Johnson-Linzy v. Conifer Care Cmtys.

469 P.3d 537

Shalandra M. JOHNSON-LINZY, individually and as Personal Representative of the Estate of Damien R. Linzy, Plaintiff-Appellee,

v.CONIFER CARE COMMUNITIES A, LLC, d/b/a Amberwood Court Rehabilitation and Care Community; Pinon Management, LLC; and QP Health Care Services, LLC, d/b/a Vivage, Defendants-Appellants.

Court of Appeals No. 18CA2405

Colorado Court of Appeals, Division III.

Announced June 4, 2020

Reddick Moss, PLLC, Brian D. Reddick, Brent L. Moss, Robert W. Francis, Little Rock, Arkansas, for Plaintiff-Appellee

Messner Reeves, LLP, Doug C. Wolanske, Kendra N. Beckwith, Mary Byrne Fletcher, Dara N. Keller, Denver, Colorado, for Defendants-Appellants

Opinion by JUDGE GROVE

¶ 1 Plaintiff, Shalandra M. Johnson-Linzy, signed an arbitration agreement when her husband, Damien R. Linzy, was admitted to Amberwood Court Rehabilitation and Care Community (Amberwood Court), a skilled nursing facility owned and managed by defendants.¹ Linzy stayed at Amberwood Court for several weeks and passed away shortly after he was discharged. Johnson-Linzy then sued defendants for negligence and wrongful death, but defendants moved to stay her lawsuit and compel arbitration. The district court denied the motion because it found that compliance with the arbitration agreement was impossible. Defendants now appeal that order under section 13-22-228(1)(a), C.R.S. 2019. We reverse.

¶ 2 The parties’ dispute hinges on the validity of the arbitration agreement that Johnson-Linzy signed when she admitted her husband to Amberwood Court. As relevant here, the agreement provides that any legal claim arising from care provided by Amberwood Court "shall be resolved exclusively by binding arbitration," to be conducted

in accordance with the Colorado Uniform Arbitration Act and the Code of Procedure of the National Arbitration Forum, and not by a lawsuit or resort to court process, except to the extent that applicable state or federal law provides for judicial review of arbitration proceeding or the judicial enforcement of arbitration agreements and awards.

Toward the end of the two-page agreement, in bold type and in all capital letters, the agreement states, "NOTE: BY SIGNING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY ISSUE OF MEDICAL MALPRACTICE DECIDED BY NEUTRAL BINDING ARBITRATION RATHER THAN BY A JURY OR COURT TRIAL."

¶ 3 These provisions are unremarkable; similar language regularly appears in various consumer arbitration agreements. However, the organization whose code of procedure the agreement identifies — the National Arbitration Forum (NAF) — exited the consumer arbitration business in 2009, nearly eight years before Linzy was admitted to Amberwood Court. See In re Nat'l Arbitration Forum Trade Practices Litig. , 704 F. Supp. 2d 832, 835 (D. Minn. 2010) ("On July 14, 2009, the Minnesota Attorney General brought a complaint ... against NAF alleging consumer fraud act and deceptive trade practices act violations and false advertising. NAF settled that litigation less than a week later, agreeing to cease performing consumer arbitrations and entering into a consent judgment to that effect.").

¶ 4 The demise of NAF's consumer arbitration business affected a wide variety of contracts and has spawned a substantial amount of litigation over the enforceability of arbitration agreements that identify NAF as arbiter or otherwise rely on its procedures. See Frazier v. W. Union Co. , 377 F. Supp. 3d 1248, 1265-67 (D. Colo. 2019) (collecting cases). Analyzing similar arbitration provisions, some courts have, like the district court here, held that NAF's unavailability makes it impossible to fulfill the parties’ contractual expectations. See, e.g. , Miller v. GGNSC Atlanta, LLC , 323 Ga.App. 114, 746 S.E.2d 680, 688 (2013). Others have found NAF's status inconsequential because the language in question "does not mandate that the NAF actually conduct the arbitration — it requires only that the NAF Code be applied by the arbitrator." Meskill v. GGNSC Stillwater Greeley LLC , 862 F. Supp. 2d 966, 972 (D. Minn. 2012).

¶ 5 The arguments in this case follow similar contours. As she did in the district court, Johnson-Linzy contends that the parties agreed to have NAF arbitrate any disputes between them and that its retreat from the consumer arbitration business renders the agreement invalid due to impossibility.² Defendants argue that the heart of the agreement is the desire to arbitrate disputes rather than litigate them and that the arbitration agreement's designation of the Code of Procedure of the National Arbitration Forum (NAF Code) is only a means to that end.³

¶ 6 In a brief written order, the district court agreed with Johnson-Linzy's argument that the arbitration agreement is unenforceable under the doctrine of impossibility and denied defendants’ motion to compel arbitration:

The Court specifically finds that the motion to compel arbitration and the motion for a stay in these proceedings are both denied. The Court finds that the agreement to arbitrate is impossible to comply with. The Court also finds impossibility with regard [to] the use of the rules of NAF[.]

Defendants now appeal that order.

I. Analysis

¶ 7 At the threshold, defendants contend the district court did not have subject matter jurisdiction to determine the enforceability of the arbitration agreement because "[t]he parties agreed that solely an arbitrator would have the power to rule on issues relating to the Arbitration Agreement's validity, including objections concerning the Arbitration Agreement's enforceability."

¶ 8 In the alternative, defendants argue that NAF's unavailability is immaterial because the arbitration agreement does not require NAF to serve as the arbitral forum or arbiter, and instead only directs the parties to conduct arbitration "in accordance with" the NAF Code.⁴

A. The District Court Had Jurisdiction to Determine Enforceability of the Arbitration Agreement

¶ 9 We first address defendants’ argument that the order denying the motion to compel should be vacated because, by incorporating the NAF Code into their arbitration agreement, the parties agreed that only an arbitrator could resolve disputes concerning its enforceability. We conclude that the district court had jurisdiction to determine enforceability of the arbitration agreement because the parties did not plainly and unambiguously empower an arbitrator to decide that issue.

1. Preservation

¶ 10 Johnson-Linzy contends that defendants waived their argument that the validity of the arbitration agreement is a question for the arbitrator by failing to raise it in the district court, and that we should therefore decline to consider it. Defendants respond that "[t]he enforceability issue is non-waivable because it concerns subject matter jurisdiction." We agree with defendants.

¶ 11 Arbitration is "a matter of contract between the parties; it is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration." First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). A court must defer to an arbitrator's arbitrability decision — i.e., whether a particular dispute should be arbitrated — when the parties submit that matter to arbitration. Id. However, when the arbitrability decision is originally submitted to the court, rather than the arbitrator, the court's initial task "is to determine whether the agreement contains a valid and binding [arbitration] clause using traditional principles of contract interpretation." City & Cty. of Denver v. Dist. Court , 939 P.2d 1353, 1363 (Colo. 1997). The court must determine the threshold arbitrability issue because "[a] valid and enforceable arbitration provision divests the courts of jurisdiction over all disputes that are to be arbitrated pending the conclusion of arbitration." Mountain Plains Constructors, Inc. v. Torrez , 785 P.2d 928, 930 (Colo. 1990).

¶ 12 Thus, because objections to the enforceability of an arbitration agreement implicate the court's subject matter jurisdiction, they may be raised for the first time on appeal. Kaplan , 514 U.S. at 943, 115 S.Ct. 1920 ; Colo. Dep't of Pub. Health & Env't v. Caulk , 969 P.2d 804, 807 (Colo. App. 1998) ("[C]hallenges to subject matter jurisdiction cannot be waived and may be asserted at any time ....").

2. Enforceability Determination is for the Court

¶ 13 We turn next to defendants’ argument that the NAF Code, which, by its terms "shall be deemed incorporated by reference in every Arbitration Agreement[ ] which refers to the National Arbitration Forum ... or this Code of Procedure unless the Parties agree otherwise," requires that an arbitrator, not a court, determine issues of enforceability. NAF Code, Rule 1.A.

¶ 14 Johnson-Linzy responds that the arbitration agreement is ambiguous because it incorporates the CUAA — which provides for judicial resolution of arbitrability, see § 13-22-206(2), C.R.S. 2019 — along with the NAF Code, which states that "[a]n Arbitrator shall have the power to rule on ... the existence, scope, and validity of the Arbitration Agreement including all objections relating to jurisdiction, unconscionability, contract law, and enforceability of the Arbitration Agreement." NAF Code, Rule 20.F.

a. Standard of Review

¶ 15 We review de novo the question whether arbitrability is for the court or for the arbitrator to decide. See Taubman Cherry Creek Shopping Ctr., LLC v. Neiman–Marcus Grp., Inc. , 251 P.3d 1091, 1093 (Colo. App. 2010).

b. Applicable Law

¶ 16 Colorado's preference for the resolution of disputes through arbitration is embedded in both the Colorado Constitution and the CUAA. Colo. Const. art. 18, § 3 ; see also J.A. Walker Co. v. Cambria Corp. , 159 P.3d 126, 128 (Colo. 2007). Under the CUAA, "[t]he court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate." § 13-22-206(2). Parties may waive or vary the effect of the CUAA "to the...