A federal court granted a motion to compel arbitration based on the incorporation by reference of American Arbitration Association (AAA) rules on a link in a purchase confirmation email. In the wake of recent pro-arbitration decisions by the U.S. Supreme Court, the decision prompted ABA Section of Litigation leaders to recommend clear written agreements on arbitrability for those wishing to avoid prolonged litigation on this threshold issue.
Enforcing the Arbitration Agreement
In Silverman v. Move, Inc., a real estate agent sued Move, Inc., in the U.S. District Court for the Northern District of California over unsolicited text messages she alleged violated the Telephone Consumer Protection Act. The agent had purchased marketing services by telephone from an account executive at Move who told her to expect an email detailing the terms of her agreement with the company. The email contained a link to specific terms and a warning that she was agreeing to those terms unless she canceled within three days.
At the onset of the case, Move asked the court to dismiss the matter or to compel the parties to arbitrate based on AAA rules incorporated in the email terms, which delegate threshold issues of arbitrability to the arbitrator. The real estate agent countered that there was no enforceable agreement between the parties because the arbitration terms were contained in a link in the email, and thus, were merely browsewrap. Even if there were an enforceable agreement, she argued, the matter should not be arbitrated because the dispute was beyond the scope of the arbitration clause.
The court agreed with Move. The court found the contract enforceable because the real estate agent was a sophisticated party who had many years of experience in the industry, taught contract negotiations classes, and had been alerted to the terms of the contract by the sales call. Therefore, the court held that the case should go to an arbitrator to determine all issues related to arbitrability pursuant to the AAA rules.
“The sophistication of the parties is what is critical here,” explains Neal M. Eiseman, New York, NY, chair of the Arbitration Subcommittee of the Section of Litigation’s Alternative Dispute Resolution Committee. “If you have sophisticated parties on both sides who agreed to arbitrate, it is a no-brainer to arbitrate the matter,” he says. “This is the kind of arbitration the Federal Arbitration Act promotes.”
Upholding Pro-arbitration Precedent
The Silverman court relied upon the recent U.S. Supreme Court case Schein, et al. v. Archer & White Sales, Inc., which found disputes of arbitrability to be a question of contract law. Under Schein, if the contract “clearly and unmistakably” delegates this question to the arbitrator, the court may not override the contract.
Schein resolved a circuit split regarding the use of the “wholly groundless” exception. This exception allowed courts to decide issues of arbitrability even if the parties’ contract delegated arbitration, so long as the court found there was no basis for arbitration.
The Court in Schein squared its ruling with the FAA, which favors enforcing arbitration agreements that are freely and fairly negotiated between parties. “The Supreme Court has been very pro-arbitration, not for political reasons, but because it is the public policy under the Federal Arbitration Act,” Eiseman explains. “Schein is a continuation of the Supreme Court being pro-arbitration.”
The Importance of a Well-Drafted Arbitration Agreement
Clear contractual language on who decides issues of arbitrability is a way to help keep disputes out of the courts and with the arbitrator, according to Section leaders. “The parties have the right, if they so desire, to have an arbitrator decide the gateway question of arbitrability,” Eiseman says. “If someone is pro-arbitration, they probably want to think long and hard about having a provision in the agreement that says the arbitrator shall decide issues of arbitrability.”
The law is still unsettled regarding whether arbitration rules incorporated into a contract by reference delegate arbitrability decisions to an arbitrator. In Schein, for example, this particular issue of contract interpretation was not decided by the Court but instead sent back down to the U.S. Court of Appeals for the Fifth Circuit.
“Some courts have said if you incorporate the rules of a provider and the rules specifically give the arbitrator the power to decide issues of arbitrability it is enforceable,” Eiseman explains. “Other courts have not reached this conclusion.”
Clear language regarding arbitration is key, especially for clients seeking to avoid expensive, prolonged litigation in court, Section leaders advise. “If businesses want that protection they should make sure they get it by being clear on the terms in which they are willing to do business,” observes Mitchell L. Marinello, Chicago, IL, cochair of the Section’s Alternative Dispute Resolution Committee.
Jonathan R. Engel is a contributing editor for Litigation News.
Hashtags: #ADR #arbitration #SCOTUS
- Laura W. Givens, “SCOTUS Rejects Exception to Compelling Arbitration,” Litigation News (June 27, 2019).
- Mitchell L. Marinello, “Supreme Court Says ‘Wholly Groundless’ Argument Is Just That,” Alternative Dispute Resolution (Jan. 10, 2019).
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010).
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