Kilgore v. Mullenax
485 S.W.3d 705
Ark. Ct. App.2016Background
- Kilgore bought membership units in Senior Dental Care, LLC (SDC) in 2012; the purchase-and-sale and a later confidential settlement contained noncompete and nondisparagement clauses and required AAA arbitration for disputes.
- After Kilgore left SDC, he formed/obtained an interest in out-of-state competing entities (CSM/MMDS) and distributed marketing materials claiming a lawful alternative to SDC’s services.
- Mullenax and SDC demanded arbitration in January 2014 alleging Kilgore breached the agreements (noncompete/nondisparagement).
- During the arbitration, Kilgore contacted the Arkansas Insurance Department alleging possible fraudulent insurance acts by Mullenax/SDC; an investigation followed and Mullenax incurred legal expenses.
- The arbitrator found Kilgore violated the nondisparagement clause (including by contacting the Insurance Department for a strategic advantage) and issued interim and final awards in favor of Mullenax/SDC; the trial court confirmed the award.
- Kilgore appealed, arguing (1) the arbitrator lacked FAA jurisdiction over the dispute and (2) the award violated Arkansas public policy/statutory immunity for reporting suspected insurance fraud.
Issues
| Issue | Plaintiff's Argument (Kilgore) | Defendant's Argument (Mullenax/SDC) | Held |
|---|---|---|---|
| Whether FAA governs arbitration (arbitrator’s jurisdiction) | FAA does not apply because the contracts did not evidence a transaction "involving commerce." | FAA applies because the agreements and the parties’ activities (interstate suppliers, federal Medicare/Medicaid payments, out-of-state competing business) involve interstate commerce; AAA rules let arbitrator decide jurisdiction. | FAA applies; arbitrator properly analyzed commerce and had authority under AAA rules to decide jurisdiction. |
| Whether award violates Arkansas public policy/statute protecting reporters of suspected insurance fraud (Ala. Code § 23-60-111) and thus must be vacated | § 23-60-111 bars civil causes of action for supplying information to Insurance Department; arbitrator exceeded powers by awarding against Kilgore for reporting suspected fraud. | Kilgore contacted regulator for strategic litigation advantage rather than public protection; arbitrator acted within scope to enforce nondisparagement — vacatur standards in 9 U.S.C. § 10 are narrow. | Award affirmed; statute and facts do not show arbitrator exceeded powers under 9 U.S.C. § 10(4); deference to arbitrator controls. |
Key Cases Cited
- Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (Sup. Ct. 1995) (FAA applies broadly to contracts "involving commerce")
- Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (Sup. Ct. 2003) (focus on the general practice those transactions represent when assessing commerce for FAA)
- Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (Sup. Ct. 2008) (§§ 10 and 11 of the FAA provide exclusive grounds for vacatur/review)
- Medicine Shoppe Int’l, Inc. v. Turner Invs., Inc., 614 F.3d 485 (8th Cir. 2010) (federal review gives extraordinary deference to arbitral awards; courts may not reconsider merits so long as arbitrator arguably construed the contract)