The purpose of arbitration is to resolve disputes more quickly and inexpensively than litigation. It’s getting less difficult to enforce such agreements, but apparently some courts and parties have yet to get the message as a recent Tenth Circuit reflects. Howard v. Ferrellgas Partners, L.P, Case No. 12-3061 (10th Cir. Apr. 8, 2014). It’s not an employment case, but the court’s witty and well-written opinion is an enjoyable read and certainly applicable to employment disputes.
The Howard case involved the no doubt otherwise exciting world of propane gas refills for home heating. The defendant apparently signed up the plaintiff for natural gas refills by telephone, and then followed up with a written contract that contained an arbitration agreement and class action waiver. The plaintiff later brought a putative class action contending that the defendant overcharged him and many others for that propane gas. The defendant moved to compel arbitration, but what followed was a series of motions and something like eighteen months of discovery over state law contract formation issues, complete with motions to compel and similar litigation practice. Years after the case was filed, the district court concluded that there were still questions of fact as to whether the agreement to arbitrate was ever entered into. Rather than resolve those issues, the district court simply denied the request to arbitrate, and the defendant appealed.
Plainly, of course, the amount of time it took the district court to resolve the matter (or more accurately failed to resolve it) was inordinate. As the 10th Circuit dryly noted:
The object is always to decide quickly—summarily—the proper venue for the case, whether it be the courtroom or the conference room, so the parties can get on with the merits of their dispute.
That much didn’t happen here.
The court was also critical of the district court’s and the parties’ extended discovery over the basic issue of the validity of the arbitration agreement:
Parties should not have to endure years of waiting and exhaust legions of photocopiers in discovery and motions practice merely to learn where their dispute will be heard. The [Federal Arbitration Act] . . . calls for a summary trial—not death by discovery.
(Emphasis in original).
Ultimately, the Circuit Court faulted the district court for failing to resolve the issues of fact, even if at trial, and held that it was required to reach a decision, based on the facts, as to whether the arbitration agreement was valid.
The Howard case is instructive for at least two reasons. First, it reflects the continuing dislike many district courts have for arbitration — in this case, the district court denied enforcement of the agreement simply because it found questions of fact over its validity. One can only wonder what other contract the district court would have treated in such a fashion: “Gee, there’s a question of fact. I guess your contract isn’t enforceable.”
Second, it reflects a related, troubling issue that the arbitration issue was permitted itself to become the subject of a protracted lawsuit. Permitting such extensive discovery, motion practice, and simply time to pass thwarted the very purpose of arbitration for all parties.
The Bottom Line: District courts should resolve issues as to the validity of an arbitration agreement expeditiously.