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Recent Arb Case Goes Before the Courts - AAA Enforceabilty Tackled Head On


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Second DCA Holds That AAA's Recent Refusal to Accept Arbitration greements is Not a Material Term.


The Second District tackled, head on, whether an arbitration clause is still enforceable despite the fact that the clause refers matters to the American Arbitration Association -- or any other forum -- which cannot or will not hear the case.

According to the Second DCA, the basis for compelling arbitration despite the absence of the forum was in front of us the whole time...

The case is New Port Richey Medical Investors, LLC d/b/a Life Care Center of New Port Richey; Forrest L. Preston Developers; Life Care Centers of American d/b/a Life Care Centers of Tennessee d/b/a; Life Care Center of New Port Richey et al. v. Stern (Wallace, Davis and Silberman).

In this nursing home arbitration case, the resident apparently signed an admission agreement with an arbitration clause which referred any disputes to the AAA and stated that the arbitrators "shall apply the applicanle rules of procedure of the AAA." Of note, the opinion reports, but does not quote, that the agreement says that the AAA was to "administer" the arbitration.

At the hearing, plaintiff's counsel sought to avoid arbitration by claiming that the AAA was an "essential, material term" since there was a choice of arbitrators and choice of procedural rules. That issue too we'll address below.

The court held that the Florida Administrative Code, section 682.04, holds that "...if the agreed method fails or for any reason cannot be followed, the court, on application of party to such agreement or provision shall appoint one or more arbitrators." In short, according to this Panel, if the intended forum is unavailable, the court will appoint a replacement.

Note that the decision describes the situation where the lawyer seeking to avoid arbitration brought up that the AAA no longer accepts [same as consumer debts] arbitration agreements, citing the AAA's Policy Statement, indicating that the AAA no longer takes such cases.(no word in the opinion how it was authenticated). Meanwhile, one website reports that the AAA has actually heard cases where a agreement was later disputed... (caveat: it's unclear whether all the facts are known regarding the procedure which lead to that Duke case being arbitrated)

Of note, the question of whether something is an "essential material term" likely collides with a frequent tactic to avoid arbitration. Often, the plaintiff claims they did not know what they were signing and did not realize the arbitration clause existed until litigation. Arguably, then, the forum selection language was not such an "essential, material" term if the signor did not even know it was there.

Tha article reports; "No indication whether that was an issue in this case but it is a solid tip for practitioners."

Edited by FL4answer58
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The Decission

Enforceability of Agreement

The Florida Court of Appeals ruled that an arbitration agreement is not rendered unenforceable when the arbitration provider named in the parties' agreement refuses to administer the arbitration because the courts are authorized by the state arbitration code to appoint an arbitrator.

Dorothy Stern entered into a New Port Richey nursing home in 2006 and upon admission signed a contract that included an arbitration agreement. Two years later she sued New Port Richey for violating her rights while a resident. New Port Richey moved to compel arbitration. At the hearing on the motion, Stern showed that the American Arbitration Association (AAA), the provider named in the agreement, no longer administered cases arising out of predispute arbitration agreements in the health care arena.

The trial court denied the motion to compel arbitration, concluding that the arbitration agreement was invalid and unenforceable. New Port Richey appealed.

The Court of Appeals reversed and ordered arbitration before an arbitrator appointed by the court. It determined that whether the arbitration agreement was enforceable when the arbitration provider named in the contract is unavailable depends on state law. Section 682.04 of the Florida Code provides that when the method for appointing arbitrators "fails or for any reason cannot be followed," the state courts are authorized to appoint an arbitrator or arbitrators once one party to the agreement so requests. The statute also provides that arbitrators appointed in such a way "shall have like powers as if named or provided for in the agreement or provision."

Based on Florida law, the appeals court concluded that the arbitration agreement was enforceable. The severability clause in the arbitration agreement supported this conclusion. The court also found that Stern failed to demonstrate that having the AAA administer the case was an "integral part of the agreement to arbitrate."

Thus, once the AAA became unavailable to administer the arbitration, Section 682.04 authorized the trial court to appoint an arbitrator to decide the case. For this reason, the appeals court remanded the case to the trial court to appoint arbitrator and order arbitration.

New Port Richey Medical Investors, LLC et al. v. Dorothy Stern, No. 2D09-214, 2009 WL 1563424 (Fla. Ct. App. 2d Dist. June 5, 2009).

Edited by FL4answer58
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I would keep in mind that:

"The court also found that Stern failed to demonstrate that having the AAA administer the case was an "integral part of the agreement to arbitrate."

While there are other cases just as Admin points out - where as reverse opinion ruled -In a cardholder agreement claim, it may holds true IF the Arb Clause demonstrate AAA is a 'integral part of the agreement'. They have even argued over the word "may" in these Arbitrations clauses. And in other similar cases the outcome is not a settled matter - here in FL opinion depends on what district you’re in - different opinions rule.

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