Is Your Arbitration Agreement Up To Date?

Introduction

As those of us who enforce arbitration agreements in consumer disputes – and particularly in consumer healthcare disputes – know, the plaintiff’s bar will seize on any potential ambiguity to avoid an arbitration agreement. One area of ambiguity that often arises is the effect of a named arbitral forum’s unavailability for administration of the arbitration. Was the naming of the forum in the agreement an “ancillary logistical concern” such that the agreement can be enforced, notwithstanding the forum’s unavailability? Or was it “integral” to the agreement such that it can be presumed that the parties’ intent to arbitrate was conditioned on the availability of the forum? It is not unusual for one court to determine that the forum designation was an ancillary logistical concern while another court interpreting the exact same agreement determines that the forum designation was integral to the agreement.

In a recent case, the Georgia Court of Appeals determined that an agreement providing for resolution of disputes “exclusively by binding arbitration … and not by lawsuit or resort to court process” was conditioned on the availability of the National Arbitration Forum because the agreement required arbitration “in accordance with the National Arbitration Forum Code of Procedure.” While there are some flaws in the court’s decision, ultimately, this and similar decisions – right or wrong – should be viewed as a warning to review and update arbitration agreements to avoid such challenges altogether. A small change to an agreement can make a big difference in its enforceability.

Miller v. GGNSC Atlanta, LLC

The Georgia Court of Appeals recently concluded that an arbitration agreement calling for arbitration in accordance with the procedural rules of a now-unavailable arbitral forum could not be enforced due to the forum’s unavailability. Miller v. GGNSC Atlanta, LLC, 2013 Ga. App. LEXIS 655, 2013 WL 3658836 (July 16, 2013).

The relevant arbitration agreement provided:

It is understood and agreed by Facility and Resident that any and all claims, disputes, and controversies (hereinafter 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 lawsuit or resort to court process. This agreement shall be governed by and interpreted under the Federal Arbitration Act, U.S.C. Sections 1-16.

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In the event a court having jurisdiction finds any portion of this agreement unenforceable, that portion shall not be effective and the remainder of the agreement shall remain effective.

Miller, 2013 Ga. App. LEXIS 655 at *2-3 (footnotes omitted).

The National Arbitration Forum (NAF) was unavailable to administer the arbitration of the parties’ dispute because it previously had entered into a consent judgment “under which the NAF agreed that it would not administer, process, or ‘in any manner participate in’ any consumer arbitration filed on or after July 24, 2009.” Id. at *4-5. The plaintiff argued that the Arbitration Agreement was, therefore, impossible to perform and void.

The court framed the issue as “whether the Arbitration Agreement is void because of impossibility of performance – i.e., because neither the NAF, as the chosen arbitral forum, nor, consequently, its Code of Procedure is available to the parties.” Id. at *8. The court acknowledged the applicability of Section 5 of the Federal Arbitration Act, which provides that “if for any … reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator … , who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein.” Id. at *10, n.8 (quoting 9 U.S.C. § 5). But the court noted a judicially-created exception to Section 5 that asks whether the appointment of a specific arbitrator is an “integral term” or an “ancillary logistical concern,” before deciding whether to comply with the statutory mandate that “the court shall designate and appoint an arbitrator.” Id. at *10-13. It therefore asked, “does the language of the Arbitration Agreement indicate that the parties intended to arbitrate their claims only if the NAF was available to administer that arbitration?” Id. at *13.

The court determined that the Arbitration Agreement did indicate that the parties intended to arbitrate their claims only if the NAF was available and that the trial court, therefore, was not bound by the FAA’s mandate that it “shall designate and appoint an arbitrator.”

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