Incorporating Arbitration Agreements By Reference: The Key Is Reasonable Notice

Depositphotos_6788330_xsIn recent months, three federal circuit courts have confronted this question: can a defendant compel arbitration even in the absence of a signed written agreement containing an arbitration clause?  The answers were yes, no, and maybe, but the analysis in all three turns on whether the party resisting arbitration should reasonably have known that an arbitration clause was part of the deal.

In one case, an iron foundry had sought equipment from a sales representative of the defendant.  The rep prepared a quote on its stationery, the back of which contained the “Standard Terms and Conditions of Sale.”  The arbitration clause was included in those terms.  But when the sales rep copied only the front of the quote for the customer, no arbitration clause was included.  Six months later, the sales team emailed the foundry an addendum to the price quote, attaching the standard terms and conditions of a sister company.  The foundry agreed to the new quote.

When the foundry sued over problems with the equipment, the defendant moved to compel arbitration.  The district court denied the motion and the Eighth Circuit affirmed.  Dakota Foundry, Inc. v. Tromley Indus. Holdings, Inc., 2013 WL 6405022 (8th Cir. Dec. 9, 2013).  The court found that the parties had not incorporated the “Standard Terms and Conditions of Sale” by reference, because those terms were not readily available to the foundry and the foundry did not have a reasonable opportunity to reject the arbitration clause.  The terms later attached to the email could not bind the foundry because the terms referred to the wrong company and the foundry could reasonably have concluded the terms were mistakenly provided.

In contrast, in Tillman v. Macy’s, Inc., 2013 WL 5827729 (6th Cir. Oct. 31, 2013), the Sixth Circuit found an employee did agree to arbitrate her discrimination claim against Macy’s, notwithstanding the lack of a signed arbitration agreement.  The department store alleged that the employee agreed to arbitrate by virtue of her failure to opt-out of a dispute resolution program that the company rolled out four years after the plaintiff was hired.  Employees were mailed a postcard, plan document, and an election form that advised employees they must opt-out by a certain date if they did not want to arbitrate disputes.  (They also had to watch a mandatory video about the program.)  The Sixth Circuit held that this information was “sufficient to constitute a valid offer to arbitrate” and that the employee accepted the offer by continuing her employment without opting out of the arbitration program.

Finding the middle ground, the Second Circuit found an arbitration may have been incorporated by reference in Hirsch v. Citibank, N.A., 2013 WL 5716397 (2d Cir. Oct. 22, 2013).  In that case, plaintiffs had signed signature cards when they opened accounts at Citibank.  Those cards, in turn, bind the customers to “any agreement governing” their accounts.  Citibank argued that language incorporated a Client Manual containing an arbitration agreement.  The district court denied Citibank’s motion to compel arbitration, but the Second Circuit remanded for a determination whether the plaintiffs actually received the Client Manual upon opening their accounts.  The Second Circuit reasoned that receipt of a physical document can be enough to put the party on notice of the terms as long as it was clearly a binding legal document.