Chris Lazarini Analyzes Right to Jury Under Section 4 of Federal Arbitration Act

Bass, Berry & Sims PLC

Bass, Berry & Sims PLC

Bass, Berry & Sims Chris Lazarini analyzed a case outlining when a party is entitled to have a jury decide issues related to the making or enforceability of an arbitration agreement. 

Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication.

MetLife Securities, Inc. vs. Holt, No. 2:16-cv-32 (E.D. Tenn., 10/19/16) 

Under Section 4 of the Federal Arbitration Act, a jury trial may take place on issues related to the making or enforceability of the arbitration agreement where (a) the party challenging arbitration demands it, but only if the demand is made before or at the same time as the party files her initial opposition to the motion or (b) the court elects to specially call a jury. 

Respondent Holt opened four IRA accounts at MetLife. She signed one of the account applications and, at the direction of her MetLife representative, Mark Salyer (who was her son-in-law at the time), Ms. Holt's daughter signed the other three. Mr. Salyer later allegedly misappropriated Ms. Holt's funds. Ms. Holt sued MetLife and her son-in-law in state court, and MetLife moved to compel arbitration. The state court granted the motion as to claims related to the one account for which Ms. Holt signed the application and reserved ruling on the arbitrability of the other claims. Mr. Salyer's bankruptcy then delayed the state court proceeding for several years, after which MetLife renewed its motion to compel, prompting the state court to allow discovery on whether MetLife's arbitration provisions were unenforceable contracts of adhesion.

Apparently dissatisfied with the state court proceedings, and although the parties had commenced discovery there, MetLife petitioned this Court to compel arbitration of Ms. Holt's claims. Ms. Holt filed a response in opposition. The Court reached the same conclusion as the state court, granting the petition on those claims related to the one account for which Ms. Holt signed the application and ordering an evidentiary hearing on the enforceability of the arbitration provisions in the account applications Ms. Holt's daughter signed. Ms. Holt then filed a second response to MetLife's petition, in the form of an Answer, and also demanded a jury trial. MetLife moved to strike the jury demand, arguing that it was untimely.

The Court first examines the competing timing requirements within which a party must demand a jury trial. Under FRCP 38, the party's written demand must be served "no later than 14 days after the last pleading directed to the issue is served," while under FAA §4, the party must make the jury demand "on or before the return date of the notice of application" or rely on the Court's authority to "specially call a jury." The Federal Rules of Civil Procedure do not preempt the FAA, and become applicable in a motion to compel proceeding only when the FAA is silent. Since petitions to compel arbitration are treated procedurally as motions, not pleadings, the Court declines to recognize Ms. Holt's second response to the petition as a responsive pleading, calling it "a nullity in the record." Because Ms. Holt did not make her jury trial demand when she filed her original opposition papers, the Court finds the demand untimely under FAA §4 and strikes it. All is not lost for Ms. Holt, however, as the Court instructs the parties that it will conduct an evidentiary hearing to determine whether Ms. Holt has raised an issue of material fact regarding the enforceability of the arbitration clauses. If she has, then the FAA mandates a trial on the issues, and if that scenario develops, the Court advises, it will grant Ms. Holt leave to request that it exercise its discretion to specially call a jury.

The Court's order denying Ms. Holt's Rule 59 motion to alter or amend that part of the Court's original order compelling some of her claims to arbitration is discussed in SLA 2016-40. An interesting side note is that Ms. Holt claims the parties have agreed to mediate the case within 60 days of the state court's ruling on the arbitrability issues, regardless of who prevails on them. MetLife's federal court petition seems to be an effort to get around that alleged agreement.

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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