Enforcement of Arbitration Agreements

November 30, 2016

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 2-16, provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Under the Act, “arbitration agreements [are] on an equal footing with other contracts,” and courts must enforce arbitration agreements according to their terms. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 66 (2010). “Like other contracts, however, they may be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.’ ” Id. (internal citations and quotations omitted).

The FAA creates a general policy favoring arbitration agreements. AT&T Mobility v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 1745-46, (2011). A court must compel a dispute to arbitration should it determine: (1) that a valid arbitration agreement exists; and (2) that the agreement encompasses the dispute at issue. Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 1052, 1058 (9th Cir. 2013); Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008); see also 9 U.S.C. § 4 (“If a court … [is] satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.”). A party seeking to compel arbitration bears the burden of proving the existence of a valid agreement by a preponderance of the evidence. See Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010). Courts shall resolve any “ambiguities as to the scope of the arbitration clause itself … in favor of arbitration.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989).

A district court has no authority to ignore circuit precedent. Mohamed v. Uber Techs., Inc., 836 F.3d 1102, 1111 (9th Cir. 2016) Binding authority “is not merely evidence of what the law is. Rather, caselaw on point is the law. If a court must decide an issue governed by a prior opinion that constitutes binding authority, the later court is bound to reach the same result, even if it considers the rule unwise or incorrect.” Hart v. Massanari, 266 F.3d 1155, 1170(9th Cir. 2001). “Once a federal circuit court issues a decision, the district courts within that circuit are bound to follow it and have no authority to await a ruling by the Supreme Court before applying the circuit court’s decision as binding authority.” Yong v. I.N.S., 208 F.3d 1116, 1119 n. 2 (9th Cir.2000).

When faced with a conflict between the law of this circuit and the law of another, the Court must follow the law of this circuit. Gardner Construction Co. v. Assurance Co., of America  2000 WL 1677959 at *4 (N.D.Cal., Nov. 3, 2000, Case No. C99-1810-MJJ ARB) (“Given the choice between binding precedent and persuasive precedent from another circuit in open disagreement with this circuit’s law, this Court must adhere to the former.”) District courts “are not to resolve splits between circuits no matter how egregiously in error they may feel their own circuit to be.” Zuniga v. United Can Co., 812 F.2d 443, 450 (9th Cir. 1987); Hasbrouck v. Texaco, Inc., 663 F.2d 930, 933 (9th Cir. 1981).

A court cannot compel arbitration of class claims where the parties did not contract to submit to class-wide arbitration. Stolt-Nielsen S.A. v. Animal Feeds Int’l. Corp., 559 U.S. 662, 684 (2010).

The law in the Ninth Circuit is clear: a mandatory arbitration agreement which contains a class action waiver is unenforceable under Morris v. Ernst & Young LLP, 834 F.3d 975 (9th Cir. 2016). Therefore, a motion to compel arbitration based on a motion for a stay and/or dismissal that is predicated upon a finding that the arbitration agreement is enforceable must, too, be denied.

Author: Richard Hoyer
Category: Arbitration, Class Actions, Legal Procedure
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