Arbitration

David M. Duree has more than 40 years experience in handling cases involving Arbitration issues and Arbitration proceedings. With offices in St. Louis, Mo. and O’Fallon, Ill., he also handles Arbitrations and cases in numerous other states.

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These materials are in reverse chronological order. New material is added at the top. Older material is inserted in the correct chronological spot. Overruled, modified and/or obsolete material is deleted, revised, consolidated and/or moved, when appropriate. Citations preceded by <>are linked to the complete court opinion. (NOTE: Some linked court sites are not always available). Arbitration Lawyer.

An employee filed suit in California state court claiming violations of the State Fair Employment Act. The Employer filed an application to compel arbitration under a clause in the employment agreement, in the U.S. district court, which applied arbitration enforcement law and compelled arbitration of the state claims. The ninth circuit reversed, holding that employment contracts are excluded from the scope of the FAA, 9 U.S.C. 1, et seq. <>Circuit City Stores, Inc v. Adams, 194 F. 3d 1070 (9th Cir. 1999). The United States Supreme Court reversed, in a 5-4 decision, ruling that only employment contract of transportation workers are exempted from the FAA., <>Circuit City Stores, Inc. v. Adams, 2001 W.L. 273205, ___U.S.___, ___S.Ct.___, (3-21-2001)

A district court order compelling arbitration and dismissing all remaining claims was an appealable order. An arbitration clause requiring arbitration of the consumer’s claim that the lender violated the truth in lending act was not unenforceable as unconscionable or in violation of public policy because it failed to specify who was to pay the costs of arbitration. However, in an appropriate case, the costs of arbitrating could be prohibitive, rendering the arbitration clause unenforceable.<>Green Tree Financial v.Randolph, 121 S.Ct. 513, ___U.S.___ (12-11-2000)

An arbitration award reinstating a union employee who tested positive for illegal drugs on more than one occasion was confirmed notwithstanding the employer’s contention that the award exceeded the arbitrator’s authority because it violated public policy. The district court found that there was no well defined and dominant public policy which prohibited reinstatement of an employee, whose drug use was found to be occasional and not likely to recur, to a position which was not safety sensitive. The fourth circuit affirmed in a unpublished opinion. The United States Supreme Court affirmed. Eastern Associated Coal Corporation, et al., v. United Mine Workers of America, District 17, et al., 66 F. Supp.2d 796 (S.D.W.Va. 1998); affirmed, 188 F.3d 501 (4th Cir. 1999); <>121 S.Ct. 462, ___ U.S.___(11-28-2000)

The FAA did not preempt a choice of law clause in franchise contracts. State, not Federal, law applied to the franchisees claims that the franchiser waived its right to compel arbitration. Waiver did not occur, however, when the franchiser used its real estate leasing company to file eviction suits against the franchisees, and the arbitration clauses were not void as illusory, or unconscionable, or against public policy, and were supported by consideration.<>Lela Bishop, et al. v. We Care Hair Development Corporation, et al. 316 Ill. App.3d 1182, 250 Ill.Dec. 394, 738 N.E.2d 610 (Ill. App. 9-29-2000)

A putative class action by borrowers against lenders, alleging violations of the truth in lending act 15 U.S.C. 1601, et seq., and the electronic fund transfer act, 15 U.S.C. 1693 et seq., must be arbitrated pursuant to arbitration clauses in the loan documents, even though the claims could not proceed as a class action in arbitration. The arbitration clauses eliminate the statutory to proceed by class action. <>Johnson v West Suburban Bank, 225 F.3d 366 (3rd Cir., 8-29-2000).

An arbitration clause in a mandatory employment agreement (a condition of employment) is enforceable if it permits the employee to vindicate his statutory rights, requiring at a minimum (1) neutrality of the arbitrators, (2) adequate discovery, (3) a written decision that will permit a limited form of judicial review and (4) limitations on the costs of arbitration, requiring that the employee pay no more in costs than would have been required to litigate his claims. Where the arbitration clause requires the employee, but not the employer, to arbitrate and eliminates statutory rights while limiting the damages recoverable by the employee, it is unconscionable; the extent of the unconscionable provisions requires that the entire arbitration clause be held unenforceable, instead of severing the unconscionable parts while enforcing the obligation to arbitrate. <>Armendariz, et al., v. Foundation Health Psychcare Services, Inc. (2000 WL 1201652), 99 Cal.Rptr.2d 745, 6 P.3d 669 (Cal. 8-24-2000)

An employee could not be compelled to arbitrate where the employment agreement permitted his employer to sue. <>Ramirez v. Circuit City Stores, Inc., 90 Cal. Rptr. 2d 916 (Cal. App. 1999) The California Supreme Court has agreed to review the case, 995 P. 2d 137(3-15-2000)

After compelling federal defendants-franchisees to arbitrate their claims against the franchisor in its home state, and enjoining them from prosecuting their state action in another state, the federal court could not enjoin federal nonparties (also franchisees) from prosecuting their personal claims, or from acting as class representative for other franchisees who were nonparties in the federal court, in the same state action. The Federal anti-injunction Act, 28 U.S.C. 2283, and Fed R. Civ. P. 65(d) only permit the Federal Courts to enjoin the nonparties from aiding or abetting the federal defendants-franchisees in violating the injunction against them.<>Doctor’s Associates, Inc. v. Sayed Qasim, et al., 2000 WL 1210868(table), unpublished, (Case No. 99-9434) (2nd Cir. 8-24-2000)

An attorney managed the Boston office of a Washington, D.C. law firm. When a dispute arose about the terms of his separation from the firm, he filed an application to compel arbitration in Massachusetts state court under an arbitration clause in his employment agreement covering “ambiguities or questions of interpretation of this contract.” The firm removed the case to the Federal Court and brought suit for breach of contract against the attorney in the Federal Court in Washington, D.C., where the attorney counterclaimed. The Mass. Federal Court refused to transfer the case to Wash. D.C. and compelled arbitration of the attorney’s claims for a bonus and other compensation. The arbitrator ruled for the attorney, awarding $45,000, attorneys fees and the costs of the arbitration. The first Circuit reversed, finding that the arbitrator exceeded the scope of the arbitration clause, thereby exceeding his authority under 9 U.S.C. 10(a)(4), that the parties did not agree to arbitrate the issue of arbitrability and that the firm did not waive these objections by participating in the arbitration. The arbitration clause was construed narrowly, not broadly. The Circuit Court also ruled that the District Court erred by not transferring the Mass. case to Wash. D.C. <>Coady v. Ashcraft & Gerel, 223 F.3d 1, 2000 WL 1072386 (1st Cir. 8-8-2000)

A wholesale financing agreement between a farm equipment manufacturer and one of its dealers (and the personal guarantors) included a broad arbitration clause covering all claims “arising out of or directly or indirectly relating to” the wholesale financing agreement or guarantys (which contain similar arbitration clauses). The dealership (and personal guarantors) also signed retail financing agreements (and personal guarantys) with a third party (subsequently acquired by the manufacturer) which did not have arbitration clauses. Claims by the third party (subsequently assigned to the manufacturer) against the dealership and personal guarantors arose from the retail financing agreement and related personal guarantys (which did not contain arbitration clauses). The seventh circuit reversed the judgment (confirming the arbitration award) against the dealership and personal guarantors, ruling under 9 U.S.C. sec. 10(a)(4), that the arbitrators exceeded their authority because the retail financing claims do not directly or indirectly come within the scope of the wholesale financing agreement arbitration clauses. The court rejected the dealership’s alternative argument that the “all direct and indirect claims” provision was an illegal “dragnet”clause, applying Georgia law (which follows the minority view enforcing such clauses). The judgment was reversed. <>Agco Corporation v. Max Anglin et al.,(Case No. 98-3373) 216 F.3d 589, 2000 WL 739317 (7th Cir. 6-9-2000)

A Texas Court of Appeals ruled that it was bound to follow the rule set out in a footnote of a recent Texas Supreme Court opinion, holding that in Texas (a minority of one state) the determination of whether an arbitration clause is unconscionable is to be decided by the arbitrator, not the courts, citing <>In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573, n.3, (Tex. 1999); In re Conseco Finance Servicing Corp. f/k/a Green Tree Financial Servicing Corporation, 19 S.W.3d 562 (Tex. App. 6-7-2000)

A union and employer arbitrated seven claims raising the same fundamental issue. Six claims were decided in favor of the employer. The remaining claim was decided in favor of the union/employees. The arbitration award in favor of the union/employees was confirmed as a judgment first. Subsequently the six arbitration awards in favor of the employer were also confirmed as judgments. The union appealed, arguing res judicata under arbitration enforcement law, contending that the first judgment precluded the employer from confirming the six arbitration awards in its favor. The seventh circuit concluded that confirmation of an arbitration award determines, for res judicata purposes, only that there was no basis for upending the award, not the merits of the claim that was arbitrated. <>Consolidated Coal Co. v. United Mine Workers of America, Dist. 12 Local Union 1545,(Case No. 99-1640), 213 F. 3d 404,(7th Cir. 5-16-2000)

Arbitration clauses in point and click electronic contracts are enforceable notwithstanding the FAA (9 U.S.C. 4) requirement of a “written” agreement. An internet software company requires internet users to accept its electronic license agreement before downloading its free software, which permits users to download, record, and play music. The license agreement required arbitration in the state of Washington, applied the law of Washington and provided that the state and federal courts of Washington have exclusive jurisdiction. The Defendants moved to stay the litigation pending arbitration and to enforce the forum selection clause. The court stayed the case pending arbitration under 9 U.S.C. 3, and did not reach the forum selection issue, applying the state law of Washington under Illinois choice of law rules and Seventh Circuit federal law instead of the conflicting Ninth Circuit federal law that would have been applied in Washington federal courts. Lieschke et al., v. Realnetworks, Inc. , 2000 WL 198424 (N.D.Ill. 2-11-2000) and In re: Realnetworks, Inc, Privacy Litigation, 2000 WL 631341, ___ F.Supp.2d ___ (No. 00-C-1366) (N.D.Ill. 5-8-2000)

Arbitration clauses in retail installment sales agreements were procedurally unconscionable where they extended credit to poor credit risks with limited alternative credit sources, there was no time to review the agreements, copies were not furnished until the agreements became effective, enforcement of the arbitration provisions barred court proceedings under state and federal statutes designed to protect unsophisticated consumers from unscrupulous creditors and the arbitration clauses were in fine print. The arbitration clauses were also substantively unreasonable and unconscionable because they denied the consumers the important right to vindicate their statutory rights by failing to provide for class actions and declaratory and injunctive relief in the arbitration proceedings. <>Lozada v. Dale Baker Oldsmobile, Inc, et al., 91 F.Supp.2d 1087 (W.D. Mich. 3-27-2000)

A farmer entered into hedge-to-arise (HTA) contracts with a grain elevator operator. The farmer filed suit claiming the grain elevator operator violated the Commodity Exchange Act and engaged in RICO illegal activities and violated Illinois State Law. The District Court applied arbitration enforcement law and compelled arbitration. The arbitrators ruled against the farmer on his claims and awarded attorneys fees of about $140,000.00 to the grain elevator operator. The judgment against the farmer was affirmed on appeal, with the exception of a small portion of the attorneys fees. The court determined that the farmer’s claim of structural bias by the organization administering the arbitration was not established and that evidence of direct bias by the arbitrators against the farmer was required. The court also determined that the farmer’s claims that he was fraudulently induced into the HTA Contracts was for the arbitrator, not the courts, to decide since the claims of fraud did not relate directly to the arbitration clause. <>Harter v. Iowa Grain Co.,(Case No. 98-3010) 211 F. 3d 338 (7th Cir. 2000)

Where arbitration provisions are unclear, the court may construe the arbitration contract to determine the intent of the parties and, where appropriate, may determine that the parties agreed to arbitrate consolidated claims(the same rationale could apply to class actions) in a single proceeding. <>Connecticut General Life Ins. Co. v. Son Life Assurance Co. of Canada,(Case No. 99-4085), 210 F. 3d 771, 2000 WL 490692 (7th Cir. 2000)

An agreement to arbitrate in a securities trading agreement was void and unenforceable where the dealer failed to register under the Illinois Securities Act. Under these circumstances the arbitration clause was against public policy, as established by the act. The court, however, did not accept the alternative argument to find the arbitration agreement illusory. <> Aste v. Metropolitan Life Ins. Co., 312 Ill. App. 3d 972, 245 Ill. Dec. 547, 728 N.E. 2d 629, (Ill. App. 2000)

Where conflicts exists between general federal venue statues and the venue rules of the federal arbitration statute, the general venue statues will prevail, overruling previous cases to the contrary. <>Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 120 S. Ct. 1331 (2000)

Where an employer filed a petition to compel arbitration of a former employee’s discrimination claims in the state court and lost, the federal courts were without jurisdiction, under the rooker feldman doctrine, to apply arbitration enforcement law to the federal petition to compel arbitration. <>Brown & Root, Inc. v. Breckenridge, 211 F. 3d 194 (4th Cir. 5-2- 2000)

An injured Massachusetts fishing boat employee was required to arbitrate his injury claims in London, England under the terms of his employer’s insurance policy. The employer assigned its claims under the policy to the employee as the incident in question occurred when the employer’s only asset, the boat, sank. The arbitration clause was enforced under the international arbitration provisions of the Federal Arbitration Act, 9 U.S.C. § 201-208, and was not void because it allegedly conflicted with the McCarran-Ferguson Act, 15 U.S.C. § 1012(b) which protects state laws regulating the business of insurance. The arbitration clause was, arguably, void under Massachusetts statutes applicable to insurance policies. <>Dimecurio v. Sphere Drake Ins., PLC, 202 F. 3d 71 (1st Cir. 2000).

The Florida statute requiring arbitration of personal injury protection (PIP) claims under insurance policies is unconstitutional under the Florida Constitution as a denial of due process. The statute also had a “loser pays” provision for costs and attorney’s fees, which is also unconstitutional. <>Nationwide Mutual Fire Insurance Co. v. Pinnacle Medical, Inc., 753 So. 2d 55 (Fla. 2-3-2000)

An employer required each of its employees to sign an agreement with a third party arbitration service provider, Employment Dispute Services, Inc. In the agreement the employee agreed to arbitrate all claims against his potential employer, through the services of Employment Dispute Services, Inc., which in turn promised to provide an arbitration forum. Employment Dispute Services, Inc. in turn maintained an agreement with the employer. The sixth circuit found the arbitration agreement illusory, that it was not based upon consideration and therefore was unenforceable, because the service’s promise to provide an arbitral forum was fatally indefinite. Arbitration was not compelled. <>Floss v. Ryan Family Steak Houses, Inc., 211 F. 3d. 306, Case No. 99-5099 (6th Cir.,5-1- 2000)

A Minnesota Statute requiring arbitration of claims under the Minnesota Sales Representative Act, even where the parties did not contractually agree to arbitrate, is void as unconstitutional because it deprives the parties of their 7th Amendment right to a jury trial and violates the “Contracts Clause” as special interest legislation lacking a public purpose; Angostura Internet Ltd. v. Melemed, 25 F. Supp.2d 1008 (D. Minn. 1998); GTFM, LLC v. TKN Sales, Inc., _______ F. Supp.2d _____, 2000 WL 364871 (S.D. N. Y. 2000)

The federal Magnuson-Moss Act, 15 U.S.C. § 2301 et. seq. supercedes the Federal Arbitration Act, according to the Alabama Supreme Court. As a result, application of federal arbitration enforcement law to written warranty agreements covered by the Magnuson-Moss Act is prohibited. Southern Energy Homes, Inc. v. Lee, 732 So. 2d 994 (Ala. 1999)

An arbitration clause in a purchase and sale agreement for a new home did not cover the purchaser-plaintiff’s tort claims for injuries (death) resulting from improper construction of the home. The Florida Supreme Court found that enforcement of the arbitration clause would deprive the plaintiff of her rights to a trial by jury, due process of law under the Constitution and access to the courts. <>Seifert v. U.S. Home Corporation, 750 So. 2d 633 (No. 91821) (Fla. 11-18-1999)

An arbitration clause in a cellular phone contract was found to be unconscionable, and unenforceable because it eliminated the possibility of punitive damages and injunctive relief and prevented class action suits. Powertel v. Bexley, 743 So. 2d 570 (Fla. App. 1999)

A credit card application, sponsored by the retailer Best Buy, and lender, Beneficial National Bank, required the consumer to agree in advance to the terms and conditions of the BNB USA cardholder agreement. The consumer did not receive a copy of the agreement until the it was completed and the credit card arrived. The credit card package also sold the consumer insurance on the debt ( at the expense of the consumer, for the benefit of the lender and retailer) without, allegedly, meeting the disclosure requirements of the Truth in Lending Act, 15 U.S.C. 1601, et seq., or the Florida disclosure act, F.S.A. 627.679. The court held that the arbitration clause, requiring arbitration before the National Arbitration Forum, was unenforceable because it was unconscionable in that it was undisclosed and because the defendants failed to establish that the National Arbitration Forum was a neutral, inexpensive and efficient forum for resolving these claims. The consumer argued that the National Arbitration Forum was too closely aligned with the consumer finance industry. This case is now pending on appeal before the United States Eleventh Circuit. Baron v. Best Buy Co., Inc. et al., 75 F.Supp.2d 1368 (S.D. Fla. 1999)

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A consumer who had signed an arbitration agreement with an HMO could still sue for injunctive relief on behalf of the public under a state consumer protection statute, even though the consumer’s damage claims must be arbitrated. Public policy precluded enforcement of the arbitration clause for the injunctive relief requested on behalf of the public. <>Broughton v. Cigna Healthplans of California, 90 Cal. Rptr. 2d 334, 988 P.2d 67 (Cal. 1999)

State law, not federal law, determines the defenses, including waiver, to the enforcement and validity of arbitration agreements. <>State Farm Mutual Auto Ins. Co, v. George Hyman Const. Co., 306 Ill. App. 3d 874, 715 N.E. 2d 749, 754, 755, 240 Ill. Dec. 62 (1999)

The 90 days for filing Motions to Vacate or Modify an Arbitration Award begin from the date of the award, not the later date on which the award was modified ministerially. <>Fradella v. Petricca, 183 F. 3d 17 (1st. Cir. 1999)

Motion to confirm original arbitration award denied, rendering motion to vacate amended arbitration award moot, where original arbitration award was ambiguous. Case remanded to the arbitrator to clarify the ambiguity. The 90 day limit for filing motions to vacate may be equitably tolled. <>Hyle v. Doctor’s Associates, Inc., 198 F. 3d 368 (2d Cir. 1999)

Parties that agree to arbitrate in a state thereby submit to personal jurisdiction in that state. There are five theories under which non-signatories may be bound by arbitration agreements entered into by others: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; (5) estoppel. <>American Bureau of Shipping v. Tencara Shipyard , S.P. A., 170 F. 3d 349 (2d Cir. 1999)

Where an employee agreed to arbitrate civil rights claims against its employer, the Equal Employment Opportunity Commission may not be compelled to arbitrate when pursuing a claim on behalf of the employee; the EEOC also may not litigate a claim on behalf of the employee, as it is bound by the arbitration clause signed by the employee. <>Equal Employment Opportunity Commission v. Waffle House, Inc., 193 F. 3d 805 (4th Cir. 1999)

The arbitration clauses in franchise agreements were enforceable where the franchisees argued they were unconscionable, by permitting the franchiser to litigate its claims, while requiring the franchisees to arbitrate. The franchisees also argued the arrangement in the lease, sublease cross-default clause, in combination with the arbitration clauses in the franchise agreements, was void as against public policy. The Court disagreed. <>We Care Hair Development Corp. v. Eric Engen, et al.(Case No. 97-3908), 180 F. 3d 838 (7th Cir. 1999)

International arbitration agreements are not binding on a party which neither signed the agreement nor agreed to arbitrate by exchanging letters or telegrams. <> Kahn Lucas Lancaster v. Lark International LTD, 186 F. 3d 210 (2d Cir. 1999)

It is for the courts to determine if the parties to an alleged contract, containing an arbitration clause, actually entered into a binding contract. If the contract was not properly and legally executed, the arbitration clause contained therein could not be enforced. Neither the Federal Arbitration Act nor the Missouri Arbitration Act require enforcement of an arbitration clause if there is no binding contract. <>Hitcom Corporation v. Flex Financial Corp., 4 S.W. 3d 618 (Mo. App. 1999

The eight circuit refused to enforce a settlement agreement reached in a statutory mediation proceeding because it failed to comply with the Minnesota Civil Mediation Act by expressly stating that it is binding. <>Haghighi v. Russian-American Broadcasting Co., 173 F. 3d 1086 (8th Cir. 1999)

An alleged mistake about the law by the arbitrator was not sufficient to constitute a “gross mistake” which would warrant vacating the arbitration award. Arbitrators may award punitive damages only when the arbitration agreement specifically so provides. Here the punitive damages must be set aside because the agreement did not provide for punitive damages. Edward Electric Co. v. Automation, Inc., 229 Ill. App. 3d 89, 171 Ill. Dec. 13, 593 N.E. 2d 833 (Ill. App. 1992); <>Ryan v. Kontrick, 304 Ill. App. 3d 852, 237 Ill. Dec. 588, 710 N.E.2d 11 (Ill. App. 1999)

A Rhode Island franchisee which filed suit against the franchiser in Rhode Island under the Rhode Island franchise investment act, was required to arbitrate its claims under the act in Chicago pursuant to an arbitration clause in the franchise agreement. The court held that the federal arbitration act, 9 U.S.C. § 1 et seq., preempted any contrary provisions of the Rhode Island franchise investment act. <>KKW Enterprises, Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F. 3d 42 (1st Cir. 1999).

The federal district court in Massachusetts refused to compel an investor to arbitrate its claims against a stockbroker under the rules established with the New York stock exchange, pursuant to a clause in the investment contract, finding that the rules established by the New York Stock Exchange did not provide an adequate forum for the dispute because of “structural bias”. The district court found that the stock brokerage had too many ties to the stock exchange and refused to compel arbitration. The first circuit affirmed the order refusing to compel arbitration on other grounds, but rejected the “structural bias” finding of the district court, finding there was insufficient evidence to support the district court’s conclusions. Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc. et al., 995 F. Supp. 190 (D. Mass. 1998); affirmed on other grounds; <>Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc. et al., 170 F. 3d 1 (1st Cir. 1999).

An arbitration award entered pursuant to an arbitration clause which failed to provide that a court judgment could be entered on the award was, nevertheless, confirmed as a judgment. The court found that the arbitration clause incorporated the rules of the American Arbitration Association which, in turn, provided that a judgment could be entered on an award. <>P & P Industries, Inc. v. Sutter Corp., 179 F. 3d 861 (10th Cir. 1999)

An employee was not required to arbitrate his age discrimination claim under an arbitration clause in his employment contract which specifically excluded controversies regarding the employer’s right to terminate. The Missouri case, filed by the employee, took priority over a complaint to compel arbitration filed later in Ohio by the employer. The employer argued the Ohio case should take priority (where the Court had entered an order compelling arbitration) because the arbitration agreement required arbitration in Ohio. The employer relied upon the federal arbitration act, 9 USC § 4. The 8th Circuit rejected that argument. <>Keymer v. Management Recruiters International, Inc., 169 F. 3d 501 (8th Cir. 1999)

A non-signatory to an arbitration agreement could be required by a signatory to arbitrate under the doctrine of equitable estoppel. <>MS Dealer Corp. v. Franklin, 177 F. 3d 942 (11th Cir. 1999)

In California a judgment entered upon confirmation of an arbitration award does not have collateral estoppel effect in favor of nonparties to the arbitration, unless such nonparties specifically so agreed. The arbitration award and confirming judgment would be enforceable among the parties to the arbitration proceedings under the doctrine of res judicata. <>Vandenberg v. Superior Court, 21 Cal. 4th 815, 982 P.2d 229 (Cal. 1999).

An arbitration panel did not exceed its authority in awarding $1,131,000.00 to a brokerage firm in a claim against another brokerage firm and the claimant’s former employees for allegedly misappropriating trade secrets, breach of fiduciary duty and unfair competition by stealing former customers of claimant. Judicial review of arbitrator awards is extremely limited and appellate review of trial court reviews of those awards even more so. The defendants did not establish that the arbitration panel exceeded its authority or that a member of the panel was prejudiced against the defendant or that the panel committed gross errors of law or fact. The arbitration award was affirmed as a judgment in its entirety. <>Everen Securities, Inc. v. A.G. Edwards and Sons, Inc., 308 Ill. App. 3d 268, 241 Ill. Dec. 451, 719 N.E. 2d 312 (Ill. App. 1999).

Arbitration Clauses have been held unenforceable as unconscionable or against public policy because the arbitration rules were one-sided and unfair to the consumer, because the cost of arbitrating was too high for the consumer or because the agreement was not clear about who would pay the arbitration expenses. <>Hooters of America, Inc. v. Phillips, 173 F. 3d 933 (4th Cir. 1999);<>Shankle v. B-G Maintenance Management of Colorado, Inc., 163 F. 3d 1230 (10th Cir. 1999); <>Randolph v. Green Tree Financial Corp., 178 F. 3d 1149 (11th Cir. 1999) Randolph v. Green Tree, was partially reversed and partially affirmed by the Supreme Court on 12-11-2000. See above.

An arbitration clause in a consumer (adhesive) contract for yellow and white page ads, which required the consumer to arbitrate his claims before the American Arbitration Association, but permitted the ad publisher to sue for amounts due it under the agreement, was unenforceable as unconscionable. Arbitration clauses are unenforceable in Montana if (applying general contract law not specially designed for arbitration clauses) the clause is unconscionable or fails to meet the reasonable expectations of the parties or is against public policy. <>Iwen v U.S. West Direct, et al., 977 P.2d 989 (Mont. 1999)

A union negotiated waiver of an employee’s statutory right to a judicial forum for determination of his Americans with Disabilities Act (ADA) claims, 42 U.S.C. 12101 et seq., must be clear and unmistakable. Since the collective bargaining agreement, containing the arbitration clause at issue, did not clearly and unmistakably waive the employees’ right to file ADA claims in court, the district court erred in dismissing the employee’s ADA claim on the ground that he was required to arbitrate. The order of dismissal was vacated and the case remanded. <>Wright v. Universal Maritime Service Corporation, 525 U.S. 70 (1998)

The arbitration clause in standard general contract conditions form A.I.A 201, 1987, was unenforceable, even though it was incorporated by reference into the standard general contract, form A.I.A. 101, because the contractor seeking to compel arbitration did not put A.I.A. 201 into evidence, and because A.I.A 201 conflicted with another standard contract clause in the project manual providing that all claims and disputes would be decided in court by the courts of Missouri. <>AJM Packaging Corp. v. Crossland Construction Co., Inc., 962 S.W.2d 906 ( Mo. App. 1998). Arbitration Lawyer.

Credit card and bank account contracts containing “change of term” clauses, permitting the lender to unilaterally change the terms, did not permit the lender to add an arbitration clause by mailing envelope stuffers to the borrowers. The post-agreement, unilateral arbitration clauses were unenforceable because they exceeded the unilateral right of one party to make subsequent, substantive, changes to the agreement, violated the implied covenant of good faith and fair dealing and because the resulting jury waiver was not unambiguous and unequivocal, as required to waive a constitutional right. <>Badie v. Bank of America, 67 Cal. App. 4th 779, 79 Cal Rptr.2d 273 (Cal. App. 1 dist. 1998)

Equitable principles require that an eviction action filed against a franchisee, sublessee be stayed where the franchiser, affiliated with the eviction plaintiff, sublessor, had obtained a federal injunction barring the franchisee, sublessee from raising otherwise available defenses in the eviction action. <>Subway Restaurants, Inc. et al. v. Riggs, 297 Ill. App. 3d 284, 696 N.E. 2d 733, 231 Ill. Dec. 437 (1998)

An employee of a securities brokerage could not be compelled to arbitrate her claims for civil rights violations pursuant to a clause in the standard employment contract and employment form U-4. <>Duffield v. Robertson Stephens & Co., 144 F. 3d 1182 (9th Cir. 1998)

By removing a State case to the Federal Court and filing a Motion claiming Federal Preemption of the state claim, a defendant waived its right to compel arbitration. Ex Parte Ronald Joe Hood v. Golden Poultry Co., Inc., 712 So. 2d 341 (Ala. 1998)

An arbitration clause in a consumer credit contract was unconscionable and unenforceable, where the lender and the home repair “pitchman” conspired to give the pitchman access to the borrowed funds for purposes other than payment of legitimate repairs. The consumer loan agreement was a contract of adhesion. The judgment of $15,000 compensatory damages and $1,500,000 punitive damages against the lender was affirmed. <>Williams v Aetna Finance Company, d/b/a ITT Financial Services, 700 N.E.2d 859 (Ohio 1998)

Arbitration agreements have been held unenforceable when they limit the statutory rights of an employee, while requiring arbitration of claims asserting those rights or where an employee is required to arbitrate all its claims but the employer is permitted to litigate many of its claims. <>Stirlen v. SuperCuts, Inc., 51 Cal. App. 4th 1519, 60 Cal. Rptr. 2d 138 (1997); <>Paladino v. Avnet Computer Technologies, Inc., 134 F. 3d 1054 (11th Cir. 1998)

An arbitration clause in a consumer loan agreement, subject to the West Virginia Consumer Credit and Protection Act, which waived the borrower’s access to the courts while preserving the lender’s right to a judicial forum, is unconscionable and unenforceable. <>Arnold v United Companies Lending Corporation, et al., 511 S.E.2d 854 (W.Va. 1998)

After an employee was rehired, she signed an understanding that all claims against her employer would be arbitrated. She did not sign, and was not given, an employment manual which arguably imposed a similar obligation to arbitrate on the employer. Indiana law applied. She subsequently was fired and filed claims for violation of Title VII (Civil rights) and the Americans with Disabilities Act (ADA). The employer moved to compel arbitration. An employee cannot forfeit substantive rights under Title VII or the ADA absent a voluntary and knowing waiver. The employer retained the right to unilaterally change the terms of the employment manual and form “understanding” at any time. The court found that the “understanding” did not constitute a binding agreement to arbitrate because there was no consideration for the employee’s agreement to arbitrate. The understanding did not obligate the employer to arbitrate and the employee was not shown the employee manual and did not sign it. Absent a binding agreement, arbitration may not be compelled. <>Mona Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126 (7th Cir. 1997)

The FAA’s exclusion of contracts of employment that affect commerce does not exclude from its coverage employment contracts which have some affect on interstate commerce; the exclusion applies only to employment contracts of workers actually engaged in the movement of goods in interstate commerce. An arbitration clause in an employment contract which subjected, at the employers option, all employment disputes to arbitration before the American Arbitration Association was enforceable and applied to the employee’s statutory civil rights claims; provided, however, that the agreement was construed by the court to exclude the part requiring the employer and employee to each pay one-half the arbitration fees. The employer could not require the employee to pay all or part of the arbitration fees or expenses. <>Cole v. Burns International Security Services, et al., 105 F.3d 1465 (D.C. Cir. 1997)

Franchisees’ claims for damages of less than $75,000.00 apiece in state court did not deprive the federal court of subject matter diversity jurisdiction in federal actions by the franchiser to compel arbitration where the franchiser alleged in federal court that the amounts in dispute were more than $75,000.00 for each franchisee. <>The Barbers, Hairstyling for Men & Women, Inc. v. Bishop, et al.(Case No. 97-2360), 132 F. 3d 1203 (7th Cir. 1997)

In state cases or diversity cases in the federal courts, state law governs the defenses to enforcement and validity of arbitration clauses, subject to the federal limitation that the same state contract rules that apply to contracts generally must be applied to arbitration contracts. The states can not develop special contract defenses for arbitration agreements. <>Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987); <>Allied-Bruce Terminix Companies, Inc. v Dobson, 513 U.S. 265, 281 (1995); <>Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996)

The federal courts do not have federal question subject matter jurisdiction to hear motions to vacate or confirm arbitration awards even where the arbitrated claim was based upon a federal statute. motions to vacate, filed in the federal court, must be dismissed if the court does not have diversity jurisdiction.<>Kasap v. Folger Nolan Fleming & Douglas, 166 F. 3d 1243 (D.C. Cir. 1999); <>Minor v. Prudential securities, Inc., 94 F. 3d 1103 (7th Cir. 1996)

An arbitration clause in a physician-patient contract, requiring arbitration of malpractice claims before a panel of neutral surgeons, was not substantively unconscionable. However, a clause requiring the patient to pay the physician’s attorney fees if malpractice was established, but the patient recovered less than one-half the amount claimed, was substantively unconscionable and the circumstances surrounding execution of the agreement established procedural unconscionability. Case remanded to determine if the unconscionable penalty clause could be severed, and the balance of the contract, including the arbitration clause, enforced; or if the patient could rescind the entire contract. <>Sosa v Paulos, 924 P.2d 357 (Utah 1996)

An employer’s employee handbook, containing an arbitration clause, did not require the employee to arbitrate her civil rights claims against the employer because it did not create a binding contract in that the employer did not intend to be bound by the previsions of the handbook. <>Heurtebise v. Reliable Business Computers, 550 N.W. 2d 243 (Mich. 1996)

An arbitration clause in an insurance policy, providing that awards below $25,000.00 are binding but above that amount may be rejected, is void and unenforceable because it requires multiple actions in multiple forums to resolve a single dispute, and is thereby against public policy. Large awards would most likely be against the insurance carrier, giving it the option of retrying those claims. Fireman’s Fund Ins. Co. v. Bugailiskis, 278 Ill. App. 3d 19, 662 N.E. 2d 555, 214 Ill. Dec. 989 (1996)

The contract between a patient and her doctor containing an arbitration clause which provided that an arbitration award was final for amounts below $25,000.00 but not binding for amounts above $25,000.00 was unenforceable against the patient. The court found the arbitration agreement illusory, as to the patient. Most small awards would be in favor of the doctor for unpaid fees and most large awards would be in favor of the patient for malpractice and similar claims. <>Saika v. Gold, 49 Cal. App. 4th 1074, 56 Cal. Rptr. 2d 922 (Cal. App. 4 Dist. 1996)

A future royalties clause requiring a franchisee to pay royalties in the future, after it ceases operation, until the end of the term of the franchise agreement, is void and unenforceable as unreasonable, unconscionable and oppressive. <>Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704, 51 Cal. Rptr. 2d 365 (Cal. App. 1996).

A Michigan Franchise Statute, M.C.L.A. § 445.1527 (f) precludes enforcement of a pre-dispute franchise agreement clause requiring arbitration or litigation outside the state of Michigan for michigan franchises. This does not preclude the franchisee from entering into a post-dispute agreement to arbitrate or litigate outside the state of Michigan. Hambell v. Alphagraphics Franchising, Inc., 779 F. Supp. 910 (E.D. Mich. 1991). The contrary conclusion was reached, however, by the U.S. District Court in Arizona. Alphagraphics Franchising Inc. v. Whaler Graphics, Inc., 840 F. Supp. 708 (D. Ariz. 1993); See also<>Webb v. Investacorp, Inc., 89 F. 3d 252 (5th Cir. 1996)

Arbitration clauses, like other contracts, are governed by the rules of contract construction. A cardinal principle of contract construction requires that a document be read to give effect to all its provisions and to render them consistent with each other; Restatement (Second) of Contracts, sections 202(5), 203(a) and Comment b, and 206. Applying these principles, the court found that a securities broker-customer contract, containing an arbitration clause and applying New York law, permitted the arbitrator to award both actual and punitive damages, even though New York law did not permit punitive damages in arbitration awards. The arbitration clause incorporated the rules of the National Association of Securities Dealers, which expressly permit punitive damages. <>Mastrobuono v. Shearson Lehman Hutton, Inc et al., 514 U.S. 52, (1995)

Class actions or consolidated claims may not be arbitrated as a unit unless the arbitration agreements specifically so provide. <>Champ v. Siegel Trading Co., 55 F. 3d 269 (7th Cir. 1995)

The parties to an arbitration contract may agree that questions about arbitrability will be determined by the arbitrator, not the court. In case of ambiguity, the court will presume that the parties did not so agree. <>First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995)

A former sales employee brought suit against his former employer, the American Arbitration Association and the individual arbitrator, alleging breach of contract and failure of arbitration with respect to arbitration proceedings that had been pending 3 years. The district court denied the employer’s motion to return the matter to arbitration. The fifth circuit reversed, holding that the district court did not have authority to refuse to return the matter to arbitration where there was no final arbitration award. Once an arbitration award is entered a party may move to vacate, modify or confirm–but not before. <>Folse v Richard Wolf Medical Instruments Corp. 56 F.3d 603 (5th Cir. 1995)

An arbitration clause which requires arbitration of claims under the Federal Petroleum Marketing Practices Act, 15 U.S.C. § 2801-2806, is not enforceable where the arbitration clause eliminates some of the rights and protections provided to the franchisee under the statute, then requires arbitration. The arbitration clause was severable from the balance of the contract and held void and unenforceable. <>Graham Oil Co. v. Arco Products Co., 43 F. 3d 1244 (9th Cir. 1994)

An arbitration agreement to arbitrate civil rights actions under Title VII was void and unenforceable because it did not specifically provide for arbitration of civil rights claims. <>Prudential Ins. Co. of America v. Lai, 42 F. 3d 1299 (9th Cir. 1994)

An arbitration clause was not enforced because it was unconscionable by requiring the borrowers to arbitrate in a distant state under an organization and rules designed to favor the lender. <>Patterson v ITT Consumer Financial Corp., 14 Cal. App. 4th 1659, 18 Cal Rptr 2d 563 (Cal App. 1993)

The employment agreement of an independent contractor, worker, with a local franchisee of a national realtor, requiring arbitration of all disputes before a panel of sales agents of the national chain, to be chosen by the franchisee-employer, was unenforceable because it was inconsistent with fundamental notions of fairness and tended to defeat arbitration’s ostensible goals of expeditious and equitable dispute resolution. The court cited the example of permitting the foxes to select the arbitrators, in a dispute with the rabbits, described in dicta in Board of Education v W. Harley Miller, Inc, 236 S.E.2d 439 (W.Va. 1977). <>Ditto v Re/Max Preferred Properties, Inc et al. {Insert citation, Press Go}, 861 P.2d 1000 (Ok. App. 1993)

A pre=surgery waiver form which required a patient to submit all medical malpractice claims to physician-arbitrator was a contract of adhesion which was unenforceable as failing to meet the reasonable expectations of the patient. The patient was was under a great deal of emotional stress at the time she signed, had only a high school education and was not experienced in commercial matters. The terms of the agreement were also not explained to the patient. Broemmer v Abortion Services of Phoenix, LTD, 840 P.2d 1013 (Ariz. 1992)

The statutory claims of a registered securities representative for violation of the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq., were subject to the mandatory arbitration clause in the securities registration application he executed in relation to his employment. The court did not reach the issue of whether the exclusion of contracts of employment of workers engaged in interstate commerce, provided in 9 U.S.C. 1, applied because it was not raised below by the employee and because the arbitration clause was not in a contract of employment, even though it was applied to the employment claims of an employee. This issue is now before the U.S. Supreme Court in <>Circuit City Stores, Inc. v. Adams, 194 F.3d 1070 (9th Cir. 1999), cert. granted, No. 99-1379. See also <>Gilmer v Interstate/Johnson Lane Corporation, 500 U.S. 20 (1991)

A franchiser waived its right to compel arbitration by filing eviction lawsuits against its franchisee, sublessee to resolve related disputes. The eviction lawsuits were filed by the alter ego or agent of the franchiser. Yates v. Doctor’s Associates, Inc., 193 Ill. App. 3d 431, 549 N.E. 2d 1010, 140 Ill. Dec. 359 (1990)

The procedural sections of the Federal Arbitration Act (9 U.S.C. § 1 et seq.) do not apply in state courts. Only sections 1 and 2 (the substantive sections) apply in state courts. The procedural sections, such as 3 and 4, apply only in the federal courts. <>Volt Informational Sciences, Inc. v. Leland Stanford, Jr. University, 489 U.S. 468, 477, n. 6 (1989)

Only the parties to a franchise contract, containing an arbitration clause, may compel arbitration or be compelled to arbitrate. Officers and directors of a corporate party may not be compelled to arbitrate and may not compel arbitration. Vukusich v. Comprehensive Accounting Corp., 150 Ill App. 3d 634, 501 N.E. 2d 1332, 103 Ill. Dec. 794 (1986)

It was for the court, not the arbitrator, to decide, in the first instance, the issue of arbitrability–whether the parties to a collective bargaining agreement intended to arbitrate grievances concerning layoffs predicated on lack of work determinations by the employer. See, however,<>Kaplan v First Options, 514 U.S. 938 (1995), which permits the parties to contract for submission of the issue of arbitrability to the arbitrator. <>A T & T Technnologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)

The eleventh circuit ruled that agreements to arbitrate must be mutual to be enforceable. Applying New York law it refused to compel arbitration, finding the arbitration agreement illusory, where the obligation to arbitrate could easily be avoided by the party drafting the agreement. Hull v Norcom, 750 F.2d 1547 (11th Cir. 1985)

The FAA requires that federal district courts enforce arbitration clauses even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.<>Dean Witter Reynolds, Inc v Byrd, 470 U.S. 213 (1985)

A patient was required to sign an arbitration agreement as a precondition for receiving medical treatment. This contract of adhesion was unenforceable where the terms of the agreement were not explained to the patient, who therefore did not give an informed consent to waive her right to a judicial forum. Obstetrics and Gynecologists William G. Wixted M.D., Patrick M. Flanagan et al., v. Pepper, 693 P.2d 1259 (Nev. 1985)

A state franchise statute, interpreted as precluding arbitration of franchise act claims, conflicted with the FAA, 9 U.S.C. 1 et seq., thereby violating the supremacy clause of the United States Constitution. This provision of the state franchise law was unenforceable. The substantive sections of the FAA (1 & 2) apply in state court. <>Southland v Keating, 465 U.S. 1 (1984)

A Federal District Court abused its discretion by abstaining from hearing an application to compel arbitration under the FAA because of pending state court litigation between the same parties to the construction agreement containing the arbitration clause. The abstention order was final and appealable. <>Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1 (1983)

An arbitration clause in an agreement between a musician (Leon Russell) and a promoter for concert appearances, requiring that all disputes under the agreement be submitted to the executive board of the musicians for final determination, was unenforceable as unconscionable, since the musician was a member to the musicians union, but the promoter was not. The arbitrators were presumptively biased in favor of the musician by reason of their status and identity as fellow musicians. The judgment for the musician, confirming the arbitration award, was reversed and the case remanded with instructions to select new arbitrators from outside the musicians’ union. <>Graham v Scissor-Tail, Inc., 28 Cal.3d 807, 623 P.2d 165 (Cal. 1981)

An arbitration clause which provided for the panel of arbitrators to be chosen exclusively by the dominant party which drafted the agreement would be unconscionable, void and unenforceable, according to dicta by the West Virginia Supreme Court, while directing that judgment be entered on the arbitration award. Board of Education of the County of Berkeley v W. Harley Miller, Inc. 236 S.E.2d 439 (W.Va. 1977)

A ship owner was entitled to an evidentiary hearing to determine if the arbitrator was sufficiently neutral, before the arbitration award could be confirmed, where the arbitrator had failed to disclose his relationship with the ship charterer and the ship charterer’s counsel. The judgment confirming the arbitration award was reversed and the case remanded to conduct the evidentiary hearing. Sanko S.S. Co. LTD. v. Cook Industries, Inc. 495 F.2d 1260 (2nd Cir. 1973)

The courts must be scrupulous to safeguard the impartiality of arbitrators, since they act as the judge, jury and court of appeals. <>Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968).

Issues of fraudulent inducement into the entire contract containing an arbitration clause are for the arbitrators to decide, whereas issues relating to fraudulent inducement specifically into the arbitration clause, as apposed to the entire contract in which the clause is embedded, are for the courts to decide under the doctrine of separability which treats the arbitration clause and the contract in which it is embedded, for these purposes, as separate contracts. <>Prima Paint Corp. v. Flood & Conklin Mfg., 388 U.S. 395 (1967)