Law Updates on Arbitrability

The federal courts frequently make decisions on arbitration, particularly issues relating to arbitrability. Outlined below, are a few relevant decisions from the first few months of 2012 discussing various aspects of arbitrability:

COMPUCREDIT CORP. v. GREENWOOD, 132 S.Ct. 65 (2012) (1/10/12)
Credit Repair Organizations Act (CROA), 15 U. S. C. §1679 et seq., does not preclude enforcement of an arbitration agreement.

Those who wish to let an arbitrator decide which issues are arbitrable need only state that ‘all disputes concerning the arbitrability of particular disputes under this contract are hereby committed to arbitration,’ or words to that clear effect. Agreement lacked the requisite “clear and unmistakable” language evincing an intent to arbitrate arbitrability, so court, not arbitrator determined arbitrability. Arbitrability disputes often necessitate a two-step inquiry. First, the court determines who decides whether a particular dispute is arbitrable: the arbitrator or the court. Sec¬ond, if the court concludes that it is the proper forum in which to adjudicate arbitrability, the court then decides whether the dispute is, in fact, arbitrable. When interpreting a contract containing an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assur¬ance that the arbitration clause is not susceptible of an inter¬pretation that covers the asserted dispute.

TOWNSEND v. PINNACLE ENTERTAINMENT, INC., No. 11-1711 (3rd Circuit 2012) (not precedential) (1/11/12)
Employment contract provided that: “This agreement to arbitrate shall survive the expiration of this Agreement and shall cover all issues relevant to the employment of the Executive by Company.” Original written employment contract expired and employee was terminated before a new written agreement (which contained a similar arbitration clause) was signed. Court held that the agreement to arbitrate the employment dispute was valid at the time of the termination, without regard to which employment agreement, if any, was otherwise in effect.

DITTENHAFER v. CITIGROUP, No. 10-16909 (9th Cir. 2012) (not for publication) (1/15/12)
The district court properly compelled arbitration of Dittenhafer’s claims under the Federal Arbitration Act (the “FAA”) and California law because the arbitration policy in defendant’s employee handbook covered Dittenhafer’s statutory employment discrimination claims and was not substantively unconscionable.

GORDON v. BRANCH BANKING AND TRUST, No. 09-15399 (11th Cir. 2012) (1/31/12)
Case remanded for reconsideration in light of AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), which held that the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., preempted California’s state law rule “classifying most collective-arbitration waivers in consumer contracts as unconscionable.”

SALEEMI v. GOSH ENTERPRISES, INC., No. 11-35027 (9th Cir. 2012) (not for publication) (2/3/12)
The presumption that dispute resolution provisions survive termination of a contract is rebuttable. Email said that the franchise agreement was “fully terminated” and that “no contractual obligations exist anymore.” Case remanded to determine the import of the email. The pleadings need not be accepted as true, and facts outside the pleadings properly may be considered.

HEINEN v. NORTHROP GRUMMAN CORPORATION, No. 10-3408 (7th Cir. 2012) (2/7/12)
Heinen accepted an offer of employment that was contingent on his agreement to Northrop’s “Dispute Resolution Process.” He signed a document accepting that process. He also apparently signed an employment contract, which is not in the record. There was a third contract, captioned “Supplementary Employee Relocation Agreement.” The “Dispute Resolution Process” provides for arbitration of employment-related disputes; the employment and relocation agreements do not contain separate arbitration clauses. The “Dispute Resolution Process” requires arbitration of “[a]ny employment-related claim against the company.” Relocation benefits are “employment-related”. The “Dispute Resolution Process” covers disputes about relocation benefits.

SOLYMAR INVESTMENTS, LTD., ET AL. v. BANCO SANTANDER S.A., No. 11-12515 (11th Cir. 2012) (2/28/12)
A district court, having found that a valid contract containing an arbitration clause exists, is not required to consider a further challenge to that contract’s place within a broader, unexecuted agreement. Courts are the proper forum to evaluate a challenge to the validity of an arbitration clause, but where the entire agreement of which an arbitration clause is but a part is challenged, such evaluation is properly left to the arbitrator. Challenges to the validity of an agreement containing an arbitration clause are reserved for an arbitrator. Issues concerning contract formation are generally reserved for the courts to decide. The court will engage in a two-step process to determine arbitrability: 1) resolution of any formation challenge to the contract containing the arbitration clause; and 2) determination of whether any subsequent challenges are to the entire agreement or to the arbitration clause specifically. Where the Agreement, both through its integration clause and through its lack of reference to other contracts, facially contained the entire agreement between the parties notwithstanding contentions to the contrary, the district court properly refused to consider parol testimony on considering the nature of the Agreement. Prima Paint requires reference to an arbitrator for a general challenge to a contract on the grounds of fraud in the inducement.

Performance constituted acceptance of the contracts that included an arbitration provisions. The arbitration clauses were not illusory. Both arbitration clauses contained virtually identical language providing for a broad scope of arbitration and a limitation on amendment. The requirement that both parties agree to any amendment was sufficient to avoid rendering the parties’ agreements to arbitrate illusory. The differences in the arbitration clauses do not render them unenforceable. Motion to compel arbitration granted.

CAREY v. 24 HOUR FITNESS, USA, INC., No. 10-20845 (5th Cir. 2012) (1/25/12)
The binding arbitration provision relied upon by 24 Hour Fitness is illusory because 24 Hour Fitness “retain[ed] the unilateral right to modify or terminate the arbitration provision” at any time. Employer had the right to unilaterally change the Employee handbook, which provided for arbitration. Under Texas law, an arbitration clause is illusory if one party can “avoid its promise to arbitrate by amending the provision or terminating it altogether.” Notice and acceptance are not sufficient to render an arbitration provision non-illusory.


GORE v. ALLTEL COMMUNICATIONS, LLC, No. 11-2089 (7th Circuit 2012) (1/19/12)
The parties entered into two agreements—though only one contains an arbitration clause, and the plaintiff brings a cause of action based, at least in part, on conduct contrary to the agreement that does not have the arbitration clause. The issue was whether the clause itself is broad enough to encompass the dispute. The arbitration clause in this case provides that “[a]ny dispute arising out of this agreement or relating to the services and equipment must be settled by arbitration.” “Service(s)” means “any services [Gore has] asked [Alltel] to provide [Gore] through this agreement”; and “Equipment” refers to “any communication equipment or accessories [Gore] purchase[s] or lease[s] from [Alltel] or use[s] in any manner in connection with [Gore’s] Services.” The language is unambiguous: any dispute “arising out of” the Alltel Agreement or “relating to the services and equipment” that Gore asked for under that agreement must be arbitrated. “Arising out of” reaches all disputes having their origin or genesis in the contract, whether or not they implicate interpretation or performance of the contract per se. The Arbitrator must decide if the agreement is unconscionable because Gore attacks as unconscionable the entire Alltel Agreement, not just the arbitration clause itself. Claims of fraud in the inducement of the contract generally must be decided by the arbitrator.


IN RE AMERICAN EXPRESS MERCHANTS LITIGATION, No. 06-1871-cv (2d Cir. 2012) (2/1/12)
A class-action arbitration waiver clause is not enforceable where the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to vindicate their federal statutory rights. This arbitration clause is unenforceable. We remand to the district court with the instruction to deny the defendant’s motion to compel arbitration.

by Suzanne Nusbaum
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