IN THE COURT OF APPEALS OF IOWA
No. 17-0274
Filed July 5, 2018
ELLEN MCCULLOUGH by and through her Conservator, LYNN COLLINS
SEABA,
Plaintiff-Appellee,
vs.
EMERITUS CORPORATION d/b/a EMERITUS AT SILVER PINES, et. al,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Christopher L. Bruns,
Judge.
Defendants appeal from the district court’s ruling denying their motion to
compel arbitration. AFFIRMED.
Skylar J. Limkemann of Scheldrup Blades Schrock Smith, P.C., Cedar
Rapids, for appellants.
Benjamin P. Long and Pressley Henningsen of RSH Legal, P.C., Cedar
Rapids, for appellee.
Heard by Vogel, P.J., and Doyle and Bower, JJ.
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DOYLE, Judge.
Defendants appeal from the district court’s ruling denying their motion to
compel arbitration. Because the district court did not err in determining defendants
waived their right to arbitration, we affirm the district court’s ruling.
I. Background Facts and Proceedings.
In February 2015, Dennis McCullough, one of Ellen McCullough’s six
children, filed suit on Ellen’s behalf as her court-appointed guardian and
conservator (collectively “plaintiffs”) against various defendants related to the
Silver Pines residential care facility. The defendants included Emeritus
Corporation and other legal entities that did business as Emeritus at Silver Pines
(collectively Silver Pines), as well as Silver Pines’s nursing director Jodie Bevans
and its administrator Michael Hunter (all defendants collectively “defendants”).
The underlying facts related to this appeal are not in dispute. The parties
agree that in March 2013, Ellen was admitted to Silver Pines by James
McCullough, another of Ellen’s children, who, at that time, had Ellen’s power of
attorney. As a part of the admissions process, Jim signed an “Agreement to
resolve disputes by binding arbitration” with Silver Pines on Ellen’s behalf. The
agreement stated, among other things, that the parties to the agreement would
first attempt to settle any disputes between themselves, then, if they were unable
to do so, the matter “shall be resolved exclusively by binding arbitration and not by
lawsuit or resort to the judicial process, except to the extent that applicable law
provides for judicial review of arbitration proceedings.”
Plaintiffs filed their petition in the Iowa District Court in February 2015.
Defendants filed their answer in April 2015, generally denying the claims asserted
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against them. They also asserted affirmative defenses, including “that some or all
of the plaintiffs have committed a prior breach of contract with the defendants.”
The arbitration agreement was not mentioned nor was arbitration demanded.
Defendants never amended their answer.
The matter proceeded forward in district court, and a jury trial was set for
November 7, 2016. Additionally, in May 2015, the parties agreed to a case
schedule and discovery plan, including that plaintiffs’ expert witnesses would be
disclosed no later than 210 days before trial and defendants’ expert witnesses
disclosed no later than 150 days before trial. In August 2015, the parties agreed
to a twenty-day extension of their expert designation deadlines. Plaintiffs filed their
designation of expert witnesses September 22, 2015.
On May 20, 2016, defendants filed a motion to extend their expert witness
disclosure deadline. For reasons unknown to the district court, defendants’ motion
was not administratively placed in the court’s pending-motions queue and did not
come before the court until August 10, 2016. On that date, the court filed an order
noting defendants’ requested extension date had passed. The parties were
directed to advise the court as to whether an issue remained regarding the relevant
expert report. The court informed the parties that if an issue remained, the court
would take up the matter at an upcoming hearing set for August 24, 2016, when
the court was also to hear plaintiffs’ pending motion to compel discovery.
Following that hearing, the court denied defendants’ motion, finding that good
cause for an extension of the expert deadline had not been established. The
court’s order granting plaintiff’s motion to compel was granted September 11,
2016.
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On September 13, 2016, about two months before the trial date, defendants
served on plaintiffs a written arbitration demand demanding plaintiffs “submit to
arbitration,” with the scope of arbitration to include “the allegations giving rise to
[plaintiffs’] lawsuit” pending in district court. Plaintiffs were requested “respond no
later than September 16, 2016.” On September 16, 2016, defendants filed a notice
of arbitration demand in district court. Defendants subsequently filed a motion to
compel arbitration, stating plaintiffs had refused to arbitrate. Plaintiffs resisted.
Following a hearing, the district court denied the defendants’ motion to compel
arbitration. The court concluded defendants waived their right to arbitrate under
the facts of the case, explaining:
Although they had the arbitration agreement in hand no later
than October 3, 2015, the defendants did not demand arbitration or
amend their answer to raise the existence of the arbitration
agreement as an issue until September [16], 2016, when they filed
their demand for arbitration. Thus, the demand for arbitration was
not served until the last day for filing motions in the case. The court
notes that the defendants now argue that they were not providing
witnesses for depositions and were not completing discovery
because they were essentially mulling over whether they wanted to
demand arbitration. Yet, nothing about the arbitration agreement
was mentioned at the hearing on the motion to compel or during any
of the motion practice prior to September 8. Instead, counsel argued
at the hearing on the motion to compel that he was having problems
locating witnesses and getting cooperation from his client. Thus, the
court finds this contention is not credible.
In a footnote, the court added:
The fact that arbitration was demanded just a few days after
the court denied the defendants’ request for additional time to
designate experts and/or provide expert opinions is not lost on the
court. The court’s denial of the motion prevented the defendants
from calling one of their experts as a witness. The court’s indications
at the hearing on the motion to compel and in ruling on the [Iowa
Rule of Civil Procedure] 1.944 motion were also a strong indication
to defendants that the court was likely to try the case as scheduled
and not likely to grant a continuance. It appears that these may have
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been factors in the late decision to demand arbitration. At a
minimum, filing the motion to compel arbitration forced the court to
stay the case, and thus gave the defendants the continuance they
wanted.
Defendants appeal.
II. Discussion.
Defendants’ arguments on appeal are twofold. First, they argue the waiver
of arbitration by litigation conduct is an issue to be decided by an arbitrator rather
than the district court. Second, they contend that even if the district court had
jurisdiction to determine whether they waived their right to arbitration, the court
incorrectly answered the question.
A. Who Decides the Waiver Issue?
Defendants assert federal law applies to this case and mandates an
arbitrator, rather than the district court, decide whether they waived their right to
arbitrate the matter. This is relevant to our standard of review, because our review
of the issue is de novo under federal law but is for correction of errors at law under
state law. See Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003) (“We review de
novo the district court’s interpretation of the contract provision regarding arbitration
and examine for clear error the factual findings that formed the basis for the court’s
ruling.”); Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22, 29
(Iowa 1999) (“[O]ur review is for the correction of errors of law.”). Even applying
the more generous standard and reviewing the record de novo, we find no error
with the district court’s determination that defendants waived their right to arbitrate
the matter under the facts of this case.
Applying federal law without further analysis, we note:
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A party to an arbitration agreement can waive its right to
arbitrate disputes in different ways. The Eighth Circuit has held that
claims of waiver based on some types of conduct must be decided
by courts, while claims of waiver based on other types of conduct
must be decided by arbitrators. In N & D Fashions, Inc. v. DHJ
Industries, Inc., the Eighth Circuit explained that courts generally
decide whether a party has waived its right to arbitrate by “actively
participat[ing] in a lawsuit or tak[ing] other action inconsistent with
the right to arbitration.” N & D Fashions, Inc. v. DHJ Industries, Inc.,
548 F.2d 722, 728 (8th Cir. 1976) (quotations omitted). By contrast,
arbitrators generally decide claims of waiver based on arguments
that arbitration “would be inequitable to one party because relevant
evidence has been lost due to the delay of the other. ” Id. The Eighth
Circuit described this second kind of waiver as “‘waiver’ . . . in the
sense of ‘laches’ or ‘estoppel.’” Id.
Lovelace Farms, Inc. v. Marshall, 442 S.W.3d 202, 206-07 (Mo. Ct. App. 2014)
(internal footnote omitted). As in Lovelace Farms, Inc., the record before us
confirms that this case involves an assertion of the first kind of waiver—waiver
through litigation conduct. See id. at 207. “Under N & D Fashions, waiver through
litigation conduct is clearly a matter for the court to decide.” Id. (citing N & D
Fashions, 548 F.2d at 728); see also Grumhaus v. Comerica Secs., Inc., 223 F.3d
648, 650 (7th Cir. 2000) (stating waiver of arbitration right is for the courts); Perry
Homes v. Cull, 258 S.W.3d 580, 587 n.17 (Tex. 2008) (citing federal cases). Under
federal law, the district court did not err in determining in the first instance that it
was the decider.
Defendants also argue that under state law, the issue of waiver must be
decided by the arbitrator, citing Des Moines Asphalt & Paving Co. v. Colcon
Industries Corp., 500 N.W.2d 70, 73 (Iowa 1993). In Modern Piping, Inc. v.
Blackhawk Automatic Sprinklers, Inc., the Iowa Supreme Court explained why, in
Des Moines Asphalt, it found the arbitrator was to decide whether the request for
arbitration was timely—“the contract [in the Des Moines Asphalt case] so provides
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the arbitrator is allowed to make this initial decision regarding timeliness of the
request for arbitration.” 581 N.W.2d 616, 620 (Iowa 1998), (discussing Des Moines
Asphalt, 500 N.W.2d at 73), overruled on other grounds by Wesley Ret. Servs.,
Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22, 29 (Iowa 1999). Unlike the
contract in the Des Moines Asphalt case, the contract in Modern Piping, Inc. did
not contain “such provision.” See id. Though both contracts at issue were
arbitration agreements, only one specified the arbitrator was to decide the
timeliness of the request for arbitration. See id. This case is like Modern Piping,
Inc., and not Des Moines Asphalt. Consequently, even under state case law, the
district court did not err in determining in the first instance that it was the decider.
B. Did Defendants Waive Their Right to Arbitration?
Turning to the substantive argument presented in this appeal, defendants
argue that even if the district court had the jurisdiction to decide the issue, it erred
in concluding defendants waived their right to arbitration. We disagree.
“The party seeking arbitration may be found to have waived his right to it,
however, if he ‘(1) knew of an existing right to arbitration; (2) acted inconsistently
with that right; and (3) prejudiced the other party by these inconsistent acts.’” Kelly,
352 F.3d at 34 (citation omitted). Every one of these boxes is checked under the
facts of this case. As the district court pointed out, defendants “clearly had custody
and control of the agreement in question at all times material to this action.” In
fact, they drafted the agreement that Jim signed when Ellen was admitted to Silver
Pines. Nevertheless, they continued to litigate the suit in district court. They filed
an answer to the suit, asserting various affirmative defenses, but they did not
mention the arbitration agreement. We agree with the district court’s conclusion
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that “[p]laintiffs were prejudiced because they incurred substantial expense and
engaged in significant effort as a result of [defendants’] early litigation activities.”
Even after defendants had the arbitration agreement in hand some time
prior to disclosing it on October 3, 2015, they continued to litigate. Again, as the
district court pointed out:
However, even if the court accepts the defendants’ argument and
considers only activity in the case after October 3, 2015, it is clear
the defendants waived the right to compel arbitration in this case.
First, [the defendants] never raised the existence of the arbitration
agreement in their answer. They never moved to amend the answer
to raise this issue. Second, after they produced the arbitration
agreement, [the defendants] continued to litigate this case. The
defendants designated experts, sought additional time to designate
experts and disclose opinions, resisted the plaintiffs’ motion to
compel, and participated in the hearing on the motion to compel
before they demanded arbitration. After [the defendants] demanded
arbitration but before they sought to compel arbitration, they sought
additional time to submit filings on the motion to compel, sought and
obtained a protective order, filed supplemental discovery responses,
and filed a motion in limine.
Finally, plaintiffs clearly incurred expenses and inconvenience as the result of
defendants sitting on their hands. This case could be the legal dictionary’s
definition of how a party waives their right to arbitration.
III. Conclusion.
The district court did not err in determining it was to decide the issue of
whether defendants waived their right to arbitration based on their litigation
conduct. Additionally, under the facts of this case, the district court did not err in
determining defendants waived their right to compel the matter to arbitration.
Accordingly, we affirm the ruling of the district court denying defendants’ motion to
compel arbitration. We do not retain jurisdiction.
AFFIRMED.