In this week's Alabama Law Weekly Update, we bring you two cases from the Alabama Supreme Court. In the first, the Alabama Supreme Court determined that a health care authority was not immune or entitled a cap on damages but liable for a $3.2 million medical malpractice suit. In the second case, the Court determined that filing a lawsuit on a debt is a waiver of an arbitration provision if the borrower later files counterclaims. In the same case, though, the Court also held that a separate arbitration agreement remains enforceable even if the enforcement of arbitration results in litigating related claims between related parties partially in arbitration and partially in state court.

Health Care Authority for Baptist Health, an affiliate of UAB Health System, d/b/a Baptist Medical Center East v. Davis, [Ms. 1090084, February 28, 2014], -- So.3d - (Ala. 2014) (Upholding a $3.2 million medical malpractice judgment, determining that a healthcare authority is not entitled to state sovereign immunity or statutory cap on damages even when created by a state entity).

In its modified opinion, the Alabama Supreme Court upheld a $3.2 million jury verdict against a hospital on a medical malpractice claim. At issue on the appeal was whether the hospital was entitled to sovereign immunity, as an arm of the state, and whether the judgment against the health care authority was capped by Alabama statute. This was a tumultuous case on appeal in which the Court initially reversed the judgment on a finding of immunity. In its most recent decision, the Court denied an application for rehearing and modified its opinion issued May 17, 2013. In so holding, the Court upheld the trial court judgment of $3.2 million and found that state immunity did not extend to the health care authority.

The hospital at issue in the case was originally part of Baptist Health. Baptist Health experienced financial problems and sought the assistance of the University of Alabama Board of Trustees. The Trustees then directed that the "Health Care Authority for Baptist Health, an affiliate of UAB Health System" be formed pursuant to an Affiliation Agreement between the Trustees, Baptist Health, and the UAB Health System, an Alabama nonprofit corporation. The newly formed health care authority was incorporated under Alabama's Health Care Authority Act ("HCA Act").

The Court closely scrutinized the HCA Act and determined that the HCA Act does extend the sovereign immunity of a creating entity (such as the Trustees) to a health care authority formed under the act. However, that immunity is limited only to protection from antitrust laws and regulations. The immunity of the creating entity in other respects, such as for negligence, does not pass to the health care authority nor is the health care authority bound to comply with laws applying to state entities, such as requirements for open meetings or compliance with state public bidding laws. Because an entity created under the HCA Act is free, in most respects, to act as a private corporation and is not bound by the limits of a state entity, the HCA-created health authority is not extended the sovereign immunity of the State.

The Court also weighed the Staudt factors - those criteria which Alabama court's use to determine if an entity is acting as an arm of the State - in determining State sovereign immunity did not extend to the health care authority. The most significant factor is that any judgments or losses incurred by the authority are not payable from the state treasury. The Court also recognized a new factor that Baptist Health, a private corporation, retained control of some operational decisions and reserved an interest in the assets of the health care authority. Because the health care authority is not an arm of the State, the authority similarly is not entitled to the damages cap for municipalities and counties, which limits cities and counties - and their agencies - to liability of $100,000 for damages resulting from bodily injury or death. In so holding, the Supreme Court upheld the $3.2 million medical malpractice verdict against the health care authority.

Kennemer v. Ford Motor Credit, et al., [Ms. 1120689, February 28, 2014], -- So.3d - (Ala. 2014) (Filing suit in district court waives ability to enforce arbitration of later-filed counterclaims; lack of enforceability of arbitration agreement against one party does not prevent enforcement of a valid arbitration agreement against another related party on related claims).

In Kennemer, the Alabama Supreme Court held that filing suit against a debtor in district  court acts as a waiver of an arbitration agreement. The Court also held that once a loan is assigned, the arbitration agreement contained in the loan documents is unenforceable as between the original parties. However, the Court held that a separate arbitration agreement is enforceable, even if the result means arbitration of one claim and litigation in state court of a related claim against another party.

This case stemmed from the purchase of a used automobile from Ray Pearman Lincoln, Inc. (the "Dealership") by the Kennemers (the "Borrowers"). In order to finance their purchase, the Borrowers took out a retail-installment loan with the Dealership, which was assigned to Ford Motor Credit Company, LLC ("Ford Credit"). The installment loan contained an arbitration provision and the Borrowers also entered a separate arbitration agreement with the Dealership. The Borrowers discovered previously undisclosed problems with the car and stopped making payments. After the car was repossessed and sold at auction, Ford Credit sued the Borrowers in District Court for the deficiency of the loan balance. Ford Credit obtained a judgment against the Borrowers.

The Borrowers appealed the judgment to the Circuit Court and asserted counterclaims against Ford Credit and a third-party claim against the Dealership. After a motion to dismiss was denied, both Ford Credit and the Dealership moved to compel arbitration based on their respective arbitration agreements. The Circuit Court granted both motions compelling the Borrowers to arbitrate all of their claims.

On appeal, the Alabama Supreme Court determined that Ford Credit, by suing the Borrowers in District Court, waived its right to enforce the arbitration provision contained in the loan documents. However, the Court upheld enforcement of the separate arbitration agreement against the Dealership. In reaching this decision, the Court rejected the Borrowers'  arguments that Ford Credit's waiver of the arbitration agreement also waived the Dealership's ability to enforce arbitration. In reaching this decision, the Court reasoned that the  assignment of the loan to Ford Credit cut-off the Dealership's interest in the loan agreement, including the Dealership's right to enforce the arbitration agreement. Accordingly, Ford Credit's arbitration waiver on that contract could not be used against the Dealership.

Similarly, the Court rejected the Borrowers' argument that, because the claims were based on the same facts and circumstances, the arbitration of the claims against one party and litigation in state court against the other may result in inconsistent judgments. The Court admitted this reality but, following United States Supreme Court case-law, held that an otherwise valid arbitration agreement could be enforced even when a related-claim would be litigated against another party in state court.