Who is bound by arbitration provisions? Generally, arbitration provisions in contracts are enforceable. In fact, studies show businesses and consumers increasingly rely on arbitration provisions in contracts to reduce the cost and risks of litigation. Several Courts have recently addressed the enforceability of arbitration provisions in contracts and whether or not they will be deemed enforceable. The enforceability of arbitration provisions generally depends on the claims and parties involved.
This month in CompuCredit Corp. v. Greenwood, 565 U.S.___ (2012), the United States Supreme Court held that consumers must arbitrate disputes with credit card companies pursuant to pre-dispute agreements to arbitrate claims contained in credit card applications. The Court considered whether the Credit Repair Organizations Act claims at issue could be subject to arbitration provisions contained in credit card applications and held that they were subject to arbitration.
The Ohio Supreme Court also recently addressed whether an arbitration provision is enforceable if a party does not sign the agreement or the claims do not arise from the contract containing the arbitration provision. In Taylor v. Ernst & Young, LLP, 2011-Ohio-5262, the Ohio insurance superintendent, in her capacity as the liquidator of an insolvent insurance company, American Chambers Life Ins. Co. (“ACLIC”), filed a two count Complaint against Ernst & Young. The Complaint alleged 1) Ernst & Young negligently performed its audit of ACLIC and 2) Ernst & Young improperly received $25,000.00 in payments. Ernst & Young sought to remove the case to arbitration pursuant to an arbitration provision contained in their contract with ACLIC. The Court was asked to determine whether the Ohio insurance superintendent was bound by the arbitration provision in a contract the liquidator did not sign.
The Ohio Supreme Court Justices agreed that the superintendent’s second claim for overpayment did not arise from the contract containing the arbitration provision and the arbitration provision was therefore not enforceable. With regard to the claim for negligent performance of the audit, the majority of the Justices held the superintendent, as the liquidator of the insolvent insurer, was not a signatory to the contract and is therefore not bound by the arbitration provisions. However, two of the Justices dissented and opined that the superintendent of insurance “stepped into the shoes” of ACLIC and therefore should be bound by the contract terms.
The enforceability of arbitration claims is frequently disputed in all types of cases. In fact, Ohio’s Eighth District Court of Appeals recently upheld a trial court’s order denying the Cleveland Brown’s Motion to Compel Arbitration for a player’s lawsuit for injuries sustained using a Brown’s facility in Bentley v. Cleveland Browns Football, 194 Ohio App. 3d 826, 2011-Ohio-3390. Similar to Taylor, the Court in Bentley held that the claims at issue did not pertain to the NFL player’s contract containing the arbitration provision and therefore the arbitration provision was not enforceable.
While many professional agreements rely on arbitration provisions to save the time and cost of litigation, arbitration provisions may not be enforceable depending on the claims asserted and parties involved. When in doubt, consult legal counsel when drafting or attempting to enforce a contract containing an arbitration provision.
If you have any questions with respect to the enforceability of an arbitration provision in a contract or other legal document, or if you wish the complete opinions of the cases cited, please call one of our Commercial Litigation Practice Group Members.