By a 2-1 decision, the Colorado Court of Appeals on Thursday halted a lawsuit against a Denver nursing home because the parties had previously agreed to arbitrate — even though the organization referenced in the agreement had ceased consumer arbitrations.
“We conclude that the parties here agreed to arbitrate without regard to who was named as arbitrator,” wrote Judge Matthew D. Grove for the panel’s majority.
Shalandra M. Johnson-Linzy placed her husband, Damien Linzy, with Amberwood Court Rehabilitation and Care Community in Denver. She signed an agreement with the nursing home that any disputes would be solved by arbitration, rather than litigation, in accordance with procedures from the National Arbitration Forum, now known as the Forum.
However, the Forum, which was the largest consumer arbitrator at one point, decided in 2009 it would no longer involve itself in consumer disputes after then-Minnesota Attorney General Lori Swanson sued the organization. She alleged that the Forum “worked behind the scenes with credit card companies and other creditors, such as cell phone providers, to write themselves into customer purchase agreements as the sole arbitrator consumers could use if they had issues with their creditors,” according to The Star Tribune.
CEO Mike Kelly countered that “nothing in the Minnesota attorney general's complaint alleges that the arbitration proceedings administered by the Forum are unfair.”
Shortly after Linzy was discharged from Amberwood, he died. Johnson-Linzy sued for negligence and wrongful death, but Amberwood pointed to the contract language requiring arbitration.
A district court sided with Johnson-Linzy, finding “the agreement to arbitrate is impossible to comply with” in the absence of the Forum.
The nursing home appealed, arguing that the contract did not require the Forum to be the arbitrator, but rather that the arbitration only follow the organization's guidelines.
Under the Colorado Uniform Arbitration Act, courts are directed to determine whether an agreement to arbitrate is valid, and whether the issue under dispute is covered by the agreement. Grove, in the majority opinion, found that the agreement was sufficiently ambiguous to let the court decide whether it was valid.
However, the appellate panel reversed the district court, finding that “the agreement does not state that arbitration will be conducted ‘by’ NAF, or even by an arbiter affiliated with or approved by NAF.”
Grove acknowledged that the Forum’s arbitration code itself required the Forum or any organization that had an agreement with the Forum to conduct arbitration.
Dismissing such provisions as “boilerplate,” he concluded that “most cases analyzing language similar to the arbitration agreement at issue here have concluded that the agreement remains enforceable despite [the Forum’s] unavailability.”
Judge Michael H. Berger, in his dissent, vigorously disagreed with the majority’s interpretation that the Forum was incidental to arbitration, rather than a central component.
“The defendants — sophisticated, corporate entities presumably acting on the advice of counsel — drafted the agreement. They selected the NAF Code to govern arbitration — despite the fact that NAF had been defunct for a number of years and the NAF Code clearly provides that only NAF or an affiliated entity may administer it,” he wrote. “The defendants must live with that decision.”
Berger did not share the majority’s determination that if the nursing home had intended for the Forum, and only the Forum, to arbitrate, it would have explicitly written that into the agreement.
“Public policy does not authorize judges to substitute provisions they think are better or more reasonable, for those prescribed by the parties,” Berger countered.
The case is Johnson-Linzy v. Conifer Care Communities.