Sixth Circuit: No Arbitration of Pending Claims

by Butler Snow LLP
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In a reversal from a streak of previous decisions in favor of arbitration (see, e.g., recent posts on the subject here and here), the Sixth Circuit in Russell v. Citigroup, Inc., No. 13-5994, — F.3d — (6th Cir. 2014), recently declined to hold that an agreement to arbitrate “all employment-related disputes” applied retroactively to require arbitration of a claim that was already pending in court when the agreement to arbitrate was signed.

The plaintiff had previously worked at Citigroup and had filed a class action against the company.  The arbitration agreement in place at the time did not cover class actions.  After the plaintiff left the company and reapplied for employment three years later, the arbitration agreement (which he subsequently signed) had been updated to cover class actions.  The Sixth Circuit was therefore tasked with answering whether this latter agreement applied retroactively so as to allow Citigroup to compel arbitration of the class action.

Answering the question in the negative, the court focused on three main factors:  First, the plain language of the “Scope of Policy” section of the second-in-time arbitration agreement used the present tense to describe the applicability of the agreement—to disputes that “arise” between the parties.  The court noted that this use of the present tense did not tend to incorporate past disputes.  Second, reading contextually, the court found that the preamble of the second-in-time arbitration agreement “exude[d] prospectivity” by declaring that Citigroup “believes that the resolution of . . . disagreements will be best accomplished . . . by external arbitration.”  Finally, neither the plaintiff nor the company consulted lawyers before entering into the contract.  The court stated that the plaintiff’s behavior “would make little sense if [he] understood the contract to cover the case at hand,” and queried whether “a sophisticated company [would] allow a supervisor at a local call center to sign away rights in a pending case without first speaking to the lawyers representing it in that case.”

The court did acknowledge the general and broadly-applied rule that the Federal Arbitration Act requires a court to resolve doubts concerning the scope of arbitrable issues in favor of arbitration.  But, the court said, this rule must be read in context.  In the present case, neither party intended for the second-in-time arbitration agreement to cover pending claims, despite Citi’s arguments to the contrary on appeal.  Thus, the general rule of contract interpretation that the intent of the parties controls trumped the FAA’s requirement of resolution in favor of arbitrability.  This case demonstrates that, although the Sixth Circuit has been fairly pro-arbitration in recent months, it will take a hard look at the specific language of an arbitration agreement to ascertain the intent of the parties with respect to the case at hand.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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