IN THE COURT OF APPEALS OF IOWA
No. 13-1974
Filed September 17, 2014
MICHAEL SUTCLIFFE, D.O.,
Plaintiff-Appellee,
vs.
MERCY CLINICS, INC.,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Robert J. Blink,
Judge.
Mercy Clinics, Inc. appeals from the district court’s ruling denying its
motion to compel arbitration. REVERSED AND REMANDED.
Michael R. Reck and Espnola F. Cartmill of Belin McCormick, P.C., Des
Moines, and Jay M. Dade and Jennifer R. Growcock of Polsinelli, P.C.,
Springfield, Missouri, for appellant.
J.D. Hartung of Hartung & Schroeder LLP, Des Moines, for appellee.
Considered by Vaitheswaran, P.J., and Doyle and McDonald, JJ.
2
DOYLE, J.
Mercy Clinics, Inc. appeals from the district court’s ruling denying its
motion to compel arbitration on a breach of contract action, claiming the
arbitration provision in its employment contract with Michael Sutliffe, D.O., is
enforceable pursuant to the Federal Arbitration Act. Because it is undisputed the
Mercy clinic at which Dr. Sutcliff practiced treated Medicare patients, the record
establishes the interstate commerce nexus required to trigger application of the
FAA to this employment contract. We therefore reverse the district court’s ruling
denying Mercy’s motion to compel arbitration and remand for further proceedings
consistent with this opinion.
I. Background Facts and Proceedings
Dr. Michael Sutliffe, a licensed family practitioner, worked for Mercy
Clinics, Inc. for many years. In 2010, Dr. Sutliffe entered an agreement with
Mercy to provide medical services at the Mercy Indianola Jefferson Medical
Clinic commencing January 2011. In order to induce Dr. Sutliffe to work at the
newly constructed clinic, Mercy apparently made an oral agreement with Dr.
Sutliffe to provide compensation in addition to that set forth in the written
agreement.1 The additional compensation was to be provided to each physician
practicing in the clinic until the clinic had twelve or more physicians. Based on
this promise, Dr. Sutliffe agreed to practice medicine at the clinic. Although the
twelve-physician threshold was never met, Dr. Sutliffe did not receive additional
compensation.
1
For purposes of this ruling, we make no finding whether or not the alleged oral
agreement existed.
3
In June 2013, Dr. Sutliffe filed a petition claiming, in part,2 breach of
contract due to Mercy’s failure to pay the prorated compensation as promised in
the oral agreement. Mercy filed a motion to dismiss or, in the alternative, compel
arbitration. Dr. Sutliffe’s written agreement with Mercy included, among other
provisions, the following arbitration clause:
Arbitration. Any dispute regarding (i) any aspect of the Agreement,
(ii) any act which allegedly has or may violate any provision of the
Agreement, or (iii) any dispute related to the employment
relationship between the parties or the termination of that
relationship shall be submitted to binding arbitration in Des Moines,
Polk County, Iowa before a mutually acceptable arbitrator, as the
exclusive remedy for such claim or dispute. The arbitration shall be
in accordance with the American Health Lawyers Association
Alternative Dispute Resolution Service Rules of Procedure for
Arbitration (“AHLA Arbitration Procedures”) to the extent such
procedures are not in conflict with the Agreement. Disputes subject
to arbitration include, but are not limited to, all employment-related
claims arising under state or federal statutes, common law torts,
and contract claims. . . .
Dr. Sutliffe resisted Mercy’s motion.
Following a hearing, the district court entered a ruling denying Mercy’s
motion. The court observed, “The question of whether the arbitration clause—
applicable to the entire agreement between the parties—can be enforced hinges
on the applicability of the Federal Arbitration Act (FAA) to the current set of
facts.” However, the court found the FAA inapplicable because the contract
“fail[ed] to satisfy the interstate commerce nexus.” Specifically, the court found
the contract, “formed in Iowa, for the practice of medicine in Iowa, [failed] the
interstate commerce requirement of the FAA.” Finding the FAA inapplicable, the
2
Dr. Sutliffe’s petition also raised claims requesting declaratory judgment (Count I) and
temporary and permanent injunction (Count II). Only Dr. Sutliffe’s breach-of-contract
claim (Count III) is at issue on appeal.
4
court turned to Iowa Code section 679A.1 (2013), which excludes contracts
“between employers and employees” from mandatory arbitration. The court
therefore found the arbitration clause to be unenforceable. Mercy appeals.3
II. Standard of Review
The denial of a motion to compel arbitration is a final judgment for
purposes of appeal. See Iowa Code § 679A.17(1)(a); Heaberlin Farms, Inc. v.
IGF Ins. Co., 641 N.W.2d 816, 817 (Iowa 2002). Our review is for the correction
of errors of law. Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594
N.W.2d 22, 29 (Iowa 1999).
III. Analysis
At issue in this case is whether the arbitration provision contained in the
employment contract between Dr. Sutliffe and Mercy is enforceable under the
Federal Arbitration Act, 9 U.S.C. § 2. The FAA is applicable to employment
contracts. See E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002). By
excluding “contract[s] between employers and employees,” the Iowa statute is in
conflict with the FAA. See Iowa Code § 679A.1; Heaberlin Farms, 641 N.W.2d at
819. “Thus, if the federal act is applicable, it preempts the Iowa statute by
operation of the Supremacy Clause.” Heaberlin Farms, 641 N.W.2d at 819; see
also Rent-A-Ctr., Inc. v. Iowa Civil Rights Comm’n, 843 N.W.2d 727, 733 (Iowa
2014) (“[T]he provisions of the FAA apply in state courts and preempt
inconsistent state laws.”). The district court determined the FAA is not applicable
3
Dr. Sutliffe did not file a brief on appeal.
5
here because this contract “fails to satisfy the interstate commerce nexus.” 4 That
is the specific question before us.
“[U]nder the FAA, parties who have contracted to arbitrate claims arising
between them are bound to do so.” Rent-A-Ctr., Inc., 843 N.W.2d at 732. The
FAA provides:
A written provision in any . . . contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction, or the refusal to perform
the whole or any part thereof, or an agreement in writing to submit
to arbitration an existing controversy arising out of such a contract,
transaction, or refusal, shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the
revocation of any contract.
9 U.S.C. § 2 (emphasis added). “The FAA has been interpreted to be very broad
in its scope” and “questions as to whether an issue is arbitrable are to be
resolved in favor of arbitration.” Heaberlin Farms, Inc., 641 N.W.2d at 818 (citing
Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 23 (1983)).
The party seeking to compel FAA arbitration must show the existence of a written
agreement which contains an arbitration clause and involves interstate
commerce. See id. at 818-19. The existence of a written contract containing an
arbitration clause is not at issue here; rather, the question is whether Mercy
made the requisite showing that its agreement with Dr. Sutliffe involves interstate
commerce.
4
The district court cited United States. v. Oregon State Medical Society, 95 F. Supp.
103, 118 (D. Or. 1950) (“The practice of medicine as conducted within the State of
Oregon by doctors of Oregon . . . is not . . . commerce within the meaning of the
constitutional grant of power to Congress ‘[t]o regulate commerce . . . among the several
States.’” (citing U.S. Const. art. I, § 8, cl. 3)).
6
The FAA term “involving commerce” has been interpreted as “the
functional equivalent of the more familiar term ‘affecting commerce’—words of art
that ordinarily signal the broadest permissible exercise of Congress’ Commerce
Clause power.” Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003); see
William M. Howard, When Does Contract Evidence Transaction Involving
Interstate Commerce Within Meaning of Federal Arbitration Act (FAA)—Legal
Issues & Principles, 10 A.L.R. Fed. 2d 489 (2006) (reviewing cases). “Because
the statute provides for the enforcement of arbitration agreements within the full
reach of the Commerce Clause, . . . the FAA encompasses a wider range of
transactions than those actually in commerce—that is, within the flow of
interstate commerce.” Citizens Bank, 539 U.S. at 56 (internal citation and
quotation marks omitted); Cicle v. Chase Bank USA, 583 F.3d 549, 553-54 (8th
Cir. 2009) (observing the FAA “reflects congressional intent to overcome judicial
hostility to arbitration agreements” and stating that “[d]oubts are resolved in favor
of arbitrability”).
The employment contract at issue here was formed in Iowa, between
parties in Iowa. Under the contract, Dr. Sutcliffe was to provide professional
medical services in Iowa. The contract, on its face, does not appear to involve
interstate commerce. On appeal, Mercy points us to a raft of out-of-state cases
to support its proposition that health-related services affect interstate commerce
with regard to application of the FAA.5 These cases primarily involve agreements
5
It would have been helpful if Mercy had provided us with pinpoint citations to these
cases. See Iowa R. App. P. 6.904(2)(a) (“[When] referring to a particular point within an
authority, the specific page or pages . . . relied upon shall be given in addition to the
required page references.”).
7
with hospitals, medical groups, and nursing homes. In finding the requisite
interstate commerce nexus was satisfied, all the courts relied on evidence of
different types of information such as: acceptance of out-of-state and multi-state
insurer reimbursements; purchase and receipt of goods, equipment, medication,
and services from out-of-state vendors; out-of-state corporate offices; recruitment
of physicians from out-of-state; service to out-of-state patients; and receipt of
federal funds, such as Medicare reimbursements. See e.g., Briarcliff Nursing
Home, Inc. v. Turcotte, 894 So. 2d 661, 668 (Ala. 2004); Triad Health Mgmt. of
Georgia, III, LLC v. Johnson, 679 S.E.2d 785, 787-88 (Ga. Ct. App. 2009), Fosler
v. Midwest Care Ctr. II, Inc., 928 N.E.2d 1, 14-15 (Ill. Ct. App. 2009); and In re
Tenet Healthcare, Ltd., 84 S.W.3d 760, 765 (Tex. Ct. App. 2002).
Indeed, the Mercy clinic may generate revenue from out-of-state and
multi-state insurance companies. Its physicians may use out-of-state supplies,
medicine, and equipment to provide services to its patients. Its physicians may
receive continuing medical training via out-of-state programs and materials.
Evidence of these factors, as well as others mentioned in the cases cited above,
would have been helpful in determining the applicability of the FAA to this
contract, but no such evidence was made part of this record.
Nevertheless, there is no dispute between the parties that Medicare
patients were treated at Mercy’s Indianola clinic, the clinic at which Dr. Sutcliffe
was contracted to provide professional medical services. Receipt of Medicare
reimbursements involves interstate commerce. Summit Health Ltd. v. Pinhas,
500 U.S. 322, 327 (1991) (“The provision of [medical services] affects interstate
commerce because both physicians and hospitals serve nonresident patients
8
and receive reimbursement through Medicare payments.”); see also GGNSC
Louisville Hillcreek, LLC v. Warner, No 3:13-cv-751, 2013 WL 6796421, at *8
(W.D. Ky. Dec. 19, 2013) (“The receipt of Medicare and Medicaid funds are
transactions involving commerce and may by themselves establish the
appropriate interstate commerce nexus. [The nursing home] has a nexus with
interstate commerce through their and their patients’ participation in Medicare
and Medicaid.” (citing Summit, 500 U.S. at 327)); Glover ex rel. Glover v. Darway
Elder Care Rehab. Ctr., No. 4:13-CV-1874, 2014 WL 931459, at *6 (M.D. Pa.
Feb. 4, 2014) (observing receipt of Medicare payments alone “would appear to
satisfy that ‘involving interstate commerce’ requirement, and indeed numerous
courts have found that this very payment activity satisfies the requirement”
(listing cases)); Visiting Nurse Ass’n of Florida, Inc. v. Jupiter, ___ So. 3d ___,
___, No. SC11-2468, 2014 WL 3360314, at *7 (Fla. 2014) (“[R]eferral of
Medicare patients was contemplated and occurred as part of the transaction.
Thus, this transaction in fact involved interstate commerce and is subject to the
FAA.”); Miller v. Cotter, 863 N.E.2d 537, 544 (Mass. 2007) (“In addition, and
more specifically, accepting payment from Medicare, a Federal program (which
there was some evidence here), constitutes an act in interstate commerce.”
(citing Summit, 500 U.S. at 327)); In re Nexion Health at Humble, Inc., 173
S.W.3d 67, 69 (Tex. 2005) (“Because ‘commerce’ is broadly construed, the
evidence of Medicare payments . . . is sufficient to establish interstate commerce
and the FAA’s application in this case.”); but see Bruner v. Timberlane Manor
Ltd. P’ship, 155 P.3d 16, 28 (Okla. 2006) (“We decline to join Alabama,
Mississippi and Texas in treating the federal distribution of medicare insurance
9
funds and state distribution of federal-state-matching medicaid funds as indicia of
commerce that triggers the FAA.”).6 The United States Supreme Court and the
Iowa Supreme Court have not required a minimum number of interstate ties, but
rather, have interpreted the impact of the FAA broadly based on Congress’
power under the Commerce Clause. See, e.g., Allied-Bruce Terminix
Companies, Inc. v. Dobson, 513 U.S. 265, 269 (1995), Heaberlin Farms, 641
N.W.2d at 818, 823.
Despite the lack of evidence in this record of activities commonly relied
upon to establish interstate commerce involvement for FAA purposes, there is no
dispute that the Mercy clinic at issue treats Medicare patients. We therefore
conclude the “involving interstate commerce” requirement is satisfied and
application of the FAA is triggered. Consequently, the district court erred in
denying Mercy’s application to compel arbitration. We therefore reverse and
remand.
REVERSED AND REMANDED.
6
Courts have interpreted the Oklahoma Supreme Court’s decision in Bruner as an
outlier on this issue. See, e.g., Glover, 2014 WL 931459, at *7 (“The only authority the
plaintiff offers for the proposition that receipt of Medicare payments does not implicate
interstate commerce comes from a 2008 decision of the Oklahoma Supreme Court [in
Bruner]. . . . In addition to the fact that this portion of Bruner is plainly dicta and of little
persuasive value, we also recommend that the Court decline to follow or rely upon
Bruner’s analysis of this issue, as it in direct conflict with the well reasoned and
persuasive decisions cited above.”); Wallin v. Cannon, No. 110404750, 2011 WL
7416973, at n.1 (D.C. Utah 2011) (“[T]he Oklahoma Supreme Court [decision in] Bruner
appears to be in the small minority and has rarely been followed by other jurisdictions.”).