Indiana Supreme Court justices reversed a determination that a guardian was required to arbitrate claims against a screening company arising from an employee’s sexual assault on a resident of a Carmel assisted living facility.
The state’s highest court considered arguments last September in the case of Jane Doe I, as Legal Guardian of the Person and Estate of Jane Doe II, an Incapacitated Adult v. Carmel Operator, LLC d/b/a Carmel Senior Living, et al., 21S-CT-15.
An elderly woman, referred to in the case as Jane Doe, moved into the Carmel Senior Living private assisted living facility in June 2018 and alleged that two months after moving in, employee Michael Sullivan raped her. She and her guardian subsequently sued Sullivan, CSL and parent company Spectrum Retirement Communities LLC.
Doe later amended her complaint to include a claim against Certiphi Screening Inc., the independent contractor hired to run a background check on Sullivan. The screening failed to reveal that Sullivan was previously convicted for the rape and murder of a 6-year-old girl.
The defendants served Doe with a demand for arbitration, citing a provision in the residential agreement requiring arbitration in “(a)ny and all claims or controversies involving the Community … .” The Hamilton Superior Court and the Indiana Court of Appeals upheld the arbitration requirement — including as to Certiphi, a nonparty to the agreement.
But a unanimous Supreme Court partially reversed in a Friday decision, concluding that Certiphi is not an “agent,” one of the third-party beneficiaries provided for in the arbitration clause, and found no evidence of an agency relationship between Certiphi and CSL.
In particular, it noted that the three requirements for an agency relationship to exist — a manifestation of the principal’s consent, the agent’s acceptance of authority, and control exerted by the principal over the agent – were not satisfied.
“Even if we assume that CSL consented to Certiphi running background checks on CSL’s employees and that Certiphi accepted this authority, we cannot assume CSL exerted any control over the process by which Certiphi conducted Sullivan’s background check. To the contrary, we have no evidence suggesting Certiphi’s relationship to CSL was other than that of an independent contractor hired to screen CSL’s potential employees. Thus, Certiphi was not covered by the arbitration agreement as an ‘agent,’” Chief Justice Loretta Rush wrote for the high court.
Justices further concluded that Certiphi cannot meet the requirements of equitable estoppel, including lack of knowledge, reliance, and prejudicial effect. The high court found no evidence that Certiphi relied on the arbitration agreement and nothing to show that Certiphi experienced any sort of detriment because of reliance.
The Supreme Court declined to endorse any alternative equitable estoppel theories, rejecting Certiphi’s argument that arbitration is required because the alternative theories of equitable estoppel adopted in German American Financial Advisors & Trust Co. v. Reed, 969 N.E.2d 621 (Ind. Ct. App. 2012) apply to its dispute with Jane Doe.
By adhering to “the doctrine’s traditional, well-established principles,” the high court found three reasons for concern with the Indiana Court of Appeals’ application of the federal common law in Reed.
First, had they considered the traditional elements, one of the most important requirements for equitable relief would have been ignored — reliance upon the conduct of the party to be estopped. Next, because the federal common-law theories don’t require reliance, they likewise require no relationship between the parties. Lastly, the court found the alternative theories inconsistent with other aspects of its common law, specifically the guiding principle that the intent of the parties to an agreement should govern.
“We reverse the trial court’s determination that Certiphi can compel Guardian to arbitrate her claims against it — nothing in the record shows that Certiphi is an agent of CSL or that the traditional elements of equitable estoppel are satisfied. As to CSL, Spectrum, and Sullivan, however, we affirm the trial court’s order compelling Guardian to arbitrate,” the panel concluded.