Arbitration Provision Does Not Apply Where It Was Not Intended
Business Law Articles
Written By: Lisa Okasinski, Esq.
Demorest Law Firm
Royal Oak, Michigan
The essential purpose of arbitration is to resolve disputes straightaway. For this reason, many people that enter into contracts require a provision in the contract that requires disputes to be resolved through arbitration as opposed to filing a lawsuit. Not only does this spare the parties from time consuming and expensive litigation, but arbitration is also beneficial to the courts which are able to clear their dockets of matters that can be dealt with outside the court.
Because of the benefits of arbitration, courts are often in favor of having parties handle their disputes through this process. In fact, the Federal Arbitration Act requires the courts to resolve “any doubts concerning the scope of arbitrable issues. . . in favor of arbitration.” However, this does not mean that the courts must require arbitration of issues that the parties had not intended to be subject to the arbitration provision.
In Russell v. Citigroup, Inc., an employee (Russell) brought a class action against his employer, Citicorp. After the lawsuit was filed, Citicorp hired him back into the company under a different employment contract. The original employment contract did not require arbitration of class action lawsuits, but his current employment contract does require arbitration of class action lawsuits. Citicorp tried to argue that the arbitration provision in the current employment contract should require the arbitration of Russell’s previously filed class action lawsuit.
The Court of Appeals rejected Citicorp’s argument that the arbitration agreement should be applied to the previously filed class action lawsuit, finding that neither party could have intended that the arbitration agreement applied to such lawsuits. Among other things, the Court noted the prospective language of the arbitration agreement and how actions by Citicorp were inconsistent with actions that a sophisticated corporation would take if it had intended the arbitration agreement to apply retroactively. The Court stated that a presumption in favor of arbitrability in that case would stretch too far and “los[e] sight of the purpose of the exercise: to give effect to the intent of the parties.”
If you need help interpreting or drafting an arbitration provision into your company’s contracts or if you have any other questions, please contact the attorneys at Demorest Law Firm.