Building off of a discussion of Solymar Investments, Ltd. v. Banco Santander S.A., __ F.3d __, 2012 WL 612302 (11th Cir. Feb. 28, 2012), and the surprisingly fuzzy line between challenges to the formation of contracts containing arbitration provisions and challenges to the validity of those contracts, here is a hypothetical for you to consider. (Why a hypothetical? Because it is spring break, and spring break reminds me of law school, and law school reminds me of endless hypotheticals about a fictitious restaurant named “The Lobster Pot”.)

Let’s say A held a gun to the head of B, demanding that B sign a Contract to buy widgets. So, B signed. But since B never wanted to buy widgets from A in the first place, B defaulted. A then demands arbitration with B, citing an arbitration agreement within the Contract. Assuming the Federal Arbitration Act applies, will a Court hear the merits of a claim from B that the arbitration agreement is not enforceable?

In general, Prima Paint and the severability doctrine mean that challenges to a contract as a whole must be sent to the arbitrator, while challenges to the arbitration agreement itself are for the courts to determine. See Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395, 403-04 (1967). But, the Supreme Court has recognized that some types of challenges to the contract as a whole do belong in court: those that challenge “whether any agreement between the obligor and obligee was ever concluded.” Buckeye Check Cashing v. Cardegna, 546 U.S. 440, 444 n.1 (2006); Granite Rock Co. v. Int’l B’hood of Teamsters, 130 S. Ct. 2847, 2855-56 (2010).

The answer to the hypothetical depends whether a federal court would find that signing a contract because a gun is put to your head is more analogous to:

• allegations that the entire contract is void due to fraud in the inducement, violating state law or public policy (all of which have been sent to arbitration); or
• allegations that no agreement was ever concluded because one of the parties’ names was forged on the agreement, or because the agent who executed the agreement lacked authority to do so, or because the party lacked the mental capacity to contract (all of which have been determined by courts).

What do you think? I tend to think a majority led by Justice Scalia would say the issue goes to the arbitrator, and that four Justices would vigorously dissent, but I am interested in hearing your thoughts.

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by Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com