April 19, 2018 Practice Points

Arbitrator Has Authority to Make Summary Dispositions

By Mark Kantor and Mitchell Marinello

Arbitrators and counsel often wonder whether the summary disposition of an arbitral dispute is legally proper. In Weirton Medical Center, Inc. v. Community Health Systems, Inc., N.D. West Virginia (Civ. Action No. 5:15CV132, Dec. 12, 2017), a federal district court answered this question in the affirmative.

Facts and Procedural History
Weirton Medical Center, Inc. (Weirton) entered into several agreements for administrative services. Each relevant agreement contained an arbitration clause referencing the then-current AAA Commercial Arbitration Rules (which were the 2009 version).

Weirton terminated its agreement with Quorum Intensive Resources, LLC (QIR) before its term ended and refused to pay QIR. QIR brought an arbitration for payment, and Weirton asserted various counterclaims. After lengthy proceedings, the arbitrator issued an award in QIR’s favor on all counts. Weirton filed suit to vacate the award but the award was confirmed.

After filing suit to vacate QIR’s award, Weirton also brought suit against Community Health Systems, Inc. (Community), Quorum Health Resources, LLC (Quorum) and several individual employees whom QIR or Quorum had provided to Weirton pursuant to their services agreements. The respondents moved to compel arbitration, and their motion was granted. Weirton then brought its claims in an arbitration.

Respondents’ motion to summarily dispose of Weirton’s claims was granted. The arbitrator ruled that: (1) Weirton had no valid claims against Community; (2) nearly all of Weirton's claims were barred by res judicata or collateral estoppel; (3) Weirton's breach-of-contract claim against Quorum was time-barred; (4) Weirton's tort claims were also barred by the gist-of-the-action doctrine; and (5) Weirton's unjust enrichment claim was barred because of the parties' contracts. Weirton filed suit to vacate this second award.

The Federal Court’s Decision
Weirton argued that the arbitrator’s summary disposition of its claims exceeded the arbitrator’s powers, because summary disposition was contrary to state laws of civil procedure.

In this regard, the contracts at issue referred to the AAA 2009 Commercial Arbitration Rules, one of them also referred to the "substantive and procedural laws of the State of Tennessee” and the other referred to the "substantive and procedural laws of the State of West Virginia.” Weirton argued that these provisions required the arbitrator to apply the procedural and substantive laws of Tennessee and West Virginia, as appropriate, and that those laws did not permit the summary disposition of claims without discovery and a hearing to resolve the parties’ factual disagreements.

The district court rejected these arguments. It observed that US courts will not question an arbitrator’s decision on procedural issues “so long as it has some reasonable basis in the parties’ agreement.” The court then noted that:

The arbitrator expressly concluded that the 2009 AAA rules provided him "discretion to hear and grant motions for summary disposition." …. He concluded that summary disposition was not premature and that Weirton was not entitled to discovery because "the asserted claims fail as a matter of law." …. The arbitrator also implicitly determined that this matter was governed by the AAA rules and not the Rules of Civil Procedure of Tennessee or West Virginia.

The court recognized that the agreements contained conflicting language as to what law and procedures applied, but it also recognized that the arbitrator had authority to resolve any ambiguities:

At best, these choice of law and procedural rules provisions create ambiguity as to what procedural law applied, a determination well within the arbitrator's jurisdiction. The arbitrator's decision to apply the AAA rules rather than the States' Rules of Civil Procedure has a reasonable basis in the parties' agreements. Thus, the arbitrator's determination that summary disposition was procedurally proper is entitled to deference.

Unlike the 2013 AAA Commercial Rules, the 2009 AAA Commercial Rules do not expressly authorize summary dispositions. Nonetheless, the court found such authority was implicit:

While the arbitration agreements do not expressly permit summary disposition, they do not expressly prohibit it either. The agreements invoke the 2009 AAA rules, which provide a set of procedural rules including requiring arbitrators to "take such steps as they may deem necessary or desirable to avoid delay and to achieve a just, speedy and cost-effective resolution of Large, Complex Commercial Cases." Rule L-4, AAA Commercial Arbitration Rules and Mediation Procedures (2009 ed.).

In a decision that touches upon many issues, two points stand out. First, courts will defer to an arbitrator’s procedural decisions so long as those decisions have a reasonable basis in the parties’ agreement. Second, older AAA arbitration rules that do not specifically address dispositive motions implicitly permit them where they serve arbitration’s general goals of speed and efficiency.

Mark Kantor is a member of the College of Commercial Arbitrators in Washington, D.C. and Mitchell Marinello is a partner at Novack and Macey LLP in Chicago, Illinois.

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