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South Carolina Appeals Court Says Federal Arbitration Act Governed Dispute About Physician Recruiting Agreement

 
 

HLD, v. 32, n. 3 (March 2004)

South Carolina Appeals Court Says Federal Arbitration Act Governed Dispute About Physician Recruiting Agreement

In 1999, Trident Medical Center (Trident) began recruiting cardiovascular surgeons from other parts of the country because of a shortage in its cardiovascular surgery group, South Carolina Cardiovascular Associates (SCCA). Dr. James Thornton entered into a recruiting agreement in May 1999 with Trident to move his cardiovascular practice from Michigan and join SCCA. The agreement provided certain financial guarantees, a signing bonus, relocation expenses, and membership in SCCA in exchange for Thornton maintaining his practice in Charleston for at least four years. The agreement also provided that Thornton would have to repay certain amounts if he did not stay the four years, and included a provision for binding arbitration. Thornton moved to Charleston and joined SCCA, but moved to Pennsylvania before the four-year period expired. Thornton refused to repay Trident claiming the recruiting agreement was unenforceable. Thornton brought a declaratory judgment action requesting a determination that the recruiting agreement's arbitration provision was unenforceable. The trial court agreed and held the arbitration provision was not enforceable under the South Carolina Uniform Arbitration Act (Act), S.C. Code Ann. � 15-48-10, on the ground the arbitration provision did not meet the requirements of the Act. The trial court also held the arbitration provision did not implicate the Federal Arbitration Act (FAA) because it did not affect interstate commerce. Trident appealed.

The South Carolina Court of Appeals reversed the trial court's judgment and held that because the recruiting agreement involved interstate commerce the FAA applies. As an initial matter, the appeals court noted that the parties did not dispute the trial court's holding that the recruiting agreement was unenforceable under the Act, but that if the FAA applied it pre-empts state law. The appeals court first had to determine if the recruiting agreement "involved commerce" under the FAA. Thornton argued the FAA did not apply because the recruiting agreement only involved his services as a physician in South Carolina. The appeals court found that the recruiting agreement involved a monetary inducement by Trident to Thornton for Thornton to move from Michigan to South Carolina, and that the move was an essential element of the recruiting agreement. Trident paid the moving expenses, which involved interstate commerce, said the appeals court, and Thornton agreed to leave one state and move to another for money. Therefore, the appeal court concluded, "performance of the recruiting agreement requires activity involving interstate commerce."

The appeals court found the holding in Selma Med. Ctr., Inc. v. Fontenot, 824 So. 2d 668 (Ala. 2001), instructive. In Selma, the contract for two physicians to relocate their practices to another state in exchange for monetary guarantees included an arbitration provision and was similar to the facts in this case, except the dispute was over excess revenues. The Selma court determined that there are three categories of activities that the Commerce Clause regulates, and the activity involving persons within the "flow of commerce" applied. The physicians in Selma entered into the flow of commerce when they moved to another state in exchange for money under the contract. The appeals court found that once the Selma court determined the physicians were part of the flow of commerce, there was no need to decide if the agreement substantially affected commerce. Following the reasoning in Selma, the appeals court held that, because there was money paid under the recruiting agreement as the result of movement over state lines, the recruiting agreement affected interstate commerce and came under the FAA.

Thornton v. Trident Med. Ctr., L.L.C., No. 3706, 2003 WL 22887990 (S.C. Ct. App. Dec. 8, 2003).

          

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