Casa Arena Blanca LLC v. Ladonna Kay Rainwater, deceased, by the personal representative of the wrongful…

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
_________________________________
CASA ARENA BLANCA LLC,
Plaintiff - Appellant,
v.
LADONNA KAY RAINWATER,
deceased, by the personal representative of
the wrongful death estate of BARRY
GREEN, ESQ.,
Defendant - Appellee.
No. 21-2037
(D.C. No. 1:20-CV-00314-JCH-SCY)
(D. N.M.)
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before PHILLIPS, BALDOCK, and EID, Circuit Judges.
_________________________________
Plaintiff Casa Arena Blanca LLC appeals from the district court’s denial of its
motion to compel arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C.
§§ 1-16. Exercising jurisdiction under 28 U.S.C. § 1291, we reverse and remand for
further proceedings.
* After examining the briefs and appellate record, this panel has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
submitted without oral argument. This order and judgment is not binding precedent,
except under the doctrines of law of the case, res judicata, and collateral estoppel. It
may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1
and 10th Cir. R. 32.1.
FILED
United States Court of Appeals
Tenth Circuit
March 22, 2022
Christopher M. Wolpert
Clerk of Court
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I. Background
Plaintiff operates the Casa Arena Blanca Nursing Center (“Facility”).
Ladonna Kay Rainwater was a patient at the Facility for post-surgery care. After
spending seventeen days at the Facility, Ms. Rainwater was subsequently transferred
to a medical center to be treated for infection, sepsis, and altered mental status. She
died just over a year later. Ms. Rainwater’s estate, represented by Barry Green
(“the Estate”), filed a wrongful-death lawsuit in state court, alleging that the Facility
and other defendants failed to properly care for Ms. Rainwater when she was a
patient at the Facility.
While Ms. Rainwater was a patient at the Facility, her daughter,
Melanie Burris, signed an Admission Agreement and a Dispute Resolution
Agreement (“Arbitration Agreement”). The Arbitration Agreement stated it was
“between Kay Rainwater (‘Resident’) and/or Melanie Burris (‘Representative’), and
Casa Arena Blanca (‘Facility’).” Aplt. App. at 33. The Arbitration Agreement
explained:
When this Agreement says that the Representative signs in his or her
individual capacity, this means that, in addition to entering the Agreement
on behalf of the Resident, the Representative, himself or herself, also enters
the agreement with us. The Representative does so because he or she
wishes to obtain care and services for the Resident who is a third-party
beneficiary of the agreement between the Facility and the Representative.
Our agreement to admit the Resident . . . personally benefits the
Representative as well as the Resident.
Id. at 37.
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The Arbitration Agreement also explained that both parties were agreeing to
mutual arbitration and that any dispute that arises regarding Ms. Rainwater’s stay at
the Facility would be resolved by an arbitrator instead of a judge or jury. It further
provided that the FAA governs the agreement and that the arbitration will follow the
FAA and the rules and procedures of the Judicial Arbitration and Mediation Service
(“JAMS”).
Plaintiff initially filed a motion to compel arbitration in the state-court action,
but it later withdrew the motion without waiving its right to request arbitration later.
Plaintiff then filed a complaint in federal court against the Estate to compel
arbitration based on the FAA, 9 U.S.C. § 4. Plaintiff also filed a motion to compel
arbitration.
A. Motion to Compel Arbitration
In its motion, Plaintiff argued that “the Arbitration Agreement contains a
‘Delegation Clause’ that clearly and unmistakably delegates to the arbitrators all
‘gateway’ disputes regarding arbitrability.” Aplt. App. at 97. The Delegation Clause
states: “To the fullest extent permitted by law, any disagreements regarding the
applicability, enforceability or interpretation of this Agreement will be decided by
the arbitrator and not by a judge or jury.” Id. at 36.
Plaintiff further argued that the arbitration is governed by the JAMS rules,
which the Arbitration Agreement incorporates, and those rules “also clearly and
unmistakably manifest the parties’ agreement to arbitrate gateway arbitrability
questions.” Id. at 97. The pertinent JAMS rule states: “Jurisdictional and
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arbitrability disputes, including disputes over the formation, existence, validity,
interpretation or scope of the agreement under which Arbitration is sought, and who
are proper Parties to the Arbitration, shall be submitted to and ruled on by the
Arbitrator” who “has the authority to determine jurisdiction and arbitrability issues as
a preliminary matter.” Id. at 46.
Plaintiff therefore asserted that “any dispute regarding whether the Arbitration
Agreement is valid and enforceable or whether a resident is bound by the Arbitration
Agreement must be submitted to the arbitrators for resolution.” Id. at 97. In other
words, Plaintiff contended that “the Delegation Clause and JAMS rules require that
any arbitrability challenge raised by [the Estate] be decided by the arbitrators, rather
than the [district court].” Id. at 104.
Alternatively, Plaintiff argued that, even if there was no delegation provision,
Defendant’s underlying claims against Plaintiff in state court must be arbitrated
pursuant to the Arbitration Agreement because the: (1) the Arbitration Agreement
between the Facility and Ms. Burris is valid and enforceable; (2) the Estate must
arbitrate because Ms. Rainwater is a third-party beneficiary of the Arbitration
Agreement; and (3) the Estate is also bound by the Arbitration Agreement under the
equitable estoppel doctrine.
The Estate opposed the motion. It first asserted that “no valid agreement to
arbitrate exists or was ever formed by the parties.” Id. at 125 (capitalization and
boldface omitted). In support, it argued (1) “the alleged Agreement cannot be
enforced because neither Ms. Rainwater nor a legally authorized representative ever
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assented to the alleged Agreement,” id. at 126; (2) the alleged Agreement is
unenforceable as to Ms. Burris individually because she “is not a party to the
underlying state court action and she is not the Personal Representative of the
[Estate],” id. at 128; and (3) “[t]he alleged Agreement is unenforceable under the
third-party beneficiary or equitable estoppel doctrines,” id. (capitalization and
boldface omitted).
The Estate next asserted that “[t]he alleged Agreement is a procedurally
unconscionable contract of adhesion,” id. at 131 (capitalization and boldface
omitted), and is “unenforceable under both applicable federal regulations and general
principles of contract law,” id. at 136. Finally, the Estate argued that the court
should decide the gateway issue of arbitrability because the Delegation Clause was
ambiguous and therefore unenforceable. It also reiterated its earlier argument that
“there is no agreement in the first place due to the lack of authority to bind
Ms. Rainwater or her [Estate],” id. at 138, and “[t]he Court should first determine
whether a contract exists before it can enforce a provision of the contract,” id. at 136.
Plaintiff filed a reply in support of its motion. It argued that the Estate did not
dispute that Ms. Burris signed the Arbitration Agreement to secure Ms. Rainwater’s
admission to the Facility nor did the Estate specifically challenge the delegation
language in the JAMS rules, which the Arbitration Agreement incorporates. It also
asserted that because the Estate’s argument regarding Ms. Burris’s lack of authority
was directed to the Arbitration Agreement as a whole and did not specifically target
the Delegation Clause, it could not be considered. It further asserted that
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Ms. Rainwater was bound by the Arbitration Agreement under third-party beneficiary
and equitable estoppel doctrines and “[t]hus, [the Estate’s] contention that Ms. Burris
lacked authority to agree to arbitration on Ms. Rainwater’s behalf is irrelevant to
Plaintiff’s Motion.” Id. at 204. Because “[t]he arbitrators alone have the authority to
decide [the Estate’s] defenses to the Arbitration Agreement,” Plaintiff contended “the
Court should enforce the delegation provision in the Agreement and the JAMS Rules
and compel arbitration.” Id. at 199.
B. District Court Decision
In its decision, the court first rejected the Estate’s argument that there was
ambiguity in the Arbitration Agreement about the parties’ intent to delegate
disagreements about arbitrability to an arbitrator. The court explained: “The
Tenth Circuit made clear [in Belnap v. Iasis Healthcare, 844 F.3d 1272, 1281
(10th Cir. 2017),] that incorporating JAMS rules in which arbitrability decisions are
plainly decided by the arbitrator compels finding an intent to delegate” and “Belnap
is controlling here.” Id. at 261. The court next determined that because the Estate’s
arguments concerning procedural unconscionability targeted the agreement as a
whole and were not particular to the delegation provision, the Estate’s
“unconscionability challenge is for an arbitrator to decide based on the plain
language of the delegation provision.” Id. at 263.
But when it came to the Estate’s argument that Ms. Burris did not have
authority to enter the agreement on behalf of the Estate, which also went to the
Arbitration Agreement as a whole and was not specific to the delegation provision,
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the court found “that the question of whether any contract exists at all to bind the
Estate is one for this Court and not the arbitrator,” id. at 264 (citing Fedor v.
United Healthcare, Inc., 976 F.3d 1100, 1104 (10th Cir. 2020)). In considering this
“gateway question . . . of contract formation,” Aplt. App. at 264, the court looked to
whether Ms. Burris had authority to enter the contract for Ms. Rainwater under
agency law. The court ultimately concluded that Plaintiff had “not met its burden of
showing an agency relationship existed between Ms. Rainwater and Ms. Burris.” Id.
at 266.
The court next considered whether the Arbitration Agreement between
Ms. Burris individually and the Facility could bind Ms. Rainwater under the
third-party beneficiary and equitable estoppel doctrines. The court recognized that
the contractual terms “evince an intent to name Ms. Rainwater, the Resident, as a
third-party beneficiary,” id. at 268. The court explained that the third-party
beneficiary doctrine generally “applies when a non-signatory attempts to enforce the
contract against a signatory.” Id. at 269. But the court observed that New Mexico
courts had not resolved the question at issue here—“whether and under what
circumstances a signatory may compel a non-signatory to arbitrate under the third-
party beneficiary doctrine.” Id. Based on the circumstances in this case, the court
determined that Plaintiff had not met its burden of showing its entitlement to compel
arbitration under the third-party beneficiary doctrine. The court reached the same
determination regarding the applicability of the equitable estoppel doctrine.
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The court denied Plaintiff’s motion to compel arbitration, and this appeal
followed.
II. Discussion
We review de novo a district court’s denial of a motion to compel arbitration.
Ragab v. Howard, 841 F.3d 1134, 1136 (10th Cir. 2016). 1
Plaintiff contends that the district court erred in not enforcing the delegation
provisions in the Arbitration Agreement, which delegated all gateway issues of
arbitrability to the arbitrator. It explains that “[n]one of the parties disputed that a
contract (the Arbitration Agreement) was formed between Ms. Burris and the
Facility,” Aplt. Opening Br. at 12; “[t]he issue is thus not one of contract formation
. . . , but instead one of enforcement—can the Arbitration Agreement be enforced
against the Estate because Ms. Rainwater was a third-party beneficiary of the
Agreement,” id. at 14. Plaintiff argues the gateway issue of arbitrability must be
submitted to the arbitrator to decide in the first instance because the Arbitration
Agreement contains clear and unmistakable delegation provisions. Plaintiff therefore
asserts that the district court “erred in deciding [the third-party beneficiary] issue
1 The Estate asserts in its jurisdictional statement that Plaintiff “has not
sufficiently demonstrated that federal subject matter jurisdiction exists pursuant to
28 U.S.C. § 1332(a)(1).” Aplee. Resp. Br. at 1. But the Estate offers no explanation
as to how Plaintiff failed to establish that the district court possessed diversity
jurisdiction over the case. Plaintiff explains that it alleged in its complaint that the
parties were citizens of different states (Delaware and Maryland for Plaintiff and
New Mexico for the Estate) and that the amount in controversy exceeds $75,000.
Because the Estate did not explain why these allegations were insufficient, we see no
basis to conclude that the district court lacked jurisdiction under § 1332(a)(1).
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rather than compelling arbitration.” Id. at 12. We agree. 2
Under § 4 of the FAA, a party “aggrieved” by another party’s failure “to
arbitrate under a written agreement for arbitration” may petition a federal court “for
an order directing that such arbitration proceed in the manner provided for in such
agreement.” 9 U.S.C. § 4. In Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63,
68-69 (2010), the Supreme Court explained that a “delegation provision is an
agreement to arbitrate threshold issues concerning the arbitration agreement” and
“parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether
the parties have agreed to arbitrate or whether their agreement covers a particular
controversy.” The Court further explained that “[a]n agreement to arbitrate a
gateway issue is simply an additional, antecedent agreement the party seeking
arbitration asks the federal court to enforce, and the FAA operates on this additional
arbitration agreement just as it does on any other.” Id. at 70. Courts, however,
“should not assume that the parties agreed to arbitrate arbitrability unless there is
clear and unmistakable evidence that they did so.” Belnap, 844 F.3d at 1281
(brackets and internal quotation marks omitted).
Here, Plaintiff sought to enforce the delegation terms in the Delegation Clause
and the JAMS rules, which the Arbitration Agreement expressly incorporated,
2 Because we agree with Plaintiff that the district court erred in reaching an
issue that should have been submitted to the arbitrator, we need not address
Plaintiff’s second argument—whether “the district court incorrectly determined that
the New Mexico Supreme Court would not compel a non-signatory to arbitrate under
the third-party beneficiary doctrine,” Aplt. Opening Br. at 12 (internal quotation
marks omitted).
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arguing that “the Delegation Clause and JAMS rules require that any arbitrability
challenge raised by [the Estate] be decided by the arbitrators, rather than the [district
court],” Aplt. App. at 104. If a party “seeks to enforce” a delegation clause, the
opposing party must “challenge[] the delegation provision specifically”; otherwise,
the court “must treat [the delegation clause] as valid” and “enforce it” under the
FAA, “leaving any challenge to the validity of the Agreement as a whole for the
arbitrator.” Rent-A-Ctr., 561 U.S. at 72; see also Fedor, 976 F.3d at 1105 (“[I]f a
party . . . fails to specifically challenge a delegation clause . . . , then the delegation
clause will typically require a court to compel arbitration and allow an arbitrator to
determine whether the arbitration contract was indeed valid.”).
Although the Estate argued in response to the motion to compel that a sentence
after the Delegation Clause created ambiguity and therefore the delegation provision
was not clear and unmistakable, it never challenged the delegation terms in the JAMS
rules. In Belnap, we concluded that the parties “clearly and unmistakably agreed to
arbitrate arbitrability when they incorporated the JAMS Rules into the Agreement.”
844 F.3d at 1281. In its decision, the district court recognized that “[t]he JAMS rule
regarding arbitrability in Belnap is identical to the JAMS rule here” and found an
intent to delegate under the holding in Belnap. Aplt. App. at 261. “[B]ased on the
plain language of the delegation provision,” and the Rent-A-Center decision, the
district court concluded that the Estate’s argument that the Arbitration Agreement
was unconscionable—which challenged the agreement as a whole and not the
delegation provision—had to be submitted to an arbitrator. Id. at 263.
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But after initially determining there was an enforceable delegation provision
and concluding that the Estate’s unconscionability argument needed to be submitted
to an arbitrator based on that provision, the district court next determined that there
was an “initial question” of “whether the Estate ever entered an agreement at all with
[the Facility] to which it can be bound.” Id. at 264. Because the court characterized
this question as one of contract formation, it found that the question of whether any
contract existed to bind the Estate was for the court to decide and not the arbitrator,
citing our decision in Fedor.
Fedor is distinguishable on its facts, though, and for that reason it does not
support the district court’s decision to consider this question. In Fedor, a former
employee filed a collective suit against her former employer. 976 F.3d at 1100. The
employer sought to compel arbitration based on four arbitration policies, but the
fourth policy from 2016 was the only one that contained a delegation provision. Id.
at 1103-04. The plaintiffs argued the first three policies were void as illusory and
that the 2016 policy was irrelevant because none of them saw or signed it. Id. at
1104. The district court nevertheless compelled arbitration based on the 2016
agreement because the plaintiffs did not challenge the delegation provision
specifically. Id. The lead plaintiff argued on appeal that a court must first determine
whether an agreement to arbitrate was formed before sending the case to an
arbitrator. Id. We agreed, explaining that the lead plaintiff “raised an issue of
formation which . . . cannot be delegated to an arbitrator.” Id. at 1106-07.
Here, in contrast, the parties did not dispute that an agreement was formed
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between Ms. Burris and the Facility, and neither is there a dispute that the agreement
contains a delegation provision. Further, Plaintiff never argued that Ms. Burris had
the authority to enter into the Arbitration Agreement on Ms. Rainwater’s behalf.
Instead, Plaintiff asserted that based on the Arbitration Agreement formed between
the Facility and Ms. Burris, the Arbitration Agreement should be enforced against
Ms. Rainwater as a third-party beneficiary of that agreement.
Moreover, by initially discussing the Arbitration Agreement’s delegation
provision and rejecting the Estate’s challenge to that provision, the district court
necessarily concluded that an arbitration agreement was formed between Ms. Burris
and the Facility. Had the district court found that no agreement had been formed,
there would have been no need to determine whether the Arbitration Agreement
contained an enforceable delegation provision. 3
We conclude the district court’s rulings—on the one hand that there was an
agreement to arbitrate and an enforceable delegation provision as to the Estate’s
unconscionability argument, and on the other hand that there was a question as to
whether an agreement to arbitrate had ever been formed and then proceeding to
address the third-party beneficiary issue—are inconsistent. We agree with and affirm
the district court’s first ruling—that there is an arbitration agreement between
Ms. Burris and the Facility that contains an enforceable delegation clause. Once the
3 Likewise, if the district court had determined that no agreement to arbitrate
had been formed between Ms. Burris and the Facility, then it would not have needed
to go on to address whether the Arbitration Agreement could be enforced against
Ms. Rainwater as a third-party beneficiary of that agreement.
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district court made that determination, it should have sent the case to arbitration. The
district court erred in going on to decide whether there was a second agreement to
arbitrate formed between the Facility and Ms. Rainwater and then proceeding to
address the third-party beneficiary issue.
Based on the delegation provisions in the Arbitration Agreement between the
Facility and Ms. Burris, the question of whether the Agreement should be enforced
against Ms. Rainwater as a third-party beneficiary of that contract is one that should
be decided by an arbitrator, not the court. Because there is no issue of contract
formation, only contract enforcement, the gateway issue of arbitrability must be
submitted to the arbitrator consistent with the delegation provisions in the
Arbitration Agreement.
III. Conclusion
For the foregoing reasons, we reverse and remand for the district court to
compel arbitration of the gateway issue of arbitrability.
Entered for the Court
Allison H. Eid
Circuit Judge
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