The Supreme Court of Nebraska gave an unpleasant surprise to its trial court judges last week: they cannot enforce arbitration agreements sua sponte. Boyd v. Cook, 298 Neb. 819 (Feb. 2, 2018).
The case involved a messy shareholder dispute. A key contract to the dispute contained an arbitration provision covering “any dispute or controversy arising out of” the agreement. The suit began in April of 2014, and eventually included many parties and at least a dozen claims. In 2016, the trial court granted partial summary judgment. But then it had apparently had enough. In January of 2017, the trial court “dismissed sua sponte all of the claims in the case” other than one, based on the arbitration provision in the contract. It found it lacked jurisdiction.
After confirming its appellate jurisdiction, and noting that arbitration clauses can never defeat a court’s subject matter jurisdiction (Dude! Don’t get your hackles up), the Nebraska Supreme Court got around to the good stuff. It found that because arbitration is a contractual right “it necessarily follows that this right may be enforced only by a party to the contract.” Therefore, “it is improper for a court to try to enforce such a contractual right on behalf of the parties.” Trial courts will have to resort to other tactics in getting irritating cases off their dockets.
If the Boyd case can be described as parties ignoring their rights to arbitrate, then a Vermont case can be described as a party ignoring its potential right to litigate. In Adams v. Barr Law Group, 2018 WL 671444 (Feb. 2, 2018), a law firm tried to recover unpaid fees from its client in arbitration. The client participated in arbitration (without counsel) for seven months. Then, one week before the hearing, it alleged for the first time that the arbitration agreement was unenforceable, because the law firm did not fully explain to the client the ramifications of agreeing to arbitration. The arbitrator denied the motion to dismiss and issued an award in favor of the law firm. The client then moved to vacate the award and lost. On appeal, the Vermont Supreme Court explained that the client had waived its right to object to arbitration by participating fully for seven months without raising the issue. It noted that the requirement is “designed to avoid unnecessary investments in time and resources of exactly these types.”
By Liz Kramer