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Hamblen v. Hatch

Supreme Court of Arizona

July 21, 2017

Jeffrey Hamblen and Barbara Youngs, husband and wife, Petitioners,
v.
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.

         Appeal from the Superior Court in Navajo County The Honorable Ralph E. Hatch, Judge No. CV-2014-00311

         Special Action Order of the Court of Appeals, Division One No. 1 CA-SA 16-0201

          Scott 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.

          VICE CHIEF JUSTICE PELANDER authored the opinion of the Court, in which CHIEF JUSTICE BALES, JUSTICES BRUTINEL, TIMMER, BOLICK, and LOPEZ, and JUDGE GURTLER[*] joined.

          OPINION

          PELANDER, VICE CHIEF JUSTICE

         ¶1 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 The arbitrator ruled in favor of the employer, concluding that it properly rescinded the contract based on the employee's underlying misrepresentations and omissions.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.

         I.

         ¶2 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.

         ¶3 The 2013 Hamblen/LCMC employment contract included this arbitration provision:

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 thereof.
. . . .
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.

         ¶4 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.

         ¶5 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 is completed."

         ¶6 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 ...


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