Riley v. Extendicare Health Facilities, Inc.
| Decision Date | 27 December 2012 |
| Docket Number | No. 2012AP311.,2012AP311. |
| Citation | 2013 WI App 9,826 N.W.2d 398,345 Wis.2d 804 |
| Parties | Judy RILEY, Individually and as Surviving Spouse and Personal Representative of the Estate of Carl Riley, Plaintiff–Respondent, Michael O. Leavitt, Secretary of the U.S. Department of Health and Human Services, and Kevin R. Hayden, Secretary of the State of Wisconsin Department of Health and Family Services, Involuntary–Plaintiffs, v. EXTENDICARE HEALTH FACILITIES, INC. d/b/a Beloit Health and Rehab Center, Extendicare Health Services, Inc. and Laurier Indemnity Company, Defendants–Appellants. |
| Court | Wisconsin Court of Appeals |
OPINION TEXT STARTS HERE
On behalf of the defendants-appellants, the cause was submitted on the briefs of Robert D. Ebbe and David J. Pliner of Corneille Law Group, LLC, Madison.
On behalf of the plaintiff-respondent, the cause was submitted on the brief of James P. Scoptur and Timothy J. Aiken of Aiken & Scoptur, S.C., Milwaukee.
Before LUNDSTEN, P.J., SHERMAN and KLOPPENBURG, JJ.
[345 Wis.2d 808]¶ 1 In July 2009, Minnesota's Attorney General filed a complaint against the National Arbitration Forum (“NAF”), a third-party arbitration service, alleging fraud and challenging NAF's suspect ties to the consumer loan and debt collection industries. Shortly after the lawsuit was filed, NAF entered into a consent judgment in which it agreed not to administer, process, or in any manner participate in any new consumer arbitration on or after July 24, 2009. After NAF exited the consumer-arbitration business, questions concerning the proper interpretation of contracts mandating NAF arbitration or invoking NAF's rules and procedures have arisen in courts across the country.
¶ 2 This case concerns one such contract. Extendicare Health Facilities, Inc., Extendicare Health Services, Inc., and Laurier Indemnity Company (collectively“Extendicare”) appeal the circuit court's nonfinal order 1 denying their motion to stay proceedings and compel arbitration. Extendicare argues that the parties' Alternative Dispute Resolution Agreement (“ADR Agreement”) mandating arbitration is enforceable. Specifically, Extendicare contends that the ADR Agreement's designation of NAF and its Rules of Procedure is not an integral term to the contract and thus NAF's unavailability does not make the ADR Agreement unenforceable. For the following reasons, we agree with the circuit court's conclusion that the parties' designation of an exclusive arbitration forum that is no longer available renders the ADR Agreement unenforceable and, therefore, we affirm.
¶ 3 On June 3, 2010, Carl Riley, the husband of plaintiff Judy Riley,2 was admitted to Beloit Health and Rehabilitation Center, an Extendicare facility. After Carl Riley was admitted that day, an office assistant from the Center discussed with Judy Riley the option of signing an ADR Agreement. Judy Riley signed the ADR Agreement as legal representative and guardian for Carl Riley.
¶ 4 The ADR Agreement provides that “any disputes ... that may arise between the Parties shall be resolved exclusively by an Alternative Dispute Resolutionprocess that shall be binding arbitration.” Covered disputes include “any and all disputes ... that would constitute a legally cognizable cause of action in a court of law.” Paragraph six of the ADR Agreement addresses NAF's involvement in any potential arbitration between the parties:
The National Arbitration Forum (NAF) shall serve as any arbitrator of any dispute. In the event that NAF is unable or unwilling to serve, the parties shall select an alternative neutral arbitration service within thirty (30) days after receipt of notice by NAF of such. Regardless of the entity chosen to be Administrator, unless the Parties mutually agree otherwise in writing, the Alternative Dispute Resolution process shall be conducted in accordance with the NAF Rules and Code of Procedure (hereinafter, collectively “NAF Rules of Procedure”) then in effect. This process shall include but not be limited to the selection of the Arbitrator and location of the Arbitration as set out in the NAF Rules of Procedure.
¶ 5 Rule 1.A. of the NAF Rules of Procedure provides: “This Code shall be administered only by the National Arbitration Forum or by any entity or individual providing administrative services by agreement with the National Arbitration Forum.”
¶ 6 Carl Riley passed away on June 29, 2010. On January 26, 2011, Judy Riley, individually and as the surviving spouse and personal representative of the Estate of Carl Riley, filed a civil action against various Extendicare entities. Specifically, she brought claims for negligence per se, negligence, breach of contract, and wrongful death. In response, Extendicare moved to stay the circuit court proceedings and compel enforcement of the ADR Agreement requiring arbitration.
[345 Wis.2d 811]¶ 7 Riley opposed Extendicare's motion, arguing that the ADR Agreement is void and unenforceable because NAF no longer engages in consumer arbitration and because the ADR Agreement is unconscionable. Extendicare replied that the ADR Agreement allows for a substitute arbitrator if NAF is unavailable, and the substitute arbitrator could apply NAF's Rules of Procedure. Extendicare further replied that even if the ADR Agreement's NAF provisions are unenforceable, the ADR Agreement's severability clause allows for severance of the unenforceable, non-essential terms and the remainder of the ADR Agreement could be enforced. Finally, Extendicare contested Riley's allegation of unconscionability.
¶ 8 The circuit court denied Extendicare's motion to stay the proceedings and compel enforcement of the ADR Agreement. At the January 19, 2012 hearing on the motion, the court explained that while a successor arbitrator can be appointed—either by the court or, under the ADR Agreement's language, upon agreement of the parties—the ADR Agreement still requires use of NAF's Rules of Procedure. The court reasoned:
[E]ven if you change the umpire, you still have to use the same strike zone. And the strike zone [is] the NAF rules of procedure and the code of procedure. And I'm not too sure that part of the reason that the NAF and its consent decree eliminated the NAF in consumer actions is because not only the NAF but its rules ... were part of its problem.... I don't think it makes any sense for the circuit court in any jurisdiction to have to blue pencil those rules of procedure of the NAF to figure out which ones are going to fly and which ones don't, and which ones seem hard or unfair, and basically redraft them.
....
... I could come up with another arbitrator right now, but I can't give that arbitrator these rules.
¶ 9 With respect to Extendicare's severability argument, the circuit court explained that “paragraph six is so inextricably interwoven in its language connecting the NAF, NAF rules and code of procedure” that severance cannot occur. In other words, the circuit court found that the language “the alternative dispute resolution process shall be conducted in accordance with the NAF rules and code of procedures” is a “key provision” that cannot be severed. Because the court denied the motion on these grounds, it did not rule on the issue of unconscionability. Extendicare petitioned this court for leave to appeal, which we granted.
¶ 10 On appeal, Extendicare asserts that NAF's unavailability does not render the ADR Agreement unenforceable, as its language and the Wisconsin Arbitration Act allow for use of a substitute arbitrator. Nor, according to Extendicare, is the ADR Agreement unenforceable because the required use of NAF rules is not integral to the agreement and is therefore severable. Finally, Extendicare argues that the ADR Agreement is neither procedurally nor substantively unconscionable. We will address each argument in turn.
¶ 11 This case involves issues of contract interpretation and arbitrability, questions of law that we review de novo. Cirilli v. Country Ins. & Fin. Servs., 2009 WI App 167, ¶ 10, 322 Wis.2d 238, 776 N.W.2d 272.
¶ 12 The ADR Agreement states that “[t]his Agreement shall be governed by the terms of State law related to enforceability of Agreements of this type, if any is in existence.” 3Wisconsin Stat. ch. 788, commonly referred to as the Wisconsin Arbitration Act, is the governing state law related to the enforceability of arbitration agreements. See generallyWis. Stat. ch. 788. The Wisconsin Arbitration Act provides that “[a] provision in any written contract to [arbitrate] ... shall be valid, irrevocable and enforceable except upon such grounds as exist at law or in equity for the revocation of any contract.” Wis. Stat. § 788.01. The Wisconsin Arbitration Act is patterned after the Federal Arbitration Act, which contains a similar provision mandating the validity and enforceability of such agreements, along with the exception for contract defenses. See9 U.S.C. § 2; see also Madison Teachers, Inc. v. Wisconsin Educ. Ass'n Council, 2005 WI App 180, ¶ 10, 285 Wis.2d 737, 703 N.W.2d 711 ().
¶ 13 It is well established that arbitration is a matter of contract. See Joint School Dist. No. 10 v. Jefferson Educ. Ass'n, 78 Wis.2d 94, 101, 253 N.W.2d 536 (1977). When construing contracts that were freely entered into, our goal “is to ascertain the true intentions of the parties as expressed by the contractual language.” State ex rel. Journal/Sentinel, Inc. v. Pleva, 155 Wis.2d 704, 711, 456 N.W.2d 359 (1990). The best indication of the parties' intent is the language of the contract itself, for that is the language the parties saw fit to use. Town Bank v. City Real Estate Dev., LLC, 2010 WI 134, ¶ 33, 330 Wis.2d 340, 793 N.W.2d 476.
¶ 14 The principal purpose of the Federal and Wisconsin Arbitration Acts is to require courts to enforce arbitration...
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