Lefoldt v. Rentfro
| Decision Date | 11 April 2016 |
| Docket Number | CIVIL ACTION NO. 5:15-CV-96-KS-MTP |
| Parties | H. KENNETH LEFOLDT, JR. PLAINTIFF v. DONALD RENTFRO, et al. DEFENDANTS |
| Court | U.S. District Court — Southern District of Mississippi |
For the reasons provided below, the Court denies the Motion to Stay [23] pending arbitration filed by Defendant Horne, LLP, and grants the Motions to Dismiss [38, 40, 48] filed by the individual Defendants.
This case involves claims of professional malpractice and breach of fiduciary duty arising from the bankruptcy of a community hospital. Natchez Regional Medical Center ("NRMC") filed a Voluntary Petition for Relief pursuant to Chapter 9 of the bankruptcy code. The Bankruptcy Court confirmed NRMC's Chapter 9 plan [1-1], appointed Plaintiff as Trustee, and conferred upon him the right to pursue all claims, demands, an causes of action belonging to NRMC.
Plaintiff sued NRMC's former officers and members of its Board of Trustees for breach of fiduciary duty, and he alleged that Horne, LLP committed professional malpractice. Plaintiff alleges that the Officer Defendants were grossly negligent in their duties, failing to bill patients for services rendered, respond to federal audits, or oversee credentialing of doctors, among other alleged misfeasances. He alleges that the Board Defendants abdicated their responsibility to oversee NRMC's officers. Finally, Plaintiff alleges that Horne, LLP was hired to audit NRMC's finances but failed to meet the requisite standard of professional care. Defendants filed several motions, and they are all ripe for review.
First, Horne filed a Motion to Stay [23] all claims against it pending the completion of arbitration. Although Horne did not specifically request that the Court compel Plaintiff to arbitrate, such relief is implicit to its motion. The Court employs a two-step analysis to determine whether a party should be compelled to arbitrate. JP Morgan Chase & Co. v. Conegie, 492 F.3d 596, 598 (5th Cir. 2007). First, the Court must "ascertain whether the parties agreed to arbitrate the dispute." Id. This requires "two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement." Id. (punctuation omitted). If the parties agreed to arbitrate, the Court "must determine whether any federal statute or policy renders the claims nonarbitrable." Id.
First, Defendant argues that an arbitrator, rather than the Court, must decide whether the parties agreed to arbitrate. "[P]arties can agree to arbitrate 'gateway' questions of 'arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69, 130 S. Ct. 2772, 177 L. Ed. 2d 403 (2010). "An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on thisadditional arbitration agreement just as it does on any other." Id. at 70. Therefore, agreements to arbitrate such threshold issues are "valid under § 2 save upon such grounds as exist at law or in equity for the revocation of any contract." Id. However, a "heightened standard" of review applies to these threshold determinations; "courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so." Id. at 69 n.1 (punctuation omitted); see also Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 262 (5th Cir. 2014).
Therefore, to determine whether the parties agreed to arbitrate the threshold question of whether there exists an arbitration agreement, the Court must first determine whether there was an agreement and what its terms were - the very questions that Horne contends an arbitrator must answer. In this respect, the threshold question of arbitrability is subsumed by the primary question of whether there is a valid agreement to arbitrate between the parties. That being the case, the Court will proceed with the general arbitration analysis.1
The parties' core dispute is whether there exists an agreement to arbitrate. Horne argues that NRMC - through its CFO, Defendant Mock - executed letters of engagement [23-1, 23-2] with Horne which contained arbitration provisions and constituted valid and binding contracts. In response, Plaintiff contends that the engagement letters are not binding on NRMC because their terms were not spread upon the minutes of NRMC's Board of Trustees.
"Generally, principles of state contract law govern the question of whether the parties formed a valid agreement to arbitrate." Conegie, 492 F.3d at 598. The board of trustees of a community hospital "shall keep minutes of its official business . . . ." MISS. CODE ANN. § 41-13-35(3). "A community hospital board of trustees, as does any public board in the State of Mississippi, speaks and acts only through its minutes," and "where a public board engages in business with another entity, no contract can be implied or presumed . . . ." Wellness, Inc. v. Pearl River County Hospital, 178 So. 3d 1287, 1290-91 (Miss. 2015). Rather, "it must be stated in express terms and recorded on the official minutes and the action of the board." Id. at 1291. Even if the entire contract is not recorded in the board's minutes, "it may be enforced where enough of the terms and conditions of the contract are contained in the minutes for determination of the liabilities and obligations of the contracting parties without the necessity of resorting to other evidence." Id.
It appears to be undisputed that the Board's engagement of Horne was only addressed in the Board's minutes from August 12, 2009, and September 2, 2009. The August 2009 minutes [34-1] provide, in pertinent part:
Charles Mock reported that he had received a proposal for the annual audit for a one year contract from the Horne CPA Group of Jackson, Mississippi. Mr. Bland asked if other bids were taken and Mock reported that only one bid had been received and that from Horne. No action was taken at this time. Mr. Bland asked Mr. Mock to approach Horne again to request they consider not increasing their bid from the prior year.
The September 2009 minutes [34-2] provide, in pertinent part:
The parties have not directed the Court to any further terms of NRMC's contract with Horne contained in the Board's minutes.
These minute entries contain no mention of arbitration. Therefore, the Court may "not draw an enforceable arbitration clause from such general, imprecise language." Id. at 1292. As the Mississippi Supreme Court has clearly held, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Id. "A community hospital board of trustees . . . speaks and acts only through its minutes." Id. at 1290. As the NRMC Board's minutes contain neither an arbitration agreement nor terms sufficient to infer such an agreement, no such agreement exists. Id. at 1292; see also Urban Developers LLC v. City of Jackson, 468 F.3d 281, 300 (5th Cir. 2006); Pike County v. Indeck Magnolia, LLC, 866 F. Supp. 2d 589, 591-93 (S.D. Miss. 2012).
Horne presented a number of arguments which the Court must briefly address.First, Horne generally argues that Plaintiff may not seek to enforce the parties' contract with respect to Horne's professional obligations to NRMC while simultaneously denying the parties' agreement to arbitrate. The terms contained within the Board's minutes may be sufficient to create a contract for auditing services despite being insufficient to create an obligation to arbitrate. The present motion only requires the Court to address whether the parties agreed to arbitrate, and the Court expresses no opinion as to whether the terms contained in the Board's minutes are sufficient to impose any other contractual obligations on any party.2
Next, Horne argues that Plaintiff is bound by the allegations in the Complaint [1] that NRMC engaged it to provide auditing services for the hospital from 2008 moving forward. Indeed, "[f]actual assertions in the complaint are judicial admissions conclusively binding on the plaintiff." Kiki Ikossi-Anastasiou v. Bd. of Supervisors of La. State Univ., 579 F.3d 546, 550 (5th Cir. 2009). However, Plaintiff only asserted that NRMC's Board engaged Horne to provide auditing services for the hospital. Plaintiff did not assert the specific terms of the agreement, or that it contained an arbitration provision. Plaintiff may admit that a contract existed while disputing that it contained an arbitration provision.
Finally, Horne argues that Plaintiff should be equitably estopped from claiming any benefits from the contract while eschewing its obligation to arbitrate. However, "the minutes requirement is to be strictly adhered to, even where doing so would result in apparent injustice." Indeck Magnolia, 866 F. Supp. 2d at 592. "[S]uch contracts when so entered upon the minutes may not be varied by parol nor altered by a court of equity." Urban Developers, 468 F.3d at 300; see also Warren County Port Com. v. Farrell Constr. Co., 395 F.2d 901, 904 (5th Cir. 1968).3
For these reasons, the Court denies the Motion to Stay [23] pending arbitration filed by Defendant Horne, LLP.
Defendants Donald Rentfro, Charles Mock, and William Heburn are former officers of NRMC. The...
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