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Monday, July 28, 2014

Not Everything Is Arbitrable Says 2-1 Majority of the Fifth Circuit

5th CircuitIn 2002, Shirley Douglas opened a checking account with Union Planters Bank.  In connection with that account, which she closed in 2003, Ms. Douglas signed a signature card that provided for binding arbitration and delegated the issue of arbitrability to the arbiter.  

That bank merged into Regions Bank (Regions) in 2005.

In 2007, Ms. Douglas was injured in a car accident.  She alleges that her attorney embezzled her $500,000 settlement, and she sued Regions and another bank at which the attorney maintained accounts.  Regions moved to compel arbitration based on Ms. Douglas's agreement with Union Planters Bank.  The District Court found that there was no ground for arbitration.

On appeal, in Douglas v. Regions Bank, two judges affirmed, while noting that the District Court had applied the wrong law.  While the District Court apparently believed that Regions had never become a party to the arbitration provision at issue, the Circuit Court found that it had, but that the arbitration provision is irrelevant because Ms. Douglas's claims do not relate to her account with Union Planters Bank.  As the Court noted:

The mere existence of a delegation provision in the checking account’s arbitration agreement, however, cannot possibly bind Douglas to arbitrate gateway questions of arbitrability in all future disputes with the other party, no matter their origin.

 

Mr_Bumble
Mr. Bumble

In rejecting Regions' argument that the delegation clause in Ms. Douglas arbitration agreement with Union Planters Bank meant that the question of arbitrability had to be sent to an arbiter, the Fifth Circuit adopted the Federal Circuit's position, which is that the issue of arbitrability does not have to be sent to the arbiter when  the assertion of arbitrability “wholly groundless.” 

That seems like a reasonable rule, and dissenting Judge Dennis seemed to agree, except that Judge Dennis thought it impermissible for the Fifth Circuit to adopt the Federal Circuit's reasonable position when the Supreme Court adopted a less reasonable position in Rent-A-Center W. v. Jackson.   Indeed, in AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (1986), the Supreme Court made clear that when an issue is reserved for the arbiter, courts may not pronounce on the merits of the issue.  Thus a court must send the issue of arbitrability to an arbiter even when all are agreed that the arbitration agreement is inapplicable.

As Mr. Bumble might have put it, f the law supposes that the parties' interests are served by sending a claim to arbitration when there is no colorable claim that the parties have agreed to have the claim arbitrated, the law is a ass -- a idiot.

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