EPILOGUE: More Key Developments (2022-2023) in Arbitration in Arizona

August 28, 2023 David C. Tierney General

In January of 2022, I authored the foregoing article commenting on over a decade of (13) important cases in Arizona Law bearing upon arbitration.  What follows is a collection of eight cases decided in 2022 and 2023 (through 8/18/23) that amplify points that were made in the original article over a year and a half ago.

      A. UNCONSCIONABILITY.  In the original article, paragraph 6 was the first and largest category of the 2010-2022 decade-plus of cases, unconscionability as a ground for refusing to enforce an arbitration clause.

The first case cited was Rizzio v. Surpass Senior Living, LLC, as decided by the Court of Appeals, Division One.

In Rizzio v. Surpass Senior Living, LLC, 251 Ariz. 413, 492 P.3d 1031 (Ariz. 8/17/21), the Supreme Court essentially upheld the Court of Appeals endorsing the concept of “substantive unconscionability” as a ground for voiding and refusing to enforce an arbitration clause.  Stating that substantive unconscionability involves terms that are “one-sided or unduly harsh” and as such, includes the question of whether fee/cost-shifting provisions prevent a plaintiff from asserting his rights, the Supreme Court reversed the trial court.

Justice Montgomery’s Opinion cited the Harrington v. Pulte Home Corp. (2006) case discussed in my prior article (¶ 6(b)) and said that this plaintiff had failed to make a trial court record as to her inability to pay the costs and fees of an arbitration.  Therefore, all the important language about the concept of unconscionability simply did not permit the trial court to label this arbitration clause unconscionable as to this plaintiff.

The previous decade saw no Supreme Court of Arizona opinions on arbitration.  In the last year and a half, there are two.  This is the first Supreme Court case on arbitration since 2010.

   B. SEPARABILITY. Harking back to a famous U.S. Supreme Court decision, Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 126 S.Ct. 1204 (2006), our Court of Appeals has now ruled that the arbitration clause of a challenged contract will operate to keep that dispute in arbitration UNLESS there is a separate showing that there was fraud or misrepresentation that dealt specifically with the arbitration clause. The case of Duncan v. Public Storage, Inc., 253 Ariz. 15, 507 P.3d 509 (App. 7/26/22) states:

“Under the separability doctrine, a court may only stay arbitration if there is a challenge to the arbitrations clause itself.”

This was a case where the renter plaintiff challenged this entire contract as unconscionable – but did not “train their guns” on the arbitration clause.  That meant that their claims as regards the contract would have to be dealt with in an arbitration, not in a courthouse proceeding.

There is one more case on this issue of the separability of the arbitration clause.  RT Automotive Center, Inc. v. Westlake Services LLC, 253 Ariz. 91, 509 P.3d 399 (App. 2022) is simply dicta as the facts/contract did not involve an arbitration clause, but a forum selection clause (a somewhat analogous contract section).  Judge Portley cited to Prima Paint, a famous USSCt. 1967 decision on arbitration clause separability.  These cases are further to ¶6(b) in my earlier article.

   C. EXCEEDING POWERS. Paragraph 9 of my former article dealt with this question as to when an arbitrator can be said to have exceeded his powers (such that the award can be attacked and overturned).

In The Spaulding LLC v. Miller, 250 Ariz. 383, 480 P.3d 651 (7/30/21), a Division One Court of Appeals decision, the point is made that the arbitration clause itself “creates” and controls the appropriate extent of the arbitrator’s scope.  As the Spauling opinion says:

“A private arbitrator is contractually empowered to hear and decide a defined universe of disputes specified by an arbitration agreement.”  (Emphasis added).

“Mutual assent to arbitration cannot be revoked absent some established ground for revocation.”

D. NON-SIGNATORIES. Paragraph 11 in my former article covered the Bruce Meyerson learned article on the subject of making non-signers submit to arbitration – and the Sun Valley case on that issue.

In another (rare) Arizona Supreme Court decision on arbitration, Justice Beene wrote an opinion in a case referred to our Supremes by the Ninth Circuit Federal Court of Appeals.

In Benson v. Casa de Capri Enterprises, LLC, 252 Ariz. 303, 502 P.3d 461 (1/20/22), the holding was that, even where you do not sign the contract which contains an arbitration clause, if you receive “the direct benefits” of that contract, you must submit to the arbitration of disputes related to that contract.  Though the Rule thus stated was clearly delineated, the Court found that the facts before the Court did not warrant applying that Rule in these proceedings.

E. RUAA / AAA WAIVER. My former article commences with an ode to our 2011 RUAA’s adoption in Arizona.

As stated in Gray v. GC Services, 253 Ariz. 593, 516 P.3d 897 (9/1/22), the Court, not an arbitrator, will decide if there is an enforceable clause such that if a matter is arbitrable or not (RUAA, A.R.S. § 12-3007(A)(2)).  My former article recites that quite often, the arbitration clause will cite to the AAA rules for arbitration and, if such occurs, the Courts will defer to the AAA Rule which expressly requires that arbitrability be decided by the arbitratorSee ¶6(a) in the earlier article.

This Gray case, in its headnote 12, also discusses that the doctrine of waiver (when a party ignores arbitration and for a significant time utilizes courthouse proceedings) CANNOT displace the A.R.S. § 12-3007(A)(2) inquiry which must be made by a court (as stated in the RUAA itself, A.R.S. § 12-3004(e)).  This is illustrated by the color-coded copy of the RUAA attached to the earlier article.

In Gregory G. McGill P.C. v. Ball, 254 Ariz. 144 (App. 4/4/23), our Appeals Court has again spoken to ¶9 of my earlier article. In RS Industries and Chang v. Siu, there cited, the Appeals Court had stated, in 2014 and 2016, that the ability of the parties to create a right to challenge an arbitration award was strictly limited to the statutory grounds set out in ¶9 of my earlier article.

Now, in McGill, the Appeals Court states again that the right to attack in court an arbitration award is limited by the statute.

Incidentally, this case also states that, if one proceeds for some time in the courthouse and then tries to “jump ship” and change to arbitration proceedings, you will be said to have waived your right to arbitration.  This point was covered in ¶10 of my earlier article, citing In re Estate of Cortez (2010).

F.  MISCELLANEOUS. Arizona seems to be fertile ground for nursing home cases involving arbitration clauses. Most such homes have entry forms that call for arbitration.

In Heaphy v. Willow Canyon Healthcare, Inc., 251 Ariz. 358, 491 P.3d 1165 (2/8/22), the Court carefully stated that a “healthcare power of attorney” (to make healthcare decisions) does not give the attorney in fact in those limited health matter the right to enter into an arbitration agreement with the nursing home.  This is really just a “contract law” decision but has implications for many who seek to choose arbitration as their Alternative Dispute Resolution method.

G. CONCLUSION.  In my former article, we had 13 court decisions on arbitration in a full decade – and none of those were from the Arizona Supreme Court.  We now have had eight decisions in less than two years since my article, and two of those are by our Supreme Court (which was silent in the preceding decade).

Staying up on this increasing drumbeat of “law-pronouncements” in the area of arbitration is an expanding endeavor, though the recent cases do not “break new ground” or depart from the themes of my earlier article..