When must a dispute be submitted to arbitration? Who makes the call?

• Author: Spero, Donald J.
• Position: Part 1

Part one of this article deals with the questions of when an arbitration agreement is enforceable. Part two will discuss whether the answer to that question is to be determined by a court or an arbitration panel.

A prospective plaintiff may approach an attorney with an apparently meritorious case, one with considerable jury appeal. As an added attraction, there may be no federal question, which means it will remain in state court where it is less endangered by the threat of a dispositive motion. The rub is that the claimant and the opposing party have signed an agreement to arbitrate future disputes with each other. It is possible that the claimant does not understand the consequences of having signed the agreement. When aware of the presence of an arbitration agreement, the attorney may determine that there is potentially a basis for defeating the requirement to arbitrate. At some point counsel will have to decide whether to file a judicial action hoping to bypass arbitration or make a demand for arbitration. (1)

If a judicial action is filed, defense counsel will have to decide whether to move to have the matter remanded for arbitration. Counsel for both parties will have to determine on what bases the arbitration agreement might be found unenforceable and whether the court has jurisdiction to make the decision on enforceability, or if the decision is within the province of an arbitrator selected by the parties.

Not All Arbitration Clauses Will Be Enforced by Courts

The Federal Arbitration Act (FAA) authorizes the enforcement of pre-dispute written agreements to arbitrate controversies except "upon such grounds as exist at law or in equity for the revocation of any contract." (2) The defense in 9 U.S.C. [section]2 to a requirement to arbitrate based on contract law is often referred to as the saving clause. Frequently, a party trying to avoid arbitration will argue that an exception in the saving clause is applicable to a given controversy.

In determining whether a controversy is subject to mandatory arbitration, the principle stated in Moses H. Cone Memorial Hosp. v. Mercury Constr., 460 U.S. 1, 24-25 (1983) (footnote omitted) must be applied.

The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the language itself or an allegation of waiver, delay, or a like defense to arbitrability. (3)

Courts take into account that the FAA was enacted "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate." (4) In Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006), the court stated, "[[section]]2 embodies the national policy favoring arbitration and places arbitration agreements on equal footing with other contracts."

Grounds "At Law or in Equity"

* Unconscionability--In Doctor's Associates, Inc. v. Casarotto, 517 U.S 681, 687 (1996) (citations omitted), the Supreme Court ruled that "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening

Section(s) 2 [of the FAA]." "The issue of 'whether a valid written agreement to arbitrate exists' is controlled by principles of state contract law." (5)

Section 2 of the FAA requires enforcement of arbitration agreements except on the same grounds that would be the basis for denying enforcement of "any contract." In determining the enforceability of an arbitration agreement, courts may not consider state laws that treat arbitration agreements differently from other contracts. "[C]ourts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms." (6) In Casarotto, a Montana statute mandating that contracts requiring arbitration give notice of that fact on the first page, typed in underlined capital letters, was incompatible with and, therefore, preempted by the FAA. Accordingly, the arbitration requirement in a contract requiring the arbitration of disputes was enforced, although it lacked the language required by the state statute.

* Procedural Unconscionability--The components of procedural unconscionability under Florida law were considered in Pendergast v. Sprint Nextel Corporation, 592 F.3d 1119, 1135 (11th Cir. 2010) (citations and quotation marks in original):

To determine whether a contract is procedurally unconscionable under Florida law, courts must look to: (1) the manner in which the contract was entered into; (2) the relative bargaining power of the parties and whether the complaining party had a meaningful choice at the time the contract was entered into; (3) whether the terms were merely presented on a "take-it-or-leave-it" basis; and (4) the complaining party's ability and opportunity to understand the disputed terms of the contract. Powertel, 743 So. 2d at 574; Murphy, 944 So. 2d at 1134. Under Florida law, a central question in the procedural unconscionability analysis is whether the consumer has an absence of meaningful choice in whether to accept the contract terms. Belcher, 558 So. at 1042. In addition, Florida courts "might find that a contract is procedurally unconscionable if important terms were hidden in a maze of fine print and minimized by deceptive sales practices." Powertel, 743 So. 2d at 574.

An arbitration provision in a nursing home agreement was found to be procedurally unconscionable in Woebse v. Health Care and Retirement Corporation of America, 977 So. 2d 630 (Fla. 2d DCA 2008), when the daughter of the resident, who signed on his behalf, was given only a five-minute meeting in which to review a 37-page document. The arbitration provision, which was not highlighted, was buried within the document and it was not pointed out to her nor was she provided with a copy of the agreement to give her an opportunity to review it after the meeting. The court also considered that there was a lack of equal bargaining power because she was not told she did not have to sign the document for her father to remain in the nursing home. (7)

When the weaker party spoke only Spanish and the contract was in English the arbitration requirement in an automobile purchase agreement was found to be procedurally unconscionable in Hialeah Automotive, LLC v. Basulto, 22 So. 3d 586 (Fla. 3d DCA 2009).

No procedural...