Jones v. GGNSC PIERRE LLC

• Decision Date: 03 February 2010
• Docket Number: No. CIV. 09-3011-RAL.,CIV. 09-3011-RAL.
• Citation: 684 F. Supp.2d 1161
• Parties: Carol JONES, individually, and as Special Administrator of the Estate of Ruth Butler, deceased, Plaintiff, v. GGNSC PIERRE LLC, d/b/a Golden Living Center Pierre, Golden Gate National Senior Care LLC, GGNSC Equity Holdings LLC, GGNSC Clinical Services, LLC, and GGNSC Administrative Services, LLC, Defendants.
• Court: U.S. District Court — District of South Dakota

684 F.Supp.2d 1161

Carol JONES, individually, and as Special Administrator of the Estate of Ruth Butler, deceased, Plaintiff, v. GGNSC PIERRE LLC, d/b/a Golden Living Center Pierre, Golden Gate National Senior Care LLC, GGNSC Equity Holdings LLC, GGNSC Clinical Services, LLC, and GGNSC Administrative Services, LLC, Defendants.

No. CIV. 09-3011-RAL.

United States District Court, D. South Dakota, Central Division.

February 3, 2010.

Gregory Alan Eiesland, Johnson, Eiesland Law Offices, PC, Rapid City, SD, Joel E. Smith, Mark R. Kosieradzki, Kosieradzki Smith Law Firm, LLC, Minneapolis, MN, for Plaintiff.

Jeanelle R. Lust, Rodney M. Confer, Kevin R. McManaman, Knudsen, Berkheimer, Richardson & Endacott, LLP, Lincoln, NE, for Defendants.

OPINION AND ORDER COMPELLING ARBITRATION

ROBERTO A. LANGE, District Judge.

I. Introduction

The Defendants in this case seek to compel arbitration under a contract provision specifying binding arbitration "in accordance with the National Arbitration Forum Code of Procedure." The National Arbitration Forum ("NAF"), however, has entered into a Consent Judgment where it no longer arbitrates consumer disputes, such as the one at issue in this case. (Doc. 42 at Exhibit H). A split in authority exists over whether the unavailability of the NAF as a forum for consumer disputes renders arbitration agreements contemplating NAF as a forum unenforceable, or whether the Federal Arbitration Act in such cases requires the Court to appoint an arbitrator. Based on the language of the arbitration contract in this case, the provisions of 9 U.S.C. § 5 and a South Dakota statute, and the circumstances of this case, the Court grants in part Defendants' Motion to Dismiss or Stay Proceedings and for Order Compelling Arbitration (Doc. 34).

II. Facts Material to Arbitration Issue

Plaintiff Carol Jones is the special administrator of the Estate of Ruth Butler. On September 1, 1995, Ruth Butler signed a durable power of attorney appointing her daughter Carol Jones as her agent to transact business on Ms. Butler's behalf. (Doc. 34 at Exhibit B).

On or about July 9, 2003, Ruth Butler became a resident at a nursing home then run by Beverly Health Care. The Defendants in this case are successors in interest to Beverly Health Care. On behalf of Ms. Butler, Carol Jones executed a series of agreements when placing her mother in the nursing home run by Beverly Health Care. Among these agreements was a Resident and Facility Arbitration Agreement ("Arbitration Agreement"). (Doc. 34 at Exhibit A). The Arbitration Agreement was not the subject of any negotiation between Ms. Jones and Beverly Health Care. Ms. Jones recognized her signature on the agreement, on behalf of her mother, but did not recall the agreement itself. (Doc. 42 at Exhibit C).

The Arbitration Agreement states in relevant part:

The parties to this Arbitration Agreement acknowledge and agree that upon execution, this Arbitration Agreement becomes part of the Admission Agreement, and that the Admission Agreement evidences a transaction in interstate commerce governed by the Federal Arbitration Act. It is understood and agreed by Facility and Resident that any and all claims, disputes, and controversies (hereafter collectively referred to as a "claim" or collectively as "claims") arising out of, or in connection with, or relating in any way to the Admission Agreement or any service or health care provided by the Facility to the Resident shall be resolved exclusively by binding arbitration to be conducted at a place agreed upon by the Parties, or in the absence of such an agreement, at the Facility, in accordance with the National Arbitration Forum Code of Procedure, which is hereby incorporated into this Agreement, and not by a lawsuit or resort to court process. This agreement shall be governed by and interpreted under the Federal Arbitration Act, 9 U.S.C, Sections 1-16.

(Doc. 34 at Exhibit A).

The Complaint alleges that Defendants knew or should have known that Ruth Butler was at high risk for falling and being injured by falling. (Doc. 1 at ¶ 19). On September 6, 2007, while Ms. Butler was in the care of the Defendants, she fell while being transferred by the Defendants' staff. (Id. at ¶ 22). According to the Complaint, Ms. Butler sustained head injuries from the fall that led to her death on September 26, 2007. (Id. at ¶ 22, 41-42). Plaintiff filed a Complaint, invoking diversity jurisdiction under 28 U.S.C. § 1332(a). The Defendants answered. Two months after the answer, Defendants located a copy of the Arbitration Agreement, notified Plaintiffs counsel of the arbitration agreement, and then filed their Motion to Dismiss or Stay Proceedings and for Order Compelling Arbitration.

On July 17, 2009, the NAF, to resolve litigation with the Attorney General for the State of Minnesota, entered into a Consent Judgment. (Doc. 42 at Exhibit H). Under the Consent Judgment, the NAF terminated its involvement in "consumer arbitration" effective July 24, 2009. The Consent Judgment defined "consumer arbitration" to include a dispute, such as this one, "between a business entity and a private individual." Id.

Plaintiff and Defendants agree that the NAF is not an available forum for arbitration of this dispute. Plaintiff requests that the Court find the Arbitration Agreement unenforceable because of the unavailability of the NAF. The Defendants request that the Court appoint a substitute arbitrator under either Section 5 of the Federal Arbitration Act or its state law counterpart, S.D. Codified Laws ("SDCL") § 21-25A-9.

III. Discussion

A. Applicable Law

The Federal Arbitration Act, 9 U.S.C. §§ 1-16, applies to "written arbitration provisions in" or "arbitration agreements in" any contract "evidencing a transaction involving commerce." 9 U.S.C. § 2. Neither party disputes that the Federal Arbitration Act applies to the Arbitration Agreement. Indeed the Arbitration Agreement itself contains as a part of the contract language with the provision:

"This agreement shall be governed by and interpreted under the Federal Arbitration Act, 9 U.S.C. Section 1-16." (Doc. 34 at Exhibit A).

The effect of Section 2 of the Federal Arbitration Act "is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The Federal Arbitration Act establishes "a liberal federal policy favoring arbitration agreements." Id. Section 2 of the Federal Arbitration Act "embodies a clear federal policy of requiring arbitration unless the agreement to arbitrate is not part of a contract evidencing interstate commerce or is revocable `upon such grounds as exist at law or in equity for the revocation of any contract.'" Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) (quoting 9 U.S.C. § 2). The Federal Arbitration Act is "intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements," Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), and preempts state law contrary to its provisions. Perry, 482 U.S. at 490, 107 S.Ct. 2520.

The parties do not dispute the applicability of the Federal Arbitration Act, but rather whether Section 5 of the Act or a companion state statute requires substitution of an arbitrator in this case. Section 5 of the Federal Arbitration Act provides:

If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a singe arbitrator.

9 U.S.C. § 5.

This is a diversity jurisdiction case, so the Court takes note that South Dakota has a statute similar to 9 U.S.C. § 5. SDCL 21-25A-9 provides:

Except as provided by chapter 21-25B, if the arbitration agreement provides a method of appointment of arbitrators, this method shall be followed. In the absence thereof, or if the agreed method fails or for any reason cannot be followed, or when an arbitrator appointed fails or is unable to act and his successor has not been duly appointed, the court on application of a party shall appoint one or more arbitrators. An arbitrator so appointed has all the powers of one specifically named in the agreement.

SDCL 21-25A-9 is not inconsistent with Section 5 of the Federal Arbitration Act. Indeed, the two provisions are substantially similar. Counsel for the parties themselves drew no material distinction between the two statutes. Under Section 5 of the Federal Arbitration Act, "if no method be provided therein for appointing an arbitrator or a method be provided and any party thereto shall fail to avail himself of such method, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator . . ." 9 U.S.C. § 5. Under the South Dakota statute, "if the agreed method for appointment of an arbitrator fails or for any reason cannot be followed, or when an arbitrator appointed fails or is unable to act . . ., the court on application of a party shall appoint one or more arbitrators." SDCL 21-25A-9. The South Dakota statute is more clear in covering situations where "the agreed method fails or for any reason cannot be followed." SDCL 21-25A-9. However, the language of Section 5 of the Federal Arbitration Act, particularly when read in...