Jeffrey Hamblen and Barbara Youngs, husband and wife, Petitioners,
Hon. Ralph Hatch, Judge of the Superior Court of the State of Arizona, in and for the County of Navajo, Respondent Judge, Winslow Memorial Hospital, Inc., d/b/a Little Colorado Medical Center, Real Party in Interest.
from the Superior Court in Navajo County The Honorable Ralph
E. Hatch, Judge No. CV-2014-00311
Action Order of the Court of Appeals, Division One No. 1
W. Rodgers (argued), Thomas L. Hudson, Joshua D. Bendor,
Osborn Maledon, P.A., Phoenix, Attorneys for Jeffrey Hamblen
and Barbara Youngs
Randall Yavitz, Isabel M. Humphrey (argued), Hunter, Humphrey
& Yavitz, PLC, Phoenix; and James E. Ledbetter, Jared R.
Owens, The Ledbetter Law Firm, P.L.C., Cottonwood, Attorneys
for Winslow Memorial Hospital Inc.
CHIEF JUSTICE PELANDER authored the opinion of the Court, in
which CHIEF JUSTICE BALES, JUSTICES BRUTINEL, TIMMER, BOLICK,
and LOPEZ, and JUDGE GURTLER[*] joined.
PELANDER, VICE CHIEF JUSTICE
In this employment dispute, the parties submitted their
respective claims to mandatory arbitration under their
employment contract's broad arbitration provision, which
neither side challenged. The arbitrator ruled in favor of the
employer, concluding that it properly rescinded the contract
based on the employee's underlying misrepresentations and
omissions. The final arbitration award, which the superior
court later confirmed at the employer's request, fully
settled all claims and counterclaims submitted to arbitration
and denied all claims not expressly granted in the award.
Applying the "separability" doctrine, we hold that
the employer, having not specifically challenged the
contract's arbitration provision, may not litigate in
this action claims against the employee that, at the least,
were permissive counterclaims in the arbitration.
Winslow Memorial Hospital, Inc., doing business as Little
Colorado Medical Center ("LCMC"), is a nonprofit
corporation that operates a hospital in Winslow. In 2003,
LCMC hired Jeffrey Hamblen as its president and CEO. Before
he was hired, Hamblen misrepresented two aspects of his prior
employment with another entity with which LCMC had a
management services agreement. First, Hamblen falsely told
LCMC that he would not receive any severance payments from
the other entity. And second, Hamblen failed to disclose an
amendment to the management services agreement that required
LCMC to reimburse the other entity for the severance payments
it made to Hamblen.
The 2013 Hamblen/LCMC employment contract included this
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration
Association in accordance with its Commercial Arbitration
Rules . . . and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction
. . . .
All counterclaims that would be compulsory or permissive
under Federal Rule of Civil Procedure 13(a) and (b) if the
claim were filed in court shall be asserted in the
arbitration and not otherwise.
In early 2014, after learning that Hamblen was receiving
severance payments for which it was obligated to reimburse
the other entity, LCMC placed Hamblen on administrative
leave. Hamblen then notified LCMC that he was terminating the
employment contract, alleging "good reason" under
that agreement. LCMC in turn notified Hamblen that it was
rescinding the employment contract or, alternatively,
terminating him for cause. Hamblen then filed an arbitration
demand with the American Arbitration Association, claiming
that LCMC owed him severance pay under the contract on the
ground that he had "good reason" to terminate it.
Shortly thereafter, LCMC filed this action in superior court,
alleging an unjust enrichment claim against Hamblen.
Hamblen moved to compel arbitration, arguing that LCMC's
claim was subject to the employment contract's
arbitration provision. LCMC opposed the motion on several
grounds, including its contention that it was entitled to
rescind the employment contract because of Hamblen's
fraudulent misrepresentations and omissions. Despite that
argument, the superior court granted the motion and stayed
the case "until mandatory arbitration under the contract
The parties then engaged in extensive prehearing disclosures
and preparation for the arbitration. LCMC asserted various
counterclaims, including its claim for unjust enrichment.
(Although LCMC continued to pursue its unjust enrichment
counterclaim at the arbitration hearing, it purportedly
withdrew that claim in a post-hearing memorandum to the
arbitrator.) LCMC also sought rescission of the employment
contract based on Hamblen's fraudulent misrepresentations
and omissions. LCMC did not, however, challenge the