Chapter 25-3 Resisting Arbitration

• Jurisdiction: United States

25-3 Resisting Arbitration

This section discusses bases for resisting an arbitration provision. A court may not order arbitration of a dispute that the parties did not agree to arbitrate,²⁵ nor may a court enforce an arbitration agreement where performance is excused by principles of contract law, such as an unconscionable agreement or one that is the subject of fraud, or where the arbitration agreement has been waived.

25-3:1 Dispute Outside the Scope of the Agreement

A party is not required to arbitrate disputes outside the scope of the arbitration agreement.²⁶ Because state and federal policies favor arbitration, however, a presumption exists in favor of arbitration, and all doubts regarding the scope of the agreement are resolved in favor of arbitration.²⁷ In determining whether claims fall within the scope of the arbitration clause, the court focuses on the factual basis of the allegations rather than the legal theories asserted.²⁸

"A party seeking to compel arbitration must establish the existence of a valid arbitration agreement and that the claims at issue fall within the scope of that agreement. If the party seeking to compel arbitration meets this burden, the burden then shifts, and to avoid arbitration, the party opposing it must prove an affirmative defense to the provision's enforcement, such as waiver."²⁹ The advantage in meeting these burdens, however, rests with the party asserting arbitration. "The presumption in favor of arbitration 'is so compelling that a court should not deny arbitration "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue."'"³⁰

Generally, suit against an employee of a party to an arbitration agreement falls within the scope of the agreement.³¹ Where the decedent was a party to an arbitration agreement with his employer, his wrongful death beneficiaries were bound by the agreement to arbitrate.³² Claims against entities affiliated with a party to an arbitration agreement do not fall within the scope of the agreement where the affiliated entities are not mentioned in the agreement.³³ Whether the parties have agreed to arbitrate is a matter for the court, not the arbitrator, and whether a claim involving a nonsignatory is arbitrable is a question for the trial court, not the arbitrator.³⁴ The parties can, however, agree to arbitrate arbitrability.³⁵

25-3:2 Resisting on Grounds Agreement Is Unconscionable

A party may avoid arbitration if the arbitration clause is unconscionable, or is the product of duress or fraud. However, to avoid arbitration, these defenses must specifically relate to the arbitration clause itself and not the agreement as a whole.³⁶ If the defense relates to the entire agreement, the arbitrator will adjudicate the defense.³⁷

A court may not enforce an agreement to arbitrate if it was unconscionable at the time it was made.³⁸ An arbitration agreement may be unconscionable if the expense of arbitration is prohibitive.³⁹ The party resisting arbitration must prove that the arbitration that would actually be conducted is cost prohibitive "with specific information of future cost."⁴⁰ Citing the costs associated with a particular arbitration provider without proving that the arbitration would be conducted with that provider is insufficient.⁴¹

An arbitration agreement is not unconscionable simply because it requires one party to arbitrate and allows another party to litigate, even if the party with the option to litigate was in the stronger bargaining position.⁴²

25-3:3 Resisting on Ground of Fraud

To successfully resist arbitration on the ground of fraud, the party must establish that the fraud pertains specifically to the arbitration agreement, rather than to the agreement as a whole.

Establishing fraud as to the arbitration agreement requires (1) a material representation about the arbitration agreement, rather than the agreement as a whole; (2) the representation was false; (3) when the...