Klima v. Evangelical Lutheran Good Samaritan Society, The

Filing 59

MEMORANDUM AND ORDER granting 47 plaintiff's Notice that Defendant's Demand for Arbitration is Moot and Motion to Dismiss Defendant's Demand for Arbitration. Signed by District Judge Julie A. Robinson on 11/8/2011. (pp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
VICKI A. KLIMA, individually, as heir at law,
and as administrator of the estate of
Donna Faye Davis, deceased,
Plaintiff,
v.
THE EVANGELICAL LUTHERAN
GOOD SAMARITAN SOCIETY, d/b/a
Hutchinson Good Samaritan Village
Defendant.

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Case No. 10-cv-1390-JAR-JPO

MEMORANDUM AND ORDER
This case comes before the Court on plaintiff’s Notice that Defendant’s Demand for
Arbitration is Moot, and Motion to Dismiss Defendant’s Demand for Arbitration (Doc. 47). The
motion is fully briefed, and the Court is prepared to rule. As discussed below, the Court grants
Plaintiff’s motion, and as a result, the Court refuses to compel arbitration.
I.

Background
When defendant, The Evangelical Lutheran Good Samaritan Society, admitted Donna

Faye Davis to stay at its nursing home facility, defendant gave plaintiff, Ms. Davis’s daughter,
an admission contract, which she filled out for her mother. The admission contract contained an
arbitration agreement, which stated that the parties must use the National Arbitration Forum
(“NAF”) Code of Procedure for any dispute arising from Ms. Davis’s stay at defendant’s facility.
After Ms. Davis’s death, plaintiff filed a lawsuit in state court against defendant claiming
that her mother’s death resulted from defendant’s negligence. Defendant removed the case to
federal court and, on December 13, 2010, moved to dismiss the case or in the alternative to

compel arbitration. Plaintiff opposed the motion to compel, contending that she did not agree to
arbitrate and that her purported signature on the arbitration agreement had been forged. The
Court set the matter for trial on July 29,2011, and later continued the trial to November 10, 2011,
on the factual issue of whether plaintiff’s signature on the arbitration agreement had been forged.
On October 13, 2011, plaintiff discovered that the NAF no longer accepted consumer
disputes. Plaintiff contacted defendant on that same day to inform defendant that the NAF was
no longer available and that the parties would not be able to arbitrate their dispute. Defendant
disagreed, stating that the claim could still be arbitrated. Plaintiff then filed her motion with the
Court on October 17, 2011, arguing that the arbitration agreement is unenforceable because the
parties cannot arbitrate their dispute with the NAF.
Defendant replied to plaintiff’s motion on October 20, 2011, arguing that the Court could
appoint a new arbitrator by applying § 5 of the Federal Arbitration Act. Defendant’s reply brief
indicated that defendant had known for some time that the NAF was unavailable. Indeed,
defendant attached two cases to its brief, cases in which The Evangelical Lutheran Good
Samaritan Society had previously litigated the viability of arbitration agreements that named
NAF as the arbitrator. Yet despite its earlier litigation of the issue, defendant had never
informed plaintiff of the NAF’s unavailability. And so plaintiff discovered the unavailability of
the NAF on her own less than a month before trial.
While trial is set for later this week on the arbitration agreement’s validity, trial over the
forgery issue is unnecessary if the NAF’s unavailability makes the arbitration agreement
unenforceable. So the Court, before trial on the forgery issue, must examine whether the
arbitration agreement is still enforceable now that the NAF is no longer available to arbitrate the

2

parties’ dispute.
II.

Governing Law
While the interpretation of contracts—including arbitration agreements—is usually a

matter of state law, the Federal Arbitration Act (“FAA”) imposes certain rules beyond those
normally found in state contract law.1 The FAA applies to written arbitration agreements in any
contract “evidencing a transaction involving commerce.”2 And here, the arbitration agreement
between defendant and plaintiff contains a provision that specifically refers to the FAA: “This
arbitration agreement shall be governed by and interpreted under the Federal Arbitration Act, 9
U.S.C. Section 1–16 (or as amended).”3 So the Court interprets this arbitration agreement under
the FAA.
Congress designed the FAA “‘to overrule the judiciary’s long standing refusal to enforce
agreements to arbitrate’”4 and, by enacting the FAA, created “a liberal federal policy favoring
arbitration agreements.”5 But despite its liberal policy, the FAA does not “require parties to
arbitrate when they have not agreed to do so.”6 Instead, it requires that courts enforce
“agreements to arbitrate, like other contracts, in accordance with their terms.”7 So if a generally

1

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010) (citing Arthur Anderson LLP
v. Carlisle, 129 S. Ct. 1896, 1901–02 (2009); Perry v. Thomas, 482 U.S. 483, 493 n.9 (1987); Volt Info. Scis., Inc.
v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)).
2

9 U.S.C. § 2.

3

Doc. 47, Ex. 6.

4

Volt Info. Scis., Inc., 489 U.S. at 478 (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219–20

(1985)).
5

Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).

6

Volt Info. Scis., Inc., 489 U.S. at 478.

7

Id. (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)).
3

applicable state contract defense invalidates an arbitration agreement or if grounds exist at law or
equity that would call for the revocation of any contract, courts must not compel arbitration
under the agreement.8 Enforcing the agreement according to its terms “is fully consistent with
the goals of the FAA, even if the result is that the arbitration is stayed where the Act would
otherwise permit it to go forward” because by rigorously enforcing the agreement according to
its terms, courts give “effect to the contractual rights and expectations of the parties, without
doing violence to the policies behind the FAA.”9 Thus to determine the arbitration agreement’s
validity, the Court looks to both the FAA and generally applicable contract law.
III.

Discussion
The arbitration agreement at issue in this case states that if the parties agree to arbitrate,

any arbitration “shall be conducted . . . in accordance with the National Arbitration Forum
(“NAF”) Code of Procedures for Arbitration” and that the party requesting arbitration “will be
required to pay a filing fee to NAF.”10 The NAF, however, no longer arbitrates consumer
disputes.11 And so, plaintiff argues that the arbitration agreement is invalid because it is
impossible to perform. Defendant, however, points to the FAA and argues that the unavailability
of the NAF does not invalidate the entire arbitration agreement because § 5 of the FAA
authorizes a court to select a substitute arbitrator.
Section 5 of the FAA provides:

8

See id.; see also Perry v. Thomas, 482 U.S. 483, 489 & 492–93 n.9 (1987).

9

Volt Info. Scis., Inc., 489 U.S. at 478.

10

Doc. 47, Ex. 6.

11

See Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803, 814 (N.M. 2011); Carr v. Gateway, 944 N.E.2d
327, 331 (Ill. 2011); Jones v. GGNSC Pierre LLC, 684 F. Supp. 2d 1161, 1163 (D.S.D. 2010).
4

If in the agreement provision be made for a method of naming or appointing an
arbitrator or arbitrators or an umpire, such method shall be followed; but . . . if for
any other reason there shall be a lapse in the naming of an arbitrator . . . , then upon
the application of either party to the controversy the court shall designate and appoint
an arbitrator.12
By its plain language, § 5 allows courts to appoint an arbitrator in some circumstances. But
courts disagree on the proper application of § 5 when the arbitration agreement names an
arbitrator.13 The Second Circuit in In re Salomon Inc. Shareholders’ Derivative Litigation, for
example, refused to apply § 5 of the FAA to replace a named, but unavailable, arbitrator,
determining instead that § 5 only applies when the parties fail to name an arbitrator from the
outset.14 Other courts, including the Fifth,15 Ninth,16 and Eleventh17 Circuits, use § 5 to appoint
an arbitrator when the named arbitrator fails, explaining that unavailability of the named
arbitrator creates a “lapse in the naming of an arbitrator” such that § 5 applies.18
But even courts using this more liberal application do not apply § 5 of the FAA to save
an arbitration agreement in every case where an arbitrator becomes unavailable.19 These courts

12

9 U.S.C. § 5.

13

See Rivera, 259 P.2d at 811–15 (collecting cases).

14

68 F.3d 554, 560–61 (2d Cir. 1995).

15

Ranzy v. Tijerina, 393 F. App’x 174, 175–76 (5th Cir. 2010).

16

Reddam v. KPMG LLP, 457 F.3d 1054 (9th Cir. 2006), abrogated on other grounds as recognized by
Atlantic Nat’l Trust LLC v. Mt. Hawley Ins. Co., 621 F.3d 931, 940 (9th Cir. 2010).
17

Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000).

18

See, e.g., Rivera, 259 P.2d at 812; Carr v. Gateway, Inc., 944 N.E.2d 327, 336–37 (Ill. 2011); Stewart v.
GGNSC–Canonshurg, L.P., 9 A.3d 215, 221 (Pa. Super. Ct. 2010); Grant v. Magnolia Manor–Greenwood , Inc.,
678 S.E.2d 435, 438–39 (S.C. 2009); McGuire, Cornwell & Blakey v. Grider, 771 F. Supp. 319, 320 (D. Colo.
1991).
19

See, e.g., Rivera, 259 P.2d at 812; Carr, 944 N.E.2d at 336–37; Stewart, 9 A.3d at 221; Grant, 678
S.E.2d at 438–39.
5

instead hold that § 5 applies only if the selection of the specific arbitral forum is an ancillary
logistical concern.20 If, on the other hand, the specified arbitrator is integral to the arbitration
agreement, such that the parties would not have selected arbitration if the arbitral forum was
unavailable, courts will not use § 5 to circumvent the parties’ intent.21
While the Tenth Circuit has not addressed this issue, this Court finds the approach taken
by the Fifth, Ninth, and Eleventh Circuits consistent with both the purpose behind the FAA and
general principles of contract law because it treats arbitration agreements like contracts and
looks to the parties’ intent. Thus, following that approach, the Court must determine whether the
selection of the NAF is integral to the arbitration agreement. If it is integral, the Court cannot
appoint a new arbitrator and the entire arbitration agreement fails.
To determine whether selection of a specific arbitrator is integral to the entire agreement,
courts refer to general principles of contract interpretation.22 The Supreme Court has stated that
interpretation of arbitration agreements is generally a matter of state law, and “‘as with any other
contract, the parties’ intentions control.’”23 Similarly, under Kansas law—where this contract
was formed—the primary rule for interpreting contracts is to determine the parties’ intent from
the language of the written agreement.24 When interpreting the language of the agreement, “[a]n

20

See, e.g., Reddam, 457 F.3d at 1061; Brown, 211 F.3d at 1222; Rivera, 259 P.2d at 812.

21

See, e.g., Reddam, 457 F.3d at 1061; Brown, 211 F.3d at 1222; Rivera, 259 P.2d at 812.

22

See, e.g., Ranzy v. Tijerina, 393 F. App’x 174, 176 (5th Cir. 2010) (referring to rules of contract
interpretation to determine whether the choice of the NAF was integral to the arbitration agreement); Rivera, 259
P.2d at 812 (referring to state contract law); Carr, 944 N.E.2d at 336–37 (referring to state contract law); Stewart, 9
A.3d at 221 (referring to state contract law).
23

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010) (quoting Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)).
24

Anderson v. Dillard’s, Inc., 153 P.3d 550, 554 (Kan. 2007).
6

interpretation of a contractual provision should not be reached merely by isolating one particular
sentence or provision, but by construing and considering the entire instrument from its four
corners.”25 If the terms of the written agreement are clear, courts need not look any further.26
Here, the terms of the arbitration agreement are clear, and the Court need not look
outside the written agreement to ascertain the parties’ intent. Defendant’s form arbitration
agreement names the NAF specifically and exclusively throughout the agreement. The
agreement, for example, states: “Any arbitration . . . shall be conducted . . . in accordance with
the National Arbitration Forum (“NAF”) Code of Procedure for Arbitration.”27 The agreement
further states that “any person requesting arbitration will be required to pay a filing fee to NAF .
. . .”28 The agreement also provides the NAF’s full contact information for any party that would
like more information on how the arbitration would be conducted: “If you would like
information regarding NAF’s arbitration services and its rules and procedures for arbitration, you
may contact
NAF . . . .”29 Finally, the agreement makes no provision for selecting any other arbitrator
besides the NAF. Taken together, these provisions show that the parties intended to select the
NAF as the exclusive arbitrator. Any other interpretation would be unreasonable—the Court
cannot conclude that while a party must use the NAF rules and must pay the NAF a filing fee, it
could then select a different arbitrator. So while the agreement never explicitly states that the
25

Johnson Cnty Bank v. Ross, 13 P.3d 351, 353 (Kan. Ct. App. 2000).

26

Anderson, 153 P.3d at 554.

27

Doc. 47, Ex. 6.

28

Id.

29

Id.
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NAF is the exclusive arbitrator, by construing and considering the whole agreement and looking
for a reasonable interpretation, the Court finds that the parties agreed that they would use no
other arbitrator besides the NAF.
And while the Court need not go outside of the four corners of the arbitration agreement
to make this determination, the rules designated in the agreement—and provided on the website
listed within the agreement—further confirm that the parties intended to use the NAF
exclusively. The NAF Code of Procedure states that it is “incorporated by reference into every
Arbitration Agreement” and that any arbitration using its rules and procedures “shall be
administered only by [NAF] or by any entity or individual providing administrative services by
agreement with the [NAF].”30 Neither party has indicated whether this language prevents an
arbitrator outside of the NAF to conduct arbitration under the NAF rules or whether the entities
and individuals providing service by agreement with NAF are also banned from arbitrating
consumer disputes. But the fact that the rules are restricted for use only by NAF or entities and
individuals providing arbitral services by agreement with the NAF suggests that in explicitly
selecting the NAF Code of Procedure, the parties exclusively selected the NAF to administer
those procedures.31 Thus, the NAF Code of Procedure strengthens the Court’s finding that the
parties exclusively selected the NAF.
And not only did the parties exclusively select the NAF as their arbitrator, the language
in the agreement further shows that the parties’ selection of the NAF was integral to the
agreement, such that the parties would not have agreed to arbitrate with another arbitrator. In

30

Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803, 814 (N.M. 2011).

31

See Carr v. Gateway, Inc., 944 N.E.2d 327, 336 (Ill. 2011).
8

several places, the agreement states that disputes “shall be settled exclusively by binding
arbitration.”32 Each time it makes this statement, the agreement adds, in the same sentence, that
the arbitration will be conducted “as set forth in Section C. below.”33 Section C of the agreement
explains that the parties do not have to agree to arbitration, but once the parties agree on
arbitration, the specific process of arbitration is mandatory: “If, however, the Resident agrees to
arbitrate disputes by signing this Admission Agreement, then the arbitration will be conducted as
follows . . . .”34 The agreement then goes on to explain the arbitration process as conducted by
the NAF. This language thus shows that if arbitration is to occur, it must proceed through the
NAF. The Court thus finds that the selection of the NAF is integral to the arbitration agreement
and not merely an ancillary logistical concern.
Defendant, however, points to the language in the agreement and argues that because the
agreement never explicitly states that the parties must arbitrate through the NAF, it does not
select the NAF as an exclusive arbitrator, and even if it does, the selection of the NAF is not
integral to the agreement. Defendant cites to Reddam v. KPMG LLP35 and Brown v. ITT
Consumer Fin. Corp.,36 which both found the selection of an arbitrator an ancillary concern
because the parties merely selected the rules of the specific forum. Brown and Reddam stand for
the proposition that when an arbitration agreement “merely selects the rules of a specific forum,

32

Doc. 47, Ex. 6

33

Id.

34

Id.

35

457 F.3d 1054 (9th Cir. 2006), abrogated on other grounds as recognized by Atlantic Nat’l Trust LLC v.
Mt. Hawley Ins. Co., 621 F.3d 931, 940 (9th Cir. 2010).
36

211 F.3d 1217, 1222 (11th Cir. 2000).
9

as opposed to the forum itself, and another arbitral forum could apply those rules, the
unavailability of the implicitly intended arbitral forum will not require the court to condemn the
arbitration clause.”37 Or put another way, these courts find that “[a]t a minimum for the selection
of an arbitrator to be deemed ‘integral,’ the arbitration clause must include an ‘express
statement’ designating a specific arbitrator.”38 But in both Reddam and Brown, the Courts failed
to find any other language besides the selection of the rules to indicate the parties selected a
specific arbitrator.39 Unlike in Reddam and Brown the arbitration agreement here has additional
language to suggest that the choice of the NAF was integral to the decision to arbitrate. So this
case is distinguishable from Reddam and Brown in that the parties did more than merely select
the rules of the NAF; the agreement, read as a whole, shows that the parties selected the NAF as
the exclusive arbitrator.
Defendant also points the Court to the severance clause in the admissions contract to
show that the Court need not invalidate the entire arbitration agreement. While the arbitration
agreement itself does not contain a severance clause, the arbitration agreement is part of the
admissions contract, which contains a clause that states: “Any provision in this Agreement found
to be invalid will be severable, and the remainder of this Agreement will remain effective.”40
Defendant asks that the Court “sever any such references to the NAF and enforce the remainder

37

Stewart v. GGNSC–Canonsburg, L.P., 9 A.3d 215, 219 (Pa. Super. Ct. 2011) (citing Reddam, 457 F.3d at
1059–61)).
38

Id. (citing Reddam, 457 F.3d at 1060; Ranzy v. Tijerina, 393 F. App’x 174 (5th Cir. 2010)).

39

See Reddam, 457 F.3d at 1059–60 (explaining that the parties merely selected the forum’s rules without
noting any other language in the agreement); Brown, 211 F.3d at 1220 & 1222 (citing only to the language in the
agreement selecting the NAF rules).
40

Doc. 4, Ex. D, at 2.
10

of the arbitration agreement pursuant to the parties’ intentions as evidenced by the severance
provision.”41 Some courts have found that a severance clause shows that the choice of a specific
arbitrator is merely an ancillary concern.42 In Jones v. GGNSC Pierre LLC, for example, the
court found that the severance clause showed that selection of the specific arbitrator was not
integral to the arbitration agreement.43 But in Jones, the parties included the severance clause in
the arbitration agreement.44 Additionally, the court found other language within the arbitration
agreement that showed that the selection of the arbitrator was an ancillary concern.45 Unlike in
Jones, the parties here did not include the severance clause in the arbitration agreement and the
language within the arbitration agreement shows the important of the NAF as an arbitrator.
Thus, the severance clause here does not as strongly reflect the parties’ intent. As explained
above, the Court finds that the language in the arbitration agreement shows that the selection of
the NAF is integral to the agreement to arbitrate and the severance clause in the admission
contract does not change that determination. Therefore, the Court will not go against the
demonstrated intent of the parties to arbitrate before the NAF and sever the references to the
NAF from the rest of the agreement.
Even if the Court followed defendant’s suggestion to use the severance clause, the Court
is unsure of whether it could sever the references to the NAF without also severing the NAF

41

Doc. 4, at 20.

42

See Jones v. GGNSC Pierre LLC, 684 F. Supp. 2d 1161, 1167 (D.S.D. 2010); Estate of Eckstein v. Life
Care Centers of Am., 623 F. Supp. 2d 1235, 1238 (E.D. Wash. 2009).
43

684 F. Supp. 2d at 1167 (citing Estate of Eckstein, 623 F. Supp. 2d 1235).

44

Id.

45

Id. at 1167–68.
11

Code of Procedure. First, the NAF Code of Procedure may not even remain in effect for
administering consumer disputes.46 Under its consent decree, the NAF cannot arbitrate any
consumer disputes, and so there may not be any NAF procedures that remain effective for
consumer disputes.47 Second, the NAF Code of Procedure states that only the NAF or an
individual providing services for the NAF may administer the Code of Procedure.48 As
discussed above, this provision in the NAF Code of Procedure may make it impossible for
anyone else to use the rules. In that case, either the parties would have to use another set of rules
or they would have to alter the NAF Code of Procedures to accommodate a new arbitrator.
Either way, the parties would be proceeding under a new arbitrator and a new set of rules not
contemplated by the arbitration agreement, requiring the Court to rewrite substantial portions of
the contract. These problems that would occur after severance of the NAF bolster the Court’s
determination that the selection of the NAF is integral to the arbitration agreement and cannot be
severed from it.
IV.

Conclusion
The exclusive references to the NAF, the selection of the NAF rules, the requirement to

pay the NAF, the mandatory language of the contract, and the absence of any provision allowing
for a substitute arbitrator all support the conclusion that the NAF is the exclusive arbitrator and
that the selection of the NAF is integral to the parties agreement to arbitrate. As such, the Court
cannot use § 5 of the FAA to appoint a substitute arbitrator, and the entire arbitration agreement

46

Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803, 814 (N.M. 2011) (citing Carideo v. Dell, Inc., No.
C06-1772JLR, 2009 WL 3485933, at *5 (W.D. Wash. Oct. 26, 2009)).
47

Carideo, 2009 WL 3485933, at *5.

48

Rivera, 259 P.3d at 814.
12

is unenforceable because the NAF no longer arbitrates consumer disputes. The Court therefore
will not compel arbitration. Further, trial is no longer needed to determine whether the signature
on the agreement was forged because even if plaintiff signed the agreement, the Court cannot
enforce it.
IT IS THEREFORE ORDERED BY THE COURT that plaintiff’s Notice that
Defendant’s Demand for Arbitration is Moot, and Motion to Dismiss Defendant’s Demand for
Arbitration (Doc. 47) is GRANTED.
IT IS FURTHER ORDERED BY THE COURT that the trial set for November 10,
2011, is canceled.
IT IS SO ORDERED.

Dated: November 8, 2011
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

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