The Texas Court of Appeals held that the Federal Arbitration Act (FAA) applied to arbitration agreements between a mental health facility and its employees because the facility was reimbursed for the employees' services through Medicaid, a federally funded program administered by the state.
In In re December Nine Co., No. 08-06-00225-CV, 2006 WL 3924098 (Tex. Ct. App. Dec. 7, 2006), Estrada and Daher sued December Nine, their former employer, for wrongful discharge. December Nine filed a motion to compel arbitration pursuant to its ADR program. The trial court denied the motion.
On appeal, the Court first examined whether the employees' arbitration agreements involved interstate commerce and thus were subject to the FAA.
December Nine argued that the arbitration agreements involved interstate commerce because the mental health facility where the employees worked received federal funding through Medicaid. In support of its argument, December Nine cited In re Nexion Health at Humble, Inc., 173 S.W.3d 67 (Tex. 2005), which held that the FAA applied to an arbitration agreement between a health care facility and its patient because the facility received Medicare funds on the patient's behalf.
The employees argued that In re Nexion was distinguishable because unlike Medicare, Medicaid is a state medical assistance program funded by the federal government but administered by the state. The Court rejected this distinction and held that regardless of whether the state was "a conduit for the federal funds," the arbitration agreements involved interstate commerce because December Nine received Medicaid reimbursements for the employees' services.
Another question on appeal was whether December Nine had proven the existence of the arbitration agreements. The employees maintained that they could not recall signing the acknowledgment forms which notified them that continued employment would constitute assent to the arbitration agreements.
As the Court explained, the employees' lack of recall did not raise a question of fact as to the authenticity of their signatures. Accordingly, citing In re Dallas Peterbilt, Ltd., 196 S.W.3d 161 (Tex. 2006), the Court held that December Nine had established the existence of the arbitration agreements.
The employees also opposed arbitration on the basis that the arbitration agreements were unconscionable. Specifically, they argued that the agreements were unconscionable because December Nine did not provide them with a copy of the arbitration rules that were incorporated into the arbitration agreement. In rejecting this argument, the Court explained that it "fail[ed] to see how having to request a copy of the incorporated [r]ules is so onerous a requirement as to amount to procedural or substantive unconscionability."
Since December Nine proved the existence of an enforceable arbitration agreement, the Court remanded the case with instructions to order arbitration.
In holding that the receipt of Medicare or Medicaid payments brings an arbitration agreement within the ambit of the FAA, this case, along with In re Nexion, represents the majority rule. See also McGuffey Health and Rehab. Center v. Jackson, 864 So. 2d 1061 (Ala. 2003); Vicksburg Partners, L.P. v. Stephens, 911 So. 2d 507 (Miss. 2005).
The only case to come down the other way is Bruner v. Timberlane Manor Ltd. Partnership, No. 103,028, 2006 WL 3593740 (Okla. Dec. 12, 2006). In that case, the arbitration agreement invoked Oklahoma law without any mention of the FAA, which may explain its status as the lone exception to the majority rule. Conversely, in this case, the arbitration agreements invoked the FAA.
Under Rule 48B of the National Arbitration Forum Code of Procedure, all arbitration agreements are governed by the FAA unless the parties agree otherwise.