Must Utah courts follow the arbitrator selection method specified in contracts? Peterson & Simpson v. IHC Health Services Explained

The Utah Supreme Court’s decision in Peterson & Simpson v. IHC Health Services provides crucial guidance on judicial authority over arbitrator selection procedures and reinforces the primacy of contractual agreements in arbitration proceedings.

Background and Facts

For nearly twenty years, IHC employed Peterson & Simpson to collect delinquent accounts under a 1996 contract containing an arbitration clause requiring disputes to be resolved “according to the Utah Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association.” When IHC changed its collection policy, Peterson filed claims for breach of contract, breach of the covenant of good faith and fair dealing, and intentional injury to contract rights. The district court compelled arbitration of all claims but, when the parties could not agree on arbitrator selection, ordered its own selection procedure rather than following the AAA rules specified in the contract.

Key Legal Issues

The court addressed two primary questions: whether the district court had authority under the Utah Arbitration Act to create its own arbitrator selection method when the parties had contractually agreed to AAA rules, and which of Peterson’s claims fell within the scope of the arbitration clause.

Court’s Analysis and Holding

The Utah Supreme Court reversed, emphasizing that Utah Code section 78B-11-112(1) mandates that “if the parties to an agreement to arbitrate agree on a method for appointing an arbitrator, that method must be followed, unless the method fails.” The court found the contract’s reference to AAA rules constituted clear agreement on selection methodology. The plain language unambiguously incorporated AAA rules, which contain detailed arbitrator selection procedures. The court also affirmed that all of Peterson’s claims, including the good faith and fair dealing claim, arose “under the agreement” and were therefore arbitrable.

Practice Implications

This decision establishes that Utah courts must respect contractual arbitration procedures and cannot substitute judicial selection methods when parties have agreed to specific rules. Practitioners should carefully draft arbitration clauses to specify desired procedures, as courts will enforce the agreed-upon method unless it demonstrably fails. The decision also confirms that implied covenant claims typically fall within broad arbitration clauses covering disputes “arising under” the agreement.