H. Lefoldt, Jr. v. Donald Rentfro ( 2017 )

Case: 16-60245 Document: 00513948179 Page: 1 Date Filed: 04/11/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 11, 2017
No. 16-60245
Lyle W. Cayce
Clerk
H. KENNETH LEFOLDT, JR., in his capacity as Trustee for the Natchez
Regional Medical Center Liquidation Trust,
Plaintiff–Appellee,
v.
HORNE, L.L.P.,
Defendant–Appellant.
Appeal from the United States District Court
for the Southern District of Mississippi
Before KING, OWEN, and HAYNES, Circuit Judges.
OWEN, Circuit Judge:
Horne, L.L.P. (Horne) moved to compel arbitration and to stay
proceedings in federal district court pending arbitration. Horne and the chief
financial officer of Natchez Regional Medical Center (NRMC), a community
hospital that is a Mississippi public entity, signed three documents (in 2009,
2010, and 2012) detailing terms upon which Horne would provide audit
services for NRMC. A threshold issue in this interlocutory appeal is whether
the “minutes rule,” also known as the “minutes requirement,” under
Mississippi law pertains to “the issue of the contract’s validity,” or instead
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more closely resembles “whether the alleged obligor [NRMC] ever signed the
contract.” 1
We conclude that, with respect to the 2010 and 2012 engagement letters,
the minutes rule pertains to whether written agreements between NRMC and
Horne were formed in each of those years, and therefore, whether written
contracts were consummated is a question for the courts rather than an
arbitrator. We conclude that because of the minutes requirement, the 2010
and 2012 engagement letters are not contracts to which NRMC is a party, and
therefore, NRMC is not a party to the arbitration provisions contained in the
2010 and 2012 engagement letters.
The minutes of NRMC’s board reflect that an agreement with Horne
was reached in 2009, and we therefore conclude that the minutes rule does not
pertain to that contract’s formation. NRMC’s arguments based on the minutes
rule instead relate to the validity or enforceability of the terms of that
agreement generally and do not go “to the making of the agreement to
arbitrate.” 2 Parties may agree that the validity or enforceability of a contract’s
terms are to be resolved in arbitration. However, the scope of the arbitration
agreement in the 2009 engagement letter was not raised as an issue in this
appeal and has not been resolved in the district court. On remand, the district
court should determine the scope of the arbitration agreement—specifically,
whether the arbitration agreement in the 2009 engagement letter requires
arbitration of the effect of the minutes rule on the validity of the 2009
engagement letter. If the parties did not agree to arbitrate that issue, then the
district court should resolve the effect of the minutes rule on the validity of the
2009 letter agreement.
1 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1 (2006).
2 Id. at 445.
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We further conclude that the Mississippi minutes rule is one of general
applicability to Mississippi contracts with public entities and the requirement
of § 2 of the Federal Arbitration Act (FAA) that “courts must place arbitration
agreements on an equal footing with other contracts” 3 does not foreclose its
application in this case.
The district court’s denial of the motion to compel arbitration with regard
to the 2010 and 2012 engagement letters was not error. However, we vacate
the district court’s denial of Horne’s motion to compel arbitration with regard
to the 2009 letter agreement and remand to the district court for further
proceedings.
I
We briefly review the underlying facts and the procedural posture of the
proceedings in the district court. NRMC’s Chief Financial Officer, Charles
Mock (Mock), purportedly on behalf of NRMC, signed three engagement letters
that are pertinent to this appeal detailing the terms upon which Horne would
provide auditing services to NRMC. Each engagement letter contained
arbitration provisions.
The first agreement relevant to this appeal was presented by Horne to
Mock in August 2009. On August 12, 2009, the minutes of NRMC’s board
reflect:
Management Report: Charles Mock reported that he had
received a proposal for the annual audit for a one year contract
from the Horne CPA Group of Jackson, Mississippi. Mr. Bland
asked if other bids were taken and Mock reported that only one bid
had been received and that from Horne. No action was taken at
this time. Mr. Bland asked Mr. Mock to approach Horne again to
request they consider not increasing their bid from the prior year.
3 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citing 9 U.S.C. § 2).
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Subsequent board minutes, dated September 2, 2009, reflect:
OTHER BUSINESS: C. Mock presented the bids for auditor
with Horne CPA group costing 48,000.00 and BKD CPA costing
58,000.00 plus expense charges including travel, report processing,
etc.
R. Grennell made the motion to accept the Horne CPA
Group audit bid with B. Pyron seconding the motion. The
motion passed unanimously by the Board to accept the
Horne CPA Group audit bid at $48,000.00.
Mock, as Chief Financial Officer of NRMC, executed the 2009 engagement
letter with Horne following the September 2, 2009, session. Subsequently, in
April 2010, minutes of the board of trustees reflect that the board reviewed
NRMC’s financial statements for 2009 with Horne.
Mock signed two other engagement letters, in 2010 and 2012, purporting
to act on behalf of NRMC in retaining Horne to perform auditing services, but
there is no mention of either of the agreements in the minutes of NRMC’s board
of trustees. Nevertheless, NRMC admits that Horne performed annual audit
services and that NRMC paid the amount specified in the engagement letters,
$48,000 each year.
NRMC filed a voluntary petition for relief pursuant to Chapter 9 of the
bankruptcy code in 2014. The court-appointed trustee for NRMC’s Chapter 9
bankruptcy estate is H. Kenneth Lefoldt, Jr. The Chapter 9 plan confirmed by
the bankruptcy court gave Lefoldt the right to pursue all claims, demands, and
causes of action belonging to NRMC. Lefoldt, as Trustee, has sued Horne,
contending that Horne committed professional malpractice in auditing NRMC.
Because the Trustee stands in the stead of NRMC, and to minimize confusion,
we will refer only to “NRMC.”
Horne filed a motion in federal district court seeking to compel
arbitration and requesting a stay pending arbitration. The district court
denied that motion, concluding that because none of the arbitration
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agreements were set forth or described in the board’s minutes, “no such
agreement [to arbitrate] exists.” The district court additionally rejected
Horne’s contention that NRMC should be equitably estopped from denying the
existence and enforceability of the engagement letters and the arbitration
provisions contained in them. Horne has appealed.
II
The 2009 engagement letter contained an arbitration provision, set forth
in the margin, 4 that is more limited than those in the 2010 and 2012
agreements. The 2010 and 2012 engagement letters each have a lengthy
“Claims Resolution” section that includes an arbitration clause that provides:
Any dispute arising out of or relating to this engagement will be
resolved by binding arbitration conducted before a panel of three
arbitrators in accordance with the United States Arbitration Act
and, to the extent not inconsistent with such law, the Professional
Accounting and Related Services Dispute Resolution Rules of the
American Arbitration Association. . . . The arbitrator . . . shall
determine any controversy concerning whether a claim is
arbitrable.
The Supreme Court has “recognized that parties can agree to arbitrate
‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed
to arbitrate or whether their agreement covers a particular controversy.” 5 The
4 The 2009 engagement letter provided:
The Hospital and HORNE both agree that any dispute over fees
charged by the accountant to the client will be submitted for resolution by
arbitration in accordance with the Rules for Professional Accounting and
Related Services Disputes of the American Arbitration Association. Such
arbitration shall be binding and final. In agreeing to arbitration, we both
acknowledge that, in the event of a dispute over fees charged by HORNE, each
of us is giving up the right to have the dispute decided in a court of law before
a judge or jury and instead we are accepting the use of arbitration for
resolution.
5 Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010).
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Court has explained that “[a]n agreement to arbitrate a gateway issue is
simply an additional, antecedent agreement the party seeking arbitration asks
the federal court to enforce, and the FAA operates on this additional
arbitration agreement just as it does on any other.” 6 Such an agreement “is
valid under § 2 ‘save upon such grounds as exist at law or in equity for the
revocation of any contract,’ and federal courts can enforce the agreement by
staying federal litigation under § 3 and compelling arbitration under § 4.” 7
This appeal presents several questions. Among them are whether the
Mississippi minutes rule (1) invalidates the engagement letters, and
consequently the arbitration provisions, or (2) invalidates the arbitrations
provisions, regardless of whether other provisions in the engagement letters
are enforceable, or (3) requires the conclusion that no contract at all was
formed between Horne and NRMC. We first consider whether the minutes
requirement raises a question as to “whether any agreement between the
parties ‘was ever concluded.’” 8
The Supreme Court has drawn a distinction between “validity” of an
agreement and “whether any agreement between the parties ‘was ever
concluded.’” 9 The Court made clear in Buckeye Check Cashing and Rent-A-
Center that when it explained that “[t]here are two types of validity challenges
under § 2,” 10 it was not addressing a contention that no agreement was ever
concluded by the parties. 11 The Court said in Buckeye Check Cashing that:
6 Id. at 70.
7 Id. (quoting 9 U.S.C. § 2).
8 Id. at 70 n.2 (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444
n.1 (2006)).
9 Id. (“The issue of the agreement’s ‘validity’ is different from the issue whether any
agreement between the parties ‘was ever concluded.’”) (quoting Buckeye Check Cashing, 546
U.S. at 444 n.1).
10 Id.
11 See id.; Buckeye Check Cashing, 546 U.S. at 444 n.1.
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The issue of the contract’s validity is different from the issue
whether any agreement between the alleged obligor and obligee
was ever concluded. Our opinion today addresses only the former,
and does not speak to the issue decided in the cases cited by
respondents (and by the Florida Supreme Court), which hold that
it is for courts to decide whether the alleged obligor ever signed the
contract, Chastain v. Robinson–Humphrey Co., 957 F.2d 851
(C.A.11 1992), whether the signor lacked authority to commit the
alleged principal, Sandvik AB v. Advent Int’l Corp., 220 F.3d 99
(C.A.3 2000); Sphere Drake Ins. Ltd. v. All American Ins. Co., 256
F.3d 587 (C.A.7 2001), and whether the signor lacked the mental
capacity to assent, Spahr v. Secco, 330 F.3d 1266 (C.A.10 2003). 12
The Supreme Court has instructed that “[w]hen deciding whether the
parties agreed to arbitrate a certain matter (including arbitrability), courts
generally . . . should apply ordinary state-law principles that govern the
formation of contracts.” 13 In the present case, a Mississippi statute requires
the board of trustees of a community hospital to “keep minutes of its official
business,” 14 and the Mississippi courts have construed this and similar
statutes to give rise to the minutes rule at issue in this case. We therefore
consider how the state-law minutes rule has been interpreted and applied by
the Mississippi courts in deciding whether it pertains to the validity or
enforceability of an agreement or instead stands as a bar to the formation of a
contract with a state entity such as NRMC.
In a 2015 decision, Wellness, Inc. v. Pearl River County Hospital, the
Mississippi Supreme Court reviewed the purposes of the minutes
requirement. 15 The court concluded that the requirement “has two major
functions” that had been synthesized in a 1937 decision:
12 Buckeye Check Cashing, 546 U.S. at 444 n.1.
13 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
14 MISS. CODE. ANN. § 41-13-35(3) (West).
15 178 So. 3d 1287, 1292-93 (Miss. 2015).
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(1) That when authority is conferred upon a board, the public is
entitled to the judgment of the board after an examination of a
proposal and a discussion of it among the members to the end that
the result reached will represent the wisdom of the majority rather
than the opinion or preference of some individual member; and (2)
that the decision or order when made shall not be subject to the
uncertainties of the recollection of individual witnesses of what
transpired, but that the action taken will be evidenced by a written
memorial entered upon the minutes at the time, and to which the
public may have access to see what was actually done. 16
This reflects that the minutes rule is partially in the nature of a statute of
frauds or a prohibition of reliance on parol evidence 17 to establish the terms of
a contract with a public entity. Generally, requirements that contracts be in
writing or comply with certain formalities relate to enforceability, not to
whether the parties had a meeting of the minds. 18 But a requirement that a
majority of a quorum of the board assent to a contract, in an open meeting, 19
16 Id. at 1293 (quoting Lee County v. James, 174 So. 76, 77 (Miss. 1937)).
17 See Myers v. Blair, 611 So. 2d 969 (Miss. 1992) (stating that the “minutes are the
exclusive evidence of what the board did; and that parol evidence is not admissible to show
what action the board took”) (quoting Noxubee County v. Long, 106 So. 83, 86 (Miss. 1925)).
18 See generally 10 WILLISTON ON CONTRACTS § 27:1 (4th ed.) (“The great weight of
authority in this country holds that an oral contract that does not comply with the
requirements of the Statute of Frauds is ‘unenforceable’ rather than void.”); id. § 27:3 (“Under
most states’ Statutes of Frauds, it is generally held that the enforceability of a bargain, rather
than its validity, depends on satisfaction of the Statute.”); RESTATEMENT (SECOND) OF
CONTRACTS § 138 cmt. b (AM. LAW. INST. 1981) (“Despite variations in wording, the American
statutes based on the English Statute of Frauds are read to make contracts unenforceable by
action or defense unless the Statute is satisfied by a signed memorandum.”).
19 See Smith County v. Mangum, 89 So. 913, 914 (Miss. 1921) (“The board of
supervisors may ‘by a new contract, or an amendment of its original contract, or by a
ratification (all of which must be by acts of the board in open session, spread upon its
minutes), bind the county to pay.’”) (quoting Groton Bridge & Mfg. Co. v. Bd. of Sup’rs of
Warren Cty., 31 So. 711, 712 (1902)); see also Lee County, 174 So. at 77 (“When official
authority is conferred upon a board or commission consisting of three or more members, the
authority so conferred must be exercised by a legal quorum, and, as a general rule, the
decisions to be executed or the contracts to be awarded by the board must be determined or
decided upon only in or at a lawfully convened session, and the proceedings must be entered
upon the minutes, of the board or commission.”).
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seems more in the nature of a contract formation requirement. In Wellness,
Inc., the Mississippi Supreme Court explained in this regard that “the
reasoning behind requiring contracts to be spread upon the minutes is that the
minutes rule ‘protect[s] the board from being bound by the unauthorized acts
of individual members of the board or an agent thereof’“ and that “by enforcing
the minutes rule, the Court has recognized the importance of recorded, express
consent by all board members to board actions, as board members are elected
officials charged with the protection of the public’s funds.” 20
Nevertheless, whether the minutes requirement precludes enforcement
of an agreement or instead forecloses formation of an agreement, given the
facts in the present case, is a close question. Horne contends, with some
purchase, that “the rule accepts that a contract exists between the parties, but
simply refuses to enforce the contract on public policy grounds.”
This is true with regard to some fact patterns, as the Mississippi
Supreme Court’s decision in Wellness, Inc. recognized. The court recited the
rule that “[n]o contract can be implied or presumed, it must be stated in express
terms and recorded on the official minutes and the action of the board.” 21
“However,” the court explained, “the entire contract need not be placed on the
minutes. Instead, it may be enforced where ‘enough of the terms and
20Wellness, Inc., 178 So. 3d at 1292 (quoting Cmty. Extended Care Ctrs., Inc. v. Bd. of
Supervisors for Humphreys Cty., 756 So. 2d 798, 800 (Miss. Ct. App. 1999)). The court
explained, “However, Butler goes further, revealing the broader purpose of the minutes
requirement. The Butler Court went on to state that if the board were not required to make
the entries onto its minutes,
an individual member of the board or agent thereof would be capable of binding
the board and expending the public taxpayer’s money without the benefit of
the consent of the board as a whole which was elected and responsible for such
purposes. In sum, the policy of protecting the public’s funds for use and for the
public is paramount to other individual rights which may also be involved.”
Id. (quoting Butler v. Bd. of Supervisors for Hinds Cty., 659 So. 2d 578, 579 (Miss. 1995)).
21 Id. at 1291 (quoting Burt v. Calhoun, 231 So. 2d 496, 499 (Miss. 1970)).
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conditions of the contract are contained in the minutes for determination of the
liabilities and obligations of the contracting parties without the necessity of
resorting to other evidence.” 22 This unmistakably means that in some
instances, the minutes rule is not a matter of contract formation but instead is
a rule preventing consideration of evidence of the terms of the contract other
than what is set forth in the minutes. When applied in this manner, the
minutes rule seems to be one regarding validity or, more precisely,
enforceability of contract terms not described in the minutes. The existence of
a contract is not at issue in such a case; a meeting of the minds between the
board and another party has occurred; but only the terms of the “contract” that
are “contained in the minutes” are enforceable.
Another Mississippi decision, Thompson v. Jones County Community
Hospital, reflects that a board consummated a contract to employ Thompson
as the executive director of a county hospital. 23 The court affirmed the
dismissal of Thompson’s claim for salary owed because the amount of his
compensation was not set forth in the minutes, even though the minutes
reflected the award of a four-year contract, gave a member of the board the
authority to draft the contract’s terms, and stated that the contract was
reviewed and approved. 24 The court refused to resort to outside evidence to
determine the salary, hewing to the rule that “it [is] the responsibility of the
[private contracting party] to see that the contract was properly recorded on
the minutes.” 25 Obviously, the board had agreed to compensate Thompson, but
the minutes requirement limited a court’s ability to ascertain and enforce the
amount he was to have been paid.
22 Id. (emphasis added).
23 352 So. 2d 795, 797-98 (Miss. 1977).
24 Id.
25 Id. at 798.
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Based on these decisions, we cannot say that, categorically, the
Mississippi minutes requirement pertains to contract formation rather than
the validity or enforceability of a contract or certain of its provisions. In some
circumstances, the minutes requirement bars proof of some of the terms of a
contract that was in fact concluded with a board and the existence of which is
reflected Board minutes. In such situations, the minutes rule is more properly
characterized as relating to the validity of contract terms. In other
circumstances, the minutes requirement is more properly characterized as
pertaining to contract formation because it results in no formation of a contract
at all, 26 or the rule operates to prevent a board from being bound by the actions
of single board member or an agent who acted without authority. 27
With regard to the 2010 and 2012 engagement letters, the question of
“whether any agreement between the parties ‘was ever concluded’” 28 is
presented because neither of these agreements is referenced, at all, in the
minutes of NRMC’s board. The minutes rule under Mississippi law requires
that the board of a public entity cannot act to enter into a contract unless that
action is taken by a majority of a quorum of the board at a meeting and is
26 See generally Urban Developers LLC v. City of Jackson, 468 F.3d 281, 299 (5th Cir.
2006) (observing Mississippi’s “past strict adherence to the requirement that a board of
supervisors only be bound by a contract entered upon its minutes” and acknowledging that
“[t]his requirement applies not only to contract formation, but to contract modification as
well”) (quoting Butler v. Bd. of Supervisors for Hinds Cty., 659 So. 2d 578, 581 (Miss. 1995)).
27 See, e.g., Rawls Springs Util. Dist. v. Novak, 765 So. 2d 1288, 1292 (Miss. 2000)
(holding that the utility district board’s president could not bind the board absent
authorization or other action by the board on the minutes); Colle Towing Co. v. Harrison
County, 57 So. 2d 171, 172 (Miss. 1952) (holding that the oral contract between the board
president and a private party was “void and that no valid contract was ever made” with the
county).
28 Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70 n.2 (2010) (“The issue of the
agreement’s ‘validity’ is different from the issue whether any agreement between the parties
‘was ever concluded.’”) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444
n.1 (2006)).
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reflected in the board’s minutes. 29 Therefore, whether that rule of contract
formation applies and whether contracts were formed between NRMC and
Horne in 2010 and 2012 is a matter to be resolved by the courts, not an
arbitrator or arbitration panel. In ruling upon Horne’s motion to compel
arbitration, the district court expressly declined to resolve at that point in the
litigation whether the 2010 or 2012 engagement letters constituted contracts
between NRMC and Horne. The district court instead concluded that no
arbitration agreements existed. For reasons we will explain in considering
whether NRMC challenged the validity of the arbitration provision in the 2009
engagement letter (as distinguished from challenging the validity of the entire
agreement), the district court should not have reached the question of whether
an arbitration agreement existed without first determining whether any
contract existed. However, there are no factual disputes, and whether the 2010
and 2012 engagement letters constitute contracts with NRMC is a question of
law. We conclude that because of the minutes requirement, NRMC is not a
party to the 2010 and 2012 engagement letters. No agreement to arbitrate,
other than the arbitration provisions of those letter agreements, has been
alleged. Accordingly, no error occurred when the district court denied Horne’s
motion to compel arbitration as to the 2010 and 2012 engagement letters.
Unlike the 2010 and 2012 engagement letters, the minutes of NRMC’s
board unequivocally reflect that a contract between Horne and NRMC was
concluded in 2009, and NRMC does not contend otherwise. NRMC argues
instead that the minutes rule either forecloses the possibility that there was
an agreement to arbitrate or precludes enforcement of the arbitration
provision. Based on how the Mississippi courts have applied the minutes rule
29 See supra n.28.
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when the existence of a contract is reflected in the minutes, we conclude that,
in such circumstances, the state-law requirement relates not to the formation
of a contract, as that concept has been expressed in Supreme Court decisions
including Rent-A-Center and Buckeye Check Cashing, but to what specific
terms of the contract can be proven and enforced. NRMC’s challenge involves
“validity,” not contract formation, with regard to the 2009 engagement letter.
We must therefore ascertain whether NRMC’s contentions regarding the
applicability of the minutes rules is, in actuality, a challenge to the validity of
the arbitration provision, as distinguished from a challenge to the engagement
agreement as a whole or other parts of the engagement letter.
The Supreme Court has explained that “[t]here are two types of validity
challenges under § 2.” 30 “One type challenges specifically the validity of the
agreement to arbitrate.” 31 “The other challenges the contract as a whole, either
on a ground that directly affects the entire agreement (e.g., the agreement was
fraudulently induced), or on the ground that the illegality of one of the
contract’s provisions renders the whole contract invalid.” 32 The Supreme
Court has held that even if “another provision of the contract, or . . . the
contract as a whole,” is invalid, unenforceable, voidable, or void, that “does not
prevent a court from enforcing a specific agreement to arbitrate” because, “[a]s
a matter of substantive federal arbitration law, an arbitration provision is
severable from the remainder of the contract.” 33
The Court has given examples. “[I]n an employment contract many
elements of alleged unconscionability applicable to the entire contract
(outrageously low wages, for example) would not affect the agreement to
30 Rent-A-Center, 561 U.S. at 70.
31 Buckeye Check Cashing, 546 U.S. at 444; see also Rent-A-Center, 561 U.S. at 70.
32 Buckeye Check Cashing, 546 U.S. at 444; see also Rent-A-Center, 561 U.S. at 70.
33 Rent-A-Center, 561 U.S. at 70-71 (quoting Buckeye Check Cashing, 546 U.S. at 445).
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arbitrate alone.” 34 “But even where that is not the case—as in Prima Paint
itself, where the alleged fraud that induced the whole contract equally induced
the agreement to arbitrate which was part of that contract—we nonetheless
require the basis of challenge to be directed specifically to the agreement to
arbitrate before the court will intervene.” 35 The Court similarly explained in
Buckeye Check Checking that “if the claim is fraud in the inducement of the
arbitration clause itself—an issue which goes to the making of the agreement
to arbitrate—the federal court may proceed to adjudicate it. But the statutory
language does not permit the federal court to consider claims of fraud in the
inducement of the contract generally.” 36 That is a matter for the arbitrator. 37
In Buckeye Check Cashing, the Supreme Court rejected the argument
that “since an agreement void ab initio under state law is not a ‘contract,’ there
is no ‘written provision’ in or ‘controversy arising out of’ a ‘contract,’ to which
§ 2 can apply.” 38 The Court explained that “contract,” as used in § 2, “which
allows a challenge to an arbitration provision ‘upon such grounds as exist at
law or in equity for revocation of any contract,’” “must include contracts that
later prove to be void.” 39 The Court recognized “that the Prima Paint rule
permits a court to enforce an arbitration agreement in a contract that the
arbitrator later finds to be void. But it is equally true that respondents’
approach permits a court to deny effect to an arbitration provision in a contract
that the court later finds to be perfectly enforceable.” 40 The Court explained
34 Id. at 71.
35 Id. (referring to Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395
(1967)).
36 Buckeye Check Cashing, 546 U.S. at 445 (quoting Prima Paint, 388 U.S. at 403-04).
37 Id. at 445-46 (“[U]nless the challenge is to the arbitration clause itself, the issue of
the contract’s validity is considered by the arbitrator in the first instance.”).
38 Id. at 447.
39 Id. at 448 (emphasis in original) (quoting 9 U.S.C. § 2).
40 Id. at 448-49.
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that “Prima Paint resolved this conundrum—and resolved it in favor of the
separate enforceability of arbitration provisions.” 41 The Court reiterated, “a
challenge to the validity of the contract as a whole, and not specifically to the
arbitration clause, must go to the arbitrator.” 42
The Court made clear that even if the contract in which an arbitration
clause is included is void rather than voidable, that “distinction” is
“irrelevant.” 43 The arbitration agreement is severable, as a matter of federal
law. 44 It is only when the challenge is to the arbitration clause itself that the
court, rather than an arbitrator, decides whether the arbitration agreement,
as distinct from the contract in which it appears, is valid, irrevocable, or
enforceable 45 “save upon such grounds as exist at law or in equity for the
revocation of any contract.” 46 The Court observed that in prior decisions, it
had “rejected the proposition that the enforceability of the arbitration
agreement turned on the state legislature’s judgment concerning the forum for
enforcement of the state-law cause of action.” 47 In Buckeye Check Cashing, the
Court said “we cannot accept the Florida Supreme Court’s conclusion that
enforceability of the arbitration agreement should turn on ‘Florida public
policy and contract law.’” 48
41 Id. at 449.
42 Id.
43 Id. at 446.
44 Id. at 445 (“First, as a matter of substantive federal arbitration law, an arbitration
provision is severable from the remainder of the contract.”); Rent-A-Center, 561 U.S. at 70-71
(“[A] party’s challenge to another provision of the contract, or to the contract as a whole, does
not prevent a court from enforcing a specific agreement to arbitrate.”).
45 Buckeye Check Cashing, 546 U.S. at 445-46 (“Second, unless the challenge is to the
arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in
the first instance.”).
46 9 U.S.C. § 2.
47 Buckeye Check Cashing, 546 U.S. at 446.
48 Id. (quoting Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860, 864 (Fla.
2005)).
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The Fifth Circuit has applied the Supreme Court’s teaching. In
Primerica Life Insurance Co. v. Brown, a party contended that, because he
lacked mental capacity to execute a contract that contained an arbitration
clause, the contract he signed was void and the court could not order
arbitration. 49 This court disagreed, holding that the “capacity defense is a
defense to his entire agreement with CitiFinancial and not a specific challenge
to the arbitration clause.” 50 The question of capacity and its effects on the
contract was a matter for the arbitrator to decide. 51 The Primerica opinion
cited other decisions in which this court has held that a contention that a
contract is void or unenforceable does not challenge directly the arbitration
provision, and therefore, such challenges must be decided by the arbitrator
rather than the court. 52
The Buckeye Check Cashing principles were further elucidated in Rent-
A-Center, West, Inc. v. Jackson. 53 The agreement under scrutiny consisted only
49 304 F.3d 469, 471-72 (5th Cir. 2002).
50 Id. at 472.
51 Id.
52 See id.:
This court has applied the Prima Paint rule on numerous occasions. See
Snap-On Tools Corp. [v. Mason, 18 F.3d 1261, 1267-68 (5th Cir. 1994)]
(submitting fraudulent inducement defense to arbitration because allegations
of fraud did not specifically relate to the arbitration clause); R.M. Perez &
Assoc., Inc. [v. Welch, 960 F.2d 534, 538-39 (5th Cir. 1992)] (submitting
allegations of fraud in obtaining signatures to contract to arbitration because
defense was not specific to the arbitration agreement); Lawrence v.
Comprehensive Business Serv. Co., 833 F.2d 1159, 1162 (5th Cir. 1987)
(submitting illegality defense to arbitration because it did not specifically
relate to arbitration clause); Mesa Operating Ltd. Partnership v. Louisiana
Intrastate Gas Corp., 797 F.2d 238, 244 (5th Cir. 1986) (submitting claim that
contract was void ab initio to arbitration because parties failed to demonstrate
that the arbitration agreement was “invalid separately from the entire
contract”).
53 561 U.S. 63 (2010).
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of an agreement to arbitrate employment disputes, 54 and the specific provision
within that agreement that Rent-A-Center sought to enforce was a “delegation
provision . . . that gave the arbitrator ‘exclusive authority to resolve any
dispute relating to the . . . enforceability’” of the agreement. 55 Jackson, the
employee, argued that the agreement as whole (as noted, an arbitration
agreement) was unconscionable. 56 But none of the arguments as to why the
agreement was unconscionable pertained specifically to the delegation
clause. 57 The Court held that “unless Jackson challenged the delegation
provision specifically, we must treat it as valid under § 2, and must enforce it
under §§ 3 and 4, leaving any challenge to the validity of the Agreement as a
whole for the arbitrator.” 58
NRMC asserts that the arbitration provision in the 2009 engagement
letter is invalid, unenforceable, revocable, voidable, or void because of the
minutes requirement. But NRMC does not explain how the minutes rule
operates on the arbitration provision any differently than it operates on other
provisions of the 2009 engagement letter that are not reflected in the board’s
minutes. As discussed above, the Supreme Court has rejected arguments that
grounds for refusing to enforce a contract in its entirety, such as fraud in the
inducement, ineluctably means that the arbitration agreement was also
induced by fraud. 59 An argument that fraud induced a contract is not the
equivalent of a contention that there was “fraud in the inducement of the
54Id. at 72 (“In this case, the underlying contract is itself an arbitration agreement.
But that makes no difference.”).
55 Id. at 71.
56 Id. at 73.
57 Id. at 72-75.
58 Id. at 72.
59 See, e.g., id. at 71.
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arbitration clause itself.” 60 The Supreme Court explained in Buckeye Check
Cashing that “if the claim is fraud in the inducement of the arbitration clause
itself—an issue which goes to the making of the agreement to arbitrate—the
federal court may proceed to adjudicate it. But the statutory language does
not permit the federal court to consider claims of fraud in the inducement of
the contract generally.” 61 The minutes requirement is generally applicable to
the 2009 engagement letter. Accordingly, a claim that the minutes rule
necessarily applies to the arbitration provision is not a claim that the minutes
rule applies specifically to the agreement to arbitrate in a way that differs from
its general effect. As explained in Rent-A-Center: “where the alleged fraud
that induced the whole contract equally induced the agreement to arbitrate
which was part of that contract—we nonetheless require the basis of challenge
to be directed specifically to the agreement to arbitrate before the court will
intervene.” 62
Accordingly, to the extent that NRMC relies on the minutes rule to
challenge the “validity” of the 2009 agreement to arbitrate, that challenge fails
because it is not, in actuality, a challenge directed specifically to the agreement
to arbitrate. Whether and how the minutes rule applies to the 2009
engagement letter and the scope of the arbitration clause would be a matter
for an arbitrator or arbitration panel unless there is “evidence that the
contracting parties intended to withhold that issue [or issues] from
60 Id. (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403
(1967)).
61 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) (emphasis
added) (quoting Prima Paint Corp., 388 U.S. at 403-04).
62 Rent-A-Center, 561 U.S. at 71.
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arbitration.” 63 What the parties intended to arbitrate, as expressed in the
arbitration provisions, is not part of this appeal and is a matter to be resolved
in further proceedings. On remand, the district court should resolve the scope
of the arbitration agreement, including whether the arbitration agreement
delegates to an arbitrator the question of the effect of the minutes requirement
on the validity of the arbitration agreement in the 2009 engagement letter.
III
Horne contends that the FAA’s requirement that courts place arbitration
contracts on “equal footing” with all other contracts 64 forecloses the application
of Mississippi’s minutes requirement to the engagement letters. Horne argues
that (1) Mississippi’s state policy interests advanced by the minutes rule,
which Horne contends are “assuring that contracts with public bodies are
approved by a majority of the governing board and making those contracts
available for public scrutiny,” elevates these policies above the parties’
contractual rights, “mak[ing] the policy of protecting public funds ‘paramount’
to an individual’s contract rights”; (2) the district court applied the minutes
rule to deem the arbitration clause in the engagement letters unenforceable
but permits NRMC to enforce other provisions of those letters; and (3) the
portions of the contract that the board selects for inclusion in its minutes are
enforceable by a court, but selective use by the board to avoid certain clauses
in contracts is not in accord with a federal principle that favors arbitration.
The Supreme Court has held that arbitration agreements cannot be
“invalidated . . . by defenses that apply only to arbitration or that derive their
63 Prima Paint, 388 U.S. at 396; see also First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, (1995) (“[A] court must defer to an arbitrator’s arbitrability decision when the parties
submitted that matter to arbitration.”).
64 See DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 468 (2015) (quoting Buckeye Check
Cashing, 546 U.S. at 443).
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meaning from the fact that an agreement to arbitrate is at issue.” 65 This
conclusion flows from § 2, which “permits arbitration agreements to be
declared unenforceable ‘upon such grounds as exist at law or in equity for the
revocation of any contract.’” 66 The Supreme Court has reasoned that “[t]his
saving clause permits agreements to arbitrate to be invalidated by ‘generally
applicable contract defenses, such as fraud, duress, or unconscionability.” 67
State laws, including state-court decisions, that do not “place[] arbitration
contracts ‘on equal footing with all other contracts’” cannot be used to
invalidate or prevent the enforcement of an arbitration provision. 68
In DIRECTV, Inc., the Supreme Court determined whether state courts
had failed to give equal footing to arbitration contracts by examining whether
those courts would “interpret contracts other than arbitration contracts the
same way.” 69 The Court also examined whether the state court “would [have]
reach[ed] the same interpretation of [the commonly-used phrase] ‘law of your
state’ in any context other than arbitration.” 70
The minutes requirement is generally applicable in Mississippi to
contracts with a public entity. An examination of Mississippi law reveals that
Mississippi has applied the minutes requirement to a wide variety of contract
provisions; its applicability is not limited to arbitration provisions.
A 1921 decision of the Supreme Court of Mississippi in Smith County v.
Mangum 71 reviewed a number of prior decisions dealing with the minutes
requirement. Mangum was the successful bidder for a county project to
65 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011).
66 Id. (quoting 9 U.S.C. § 2).
67 Id. (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).
68 DIRECTV, Inc., 136 S. Ct. at 468 (quoting Buckeye Check Cashing, 546 U.S. at 443).
69 Id. at 469.
70 Id.
71 89 So. 913 (Miss. 1921).
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construct a bridge; he completed the bridge; members of the county board of
supervisors accepted the bridge, certifying that it was in conformance with the
county’s plans and specifications; and the county used the bridge. 72 The
Mississippi court nevertheless held that, because the acceptance of the bid was
not “spread upon the minutes of the board of supervisors,” Mangum could not
recover any payment for his work either under an express contract theory or
on a quantum meruit basis under a theory of implied contract. 73 The court
quoted from numerous prior decisions applying the minutes requirement,
explaining:
The board of supervisors may “by a new contract, or an
amendment of its original contract, or by a ratification (all of which
must be by acts of the board in open session, spread upon its
minutes), bind the county to pay in each of the cases named. And
parties contracting with the counties are charged with knowledge
of this statute.” 74
The court held in Mangum that:
Under these authorities it is manifest that the board of
supervisors of a county can only enter into an express contract by
an order spread upon its minutes, and that there can be no such
thing as a verbal or oral order of this board. It, therefore, follows
that the appellee had no express contract with the county for the
building of the bridge. 75
The Mississippi court was confronted with comparable facts in 1952,
when a piling of a county bridge sank, and the president of the board of
supervisors of the county, purporting to act for the board, rented two barges to
72 Id. at 913-14.
73 Id. at 913-15.
74 Id. at 914 (quoting Groton Bridge & Mfg. Co. v. Bd. of Sup’rs of Warren Cty., 31 So.
711, 712 (Miss. 1902)).
75 Id.
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support the bridge pending repairs. 76 The court held that the owner of the
barges could not recover the rental, reasoning that:
It has been repeatedly held in this State that a board of
supervisors can contract and render the county liable only by a
valid order duly entered upon its minutes, that all persons dealing
with a board of supervisors are chargeable with knowledge of this
law, that a county is not liable on a quantum meruit basis even
though it may have made partial payments on a void oral contract,
and, moreover, that in such case there is no estoppel against the
county. 77
In a 1970, Burt v. Calhoun, Burt was the county engineer “on a number
of state aid road projects” and was paid for work under contracts described in
the minutes. 78 He sought payment for projects commenced after the last
contract reflected in the board’s minutes had expired, contending that actions
of the board set forth in its minutes regarding submissions to the division of
state aid road construction, the engineer’s estimate for each project, and
records of notices to bidders “ratified and confirmed the employment of Burt
as [the] county engineer.” 79 The Mississippi Supreme Court rejected this
contention, holding that “[n]o contract can be implied or presumed, [it] must
be stated in express terms and recorded on the official minutes as the action of
the board of supervisors.” 80
Mississippi has enforced the minutes requirement strictly, even when
“apparent injustice” results. 81 In Colle Towing Co. v. Harrison County, the
76 Colle Towing Co. v. Harrison County, 57 So. 2d 171, 171-72 (Miss. 1952).
77 Id. at 172.
78 Burt v. Calhoun, 231 So. 2d 496, 497 (Miss. 1970).
79 Id. at 499.
80 Id.
81 Colle Towing Co., 57 So. 2d at 172-73; see also Butler v. Bd. Of Supervisors for Hinds
Cty., 659 So. 2d 578, 580, 582 (Miss. 1995) (affirming dismissal based on the minutes rule,
even though the contract changes had been approved by the board architect, because the
changes were not entered upon the board minutes).
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parties conceded that an attempt by the board to ratify a prior oral contract
was “void and that no valid contract was ever made.” 82 The court rejected the
private party’s argument for equitable relief, noting that “a board of
supervisors can contract and render the county liable only by a valid order duly
entered upon its minutes.” 83
In Rawls Springs Utility District v. Novak, the court refused to bind a
board to an agreement made between the president of the district and a private
individual that was not recorded on the minutes. 84 Because the president had
no authority to enter into the agreement, the court determined that the
agreement was void, 85 and the county could pursue its claims against the
private individual. 86
Mississippi courts have enforced contract terms not fully described nor
included in board minutes when the essential terms of the agreement could be
ascertained from the minutes. For example, in Cheatham v. Smith, the
minutes of the county board of education authorized the superintendent to
contract with “named person[s] . . . at the place and salaries as indicated
below.” 87 An extensive list included in the minutes named the plaintiff and set
a precise salary. 88 The court determined that a valid contract existed for the
salary recorded in the minutes, even though the individual’s contract was not
attached. 89 The court refused, however, to enforce an educational prerequisite
not reflected in the minutes. 90
82 57 So. 2d at 172.
83 Id.
84 765 So. 2d 1288, 1290, 1292 (Miss. 2000).
85 Id. at 1292.
86 Id. at 1292-93.
87 92 So. 2d 203, 204 (Miss. 1957).
88 Id.
89 Id. at 208.
90 Id. at 207.
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In Community Extended Care Centers, Inc. v. Board of Supervisors for
Humphreys County, a Mississippi appellate court considered a nursing home
lease not attached to the original board minutes, but recorded in the chancery
clerk’s office in the deed records. 91 The minutes authorized the president to
enter into a lease and reflected two lease amendments, and the board accepted
monthly rent payments and collected taxes under the terms of the lease for
thirteen years. 92 Considering the acts described in the minutes, as well as the
fact that the lease was recorded in the public land records, a divided panel
determined that the lease was enforceable against the county. 93
These decisions do not support a contention that application of the
minutes rule is applied selectively to arbitration provisions or an argument
that the minutes requirement is not generally applicable to contracts with
public entities. As to Horne’s contention that boards may choose to omit
mention of arbitration provisions in minutes to avoid enforcement of
arbitration clauses, Mississippi courts have held for decades that “it is the
responsibility of the entity contracting with the Board, not the responsibility
of the Board itself, to ensure that ‘the contract is legal and properly recorded
on the minutes of the board.’” 94 Horne’s contention that the minutes
requirement fails to place arbitration contracts on equal footing with other
contracts is not borne out by Mississippi court decisions.
91 756 So. 2d 798, 799-800, 801 (Miss. Ct. App. 1999).
92 Id. at 799-800.
93 Id. at 802-04. The dissent would have held the lease invalid because the minutes
did not include the “principal rights and obligations of the parties,” including the lease
payment. Id. at 805 (King, P.J., dissenting).
94 Wellness, Inc. v. Pearl River Cty. Hosp., 178 So. 3d 1287, 1291 (Miss. 2015) (quoting
Thompson v. Jones Cty. Cmty. Hosp., 352 So. 2d 795, 797 (Miss. 1977)).
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IV
Horne argues in the alternative that the court should equitably estop
NRMC from denying the existence of the three engagement letters and the
enforceability of the arbitration agreements reflected in them. A court
considering an argument that a party should be equitably estopped looks to
state law theories of estoppel for guidance. 95
Mississippi courts have consistently denied attempts to overcome the
minutes rule based on equitable arguments. In Colle Towing Co., the president
of a county board of supervisors, purporting to act for the board, entered into
an oral agreement to rent barges. 96 Though it was conceded that a ratification
order from the board was void, the private party attempted to recover in equity
based on the oral agreement, periodic payments made by the county, and the
attempted ratification. 97 The court held that the county was “not liable on a
quantum meruit basis even though it may have made partial payments on a
void oral contract, and, moreover, that in such case there is no estoppel against
the county,” reiterating that the board can act only through its minutes, and
that “all persons dealing with a board of supervisors are chargeable with
knowledge of [the minutes rule].” 98
Though the minutes rule may work “apparent injustice,” Mississippi’s
law is unsympathetic to arguments based in equity and instead requires
private parties to ensure that their contracts are properly recorded in board
95 See Al Rushaid v. Nat’l Oilwell Varco, Inc., 814 F.3d 300, 305 (5th Cir. 2016).
96 57 So. 2d 171, 171-72 (Miss. 1952).
97 Id.
98 Id. at 172.
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minutes. 99 The district court did not abuse its discretion in rejecting Horne’s
arguments sounding in equity.
* * *
For the foregoing reasons, the district court’s denial of Horne’s motion to
compel arbitration is AFFIRMED as to the 2010 and 2012 engagement letters,
and VACATED as to the 2009 engagement letter. We remand for further
proceedings consistent with this opinion.
See Urban Developers LLC v. City of Jackson, 468 F.3d 281, 300, 302 (5th Cir. 2006);
99
Rawls Springs Util. Dist. v. Novak, 765 So. 2d 1288, 1292-93; Colle Towing Co., 57 So. 2d at
172.
26