Hot Spring County Medical Center, et al. v. Arkansas Radiology Affiliates, P.A. and Richard E. Kremp, M.D.
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ARKANSAS COURT OF APPEALS
DIVISION I
CA 08-16
No.
HOT SPRING COUNTY MEDICAL
CENTER, et al.
APPELLANTS
V.
ARKANSAS RADIOLOGY AFFILIATES,
P.A. and RICHARD E. KREMP, M.D.
APPELLEES
Opinion Delivered
OCTOBER 8, 2008
APPEAL FROM THE GARLAND
COUNTY CIRCUIT COURT,
[NO. CV-07-566-III]
HONORABLE DAVID B. SWITZER,
JUDGE
REVERSED AND REMANDED
JOHN B. ROBBINS, Judge
1.
CONTRACTS –
ARBITRATION AGREEMENT WAS ENFORCEABLE
–
AGREEMENT CONTAINED
MUTUAL OBLIGATIONS.– Where appellees had brought an action against appellants for breach
of contract, the trial court erred by refusing to enforce the parties’ agreement to arbitrate; the
arbitration clause in the parties’ contract unambiguously provided that both parties would be
bound by arbitration should a claim arise out of the agreement; this was the clear intention
of the parties and there were no additional provisions demonstrating a lack of mutuality of
obligations.
2.
CONTRACTS – ARBITRATION AGREEMENT WAS ENFORCEABLE – NO AGREEMENT EXISTED THAT
WOULD HAVE ALTERED THE PARTIES’ MUTUAL OBLIGATIONS.– The appellate court declined
to affirm the trial court on the alternate basis that a proposed, but unexecuted severance and
release agreement afforded the appellants other remedies available at law or equity; among
the provisions in the severance and release agreement was a provision affording remedies at
law or equity to the appellants in the event the appellees breached a portion of that
agreement; however, that agreement was never executed; because there were no agreements
between the parties that altered their mutual obligation to settle any claim by arbitration as
provided in the contract at issue, the trial court erred as a matter of law in denying appellants’
motion to submit the case to arbitration.
Appeal from Garland Circuit Court; David B. Switzer, Judge; reversed and remanded.
Friday, Eldredge & Clark, LLP, by: Bruce B. Tidwell, for appellants.
Hurst, Morrissey & Hurst, PLLC, by: Travis J. Morrissey and Q. Byrum Hurst, Jr., for
appellees.
JOHN B. ROBBINS, Judge.
Appellees Arkansas Radiology Affiliates, P.A., and Richard E. Kremp, M.D., filed an
action against appellants Hot Spring County Medical Center and its agents in circuit court,
alleging among other things that the appellants breached a contract between the parties. Hot
Spring County Medical Center subsequently filed a motion to stay pending arbitration,
asking the trial court to submit the appellees’ claims to arbitration pursuant to a provision in
the parties’ contract. The trial court entered an order denying appellants’ motion on the basis
that the parties’ agreement to arbitrate was unenforceable due to a lack of mutuality of
obligation. Hot Spring County Medical Center now appeals from that order, arguing that
the trial court erred in concluding that mutuality of obligation was lacking. We agree, and
we reverse and remand.
An order denying a motion to compel arbitration is an immediately appealable order.
Ark. R. App. P. - Civ. 2(a)(12); IGF Ins. Co. v. Hat Crook P’ship, 349 Ark. 133, 76 S.W.3d
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859 (2002). Our review of the trial court’s denial of a motion to compel arbitration is de
novo. Id.
On September 17, 2003, Hot Spring County Medical Center entered into a
Professional Services Agreement with Arkansas Radiology Affiliates for the provision of
radiology services. Richard Kremp, M.D., is the sole owner of Arkansas Radiology. Under
the agreement, Arkansas Radiology was responsible for arranging for radiology services as
reasonably required in connection with all inpatient and outpatient services provided at the
hospital.
On March 27, 2007, Arkansas Radiology filed its complaint against Hot Spring
County Medical Center and its representatives. The complaint alleged that as a result of
appellants’ actions and conduct, including a lack of cooperation in providing adequate
services to patients, appellants had breached the parties’ contract. The complaint further
alleged a breach of implied duty of good faith and fair dealing, and unfair trade practices.
Finally, the complaint alleged defamation on the basis that the appellants had made public
and malicious untrue assertions regarding Dr. Kremp’s competency and ability to perform
radiology services. In their complaint, the appellees prayed for a jury trial.
On July 12, 2007, Hot Spring County Medical Center filed its motion to stay pending
arbitration, wherein it asked the circuit court to compel arbitration and retain jurisdiction of
the pending case only for the purpose of entering an order confirming the decision of the
arbitrator. In bringing its motion, Hot Spring County Medical Center relied on the
following provision of the Professional Services Agreement:
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Arbitration. Any controversy or claim arising out of, or relating to, this Agreement,
or the breach thereof, shall be settled by arbitration in the City of Malvern in
accordance with the rules then existing of the American Health Lawyers Association
and the judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
Arkansas Radiology responded to the motion to stay pending arbitration on July 25,
2007, wherein it resisted arbitration of its claims. It relied on the “Repayment obligation”
of the parties’ contract, which provides:
In the event the Group [appellees] has at the end of the six (6) month period received
any subsidy payments, Group will be obligated to repay such subsidy to Hospital
[appellant] with interest at the then prime rate of interest as published in the Wall
Street Journal plus one percent (1%) per annum on the unpaid principal balance, due
and payable on or before the first anniversary of the date the Group’s Physician begins
practice. Provided however, Hospital and Group agree that repayment of such excess
subsidy may, in the alternative, be accomplished by Group requiring its physician
employee to remain in and serve the community for a period of one (1) year
beginning on the first anniversary date the Group’s Physician begins practice, with
one-twelfth (12th) of such amount being satisfied per month. Nothing in this section
shall be construed to entitle Group to receive subsidy payments from Hospital after
the first six (6) months of this agreement. If Group’s Physician elects to not remain in the
community in order to fulfill the repayment obligation, Group shall execute a Promissory Note
for the entire amount owed to the Hospital in the form attached as Exhibit C. (emphasis
added).
The Promissory Note (Exhibit C) contains the following provisions:
Upon default, the Payee may employ an attorney to enforce the Payee’s rights
and remedies pursuant to this Note, and the Maker agrees to pay to the Payee the
actual costs incurred for reasonable expenses (including attorneys’ fees) incurred by
the Payee in exercising any of the Payee’s rights and remedies upon default.
....
If any provision or portion of this Note shall, to any extent, be deemed invalid
or unenforceable, the remainder of this Note shall not be affected thereby, and each
provision of this Note shall be valid and enforceable to the fullest extent permitted by
law.
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The Maker hereby waives presentment for payment, demand, protest and
notice of dishonor, and all defenses on the ground of extensions of time for the
payment hereof which may be given by the Payee to the Maker or to anyone who
has assumed the payment of this Note.
Arkansas Radiology contended that the above language in the Promissory Note reserved
rights and remedies to Hot Spring County Medical Center that are normally associated with
collection through litigation, and thus there was no mutuality of obligation to arbitrate.
Arkansas Radiology further relied on certain language in a proposed, but unexecuted,
“Severance and Release Agreement” that had been drafted by Hot Spring County Medical
Center as evidence of the hospital’s intention not to pursue arbitration of the present dispute.
In the trial court’s order denying arbitration, the trial court ruled:
That the Motion to Stay Pending Arbitration is denied because the language in the
Promissory Note attached as Exhibit “C” to the “Professional Services Agreement”
between the parties which reads that the Note “shall be valid and enforceable to the
fullest extent permitted by law” results in the agreement to arbitrate contained in the
Professional Services Agreement being unenforceable due to a lack of mutuality of
obligation.
On appeal, Hot Spring County Medical Center argues that when applying the
principles related to arbitration, there was no lack of mutuality of obligation and thus the trial
court erred by refusing to enforce the parties’ agreement to arbitrate. We agree.
The supreme court has held that arbitration is simply a matter of contract between the
parties. Tyson Foods, Inc. v. Archer, 356 Ark. 136, 147 S.W.3d 64 (2004). Stated differently,
the question of whether a dispute should be submitted to arbitration is a matter of contract
construction. Id. The essential elements of a contract are (1) competent parties, (2) subject
matter, (3) legal consideration, (4) mutual agreement, (5) mutual obligations. Foundation
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Telecom., Inc. v. Moe Studio, Inc., 341 Ark. 231, 16 S.W.3d 531 (2000). The only issue in the
present case is that of mutual obligations. The supreme court has recognized that mutuality
of contract means that an obligation must rest on each party to do or permit to be done
something in consideration of the act or promise of the other; thus, neither party is bound
unless both are bound. The Money Place, LLC v. Barnes, 349 Ark. 411, 78 S.W.3d 714
(2002). A contract, therefore, that leaves it entirely optional with one of the parties as to
whether or not he will perform his promise would not be binding on the other. Id.
In Hart v. McChristian, 344 Ark. 656, 42 S.W.3d 552 (2001), our supreme court wrote:
This court has oft recognized that as a matter of public policy, arbitration is “strongly
favored.” Arbitration is looked upon with approval by courts as a less expensive and
more expeditious means of settling litigation and relieving docket congestion.
Significantly, we have also held that arbitration is a matter of contract between parties.
....
Accordingly, this court will give effect to the parties’ intent as evidenced by the
arbitration agreement itself. In light of the policy favoring arbitration, such
agreements will not be construed strictly but will be read to include subjects within
the spirit of the parties’ agreement. In other words, any doubts and ambiguities of
coverage will be resolved in favor of arbitration.
344 Ark. at 662, 42 S.W.3d at 556-57 (citations omitted).
[1] In the case at bar, Hot Spring County Medical Center correctly asserts that the
arbitration clause contained in the parties’ contract unambiguously provides that both parties
are bound by arbitration should a claim arise out of the agreement. We agree with appellants
that this was the clear intention of the parties and that there were no additional provisions
demonstrating a lack of mutuality of obligations. The trial court based its decision on the
language in the attached Promissory Note stating that the note “shall be valid and enforceable
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to the fullest extent permitted by law.” However, this language should be read in proper
context, and it appears in the note’s severability clause, a provision routinely seen as
boilerplate in promissory notes and other contracts. Severability clauses are not aimed at the
scope of remedies, but rather to preserve the enforceability of the balance of a contract when
some of its provisions are held unenforceable. This severability clause does not affect the
parties’ contractual agreement to arbitrate, as that agreement would still be binding on Hot
Spring County Medical Center in the event of a default. This case is unlike the situation in
Tyson Foods, Inc. v. Archer, supra, where the supreme court held there was a lack of mutual
obligation where the contract provided that one of the parties “may also pursue any other
remedies at law or equity.” In the present case, neither the language relied on by the trial
court nor any other language in the Promissory Note extended to the appellants the right to
pursue any remedies other than arbitration.
[2] Moreover, we decline the appellees’ invitation to affirm the trial court on the
alternate basis that the Severance and Release Agreement afforded the appellants other
remedies available at law or equity. That proposed agreement was prepared by the appellants
in an attempt to cancel the Professional Services Agreement and settle the parties’ disputes
before the appellees brought its action, but was never signed by either party. The appellees
correctly assert that among the provisions in the Severance and Release Agreement is a
provision affording remedies at law or equity to the appellants in the event the appellees
breach a portion of that agreement. However, that agreement was never executed, and at
any rate the proposed remedies at law and equity would have only pertained to a breach of
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the Severance and Release Agreement and not the Professional Services Agreement at issue
in this case. Because there were no agreements between the parties that altered their mutual
obligation to settle any claim by arbitration as provided in the Professional Services
Agreement, we hold that the trial court erred as a matter of law in denying the appellant’s
motion to submit the case to arbitration.
Finally, the appellants concede that any tort claims advanced in the appellees’
complaint are not subject to arbitration pursuant to Ark. Code Ann. § 16-108-201(b)(2)
(Repl. 2006). However, appellants correctly acknowledge that Arkansas Code Annotated
section 16-108-202(d) (Repl. 2006) provides, “Any action or proceeding involving an issue
subject to arbitration shall be stayed if any order for arbitration or any application therefor
has been made under this section, or, if the issue is severable, the stay may be with respect
thereto only.” Pursuant to this subsection, our reversal only pertains to the appellee’s breach
of contract claims, which shall be stayed and ordered to arbitration.
Reversed and remanded.
MARSHALL and VAUGHT, JJ., agree.
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