Linzy v. Conifer Care Communities

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.

SUMMARY
June 4, 2020

2020COA88

No. 18CA2405, Johnson-Linzy v. Conifer Care Communities —
Courts and Court Procedure — Arbitration — Colorado Uniform
Arbitration Act; Contracts — Impossibility of Performance

A division of the court of appeals considers a question of first

impression in Colorado — whether an arbitration agreement’s

incorporation of an arbitral forum’s rules that require a now

defunct arbitrator to administer them renders the agreement

impossible to perform. Based on the plain language of the

arbitration agreement, the majority concludes that the parties

agreed to arbitrate any disputes that arose between them, without

regard to who was named as arbitrator. Accordingly, the majority

reverses the district court’s order invalidating the agreement on the

grounds of impossibility.
COLORADO COURT OF APPEALS 2020COA88

Court of Appeals No. 18CA2405
City and County of Denver District Court No. 18CV32187
Honorable Kenneth M. Plotz, Judge

Shalandra M. Johnson-Linzy, individually and as Personal Representative of
the Estate of Damien R. Linzy,

Plaintiff-Appellee,

v.

Conifer Care Communities A, LLC, d/b/a Amberwood Court Rehabilitation and
Care Community; Pinon Management, LLC; and QP Health Care Services, LLC,
d/b/a Vivage,

Defendants-Appellants.

ORDER REVERSED AND CASE
REMANDED WITH DIRECTIONS

Division III
Opinion by JUDGE GROVE
Vogt*, J., concurs
Berger, J., dissents

Announced June 4, 2020

Reddick Moss, PLLC, Brian D. Reddick, Brent L. Moss, Robert W. Francis,
Little Rock, Arkansas, for Plaintiff-Appellee

Messner Reeves, LLP, Doug C. Wolanske, Kendra N. Beckwith, Mary Byrne
Fletcher, Dara N. Keller, Denver, Colorado, for Defendants-Appellants

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2019.
¶1 Plaintiff, Shalandra M. Johnson-Linzy, signed an arbitration

agreement when her husband, Damien R. Linzy, was admitted to

Amberwood Court Rehabilitation and Care Community (Amberwood

Court), a skilled nursing facility owned and managed by

defendants.1 Linzy stayed at Amberwood Court for several weeks

and passed away shortly after he was discharged. Johnson-Linzy

then sued defendants for negligence and wrongful death, but

defendants moved to stay her lawsuit and compel arbitration. The

district court denied the motion because it found that compliance

with the arbitration agreement was impossible. Defendants now

appeal that order under section 13-22-228(1)(a), C.R.S. 2019. We

reverse.

¶2 The parties’ dispute hinges on the validity of the arbitration

agreement that Johnson-Linzy signed when she admitted her

husband to Amberwood Court. As relevant here, the agreement

provides that any legal claim arising from care provided by

1The defendants are Conifer Care Communities A, LLC, d/b/a
Amberwood Court Rehabilitation and Care Community, Pinon
Management, LLC, and QP Health Care Services, LLC, d/b/a
Vivage.

1
 Amberwood Court “shall be resolved exclusively by binding

arbitration,” to be conducted

in accordance with the Colorado Uniform
Arbitration Act and the Code of Procedure of
the National Arbitration Forum, and not by a
lawsuit or resort to court process, except to the
extent that applicable state or federal law
provides for judicial review of arbitration
proceeding or the judicial enforcement of
arbitration agreements and awards.

Toward the end of the two-page agreement, in bold type and in all

capital letters, the agreement states, “NOTE: BY SIGNING THIS

AGREEMENT YOU ARE AGREEING TO HAVE ANY ISSUE OF

MEDICAL MALPRACTICE DECIDED BY NEUTRAL BINDING

ARBITRATION RATHER THAN BY A JURY OR COURT TRIAL.”

¶3 These provisions are unremarkable; similar language regularly

appears in various consumer arbitration agreements. However, the

organization whose code of procedure the agreement identifies —

the National Arbitration Forum (NAF) — exited the consumer

arbitration business in 2009, nearly eight years before Linzy was

admitted to Amberwood Court. See In re Nat’l Arbitration Forum

Trade Practices Litig., 704 F. Supp. 2d 832, 835 (D. Minn. 2010)

(“On July 14, 2009, the Minnesota Attorney General brought a

2
 complaint . . . against NAF alleging consumer fraud act and

deceptive trade practices act violations and false advertising. NAF

settled that litigation less than a week later, agreeing to cease

performing consumer arbitrations and entering into a consent

judgment to that effect.”).

¶4 The demise of NAF’s consumer arbitration business affected a

wide variety of contracts and has spawned a substantial amount of

litigation over the enforceability of arbitration agreements that

identify NAF as arbiter or otherwise rely on its procedures. See

Frazier v. W. Union Co., 377 F. Supp. 3d 1248, 1265-67 (D. Colo.

2019) (collecting cases). Analyzing similar arbitration provisions,

some courts have, like the district court here, held that NAF’s

unavailability makes it impossible to fulfill the parties’ contractual

expectations. See, e.g., Miller v. GGNSC Atlanta, LLC, 746 S.E.2d

680, 688 (Ga. Ct. App. 2013). Others have found NAF’s status

inconsequential because the language in question “does not

mandate that the NAF actually conduct the arbitration — it requires

only that the NAF Code be applied by the arbitrator.” Meskill v.

GGNSC Stillwater Greeley LLC, 862 F. Supp. 2d 966, 972 (D. Minn.

2012).

3
¶5 The arguments in this case follow similar contours. As she did

in the district court, Johnson-Linzy contends that the parties

agreed to have NAF arbitrate any disputes between them and that

its retreat from the consumer arbitration business renders the

agreement invalid due to impossibility.2 Defendants argue that the

heart of the agreement is the desire to arbitrate disputes rather

than litigate them and that the arbitration agreement’s designation

of the Code of Procedure of the National Arbitration Forum (NAF

Code) is only a means to that end.3

¶6 In a brief written order, the district court agreed with

Johnson-Linzy’s argument that the arbitration agreement is

unenforceable under the doctrine of impossibility and denied

defendants’ motion to compel arbitration:

The Court specifically finds that the motion to
compel arbitration and the motion for a stay in
these proceedings are both denied. The Court
finds that the agreement to arbitrate is
impossible to comply with. The Court also

2 Because the district court has not yet ruled on them, we do not
consider any additional issues, such as unconscionability, that
Johnson-Linzy has also argued make the arbitration agreement
unenforceable.
3 References to the NAF Code throughout this opinion are to its last

revision, issued August 1, 2008.

4
 finds impossibility with regard [to] the use of
the rules of NAF[.]

Defendants now appeal that order.

I. Analysis

¶7 At the threshold, defendants contend the district court did not

have subject matter jurisdiction to determine the enforceability of

the arbitration agreement because “[t]he parties agreed that solely

an arbitrator would have the power to rule on issues relating to the

Arbitration Agreement’s validity, including objections concerning

the Arbitration Agreement’s enforceability.”

¶8 In the alternative, defendants argue that NAF’s unavailability

is immaterial because the arbitration agreement does not require

NAF to serve as the arbitral forum or arbiter, and instead only

directs the parties to conduct arbitration “in accordance with” the

NAF Code.4

4Because we conclude that this issue is dispositive, we do not
address defendants’ remaining contention, that section 13-22-
211(1), C.R.S. 2019, of the Colorado Uniform Arbitration Act (CUAA)
provides for appointment of a substitute arbitrator when the
appointed arbitrator is unable to act.

5
 A. The District Court Had Jurisdiction to Determine
Enforceability of the Arbitration Agreement

¶9 We first address defendants’ argument that the order denying

the motion to compel should be vacated because, by incorporating

the NAF Code into their arbitration agreement, the parties agreed

that only an arbitrator could resolve disputes concerning its

enforceability. We conclude that the district court had jurisdiction

to determine enforceability of the arbitration agreement because the

parties did not plainly and unambiguously empower an arbitrator to

decide that issue.

1. Preservation

¶ 10 Johnson-Linzy contends that defendants waived their

argument that the validity of the arbitration agreement is a question

for the arbitrator by failing to raise it in the district court, and that

we should therefore decline to consider it. Defendants respond that

“[t]he enforceability issue is non-waivable because it concerns

subject matter jurisdiction.” We agree with defendants.

¶ 11 Arbitration is “a matter of contract between the parties; it is a

way to resolve those disputes — but only those disputes — that the

parties have agreed to submit to arbitration.” First Options of Chi.,

6
 Inc. v. Kaplan, 514 U.S. 938, 943 (1995). A court must defer to an

arbitrator’s arbitrability decision — i.e., whether a particular

dispute should be arbitrated — when the parties submit that matter

to arbitration. Id. However, when the arbitrability decision is

originally submitted to the court, rather than the arbitrator, the

court’s initial task “is to determine whether the agreement contains

a valid and binding [arbitration] clause using traditional principles

of contract interpretation.” City & Cty. of Denver v. Dist. Court, 939

P.2d 1353, 1363 (Colo. 1997). The court must determine the

threshold arbitrability issue because “[a] valid and enforceable

arbitration provision divests the courts of jurisdiction over all

disputes that are to be arbitrated pending the conclusion of

arbitration.” Mountain Plains Constructors, Inc. v. Torrez, 785 P.2d

928, 930 (Colo. 1990).

¶ 12 Thus, because objections to the enforceability of an arbitration

agreement implicate the court’s subject matter jurisdiction, they

may be raised for the first time on appeal. Kaplan, 514 U.S. at 943;

Colo. Dep’t of Pub. Health & Env’t v. Caulk, 969 P.2d 804, 807 (Colo.

App. 1998) (“[C]hallenges to subject matter jurisdiction cannot be

waived and may be asserted at any time . . . .”).

7
 2. Enforceability Determination is for the Court

¶ 13 We turn next to defendants’ argument that the NAF Code,

which, by its terms “shall be deemed incorporated by reference in

every Arbitration Agreement[] which refers to the National

Arbitration Forum . . . or this Code of Procedure unless the Parties

agree otherwise,” requires that an arbitrator, not a court, determine

issues of enforceability. NAF Code, Rule 1.A.

¶ 14 Johnson-Linzy responds that the arbitration agreement is

ambiguous because it incorporates the CUAA — which provides for

judicial resolution of arbitrability, see § 13-22-206(2), C.R.S. 2019

— along with the NAF Code, which states that “[a]n Arbitrator shall

have the power to rule on . . . the existence, scope, and validity of

the Arbitration Agreement including all objections relating to

jurisdiction, unconscionability, contract law, and enforceability of

the Arbitration Agreement.” NAF Code, Rule 20.F.

a. Standard of Review

¶ 15 We review de novo the question whether arbitrability is for the

court or for the arbitrator to decide. See Taubman Cherry Creek

Shopping Ctr., LLC v. Neiman-Marcus Grp., Inc., 251 P.3d 1091,

1093 (Colo. App. 2010).

8
 b. Applicable Law

¶ 16 Colorado’s preference for the resolution of disputes through

arbitration is embedded in both the Colorado Constitution and the

CUAA. Colo. Const. art. 18, § 3; see also J.A. Walker Co. v. Cambria

Corp., 159 P.3d 126, 128 (Colo. 2007). Under the CUAA, “[t]he

court shall decide whether an agreement to arbitrate exists or a

controversy is subject to an agreement to arbitrate.” § 13-22-

206(2). Parties may waive or vary the effect of the CUAA “to the

extent permitted by law.” § 13-22-204(1), C.R.S. 2019. To deviate

from the CUAA, however, “the law requires that parties must plainly

and unambiguously empower an arbiter to decide arbitrability and

that they must clearly and knowingly assent to terms incorporated

by reference.” Taubman, 251 P.3d at 1095.

c. Discussion

¶ 17 Parties may incorporate specific arbitration rules, such as the

NAF Code, by expressly providing that those rules will govern any

dispute within the scope of their arbitration agreement. Taubman,

251 P.3d at 1094. And courts generally accept that if parties to an

arbitration agreement have explicitly incorporated a rule that

empowers the arbitrator to determine arbitrability, that

9
 incorporation amounts to clear and unmistakable evidence of the

parties’ intent to delegate that issue to the arbitrator. See, e.g.,

Ahluwalia v. QFA Royalties, LLC, 226 P.3d 1093, 1098 (Colo. App.

2009) (collecting cases).

¶ 18 Although the arbitration agreement here incorporates the NAF

Code, it also incorporates the CUAA. In our view, the incorporation

of both authorities creates an ambiguity as to which entity is

empowered to decide whether the underlying agreement is valid.

Compare § 13-22-206(2) (“The court shall decide whether an

agreement to arbitrate exists or a controversy is subject to an

agreement to arbitrate.”), with NAF Code, Rule 20.F (“An Arbitrator

shall have the power to rule on all issues, Claims, Responses,

questions of arbitrability, and objections regarding the existence,

scope, and validity of the Arbitration Agreement including all

objections relating to jurisdiction, unconscionability, contract law,

and enforceability of the Arbitration Agreement.”). The

incorporation of both sets of rules cannot “plainly and

unambiguously empower an arbiter to decide arbitrability.”

Taubman, 251 P.3d at 1095.

10
¶ 19 We are not persuaded otherwise by defendants’ argument that

“the express reference to both the CUAA and [the NAF] Code does

not create ambiguity, but instead clarifies the applicable procedural

rules.” To the contrary, determining arbitrability is presumptively

the court’s job, unless the parties “clearly and knowingly assent to

terms incorporated by reference.” Taubman, 251 P.3d at 1095.

Here, the parties incorporated by reference two sets of rules into the

arbitration agreement. Expecting a consumer in Johnson-Linzy’s

position to read and reconcile both sources, and, based on that

evaluation, definitively conclude that she is consenting to forgo

judicial review of the agreement’s enforceability, simply does not

meet that threshold. As another court aptly put it, the

incorporation of forty-two pages of arbitration rules, not to mention

the entire CUAA, into an arbitration clause “is tantamount to

inserting boilerplate inside of boilerplate, and to conclude that a

single provision contained in those rules amounts to clear and

unmistakable evidence of an unsophisticated party’s intent would

be to take ‘a good joke too far.’” Allstate Ins. Co. v. Toll Bros., Inc.,

171 F. Supp. 3d. 417, 429 (E.D. Pa. 2016) (citation omitted).

11
 B. The Arbitration Agreement Is Enforceable

¶ 20 Having determined that the district court had jurisdiction to

determine whether the arbitration agreement is enforceable, we

turn next to defendants’ contention that NAF’s unavailability is

“irrelevant to the agreement’s enforcement.” In defendants’ view,

the arbitration agreement does not explicitly or implicitly require

NAF to serve as the arbitral forum or arbitrator — meaning that,

notwithstanding the termination of NAF’s consumer arbitration

business, another arbitrator could use the NAF Code to preside over

the arbitration. Johnson-Linzy responds that, by invoking the NAF

Code, the parties agreed to employ NAF to arbitrate any dispute,

and that NAF’s unavailability thus renders their agreement

impossible to perform.

1. Standard of Review

¶ 21 We review “de novo the district court’s decision on a motion to

compel arbitration, employing the same legal standards that the

district court employed.” Lujan v. Life Care Ctrs. of Am., 222 P.3d

970, 972 (Colo. App. 2009).

12
 2. Applicable Law

¶ 22 The CUAA requires the court to decide whether an agreement

to arbitrate exists and whether a controversy is subject to an

agreement to arbitrate — that is, whether the dispute is within the

“scope” of the arbitration clause. City & Cty. of Denver, 939 P.2d at

1363. Thus, there are only two grounds upon which a court may

deny a motion to compel arbitration: (1) there is no valid agreement

to arbitrate; or (2) the issue sought to be arbitrated is clearly

beyond the scope of the arbitration provision. If the court

determines that there is no enforceable agreement, it may not order

the parties to arbitrate. § 13-22-207(3), C.R.S. 2019.

¶ 23 “The party seeking to stay proceedings in a judicial forum and

to compel arbitration has the burden of establishing that the matter

is subject to arbitration.” Smith v. Multi-Fin. Sec. Corp., 171 P.3d

1267, 1270 (Colo. App. 2007). “As a general rule, courts should

follow state law principles governing contract formation to

determine whether the parties agreed to submit an issue to

alternative dispute resolution.” City & Cty. of Denver, 939 P.2d at

1361. “The right of parties to contract freely is well developed in

our jurisprudence.” Id. That right “encompasses the correlative

13
 power to agree to a specific [alternative dispute resolution]

procedure for resolving disputes.” Id. We construe an arbitration

agreement’s terms “in a manner that best effectuates the intent of

the parties and allows each party to receive the benefit of the

bargain.” Id.

¶ 24 In determining the parties’ intent at the time they agreed to

the contract, we “must construe the [c]ontract as a whole and effect

must be given to every provision, if possible.” Id. at 1365. And,

under Colorado law, arbitration agreements are “valid, enforceable,

and irrevocable” except where a ground exists under law or equity

for the contract’s revocation. § 13-22-206(1).

¶ 25 As the Missouri Supreme Court put it, for our purposes, “there

are two types of arbitration agreements: (1) agreements in which the

parties agree to arbitrate regardless of the availability of a named

arbitrator, and (2) agreements in which the parties agree to

arbitrate before — but only before — a specified arbitrator.” A-1

Premium Acceptance, Inc. v. Hunter, 557 S.W.3d 923, 926 (Mo.

2018). We conclude that the parties here agreed to arbitrate

without regard to who was named as arbitrator.

14
 3. Discussion

¶ 26 We reach this conclusion based on the plain language of the

arbitration agreement. Most importantly, the agreement does not

state that arbitration will be conducted “by” NAF, or even by an

arbiter affiliated with or approved by NAF. To the contrary, the

agreement requires only that “binding arbitration . . . be conducted

. . . in accordance with the [CUAA] and the [NAF Code], and not by

a lawsuit or resort to court process . . . .” And the bolded, all-

capital disclaimer at the close of the agreement (“NOTE: BY

SIGNING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY

ISSUE OF MEDICAL MALPRACTICE DECIDED BY NEUTRAL

BINDING ARBITRATION RATHER THAN BY A JURY OR COURT

TRIAL”) similarly emphasizes its core goal — requiring arbitration —

without suggesting that carrying through with the process is

contingent on the selection of any particular arbitrator.

¶ 27 To be sure, the NAF Code, which is “deemed incorporated by

reference” into every arbitration agreement that refers to NAF,

provides that “[t]his Code shall be administered only by [NAF] or by

any entity or individual providing administrative services by

agreement with [NAF].” NAF Code, Rule 1.A. Johnson-Linzy argues

15
 that this provision makes “[t]he availability of the NAF to administer

the parties’ arbitration an all-or-nothing proposition.” We are

unpersuaded because “if the parties had contemplated the NAF

would be their exclusive arbitral forum, they could have easily said

so — there would be no need for them to do so obliquely by

‘specify[ing] that the arbitration must be conducted by [the NAF’s]

rules.’” Meskill, 862 F. Supp. 2d at 973 (alterations in original)

(citation omitted). Indeed, we note that in a number of cases,

courts have relied on just such an explicit designation as grounds

for invalidating the agreement. See, e.g., Wert v. Manorcare of

Carlisle PA, LLC, 124 A.3d 1248, 1263 (Pa. 2015) (emphasizing

arbitration agreement’s provision that any disputes “shall be

resolved exclusively by binding arbitration to be conducted . . . in

accordance with the [NAF] Code of Procedure, which is hereby

incorporated into this Agreement”); see also GGNSC Atlanta, LLC,

746 S.E.2d at 686 (same).

¶ 28 On the other hand, most cases analyzing language similar to

the arbitration agreement at issue here have concluded that the

agreement remains enforceable despite NAF’s unavailability. See

Robinson v. EOR-ARK, LLC, 841 F.3d 781, 784 (8th Cir. 2016)

16
(declining to invalidate arbitration agreement that provided for

arbitration “in accordance with the National Arbitration Forum

Code of Procedure, (‘NAF’) which is hereby incorporated into th[e]

agreement, and not by a lawsuit or resort to court process”); GGNSC

Holdings, LLC v. Lamb, 487 S.W.3d 348, 356 (Ark. 2016) (same);

Wright v. GGNSC Holdings LLC, 808 N.W.2d 114 (S.D. 2011) (same);

see also Paulozzi v. Parkview Custom Homes, L.L.C., 122 N.E.3d

643, 646 (Ohio Ct. App. 2018) (declining to invalidate arbitration

agreement calling for “arbitration [to] be conducted under the

auspices of the [now defunct] Ohio Arbitration and Mediation

Center in accordance with its rules”). We agree with the analysis in

these cases. As with our jurisdictional analysis above, we are

reluctant to examine “boilerplate inside of boilerplate,” Toll Bros.,

Inc., 171 F. Supp. 3d at 429, particularly where the primary

document — the arbitration agreement itself — invokes the NAF

Code without explicitly designating NAF as the arbitrator, thereby

suggesting that “the parties anticipated an entity other than the

NAF might conduct the arbitration.” Meskill, 862 F. Supp. 2d at

973. And the express incorporation of the CUAA in the agreement

17
 that we consider here only bolsters our conclusion that its intent is

to require arbitration without regard to the identity of the arbitrator.

¶ 29 In sum, we conclude that while the arbitration agreement

memorializes both the parties’ intention to arbitrate and the rules

that would govern that arbitration, it leaves open the possibility

that an individual other than NAF could conduct the proceedings.

The parties thus did not designate NAF as the exclusive arbiter of

any future disputes; NAF’s cessation of consumer arbitrations as a

result of the consent judgment therefore does not stand as a barrier

to the arbitration of Johnson-Linzy’s claims.

II. Conclusion

¶ 30 The order is reversed and the case is remanded to the district

court. If the district court denies the remaining challenges to the

enforceability of the arbitration agreement that it did not resolve

before this appeal, then it must compel arbitration and stay the

case while arbitration proceeds.

JUDGE VOGT concurs.

JUDGE BERGER dissents.

18
 JUDGE BERGER, dissenting.

¶ 31 Arbitration is a matter of contract. N.A. Rugby Union LLC v.

U.S. Rugby Football Union, 2019 CO 56, ¶ 20. As with any contract,

the parties, not judges, prescribe the terms. W. Stone & Metal Corp.

v. DIG HP1, LLC, 2020 COA 58, ¶ 10. It follows that courts must

enforce all, not just some, of the terms of an arbitration agreement.

And when the terms of the parties’ arbitration agreement are


I recognize the reality that in most consumer arbitrations, the
arbitration agreement is a contract of adhesion. See Lamps Plus,
Inc. v. Varela, 587 U.S. ___, ___, 139 S. Ct. 1407, 1420-22 (2019)
(Ginsburg, J., dissenting); DIRECTV v. Imburgia, 577 U.S. ___, 136
S. Ct. 463, 471-78 (2015) (Ginsburg, J., dissenting); Circuit City
Stores, Inc. v. Adams, 532 U.S. 105, 124-33 (2001) (Stevens, J.,
dissenting). It is absurd to think that either the plaintiff or the
plaintiff’s husband in this case actually wanted to arbitrate any
claims of improper care; they had no choice because admission to
the nursing home almost certainly was dependent on their agreeing
to the terms of adhesion, including the arbitration agreement.
Despite these realities, the United States Supreme Court has
expanded, beyond recognition, the modest and salutary policies
enshrined in the Federal Arbitration Act, 9 U.S.C. §§ 1-307 (2018).
See Lamps Plus, 587 U.S. at ___, 139 S. Ct. at 1420-22 (Ginsburg,
J., dissenting); DIRECTV, 577 U.S. at ___, 136 S. Ct. at 471-78
(Ginsburg, J., dissenting); Circuit City, 532 U.S. at 124-33 (Stevens,
J., dissenting). But nothing in the cases decided by the United
States Supreme Court or the Colorado Supreme Court (or the
provisions of the Colorado Uniform Arbitration Act, sections 13-22-
201 to -230, C.R.S. 2019) require or permit a court to disregard the
terms of the parties’ agreement and order arbitration when the
express terms of the arbitration agreement are impossible to
perform.

19
 impossible to perform, the arbitration agreement, like any other

contract, fails. City of Littleton v. Emp’rs Fire Ins. Co., 169 Colo.

104, 108-09, 114, 453 P.2d 810, 812, 815 (1969). This, of course,

does not mean that the parties forfeit any of their substantive

contractual rights; it means only that their dispute is resolved by a

court, not an arbitrator.

¶ 32 These contract principles are not diluted or dispensed with

because public policy favors arbitration. Public policy favors

arbitration only when the parties have agreed to it. Public policy

does not authorize judges to substitute provisions they think are

better or more reasonable, for those prescribed by the parties.

¶ 33 As the majority recognizes, the parties’ arbitration agreement

expressly requires the arbitration to be governed by the NAF Code.

The NAF Code, in turn, expressly provides that “[t]his Code shall be

administered only by [NAF] or by any entity or individual providing

administrative services by agreement with [NAF].” (Emphasis

added.) That is impossible because after being accused by the

Minnesota Attorney General of being partial to businesses and

merchants, and prejudiced against consumers, NAF ceased

20
 providing consumer arbitration services. Supra ¶ 3 (majority

opinion).

¶ 34 To avoid invalidation of the arbitration agreement, the majority

relies on the fact that the provision designating NAF as the

administrator is contained in the NAF Code, rather than in the body

of the agreement. This, the majority reasons, signals that the

parties did not actually intend to be bound by that provision, even

though the agreement clearly states that the NAF Code controls.

¶ 35 It is black letter law that when a contract is clear and

unambiguous, we apply its terms without regard to the parties’

subjective intent. Travelers Indem. Co. v. Bailey, 557 U.S. 137, 150

(2009) (citing 11 R. Lord, Williston on Contracts § 30:4 (4th ed.

1999)). This objective analysis requires that we interpret the

arbitration agreement as written and hold that it fails.


The majority wisely does not rely on the “integral part” test
adopted by some courts to justify ignoring disfavored provisions of
an arbitration agreement. As agreed by both the majority and
dissent in Green v. U.S. Cash Advance Illinois, LLC, 724 F.3d 787
(7th Cir. 2013) (Easterbook, C.J., writing for the majority and
Hamilton, J., dissenting), the integral part test finds no support in
the Federal Arbitration Act or other law. It simply was made up by
judges and, as Judge Hamilton explains, is plainly at odds with
basic concepts of contract law. Id.

21
¶ 36 To disregard the clear language in the NAF Code, the majority

relies on Allstate Insurance Co. v. Toll Brothers, Inc., 171 F. Supp.

3d 417 (E.D. Pa. 2016). But that Pennsylvania case, which in any

event is not binding on this court, is inapposite. There, the court

declined to enforce a provision of the separate arbitration rules

referenced in a sale agreement against an individual homebuyer

because the homebuyer was “unsophisticated” and it would be a

“joke” to think the homebuyer signed the agreement having read the

entirety of the rules cross-referenced in the agreement. Id. at 429.

¶ 37 We have the exact opposite situation here. The defendants —

sophisticated, corporate entities presumably acting on the advice of

counsel — drafted the agreement. They selected the NAF Code to

govern arbitration — despite the fact that NAF had been defunct for

a number of years and the NAF Code clearly provides that only NAF

or an affiliated entity may administer it. The defendants must live

with that decision.

¶ 38 As the Allstate court recognized, its decision represented an

exception — based on the sophistication of one of the parties —

from the holdings of almost every other circuit court that had

addressed the issue. Id. at 427. Irrespective of whether that

22
 exception is consistent with the United States Supreme Court’s

expansive reading of the Federal Arbitration Act, see supra note 1,

at 19-20, the exception has no application here. To hold otherwise

would be to render meaningless references to governing rules in all

agreements, a result that finds no support in the law.

¶ 39 The fact that the parties “could” have included an express

designation of NAF as the sole administrator elsewhere in their

agreement is irrelevant. Supra ¶ 27 (majority opinion). The parties

could have done a lot of things. The plaintiff and her husband,

assuming they even knew what rights they were forgoing by

agreeing to arbitration, could have attempted to search for a

nursing home that did not require arbitration. Or they could have

delayed the husband’s admission to the nursing home for the two

years it would have taken to resolve a declaratory judgment action

against the nursing home, asserting that the arbitration agreement

was a contract of adhesion and was, therefore, unenforceable. But

the fact that the plaintiff and her husband did none of these things

simply has no bearing on whether a court should or must enforce a

clear provision of the contract.

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¶ 40 The choices made by contracting parties have consequences

and demand respect by courts. That respect compels the

conclusion that the parties’ arbitration agreement failed.

¶ 41 For these reasons, I would affirm the district court order

denying arbitration, and I respectfully dissent from the majority’s

contrary disposition.


I agree with the majority’s analysis that the court, rather than an
arbitrator, decides the question of the validity of the arbitration
agreement.

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