The South Carolina Supreme Court issued a significant decision for skilled nursing facilities that offer pre-dispute arbitration agreements to their residents. In keeping with the numerous recent decisions that we have reported on, the South Carolina Supreme Court held that: (1) the arbitration agreement was governed by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16; (2) the alleged unavailability of the arbitral forum whose rules were to be applied did not render the agreement unenforceable; and (3) the defendants did not waive arbitration by conducting limited discovery and participating in pre-suit mediation. The case is Dean v. Heritage Healthcare of Ridgeway, LLC, App. Case No. 2013-000509, Opinion No. 27401 (S.C.Sup.Ct. Filed June 18, 2014).

Skilled Nursing Care Involves Interstate Commerce 

The FAA applies to contracts “evidencing a transaction involving commerce.” 9 U.S.C. § 2. The reach of the FAA is coextensive with the broad reach of the Commerce Clause. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277 (1995); Zabinski v. Bright Acres Assocs., 346 S.C. 580, 590, 553 S.E.2d 110, 115 (2001). In Dean, the residency agreement involved meals and medical supplies shipped across state lines by out-of-state vendors.Dean, Op. No. 27401 at 6-7.

Despite the clear pronouncements in Allied-Bruce and Zabinski, the breadth of the FAA’s applicability to nursing home disputes had been muddled by Timms v. Greene, a South Carolina Supreme Court case that predatedAllied-Bruce and held that a nursing home admission did not involve interstate commerce. Timms, 310 S.C. 469, 427 S.E.2d 642 (1993), overruled in part by Cape Romain Contractors, Inc. v. Wando E., L.L.C., 405 S.C. 115, 123 n.5, 747 S.E.2d 461, 465 n.5 (2013). Although the approach to the “involving commerce” analysis used in Timmswas clearly inconsistent with Allied-Bruce and Zabinski, and even though Timms had been overruled in part last year by Cape Romain, it apparently still created some confusion. Hopefully clarifying the issue once and for all, the Dean Court held: “Timms is a relic of the past, decided before the broad definition of interstate commerce set forth in Allied-Bruce. Consequently, we explicitly overrule Timms in its entirety and find that the residency agreement here does, in fact, involve interstate commerce, and thus is governed by the FAA.” Dean, Op. No. 27401 at 7. This holding brings South Carolina in line with the numerous cases applying the FAA to arbitration agreements entered in connection with nursing home admission agreements. Id. at 6, n.7.

Requiring Use of an Arbitral Forum’s Rules Does Not Establish that Forum as an Exclusive Forum 

Arbitration agreements typically reference an arbitral forum, usually indicating either that any arbitration shall be administered by a designated arbitral forum or that any arbitration shall be conducted pursuant to a particular forum’s rules. As arbitration providers have restricted the types of cases they will take (i.e., refusing to take healthcare disputes or consumer disputes based on pre-dispute arbitration agreements), courts have been left to determine the effect of a reference to a now-unavailable forum.

In Dean, the parties had agreed to “follow the rules of the American Arbitration Association.” Dean, Op. 27401 at 2. The plaintiff argued that this language required any arbitration to be administered by the AAA, which was not possible because the AAA is no longer willing to administer arbitration of personal injury claims on the basis of pre-dispute arbitration agreements. The Dean Court followed the majority of courts by holding that the agreement was enforceable notwithstanding the alleged unavailability of the AAA to administer the arbitration. Id. at 7-12. In so doing, the Court established two rebuttable presumptions, depending on whether the agreement requires arbitration “in accordance with” a set of rules or “administered by” a particular forum:

[W]e adopt the majority rule distinguishing between “in accordance with” and “administered by.” More specifically, we find that the named arbitral forum is not a material term to agreements in which the parties agree to arbitrate “in accordance with” the named forum’s rules, absent other evidence to the contrary; however…, when parties elect for a proceeding “administered by” a named forum, that forum should be viewed as integral to the arbitration agreement, absent other evidence to the contrary.

Id. at 9. Thus, arbitration agreements that merely require use of a particular set of rules will generally be enforced even if the forum whose rules are referenced refuses to administer the arbitration. Where the arbitration agreement requires arbitration “administered by” a particular forum, the unavailability of that forum will render the agreement unenforceable, unless the party seeking to compel arbitration can demonstrate that administration by that forum was not integral to the arbitration agreement.

Participation in Statutory Pre-Suit Mediation and Limited Discovery Did Not Waive the Right to Compel Arbitration

South Carolina requires a “Notice of Intent” and mediation prior to initiation of a medical malpractice lawsuit. S.C. Code Ann. 15-79-125. The plaintiff in Dean argued that by subpoenaing medical records and participating in the statutorily-mandated mediation, the defendants waived their right to compel arbitration of the subsequently-filed medical malpractice lawsuit.

The Court noted that 

the FAA requires courts to resolve "any doubts concerning the scope of arbitrable issues . . . in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983) (emphasis added). Thus, there is a presumption against finding a party has waived its right to compel arbitration, E. Dredging & Constr., Inc. v. Parliament House, L.L.C., 698 So. 2d 102, 103 (Ala. 1997), and a “party seeking to prove a waiver of a right to arbitrate carries a heavy burden . . . .” [Blue Cross Blue Shield of Ala. v.Rigas, 923 So. 2d [1077,] 1093 [(Ala. 2005)]; accord Green Tree [Fin. Corp.-Ala. v. Randolph, 531 U.S. 79,] 91 [(2000)].

Dean, Op. No. 27401 at 12-13. The Court found that the plaintiff did not meet her heavy burden where defendants participated in pre-suit mediation for approximately four months, “requested limited discovery in order to engage in meaningful settlement talks,” and then, when mediation failed and the plaintiff filed her complaint, defendants “moved to compel arbitration at their first opportunity.” Id. at 13.

Remaining Issues: Authority to Sign the Agreement and Meeting of the Minds

The Court remanded the matter to the trial court to determine two issues that had not been addressed below – whether the individual who admitted the resident to the nursing home had authority to execute the admission agreement and arbitration agreement and whether there was a meeting of the minds between the parties. We will be watching this case closely for the resolution of those issues.

In the meantime, the Court of Appeals has heard oral arguments in the cases of Linda Johnson v. Heritage Healthcare of Estill, LLC, S.C. Ct. App. No. 2012-202289 and Cherry Scott v. Heritage Healthcare of Estill, LLC, S.C. Ct. App. No. 2012-207308, which involved issues similar to those in Dean, including issues relating to agency and “meeting of the minds.” 

Jerad Rissler and Jason Bring collaborated with local counsel and provided the arguments and authorities that were used in the winning brief in Dean. Mr. Rissler briefed Scott and Johnson, and Mr. Bring argued those matters before the Court of Appeals. For a copy of the Dean Opinion, please click here.