Kilgore v. Mullenax, CV–15–706

• Decision Date: 02 March 2016
• Docket Number: No. CV–15–706,CV–15–706
• Citation: 485 S.W.3d 705
• Parties: Joshua Kilgore, Appellant v. Robert Mullenax and Senior Dental Care, LLC, Appellees
• Court: Arkansas Court of Appeals

485 S.W.3d 705

Joshua Kilgore, Appellant

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

No. CV–15–706

Court of Appeals of Arkansas, DIVISION I.

Opinion Delivered MARCH 2, 2016

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.

DAVID M. GLOVER

, Judge

Joshua Kilgore appeals from the trial court's May 28, 2015 order confirming the arbitrator's award (combined interim and final awards) in favor of Robert Mullenax and Senior Dental Care, LLC. He contends the trial court erred in doing so because 1) Arkansas public policy forbids an arbitrator from entering an award against a party who communicates information about fraudulent insurance acts to the Arkansas Insurance Department where the speaker reasonably believes the information to be true, and 2) the arbitrator lacked jurisdiction under the Federal Arbitration Act (FAA). We affirm.

Undisputed Facts

In its interim award, the arbitrator set forth the basic facts of this case, which are not in dispute. We will further condense them here. Robert Mullenax, an insurance agent and business owner, formed Senior Dental Care, LLC (SDC) with Dr. Chad Matone, an Arkansas dentist. SDC operates a dental-management company, which administers dental practices that provide dental care to residents of skilled nursing facilities.

Joshua Kilgore, a businessman and licensed nursing-home administrator, approached Mullenax in late 2010 or early 2011 concerning the acquisition of an interest in SDC. Kilgore was familiar with the SDC program through his work as an administrator. On January 1, 2012, Kilgore, Mullenax, Matone, and SDC executed a purchase-and-sale agreement by which Kilgore was able to purchase membership units in SDC. Section 7 of the purchase-and-sale agreement provided in part:

a. In further consideration of the transfer to Buyer [Kilgore], buyer agrees that he will not Directly or Indirectly, at any time during which he has an ownership interest in the Company [SDC] and for two (2) years thereafter

i. form or be employed by, act as an agent for, or otherwise participate in any sole proprietorship, venture, corporation, partnership, or other entity that is in the business of providing dental care to residents of skilled nursing facilities or assisted living facilities within the state of Arkansas;

ii. solicit work from or provide such dental services to a Customer of the Company or seek to cause any Customer to refrain, in any respect, from acquiring services from or through the Company[.]

Although Matone subsequently left SDC, an addendum to the purchase-and-sale agreement was executed, leaving the noncompete provisions of the agreement in full force and effect between the remaining owners, Mullenax and Kilgore.

A conflict subsequently developed between Mullenax and Kilgore, resulting in the May 2013 execution of a confidential-settlement agreement and full release (settlement agreement). The parties thereby agreed that they had continuing obligations under the purchase-and-sale agreement and that those continuing obligations included the noncompete provisions. They further agreed that the two-year time period for the noncompete provisions would begin on April 1, 2013, and end on April 1, 2015.

The settlement agreement provided in part

Kilgore will not disclose, communicate, make public or publicize in any manner any disparaging or defamatory comments about Mullenax or the Companies [Senior Dental Care, LLC, ConceptBLU, LLC, and VitalSound, LLC] or any statements that impugn, disparage, discredit, or detract from Mullenax or the Companies.

....

Kilgore further agrees to terminate all contractual obligations that he or any company controlled by him had with the Companies, including, but not limited to, the Kilgore Consulting Group, LLC ("KCG") Consulting Services Agreement with SDC dated November 1, 2012.

Both the purchase-and-sale and the confidential-settlement agreements provided that disputes were to be settled by arbitration under the rules of the American Arbitration Association (AAA).

On June 1, 2013, Kilgore acquired an ownership interest in Care Services Management, LLC (CSM). CSM markets the dental services of Marquis Mobile Dental Services, LLC (MMDS) in the State of Arkansas and elsewhere. It also markets other medical services. CSM's offices are located in the State of Tennessee. CSM and MMDS operate out of the same location in Tennessee. MMDS and SDC are competitors. CSM uses marketing materials in Arkansas that contain a separate page labeled "Dental Services," which provides in part:

CSM is able to offer Dental services to all of our clients through the use of two different leaders in on site Dental services, providing one of the only truly legal means of providing dental care in the Long Term Care setting.

SDC's vice president testified that after Kilgore withdrew from SDC, nineteen facilities sent termination notices to either Senior Care Solutions or Senior Works, which are companies affiliated with the SDC dental program.

On January 16, 2014, Mullenax and SDC filed a demand for arbitration with the AAA. Kilgore subsequently called the Arkansas Insurance Department (Insurance Department) and alleged possible fraudulent insurance acts committed by Mullenax and SDC. The Insurance Department thereafter initiated an investigation concerning Mullenax and the SDC program. Apparently, nothing of consequence resulted from the investigation, but Mullenax testified that he and SDC spent $7,105 in attorney's fees and related expenses as a result of the investigation.

Mullenax testified he found it strange that shortly after Kilgore left, nineteen facilities terminated their relationships with SDC-affiliated companies. He acknowledged, however, he had no evidence that anyone left SDC because of any defamation.

Kilgore explained his motivation for calling the Insurance Department was to "see if [he] could use a particular situation as a defense." He further testified,

I wanted her [an attorney with the Insurance Department] to know that my call was about looking at a couple of defensible angles because I felt like if I could prove that some of the things that he was doing were not allowed under the Arkansas insurance laws, then it would—it would essentially wipe out—... any other—any claim that he would have under the noncompete. And at that point in time, that appeared to be the biggest you know situation there, so....

Kilgore then became unhappy with the progress of the Insurance Department's investigation, and he talked to Senator Percy Malone about it. Senator Malone contacted the Insurance Department and reported Kilgore had some information that might interest them.

Also, shortly after terminating his relationship with Mullenax and SDC, Kilgore asked Dr. Richard Wike, who was providing optometry services for the Mullenax program, whether "he was still doing the illegal kickback deal with Bob Mullenax." Dr. Wike had been serving Kilgore's nursing facilities until Kilgore terminated his relationship with Mullenax and SDC.

At least two persons testified that Kilgore approached them about his new dental program and stated it was better than that offered by Mullenax, offering one of the persons the brochure that stated CSM provided one of the "only truly legal" means of providing dental care in long-term care (LTC) settings. However, all of the witnesses who testified on the issue stated they did not abandon SDC services because of Kilgore.

Kilgore challenges the arbitrator's exercise of jurisdiction under the Federal Arbitration Act as his second point of appeal. For ease of discussion, we address it first and find no error.

Arbitrator's Jurisdiction

The issue of whether the arbitrator's jurisdiction should be exercised pursuant either to the federal or to the state arbitration act was presented to the arbitrator, and he concluded the FAA governed. The trial court confirmed the arbitration award, finding that "the Arbitration Award of the Arbitrator was proper and that there is no basis for vacating, modifying, or correcting the Arbitration Award," and specifically noting in his posthearing rulings that the arbitrator had fully discussed the jurisdiction issue.

Kilgore contends the arbitrator erred in deciding this case was governed by the FAA because the federal act requires a contract evidencing a transaction in commerce, which he argues did not exist here. We find no reason to vacate the award based on the arbitrator's exercise of jurisdiction under the federal act.

The arbitration clauses of both agreements that were at issue in the underlying arbitration (purchase-and-sale agreement and confidential-settlement agreement) provided that disputes were to be settled by arbitration "in accordance with the rules ... of" or "under the auspices of" the AAA. As...