Ciccio v. SmileDirectClub, LLC

2 F.4th 577

Dr. Joseph CICCIO; Dr. Vishu Raj; Dr. Arthur Kapit; Dena Nigohosian; Dana Johnson, Plaintiffs-Appellees,

v.SMILEDIRECTCLUB, LLC, Defendant-Appellant.

No. 20-5833

United States Court of Appeals, Sixth Circuit.

Argued: March 11, 2021

Decided and Filed: June 25, 2021

ARGUED: Michael D. Meuti, BENESCH, FRIEDLANDER, COPLAN & ARONOFF LLP, Cleveland, Ohio, for Appellant. Emily J. Tidmore, SPOTSWOOD SANSOM & SANSBURY LLC, Birmingham, Alabama, for Appellees. ON BRIEF: Michael D. Meuti, James R. Bedell, BENESCH, FRIEDLANDER, COPLAN & ARONOFF LLP, Cleveland, Ohio, for Appellant. Emily J. Tidmore, Robert K. Spotswood, Michael T. Sansbury, Joshua K. Payne, SPOTSWOOD SANSOM & SANSBURY LLC, Birmingham, Alabama, Edward M. Yarbrough, W. Justin Adams, BONE MCALLESTER NORTON PLLC, Nashville, Tennessee, for Appellees.

Before: CLAY, McKEAGUE, and MURPHY, Circuit Judges.

McKEAGUE, J., delivered the opinion of the court in which MURPHY, J., joined. CLAY, J. (pp. 15–22), delivered a separate dissenting opinion.

McKEAGUE, Circuit Judge.

Dana Johnson first brought his claim against SmileDirectClub, LLC (SmileDirect) in court. But, in light of an arbitration agreement, he later voluntarily dismissed his claim and submitted it for arbitration to the American Arbitration Association (AAA). Before the claim got to an arbitrator, an AAA administrator determined that the claim implicated various AAA policies that precluded arbitration unless the parties signed a post-dispute arbitration agreement or a court otherwise ordered arbitration. Johnson declined to sign a new agreement and instead returned to court.

The district court held that Johnson satisfied his obligations under the arbitration agreement. In effect, this meant that the arbitration agreement did not cover the instant dispute. But whether an arbitration agreement covers a dispute is a gateway question of arbitrability, and here the parties delegated such questions to an arbitrator.

Under the agreement and the incorporated AAA rules, it was improper for an administrator to effectively answer that gateway question or to overlook it altogether by binding the parties to AAA's views of sound policy.

We reverse and remand to send the question to an arbitrator.

I

SmileDirect sells orthodontic implements over the internet as an alternative to traditional orthodontists. The original plaintiffs in this case—Dena Nigohosian, Dr. Joseph Ciccio, Dr. Arthur Kapit, and Dr. Vishu Raj—sued SmileDirect (and related defendants), alleging various federal and state statutory claims as well as some common-law claims. The gravamen of the complaint was false advertising. SmileDirect customer Dana Johnson and others joined as plaintiffs in a later amended complaint. SmileDirect and its customers had an arbitration agreement (the Agreement):

AGREEMENT TO ARBITRATE – I hereby agree that any dispute regarding the products and services offered [b]y SmileDirectClub and/or affiliated dental professionals, including but not limited to medical malpractice disputes, will be determined by submission to arbitration and not [b]y lawsuit filed in any court, except claims within the jurisdiction of Small Claims Court .... I agree that the arbitration shall be conducted by a single, neutral arbitrator selected by the parties and shall be resolved using the rules of the American Arbitration Association.

SmileDirect moved to compel Nigohosian to arbitrate and the district court granted the motion in relevant part. Nigohosian argued that her claim fell "within the jurisdiction of Small Claims Court," so her claim was not subject to arbitration. But the court held that the contract-interpretation question was a gateway question of arbitrability and that the parties agreed to arbitrate such gateway questions. See Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 68–69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). In light of this court order compelling Nigohosian to arbitrate, Johnson and the other consumer plaintiffs voluntarily dismissed their claims rather than face a similar court order compelling them to arbitrate.

Johnson filed a demand for class-wide arbitration with the American Arbitration Association (AAA). An AAA administrator informed the parties that AAA's Healthcare Due Process Protocol and Healthcare Policy Statement applied, which require healthcare providers and their patients to sign an arbitration agreement after a dispute arises in certain cases unless a court order has compelled arbitration. SmileDirect's counsel asked the AAA administrator to reverse this decision but the AAA administrator maintained his "initial, administrative determination [that] the Protocol [and the Healthcare Policy Statement] appl[y]." R.88-8 P.1689. SmileDirect's counsel objected again, noting that the district court had already compelled Nigohosian to arbitrate "whether the claims themselves are arbitrable" and argued that "AAA's administrative decision to apply the Protocol [and the Healthcare Policy Statement] to these consumer claims is erroneous." R. 88-9 P.1692.

The AAA administrator "reaffirm[ed] [his] administrative determination" that the Healthcare Policy Statement applied to Johnson's claims. R.88-10 P.1698. He concluded that arbitration could only proceed following a court order (seemingly like the court order already entered for Nigohosian) or a post-dispute arbitration agreement.

Johnson declined to sign the post-dispute agreement and Nigohosian never initiated an arbitration. Instead, both parties filed a motion to rejoin this case. SmileDirect responded that they couldn't rejoin the case because the Agreement required an arbitrator to decide the merits of any dispute, including any gateway issues about whether the dispute was arbitrable. The district court concluded that SmileDirect and Johnson got what they bargained for because the dispute had been "resolved using the rules of the [AAA]."

The court reached this conclusion by interpreting the Agreement itself and several AAA rules and policies. The starting point was the Agreement's mandate that the arbitration "shall be resolved using the rules of the American Arbitration Association." The court continued to Consumer Rule 1(a).

Consumer Rule 1(a)

When parties have provided for the AAA's rules or AAA administration as part of their consumer agreement, they shall be deemed to have agreed that the application of the AAA's rules and AAA administration of the consumer arbitration shall be an essential term of their consumer agreement. R.89-1 P.1717.

The district court reasoned that Rule 1(a) confirmed that the parties made "a binding commitment to AAA administration" under the Agreement and proceeded to consider the remaining rules and attendant policies.

Consumer Rule 1(d)

The AAA administers consumer disputes that meet the due process standards contained in the Consumer Due Process Protocol and the Consumer Arbitration Rules. The AAA will accept cases after the AAA reviews the parties’ arbitration agreement and if the AAA determines the agreement substantially and materially complies with the due process standards of these Rules and the Consumer Due Process Protocol. Should the AAA decline to administer an arbitration, either party may choose to submit its dispute to the appropriate court for resolution. R.89-1 P.1718.

Consumer Due Process Protocol

In some cases, the AAA is developing or has developed special dispute resolution policies and procedures governing particular transactional systems. A recent example is its current initiative with respect to ADR in contracts for health care services. Where the general principles set forth in this Protocol conflict with more specific standards developed under the auspices of the AAA or some other independent organization with relatively broad participation by affected parties, the latter should govern. R.89-4 P.1780.

Healthcare Policy Statement¹

In 2003, the American Arbitration Association ("AAA") announced that it would not administer healthcare arbitrations between individual patients and healthcare service providers that relate to medical services, such as negligence and medical malpractice disputes, unless all parties agreed to submit the matter to arbitration after the dispute arose. ... However, the AAA will administer disputes between patients and healthcare providers to the extent a court order directs such a dispute to arbitration where the parties’ agreement provides for the AAA's rules or AAA administration. R.88-11 P.1700.

The district court interpreted the Agreement to fully incorporate Rule 1(d), the Consumer Due Process Protocol, and the Healthcare Policy Statement. The court's interpretation of these rules and policies next led it to conclude that Johnson had discharged his obligations under the Agreement and could "submit [his] dispute to the appropriate court for resolution." R.89-1 P.1718. Under the district court's reasoning, Rule 1(d) incorporates the Consumer Due Process Protocol, which in turn states that AAA has subject-specific policies (incorporating the Healthcare Due Process Protocol and Healthcare Policy Statement by implication), and the Healthcare Policy Statement requires a post-dispute arbitration agreement or a court order. Therefore, the court held that "the AAA process to which the parties mutually agreed ha[d] been completed in Johnson's case."

The court reached a different conclusion for Nigohosian, who had never initiated an arbitration and was subject to a preexisting court order requiring her to do so. AAA's Healthcare Policy Statement indicates that AAA will administer healthcare disputes when "a court order" directs the dispute to arbitration. Nigohosian was subject to such a court order, so the court stayed Nigohosian's claims.

SmileDirect subsequently filed a motion to compel Johnson to arbitrate and the district court denied the motion. In so doing, the district court relied on its prior interpretation of the Agreement.

SmileDirect appeals from the denial of its motion to compel Johnson...