SCALES v. SSC WINSTON-SALEM OPERATING COMPANY, LLC
MEMORANDUM OPINION AND ORDER signed by Magistrate Judge L. Patrick Auld on 10/05/2017. The Arbitration Motion 2 is GRANTED as to the request to conduct discovery and DENIED without prejudice as to the request to compel arbitration and stay procee dings. FURTHER that counsel for the parties promptly shall confer and, on or before October 20, 2017, shall file a Joint Status Report setting forth their shared or individual proposed discovery plans. Following submission of the Joint Status Report, the Clerk shall refer this matter back to the undersigned for further action. (Coyne, Michelle)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
GERALDINE I. SCALES,
as Administratrix of the
Estate of Lee Norman Scales,
SSC WINSTON-SALEM OPERATING,
MEMORANDUM OPINION AND ORDER
Retirement/Winston-Salem’s Motion to Compel Arbitration and Stay
Proceedings” (Docket Entry 2) (the “Arbitration Motion”).
reasons that follow, the Court will grant in part and deny in part
the Arbitration Motion.1
1 The undersigned United States Magistrate Judge will enter
an order rather than a recommendation regarding the Arbitration
Motion because pretrial motions of this sort do not appear in the
list of matters requiring a recommendation, see 28 U.S.C.
§ 636(b)(1), and because federal appellate courts uniformly approve
disposition of such motions by Magistrate Judges, see Virgin
Islands Water & Power Auth. v. General Elec. Int’l Inc., 561 F.
App’x 131, 133-34 (3d Cir. 2014) (explaining that “motions to
compel arbitration and stay the proceedings are not [dispositive]”
and that “we see no exercise of Article III power when a Magistrate
Judge rules on a motion to compel arbitration”); Next Step Med. Co.
v. Johnson & Johnson Int’l, 619 F.3d 67, 69 n.2 (1st Cir. 2010)
(explaining that “motions to compel arbitration are non-dispositive
motions” in regard to which a Magistrate Judge can “issue a
definitive order (rather than a report and recommendation)” (citing
PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 14 (1st Cir.
2010))); see also, e.g., Smith v. American Gen. Fin., No. 3:11cv97,
Alleging various state-law torts related to the death of Lee
“Plaintiff”), initiated this lawsuit against SSC Winston-Salem
Retirement/Winston-Salem” (the “Defendant”) in the Superior Court
of North Carolina for Forsyth County.
(See Docket Entry 6.)
Defendant removed the lawsuit to this Court on the grounds of
diversity jurisdiction (see Docket Entry 1 at 1-3)2 and immediately
specifically, through the Arbitration Motion, Defendant seeks an
order either (1) compelling arbitration in accordance with “the
Agreement for Dispute Resolution Program made between the parties”
or (2) authorizing discovery regarding the authority of Geraldine
Scales (“Mrs. Scales”) “to enter into the arbitration agreement for
her husband,” Mr. Scales.
(Id. at 2; see also Docket Entry 3 at 4-
Plaintiff asserts that
authority to execute the “Agreement for Dispute Resolution Program”
2011 WL 1059836 (W.D.N.C. Mar. 22, 2011) (granting, as Magistrate
Judge, motion to compel arbitration); Jackman v. Jackman, Civ.
Action No. 06-1329, 2006 WL 3792109, at *2 (D. Kan. Dec. 21, 2006)
(concluding that “the order to stay proceedings and compel
arbitration is non-dispositive and is within the magistrate’s
2 Citations herein to Docket Entry pages utilize the CM/ECF
(Docket Entry 2-1) (the “Agreement”) on Mr. Scales’s behalf, and
asks the Court to deny the Arbitration Motion. (See Docket Entries
I. Applicable Legal Standards
The Federal Arbitration Act (the “FAA”) renders enforceable
written arbitration contracts, “save upon such grounds as exist at
law or in equity for the revocation of any contract.”
Pursuant to Section 4 of the FAA, “upon being satisfied that
3 The Arbitration Motion does not specify the statutory basis
on which Defendant moves to compel arbitration and stay
proceedings. (See Docket Entry 2.) However, in its memorandum in
support of the Arbitration Motion, Defendant asserts that “the
Agreement . . . is enforceable under both the . . . FAA and the
North Carolina Uniform Arbitration Act (UAA).” (Docket Entry 3 at
2 (citing “N.C. Farm Bureau Mut. Ins. Co. v. Sematoski, 195 N.C.
App. 304, 306 (N.C. Ct. App. 2009)”).) As an initial matter, the
“UAA is applicable to agreements to arbitrate made on or after 1
August 1973 and prior to 1 January 2004.” North Carolina Farm, 195
N.C. App. at 307, 672 S.E.2d 90, 92. The Agreement bears the date
of March 31, 2015 (see Docket Entry 2-1 at 9), and thus the UAA
does not govern it.
Moreover, the FAA preempts state law,
Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 272
(1995), including the UAA, see WMS, Inc. v. Weaver, 166 N.C. App.
352, 357-58, 602 S.E.2d 706, 710 (2004).
Here, the Agreement
specifies that it implicates “interstate commerce” and that, “[a]s
such, the . . . FAA, not state law, will control and applies to
the arbitration of disagreements between the parties and the
parties agree to incorporate such laws into this Agreement.”
(Docket Entry 2-1 at 6.) Under these circumstances, the FAA, not
the UAA, applies. See WMS, 166 N.C. App. at 358, 602 S.E.2d at 710
(concluding that the FAA governed contract involving commerce); see
also Advantage Assets, Inc. II v. Howell, 190 N.C. App. 443,
445-46, 663 S.E.2d 8, 10 (2008) (observing that North Carolina’s
Revised Uniform Arbitration Act (the “RUAA”) applies only to
contracts executed after December 2003, rejecting contention that
the RUAA applied to 2001 contract, and concluding that the FAA
the making of the agreement for arbitration . . . is not in issue,
the [C]ourt shall make an order directing the parties to proceed to
arbitration in accordance with the terms of the agreement. . . .
[However, i]f the making of the arbitration agreement . . . be in
issue, the [C]ourt shall proceed summarily to the trial thereof.”
9 U.S.C. § 4. Accordingly, the Court can compel arbitration “under
the FAA only when there is ‘a judicial conclusion’ that there is a
validly formed, express agreement to arbitrate.”
Dillon v. BMO
Harris Bank, N.A., 173 F. Supp. 3d 258, 263 (M.D.N.C. 2016)
(quoting Granite Rock Co. v. International Bhd. of Teamsters, 561
U.S. 287, 303 (2010)), appeal dismissed sub nom. Dillon v. Bay
Cities Bank, No. 16-1373 (4th Cir. Apr. 5, 2016).
In making this
assessment, the Court looks to state-law contract principles. Id.;
see also Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31
(2009) (“State law, therefore, is applicable to determine which
contracts are binding . . . and enforceable under [the FAA] if that
law arose to govern issues concerning the validity, revocability,
and enforceability of contracts generally.” (brackets, internal
quotation marks, and emphasis omitted)); First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (“When deciding whether
the parties agreed to arbitrate a certain matter . . ., courts
generally . . . should apply ordinary state-law principles that
govern the formation of contracts.”).
applied to the contract “because [it] was ‘made pursuant to a
transaction involving interstate commerce’”).
The party seeking to compel arbitration bears the burden of
purports to cover the dispute.”
Dillon, 173 F. Supp. 3d at 263.
If the party makes this evidentiary showing, the party opposing
arbitration must come forward with sufficient facts to place the
entitlement to arbitration in dispute.
See Chorley Enters., Inc.
v. Dickey’s Barbecue Rests., Inc., 807 F.3d 553, 564 (4th Cir.
2015) (“[T]he party seeking a jury trial [under Section 4] must
make an unequivocal denial that an arbitration agreement exists —
Oppenheimer & Co. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995)),
also Oppenheimer, 56 F.3d at 358 (“If the party seeking arbitration
has substantiated the entitlement by a showing of evidentiary
facts, the party opposing may not rest on a denial but must submit
evidentiary facts showing that there is a dispute of fact to be
Chorley, 807 F.3d at 564; accord Erichsen v. RBC
Capital Mkts., LLC, 883 F. Supp. 2d 562, 566 (E.D.N.C. 2012)
(explaining “that the standard for deciding a motion to compel
arbitration brought under the . . . FAA, 9 U.S.C. § 4, is a
standard similar to a motion for summary judgment”).
In light of these respective burdens, courts typically grant
enforceability of an arbitration agreement.
See, e.g., Dillon v.
BMO Harris Bank, N.A., No. 1:13cv897, 2015 WL 6619972, at *3
(M.D.N.C. Oct. 30, 2015) (“Accordingly, if a party challenges the
enforceability of an arbitration agreement, courts generally permit
arbitration provision.” (collecting cases)); see also Livingston v.
Assocs. Fin., Inc., No. 01 C 1659, 2001 WL 709465, at *2 (N.D. Ill.
discovery in response to motion to compel arbitration, that a
“party must be given an opportunity to pursue discovery related to
recommendation adopted, No. 01 C 1659, 2002 WL 424352 (N.D. Ill.
Mar. 6, 2002).
Such discovery must remain “tailored to matters
pertinent to the disposition of the petition to compel arbitration
and/or stay litigation,” namely “issues relating to the making and
performance of the agreement to arbitrate.”
Dillon, 2015 WL
contract defenses,” id. at *3 & n.5 (internal quotation marks
omitted), such as lack of authority to execute the agreement, see,
e.g., Smith Wilson Co. v. Trading & Dev. Establishment, 744 F.
Supp. 14, 16 (D.D.C. 1990) (explaining that, “while a signed
arbitration agreement leaves a court with no choice but to compel
arbitration, this proposition applies only if the individuals who
signed the agreement are legally authorized to bind the respective
parties” (citation omitted)).
II. Factual Background
This lawsuit arises from allegedly negligent care Mr. Scales
received at a nursing home Defendant operates in North Carolina.
(See Docket Entry 6.)
Defendant contends that the Agreement
governs Plaintiff’s claims (see Docket Entry 2 at 1-2) and asks the
Court to compel arbitration and stay this action, “including any
potential merits-based discovery,” pending arbitration (id. at 2).
In support of this request, Defendant submitted the Agreement as
well as various notices and forms signed by Mrs. Scales.
at 1-2; see also Docket Entries 2-1, 2-2.)
Agreement describes Defendant’s three-step “Dispute Resolution
Program” (the “DPR”) (Docket Entry 2-1 at 2, 4), which culminates
in binding arbitration (see id. at 4-5). The Agreement states that
acceptance of the DPR “is voluntary” (id. at 2 (all-cap font
Defendant’s facilities (id.).
The Agreement provides two options
for execution, depending on the resident’s competence. In relevant
part, the first option states:
If resident is competent, complete this section:
Signature of Resident
(Sign where resident is mentally competent to
consent to this Agreement under State law)
(Id. at 8 (emphasis in original).)
The second option states:
I am the spouse, responsible party, legal guardian or
power of attorney of the resident and have the authority
to sign the agreement on his/her behalf. In signing this
Agreement, the Legal Representative or Family Member
binds both the Resident and themselves individually.
Signature of Legal Representative or Family
(Id. at 9 (emphasis in original).)
Each section also provides
(See id. at 8-9.)
The latter section of the
Agreement contains the dated signatures of Mrs. Scales and a
(See id. at 9; see also Docket Entry 2-2 at 14.)
In response to the Arbitration Motion, Plaintiff submitted the
“Affidavit of Geraldine I. Scales (RE: Defendant’s Motion to Compel
(See Docket Entry 11 at 4-5 (the “Affidavit”).)
The Affidavit states that Mrs. Scales “filed this lawsuit in [her]
representative capacity” as “the duly appointed administratrix of
the estate of [her] husband, [Mr.] Scales.”
(Id. at 4.)
further states that, on March 31, 2015, Mr. Scales “was admitted to
Brian Center Health and Retirement/Winston-Salem (‘Brian Center
Winston-Salem’) for short term rehabilitation,” and Mrs. Scales
“went to Brian Center Winston-Salem and was told by a member of the
staff of Brian Center Winston-Salem that [she] needed to sign [her]
husband’s admission paperwork.”
Mrs. Scales avers that she
“signed the nursing home admission documents presented to [her] by
the staff at Brian Center Winston-Salem,” but that Mr. Scales “had
attorney-in-fact, and he had not authorized [her] to sign an
arbitration agreement on his behalf.”
(Id. at 5.)
states both that she “did not tell any staff member at Brian Center
Winston-Salem that [she] had permission from [Mr. Scales] to sign
discussed “the content of the Brian Center Winston-Salem admission
Finally, she attests that, to her knowledge,
Winston-Salem admission documents that [she] signed” and “no member
of the staff at Brian Center Winston-Salem ever discussed the
admission documents with [Mr. Scales].”
execute the Agreement on Mr. Scales’s behalf.
(See id. at 1-2.)
In contrast, “Defendant’s position is that [Mrs.] Scales had
apparent authority to enter the arbitration agreement on her
(Docket Entry 3 at 3.)
Moreover, “[i]n the
event Plaintiff denies she had the authority to enter into the
arbitration agreement for her husband, Defendant requests discovery
as to that issue.”
(Docket Entry 2 at 2.)
III. North Carolina Agency Principles4
The North Carolina courts define agency “as the relationship
which arises from ‘the manifestation of consent by one person to
another that the other shall act on his behalf and subject to his
control, and consent by the other so to act.’”
Hayman v. Ramada
Inn, Inc., 86 N.C. App. 274, 277, 357 S.E.2d 394, 397 (1987)
(emphasis in original).
“An apparent agency is created where a
represented that another person is his agent when no actual agency
exists.” Knight Publ’g Co. v. Chase Manhattan Bank, N.A., 125 N.C.
App. 1, 15, 479 S.E.2d 478, 487 (1997) (internal quotation marks
omitted). Thus, under North Carolina law, “[a] principal is liable
upon a contract duly made by his agent with a third person (1) when
the agent acts within the scope of his actual authority; (2) when
the contract, although unauthorized, has been ratified; (3) when
the agent acts within the scope of his apparent authority, unless
the third person has notice that the agent is exceeding his actual
Investment Props. of Asheville, Inc. v. Allen, 283
N.C. 277, 285-86, 196 S.E.2d 262, 267 (1973).
The third category applies only if the third party “dealt with
the agent in reliance [on his apparent authority], in good faith,
and in the exercise of reasonable prudence.” Norfolk S. Ry. Co. v.
4 North Carolina law applies to the Agreement.
Entry 2-1 at 6; Docket Entry 6 at 1.)
Smitherman, 178 N.C. 595, 599, 101 S.E. 208, 210 (1919). Moreover,
the third party must have “actually relied upon the assertions of
the principal regarding the purported agent’s power at the time of
Knight Publ’g, 125 N.C. App. at 15, 479 S.E.2d
at 487 (emphasis in original).
As such, “[t]he law of apparent
authority usually depends upon the unique facts of each case,” and,
“where the evidence is conflicting, or susceptible to different
authority is a question of fact to be determined by the trier of
Foote & Davies, Inc. v. Arnold Craven, Inc., 72 N.C. App.
591, 595, 324 S.E.2d 889, 893 (1985).
Furthermore, the marital relationship does not itself render
one spouse the agent of the other.
See Pitt v. Speight, 222 N.C.
585, 588, 24 S.E.2d 350, 351 (1943) (“A husband is not jure mariti
the agent of his wife, and if such agency is relied upon it must be
It would seem, however, that no presumption arises by
reason of the relationship that he is the agent of his wife.”
(citation and internal quotation marks omitted)).
agency must be proven.”
Id. at 288, 24 S.E.2d at 352.
words, “[t]he [husband] may constitute the [wife] h[is] agent, but,
to establish this, the evidence must be clear and satisfactory, and
sufficiently strong to explain and remove the equivocal character
in which he is placed by reason of h[is] relation of [husband].”
Id., 24 S.E.2d at 352 (internal quotation marks omitted).
agency of the [wife] for the [husband] may be shown by direct
evidence or by evidence of such facts and circumstances as will
empowered to act for h[im].
Slight evidence of the agency of the
[wife] for the [husband] is sufficient to charge h[im] where he
Norburn v. Mackie, 262 N.C. 16, 23, 136 S.E.2d 279, 284 (1964)
(ellipsis and internal quotation marks omitted); see also Pitt, 222
N.C. at 588, 24 S.E.2d at 352 (“The husband may act as agent of his
wife, but in order to bind her, he must previously be authorized to
(internal quotation marks omitted)).
Application of the apparent agency doctrine in the spousal
Ledbetter, 269 N.C. 142, 146, 148, 152 S.E.2d 165, 169-70 (1967)
(concluding that wife bore no liability for mortgage assumed by her
husband because the evidence did not establish that she “learned of
the existence of the [relevant] deed and of the assumption clause
therein,” received any benefit from the deed, or ratified the
transaction between the third party and her husband); Bookman v.
Britthaven, Inc., 233 N.C. App. 454, 460-61, 756 S.E.2d 890, 895-96
(2014) (reversing denial of motion to compel arbitration and
admission contracts; (2) whether the arbitration agreement fit into
the scope of this potential authority; (3) whether there was any
limitation on this potential authority; and (4) whether [the
nursing home] was aware of any limitation on this authority if one
The party seeking to enforce an arbitration agreement
establishing such authority.
See Bookman, 233 N.C. App. at 461,
756 S.E.2d at 895.
At present, the only evidence Defendant offers regarding Mrs.
Scales’s alleged authority consists of the Agreement and assorted
paperwork executed by Mrs. Scales on March 31, 2015.
Entries 2-1, 2-2.)5
Defendant maintains that these materials
In its reply in support of the Arbitration Motion,
Defendant also presents multiple arguments premised on facts not in
(See, e.g., Docket Entry 12 at 2 (“First, the
passivity of Mr. Scales in allowing Mrs. Scales to sign the
[Agreement] (and other admissions paperwork) and then, in no way,
manifesting an objection to her signing such documents sufficiently
invokes the apparent authority doctrine.”).)
Defendant argues “that Mr. Scales was clearly competent at the time
the [Agreement] was signed” and offers to provide medical records
establishing such competency “to the Court . . . if necessary.”
(Id. at 5 n.2.)
Notably, although Defendant argues that Mr.
Scales’s alleged competency renders the Agreement enforceable under
North Carolina’s avoidance doctrine (see id. at 5-6), it does not
address the effect, if any, of Mr. Scales’s competency upon the
Agreement’s validity (see Docket Entry 2-1 at 8-9 (providing for
execution by competent resident or, “[i]f resident is adjudged
incompetent,” by a third party)) or Defendant’s ability to rely on
Mrs. Scales’s execution of the Agreement. (See generally Docket
Entry 12.) Regardless, the allegations in Defendant’s memorandum
do not qualify as competent evidence for adjudicating the
Arbitration Motion, at least in regard to its request to compel
arbitration. See Rountree v. Fairfax Cty. Sch. Bd., 933 F.2d 219,
establish both Mrs. Scales’s apparent authority and Defendant’s
appropriate reliance thereon. (See, e.g., Docket Entry 2 at 2 (“It
is obvious by the fact Mr. Scales was admitted to Brian Center
[Winston-Salem] that [Mrs.] Scales had the authority to act on her
husband’s behalf in signing the admission documents, including the
arbitration agreement, were [sic] relied upon by the Brian Center
In light of the Affidavit, however,
this paperwork fails to establish that the Agreement binds Mr.
To begin with, the arbitration agreement at issue here appears
as a standalone contract (rather than an arbitration provision in,
for example, an admissions contract) (see Docket Entry 2-1) and
specifies that its acceptance does not affect one’s admission to
Brian Center Winston-Salem (see id. at 2).
Scales’s admission to and treatment by Brian Center Winston-Salem
alone likely could not establish either ratification or estoppel as
a matter of law. Moreover, nothing in the paperwork indicates that
Mr. Scales reviewed or otherwise possessed knowledge of these
223 (4th Cir. 1991) (explaining that “[t]he arguments of counsel,
absent any evidence such as sworn affidavits . . ., fail to meet
the evidentiary standard necessary [at summary judgment]”); see
also United States v. White, 366 F.3d 291, 300 (4th Cir. 2004)
(“The Government’s claimed entitlement to summary judgment rests
largely on its repeated contention in court submissions that it did
not orally agree to a conditional plea. But an attorney’s unsworn
argument does not constitute evidence, and the Government has
offered no affidavit, deposition, sworn statement, or other direct
evidence that a Government agent did not make the oral promise.”).
Such arguments do reveal, however, the necessity of further factual
development for resolving Defendant’s arbitration request.
materials, including the Agreement.
(See, e.g., Docket Entry 2-2
at 14, 15, 27 (containing no signature in the section reserved for
the resident’s signature).)
In addition, Mrs. Scales executed at
least some of the paperwork by signing (1) “For the Responsible
Party” rather than “For the Resident” (id. at 14; see also id. at
27 (signing for “Responsible Party,” but not “Resident” or “Family
Representative”)) and (2) on the line for “Responsible Party
Signature (e.g., Family member)” rather than the lines for “Legal
Representative Signature (e.g., Guardian)” or “Agent Signature
(e.g., Agent through health care Power-of-Attorney or Surrogate
Decision-maker)” (id. at 15).
Under the circumstances, further
factual development remains necessary to assess both Mrs. Scales’s
authority and Defendant’s reliance.
See, e.g., Bookman, 233 N.C.
App. at 460–61, 756 S.E.2d at 895 (“Given that [family members] may
have had authority to conduct the admission process for [the
nursing home resident], and [the nursing home employee] averred
that she was unaware of any limitation on this authority if it
existed, there remains evidence which the trial court failed to
address in its findings of fact and conclusions of law ‘that would
allow, but not require, a finding of apparent authority’ to enter
into the arbitration agreement.”).
On this record, Defendant’s request to stay proceedings and
compel arbitration qualifies as premature.
Dillon, 2015 WL 6619972 at *3, should proceed.
See, e.g., Bookman
v. Britthaven, Inc., No. COA 12-663, 226 N.C. App. 431, 741 S.E.2d
513 (table), 2013 WL 1314965, at *4 (2013) (remanding case for
further factual findings because the existing “findings of fact
regarding what occurred during the admission process [we]re not
sufficient to address apparent agency” and “[t]he order contain[ed]
no findings related to the question whether or not [the defendant
authority to sign the agreement and whether any such belief was
justified”). The Court will therefore authorize such discovery and
deny Defendant’s request to compel arbitration without prejudice to
renewal of the request after completion of such discovery.
Blankenship v. Seventeenth St. Assocs., LLC, Civ. Action No.
3:11-0627, 2012 WL 10008266, at *1 (S.D. W. Va. Feb. 1, 2012)
(granting leave “to conduct limited discovery on the formation and
prejudice motion to compel arbitration and stay proceedings).
The Court must determine the Agreement’s enforceability and
that determination cannot occur without discovery.
IT IS THEREFORE ORDERED that the Arbitration Motion (Docket
Entry 2) IS GRANTED as to the request to conduct discovery and
DENIED WITHOUT PREJUDICE as to the request to compel arbitration
and stay proceedings.
IT IS FURTHER ORDERED that counsel for the parties promptly
shall confer and, on or before October 20, 2017, shall file a Joint
Status Report setting forth their shared or individual proposed
Following submission of the Joint Status Report,
the Clerk shall refer this matter back to the undersigned for
This 5th day of October, 2017.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
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