Third Circuit Clarifies its Standard on Motions to Compel

By Ugonna Kanu

The Third U.S. Circuit Court of Appeals recently held that a federal district court had erred when it denied an employer’s motion to dismiss a suit before the court had determined the fate of its motion to compel arbitration. The case was Silfee v. Automatic Data Processing Inc.; ERG Staffing Service LLP, No. 16-3725 (3d. Cir. June 13, 2017)(unpublished)(available at http://bit.ly/2rUZpln).

A unanimous Third Circuit panel ruled, in an unpublished decision, that the trial court first must determine the motion to compel arbitration before the motion to dismiss.

The plaintiff in Silfee filed suit against his former employer for violating Pennsylvania law on payroll practices. ERG, a Dickson City, Pa.-based employment agency, filed a motion to compel arbitration “arguing that the arbitration agreement between Silfee and ERG’s payroll vendor precluded Silfee’s suit against ERG,” according to the opinion.

ERG moved to dismiss Silfee’s suit. The district court, however, placed a hold on compelling arbitration, and denied the motion to dismiss the suit.

The Third Circuit panel opinion, written by Circuit Judge Thomas M. Hardiman, of Pittsburgh, distinguished between the case and Guidotti v. Legal Helpers Debt Resolution L.L.C., 716 F.3d 764, 771 (3d Cir. 2013)(available at http://bit.ly/1pXcNnD), in which the Third Circuit held that where it is apparent that a party’s claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered without discovery delay under Federal Rule of Civil Procedure 12(b)(6).

But, where the agreement to arbitrate is unclear, or the plaintiff facing the motion to compel has provided “additional facts sufficient to place the agreement to arbitrate in issue,” then the court may order limited briefing and discovery on the issue of arbitrability, and assess the question under a summary judgment standard of Rule 56, the opinion explained.

Before Guidotti’s application, the panel opinion noted that the FAA provides a gateway test. It says that a trial court must make an inquiry under Federal Arbitration Act Section 4 where there is a motion to compel arbitration.

Section 4, the opinion emphasized, provides that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement.”

Plaintiff Silfee didn’t produce “additional facts sufficient to place the agreement to arbitrate in issue”—the Guidotti standard to get past a motion to dismiss. As a result, the Third Circuit ruled, the court should have applied the Rule 12(b)(6) standard.

While the appeals panel stopped short of dismissing Silfee’s suit and compelling arbitration, it remanded the case to the U.S. District Court with an order to consider the parties’ “competing arguments regarding arbitrability” under ERG’s motion to compel.

The author is a CPR Institute Summer 2017 intern.

California Appeals Panel Declines to Compel Arbitration in a Nursing Home Case

By Lyn Lawrence

The author is a CPR Institute Summer 2017 Intern.

California’s Third Appellate District has refused an appeal to compel arbitration in Hutcheson v. Eskaton FountainWood Lodge, No. C074846 (Cal. A.D.3d. June 14, 2017)(available at http://bit.ly/2rxIc1T), a nursing home dispute in which family members of a deceased former resident sought to sue the residential care facility for elder abuse, fraud and negligence.

The decedent, Barbara Lovenstein, granted a health care power of attorney to her niece, Robin Hutcheson, and a personal care power of attorney to her sister, Jean Charles. Charles transferred Lowenstein to Eskaton FountainWood Lodge, a residential care and assisted living facility in Orangevale, Calif., and entered into the admission agreement.

After the Lovenstein died, Hutcheson and Charles instituted legal proceedings against FountainWood, which submitted a motion to compel arbitration. A trial court denied the motion.  The court found that Charles acted beyond the powers of her personal care power of attorney when entering into the admission agreement, making the arbitration clause invalid.

FountainWood approached the Third Appellate District to overturn the trial court’s decision. But a unanimous three-judge panel affirmed, based on its interpretation of California’s Power of Attorney Law and Health Care Decisions Law, holding that the decision to admit the deceased was a health care decision, not within Charles’ personal care POA.

The court concluded that the trial court was correct in denying the defendant’s motion to compel arbitration.

It can be inferred from the judgment that the court would have compelled arbitration had Hutcheson, who held the health care power of attorney, entered into the admission agreement. The court stated that, “There is no evidence in the record that Hutcheson, Lovenstein’s attorney-in-fact for health care under the health care POA, was involved in any of the decisions and actions regarding Lovenstein’s admission, stay at, or discharge from FountainWood.”

The California case denying the care facility’s motion to compel arbitration runs counter to two recent events with national implications that backed arbitration for conflicts related to nursing home patients.

Hutcheson follows just a month after the U.S. Supreme Court held that the Kentucky Supreme Court’s interpretation of the state’s power-of-attorney law discriminated against arbitration.

See Kindred Nursing Centers v. Clark, No. 16-32 (May 15)(available at http://bit.ly/2pCk94L) (for analysis, “SCOTUS Says States Can’t Discriminate Against Arbitration, Directly or Indirectly,” CPR Speaks blog (May 16)(available at http://bit.ly/2rxGFeB).

In addition, the Center for Medicare and Medicaid Services, a part of the U.S. Department of Health and Human Services, rescinded its 2016 ban on including mandatory arbitration provisions in nursing home agreements early this month (see CMS fact sheet at http://go.cms.gov/2sA2Wae).