Tenth Circuit Clarifies When Trial Is Necessary To Determine Arbitrability

by Stinson Leonard Street - Arbitration Nation
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Old door in RigaIn a beautifully written opinion, the Tenth Circuit examined an under-used aspect of the Federal Arbitration Act this week: having a jury or court trial. Usually disputes about arbitrability can be determined on a motion akin to summary judgment, but the FAA states in Section Four: “If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.”  The Tenth Circuit held that’s what needs to happen in Howard v. Ferrellgas Partners, L.P., __ F.3d__2014 WL 1363963 (10th Cir. April 8, 2014).

Ferrellgas involves a class of propane customers who sued Ferrellgas for alleged overcharges.  Ferrellgas moved to compel individual arbitration.  The named plaintiff responded that he had no arbitration agreement with Ferrellgas because the parties reached a complete oral contract in their initial phone call that covered all subsequent orders, and negated the subsequent form contract sent by the company.  In response to open questions of fact raised on the motion, the district court allowed discovery and another set of motions.  When that second round of motions did not resolve the factual dispute, the court invited more discovery and a third round of motions.  Finally, the district court found that material disputes of fact remained and denied the motion to compel arbitration.

The Tenth Circuit reversed.  It found the district court erred in two respects.  First, the district court erred by allowing “death by discovery” on the issue of whether an arbitration agreement existed instead of calling for the “summary trial” envisioned in the FAA.  The court said that when “a quick look at the case suggests material disputes of fact do exist on the question whether the parties agreed to arbitrate, round after round of discovery and motions practice isn’t the answer.  Parties should not have to endure years of waiting… merely to learn where their dispute will be heard.”  (Another good line: “We appreciate both sides’ evident frustration at how long this case has lingered at the transom without having entered either the door into arbitration or litigation.”)

The Tenth Circuit also found the district court erred in denying the motion to compel arbitration after concluding that material disputes of fact remained.  It explained: “That’s like mixing apples and oranges, like saying someone who fails to win a summary judgment motion must necessarily lose after trial.”  Therefore, the court remanded the case for the summary trial called for in the FAA.

Of course, the Tenth Circuit had a relatively easy target in this particular instance.  Not many district court judges would allow three rounds of motions and multiple rounds of discovery on the issue of arbitrability.  But, it may be less clear in the future where the line is between allowing reasonable discovery on arbitrability and “death by discovery.”  Should judges allow just one round of discovery and say any factual disputes after that point will be decided by trial?  The Tenth Circuit does not try to set forth any rules about when exactly to push parties over the transom, if you will.

** P.s.:  SCOTUS denied cert in Walia v. Dewan on Monday.  The circuit split over manifest disregard will continue.

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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