The last post focused on three recent state appellate court decisions that refused to compel arbitration or vacated an award, and this follow-up post focuses on seven recent cases that are friendly to arbitration.

My favorite is from Montana. Although none of its arbitration decisions have been addressed by SCOTUS, Montana decided to preempt any federal preemption issues by adjusting its stance on unconscionability. (It waited five years after the 9th Circuit put it on notice, though.) Lenz v. FSC Sec. Corp., 2018 WL 1603927 (Mont. April 3, 2018), involves claims by investors against investment advisors over “substantial losses.” The defendants moved to compel arbitration and the district court granted the motion. On appeal, the Montana Supreme Court affirmed. In its decision, it took the opportunity to clarify that the previous test it had used to determine unconscionability was improper, because it mixed unconscionability analysis with the reasonable expectations doctrine from the insurance context. (Read this mea culpa: “We have continued to perpetuate confusion by inaccurately referencing [bad tests for unconscionability] …Even more problematic in particular regard to arbitration agreements, we have failed to recognize the manifest incompatibility of the insurance-specific reasonable expectations doctrine as a generally applicable contract principle.”) I read that as “we do not want to be reversed by the U.S. Supreme Court.”

The others can be reviewed more quickly:

  • Substantive unconscionability cannot be established by showing only that the arbitration agreement is broad in scope. SCI Alabama Funeral Servs. v. Hinton, 2018 WL 1559795 (Ala. March 30, 2018) [I’m a bit surprised that needed clarifying];
  • The Federal Arbitration Act applies to arbitration agreements within a common interest community’s covenants (and preempts conflicting state law). In U.S. Home Corp. v. The Michael Ballesteros Trust, 2018 WL 1755536 (Nev. April 12, 2018), 12 homeowners argued that the FAA did not apply to the arbitration agreement in their covenants because land is traditionally a local concern. The court found that the covenants’ larger purpose was to facilitate the creation of a community of multiple homes, and multiple out-of-state business contributed to construction of the homes. Therefore, the FAA controlled and preempted Nevada rules requiring the same procedures as in court and requiring arbitration agreements to be more conspicuous than other text in a contract;
  • Non-signatories may compel arbitration if the plaintiff’s claims are based on facts that are “intertwined” with arbitrable claims. Melendez v. Horning, 2018 WL 1191150 (N.D. March 8, 2018) (reversing district court order denying motion to compel arbitration);
  • Scope of arbitration agreement broad enough to encompass claims against related entity. Bridgestone Americas Tire Operations v. Adams, 2018 WL 1355966 (Ala. March 16, 2018), concluded that where the employee’s arbitration agreement was with the “Company,” which was defined to include affiliate and related companies, the employee’s suit against a related company was arbitrable;
  • Arbitrator did not manifestly disregard contractual language in construction contract. In ABC Building Corp. v. Ropolo Family, 2018 WL 1309761 (R.I. Mar. 14, 2018), the owner tried to vacate an arbitration award in favor of the general contractor. It relied on contract language requiring submission of payroll records with payment applications in order to argue that the contractor could not receive additional compensation for labor without having provided that contemporaneous documentation. However, the arbitrator considered that provision of the contract in his decision-making (and the owner had never complained), so vacatur was inappropriate (one judge dissented);
  • Delegation clause must be enforced if not specifically challenged. Family Dollar Stores of W. Va. v. Tolliver, 2018 WL 1074947 (Feb. 27, 2018). I know, it’s a stretch to call this one a spring decision. But, it’s snowing in Minnesota on April 14th, so my seasons are totally confused. That’s why we call it “Minnesnowta.”