, Indiana.

ATTORNEY FOR AMICUS CURIAE INDIANA TRIAL LAWYERS ASSOCIATION, James E. Stolz, Gerling Law Offices, P.C., Evansville, Indiana.

Rush, Chief Justice.

Agreements to arbitrate have become commonplace in modern society. Many appreciate how they can keep legal costs down, ensure parties' confidentiality, and provide a flexible alternative to the traditional court system. Despite these benefits, there are limits to enforcing arbitration agreements, particularly when outside parties are involved.

Generally, to enforce an arbitration clause, one must be either a signatory or otherwise provided for in the original agreement. In rare circumstances, however, an outside party not contemplated by the agreement may enforce an arbitration clause against a signatory. One way is by invoking the doctrine of equitable estoppel.

Under Indiana law, equitable estoppel can be applied only if three elements are shown: lack of knowledge, reliance, and prejudicial effect. We reiterate these three requirements today and decline to adopt any alternative theories of the doctrine.

Facts and Procedural History

Seventy-seven-year-old Jane Doe II ("Jane") was asked to leave her previous assisted living facility when it could no longer provide her the care she needed. Jane's legal guardian, Jane Doe I ("Guardian"), toured a number of communities and ultimately chose Carmel Senior Living ("CSL"). After Guardian paid a deposit to CSL and arranged for Jane to move in, CSL emailed her its residency contract. Within the residency contract was an arbitration agreement ("Agreement"), which Guardian initialed. Guardian later signed and delivered the entire contract to CSL.

After Jane had been living at the community for a few months, Guardian filed a complaint against CSL; CSL's management company, Spectrum; and one of CSL's employees, Michael Sullivan. The complaint alleged that Sullivan had sexually abused Jane and that CSL and Spectrum (together, "CSL") should be vicariously liable for her damages.

Guardian later amended the complaint to add Certiphi Screening, the company CSL had hired to run background checks on new employees, after she learned of its involvement. The amended complaint alleged that both CSL and Certiphi negligently failed to discover Sullivan's prior felony convictions for a sex crime and murder.

CSL demanded that Guardian arbitrate her claims under the Agreement, but Guardian refused. Certiphi also demanded arbitration. Although not a signatory to the Agreement, Certiphi argued, in relevant part, that Guardian's claims against it are nonetheless subject to arbitration under either a theory of agency or equitable estoppel. Guardian countered that Certiphi was not a party to the Agreement and thus the Agreement was inapplicable to it.

The trial court agreed with CSL and Certiphi, granting their motions to compel. As to Certiphi, the court determined that the Agreement covered the company under an agency theory. The court also concluded that equitable estoppel mandated arbitration of Guardian's claims against Certiphi, relying on German American Financial Advisors & Trust Co. v. Reed , 969 N.E.2d 621 (Ind. Ct. App. 2012). In Reed , our Court of Appeals adopted two alternative theories of equitable estoppel that allow, under certain circumstances, a nonsignatory to compel arbitration against a signatory. Id. at 627–28 (citing MS Dealer Serv. Corp. v. Franklin , 177 F.3d 942, 947 (11th Cir. 1999) ). The trial court determined both theories applied.

Guardian appealed, and the Court of Appeals affirmed. Doe 1 v. Carmel Operator, LLC , 144 N.E.3d 743, 759 (Ind. Ct. App. 2020). We now grant transfer to address whether Certiphi can compel arbitration against Guardian. Ind. Appellate Rule 58(A). On all other points, we summarily affirm the Court of Appeals. See App. R. 58(A)(2).

Standard of Review

A trial court's decision on a motion to compel arbitration is reviewed de novo. Med. Realty Assocs., LLC v. D.A. Dodd, Inc. , 928 N.E.2d 871, 874 (Ind. Ct. App. 2010).

Discussion and Decision

Certiphi, a nonsignatory, argues that it can enforce the arbitration clause against Guardian, who was a party to the Agreement. Certiphi asserts that it is an agent—making it an intended third-party beneficiary—or that equitable estoppel applies.

To resolve this dispute, we apply Indiana contract law principles. We acknowledge that CSL and Guardian chose the Federal Arbitration Act to govern their agreement, rather than state law. But while federal law governs the Agreement's substance, the United States Supreme Court has explained that traditional state contract law principles will control the Agreement's scope. Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630–31, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). And an agreement's scope includes "the question of who is bound by [it]." Id. at 630, 129 S.Ct. 1896. In short, while the substantive terms of an agreement will be interpreted under federal law, the question of who is bound by it is the domain of state law.

Indiana has long recognized the freedom of parties to enter into contracts. Fresh Cut, Inc. v. Fazli , 650 N.E.2d 1126, 1129 (Ind. 1995). Indeed, we presume that they represent the freely bargained agreement of parties. Id. We will thus enforce contracts, so long as they aren't illegal or against public policy. Id. at 1130.

These basic principles govern arbitration agreements.

MPACT Constr. Grp., LLC v. Superior Concrete Constructors, Inc. , 802 N.E.2d 901, 906 (Ind. 2004). So, when two parties enter into a contract that includes an arbitration clause, courts will presume the parties made the agreement willingly. Id. And, unless something in the arbitration clause is illegal or contravenes public policy, a court will enforce it so long as the dispute is covered within the broader contract. See Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 445–46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) ; Brumley v. Commonwealth Bus. Coll. Educ. Corp. , 945 N.E.2d 770, 777 (Ind. Ct. App. 2011). These concepts are straightforward. But enforcing an arbitration clause can get more complicated when the agreement involves a nonsignatory.

Applying Indiana contract-law principles, we conclude that Certiphi cannot enforce the Agreement. As explained below, the record does not support a finding of an agency relationship; Certiphi cannot satisfy the established elements of equitable estoppel; and we decline to endorse any alternative theories of the doctrine.

I. Certiphi is not an "agent," one of the third-party beneficiaries provided for in the arbitration clause.

Certiphi argues that it can enforce the arbitration agreement, reasoning that the agreement explicitly requires Guardian to arbitrate her dispute with an agent of CSL. As explained below, while we agree that an "agent" is an intended third-party beneficiary in the Agreement, there is no evidence of an agency relationship between Certiphi and CSL.

Ordinarily, only contracting parties, or those in privity with them, have rights under an arbitration agreement. OEC-Diasonics, Inc. v. Major , 674 N.E.2d 1312, 1314–15 (Ind. 1996). But these parties may want to allow a nonsignatory, like Certiphi, to also enforce the agreement when a dispute arises. In those cases, the parties must make it explicit in the contract. Id. at 1315.

When the signatories expressly communicate that desire, the outside party is an intended third-party beneficiary because the agreement imposes an obligation on a contracting party in favor of the nonsignatory. Id. It is not enough, however, that performance of the contract would benefit the outside party; the contracting parties' intent must be clear. Id.

Thus, our first step in determining whether Certiphi, a nonsignatory, can compel Guardian to arbitrate is to look at the language of the arbitration agreement. See Care Grp. Heart Hosp., LLC v. Sawyer , 93 N.E.3d 745, 752–53 (Ind. 2018). Here, CSL's agreement with Guardian provided that claims involving Jane's stay at CSL shall be resolved by arbitration, including claims against "[CSL's] employees, agents, officers, directors, any parent, subsidiary or affiliate of [CSL]." Under the Agreement, then, Guardian had a duty to arbitrate her claims against any of these listed parties since they were third-party beneficiaries who would explicitly benefit from Guardian's agreement with CSL if Guardian ever brought a claim against them.

Certiphi argues that it is an "agent" of CSL and therefore is covered under the terms of the Agreement. An agency relationship involves an "agent" agreeing to transact some business or manage some affair on behalf of a "principal." Kifer v. State , 137 N.E.3d 990, 992 (Ind. Ct. App. 2019). There are three requirements for an agency relationship to exist: (1) a manifestation of the principal's consent; (2) the agent's acceptance of authority; and (3) control exerted by the principal over the agent. Id. (quoting Demming v. Underwood , 943 N.E.2d 878, 883 (Ind. Ct. App. 2011), trans. denied ).

Nothing in the record supports a conclusion that these elements have been satisfied. Even if we assume that CSL consented...