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Monday, February 6, 2012

Three Arbitration Decisions Part I: Gore v. Alltel, Seventh Circuit

In Gore v. Alltel Communications, the Seventh Circuit reversed the District Court and granted Alltel's motion to compel arbitration.  In October 2005, Mr. Gore entered into a two-year agreement with First Cellular.  He agreed to pay $40/month for four separate wireless lines. His agreement with First Cellular contained no arbitration clause.  In May 2006, Alltel acquired First Cellular.

Mobile_phone_evolutionThe details are complicated, but in the transition from First Cellular to Alltel, Mr. Gore lost service on some of his wireless lines.  In addition, he was offered a choice between a $250 termination fee or a new contract that required him to purchase an Alltel-compatible phone and to pay $109/month for continued service.  Mr. Gore chose the latter and then filed a class-action suit against Alltel, as successor in interest to First Cellular, alleging breach of contract, deceptive trade practices, civil conspiracy and unjust enrichment.  However, back in November 2006, he had received an invoice that put him on notice that by using the services provided by Alltel, he was accepting new terms and conditions, including an arbitration clause.  

Alltel had the case removed to federal court and then moved for dismissal and compelled arbitration.  The District Court denied the motion to dismiss pending discovery on the issue of whether or not arbitration was appropriate.  Alltel filed an interlocutory appeal.  The Seventh Circuit stated the applicable rule as follows:

In cases like this, where the parties enter into two agreements—though only one contains an arbitration clause, and the plaintiff brings a cause of action based, at least in part, on conduct contrary to the agreement that does not have the arbitration clause, the parties can be compelled to arbitrate only if (1) the clause itself is broad enough to encompass their dispute, or (2) the agreement containing the clause incorporates the other by reference.

In this case, the Alltel contract did not incorporate the First Cellular contract by reference, so the case turned on the court's determination of the breadth of the arbitration clause.  After a careful review of each of Gore’s claims, the Seventh Circuit found each subject to the arbitration clause.  Gore also claimed that the arbitration agreement is unconscionable, but that issue is one for the arbitrator to decide.

[JT]

 

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