Click here to read the brief.
Opposing a State Court’s Refusal to Enforce an Arbitration Agreement Contained in a Contract that the Plaintiff has Voided Based on a Technicality of State Law.
This case, a putative class action which is before the United States Supreme Court on a petition for certiorari, asks whether the Federal Arbitration Act (“FAA”) permits a state (here California) to refuse to enforce an arbitration provision that is contained within an agreement that the plaintiff has voided based on a technicality of state law, long after the contract was performed, in an obvious attempt to evade his contractual obligation to arbitrate his claims arising from the agreement.
The plaintiff here, David Maxon, signed a contingency-fee agreement with the Petitioner, Initiative Legal Group (“ILG”) to pursue his wage-hour claim against his former employer, the Wells Fargo Bank. The contingency-fee agreement contained a mandatory arbitration clause covering all disputes between the attorney and the client. After ILG had completed its legal services under the agreement, Maxon filed this court action alleging that ILG had committed legal malpractice in representing him. ILG moved to compel arbitration. It turned out, however, that ILG had inadvertently failed to sign the contingency-fee agreement, and Maxon, invoking a California statute that permits a client to void a contingency-fee agreement unless both parties have signed it, gave notice to ILG that he was exercising his right under state law to void the fee agreement because ILG had not signed it. Maxon then argued that, because he exercised his statutory right to void the fee agreement, the entire agreement, including the arbitration provision, no longer existed. The California trial court and Appeals Court agreed with Maxon, and the California Supreme Court denied further appellate review.
As NELF argues in its amicus brief in support of the Petitioner, the California courts were wrong because under well-settled United States Supreme Court precedent, the mere voiding of the fee agreement does not also void the arbitration clause. As the Supreme Court has held, the FAA preempts such state interference with the enforcement of an arbitration provision. Under the FAA, an arbitration provision is severable from its “container” agreement. “[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) (Scalia, J., for Court) (emphasis added). This principle of severability is mandated by the plain language of the FAA. “[Section] 2 [of the FAA] states that a ‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid, irrevocable, and enforceable’ without mention of the validity of the contract in which it is contained.” Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010) (Scalia, J., for Court) (emphasis in original).
In short, NELF argues that the Supreme Court should grant certiorari, once again, to compel state courts, like those in California, to adhere to the Supreme Court’s arbitration decisions, and to hold that the arbitration provision is enforceable even if the overall agreement is voided under state contract law, for whatever reason--such as illegality, fraud in the inducement, or unconscionability. Unless a party challenges the enforceability of the arbitration provision itself, the arbitration provision survives and must be enforced. See Buckeye, 546 U.S. at 444-46 (challenge to overall loan agreement as usurious, and therefore void ab initio, did not affect enforcement of arbitration provision contained therein). See also Rent–A–Center, 561 U.S. at 70 (challenge to “all-disputes”/scope clause of arbitration agreement as unconscionable did not affect enforcement of separate arbitration clause delegating unconscionability challenges to arbitrator); Prima Paint Corp. v. Flood & Conklin Mfg. Co. 388 U.S. 395 (1967) (challenge to overall agreement as induced by fraud did not affect enforcement of arbitration provision therein).
As of the time of this report, the Supreme Court has not yet decided whether or not to grant certiorari in this case.
Opposing a State Court’s Refusal to Enforce an Arbitration Agreement Contained in a Contract that the Plaintiff has Voided Based on a Technicality of State Law.
This case, a putative class action which is before the United States Supreme Court on a petition for certiorari, asks whether the Federal Arbitration Act (“FAA”) permits a state (here California) to refuse to enforce an arbitration provision that is contained within an agreement that the plaintiff has voided based on a technicality of state law, long after the contract was performed, in an obvious attempt to evade his contractual obligation to arbitrate his claims arising from the agreement.
The plaintiff here, David Maxon, signed a contingency-fee agreement with the Petitioner, Initiative Legal Group (“ILG”) to pursue his wage-hour claim against his former employer, the Wells Fargo Bank. The contingency-fee agreement contained a mandatory arbitration clause covering all disputes between the attorney and the client. After ILG had completed its legal services under the agreement, Maxon filed this court action alleging that ILG had committed legal malpractice in representing him. ILG moved to compel arbitration. It turned out, however, that ILG had inadvertently failed to sign the contingency-fee agreement, and Maxon, invoking a California statute that permits a client to void a contingency-fee agreement unless both parties have signed it, gave notice to ILG that he was exercising his right under state law to void the fee agreement because ILG had not signed it. Maxon then argued that, because he exercised his statutory right to void the fee agreement, the entire agreement, including the arbitration provision, no longer existed. The California trial court and Appeals Court agreed with Maxon, and the California Supreme Court denied further appellate review.
As NELF argues in its amicus brief in support of the Petitioner, the California courts were wrong because under well-settled United States Supreme Court precedent, the mere voiding of the fee agreement does not also void the arbitration clause. As the Supreme Court has held, the FAA preempts such state interference with the enforcement of an arbitration provision. Under the FAA, an arbitration provision is severable from its “container” agreement. “[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) (Scalia, J., for Court) (emphasis added). This principle of severability is mandated by the plain language of the FAA. “[Section] 2 [of the FAA] states that a ‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid, irrevocable, and enforceable’ without mention of the validity of the contract in which it is contained.” Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010) (Scalia, J., for Court) (emphasis in original).
In short, NELF argues that the Supreme Court should grant certiorari, once again, to compel state courts, like those in California, to adhere to the Supreme Court’s arbitration decisions, and to hold that the arbitration provision is enforceable even if the overall agreement is voided under state contract law, for whatever reason--such as illegality, fraud in the inducement, or unconscionability. Unless a party challenges the enforceability of the arbitration provision itself, the arbitration provision survives and must be enforced. See Buckeye, 546 U.S. at 444-46 (challenge to overall loan agreement as usurious, and therefore void ab initio, did not affect enforcement of arbitration provision contained therein). See also Rent–A–Center, 561 U.S. at 70 (challenge to “all-disputes”/scope clause of arbitration agreement as unconscionable did not affect enforcement of separate arbitration clause delegating unconscionability challenges to arbitrator); Prima Paint Corp. v. Flood & Conklin Mfg. Co. 388 U.S. 395 (1967) (challenge to overall agreement as induced by fraud did not affect enforcement of arbitration provision therein).
As of the time of this report, the Supreme Court has not yet decided whether or not to grant certiorari in this case.
RSS Feed