Yesterday, the Tenth Circuit issued a must-read, thoughtful, well-written FAA opinion full of colorful language dealing with the right to a trial in connection with the making of an arbitration agreement. See Howard v. Ferrellgas Partners, No. 13-3061 (10th Cir. Apr. 8, 2014) (click here for a copy of the decision). For a FAA procedural junkie like me, the opinion is an entertaining read compared to most FAA decisions, which can be dry in tone. Here’s the opening language, which I love:
“Everyone knows the Federal Arbitration Act favors arbitration. But before the Act’s heavy hand in favor of arbitration swings into play, the parties themselves must agree to have their disputes arbitrated. While Congress has chosen to preempt state laws that aim to channel disputes into litigation rather than arbitration, even under the FAA it remains a ‘fundamental principle’ that ‘arbitration is a matter of contract,’ not something to be foisted on the parties at all costs.”
Following extensive discovery, the parties in this case presented conflicting evidence regarding the making of an arbitration agreement, and in light of such conflicting evidence, the district court merely denied the defendant’s motion to compel arbitration. However, as explained by the Tenth Circuit, in these circumstances, where the “making of the arbitration agreement” is at issue, section 4 of the FAA directs that the “court shall proceed summarily to the trial thereof” regarding the making of the agreement. The Tenth Circuit criticized the district court for misunderstanding the nature of the summary-judgment-like standard that applies in connection with a motion to compel arbitration. Just like with a summary judgment motion, if there is conflicting evidence regarding a material issue, the court cannot resolve that dispute at the summary judgment stage, and instead, the court should proceed to a trial on the issue. In other words, a court cannot find a dispute of facts and then deny a trial on those facts. Here, because there was conflicting evidence regarding the making of the arbitration agreement, the district court erred by not proceeding immediately to a trial on the making of the agreement.
I find several things interesting with this opinion. First, if lower courts take this opinion seriously, there may be more trials on the making of an arbitration agreement, which rarely occurs. Second, litigation under the FAA regarding whether parties will litigate or arbitrate can take years, and this case shows how FAA litigation can drag on with discovery disputes, motion practice, and arguments regarding the making of the agreement (looking over the docket, it appears that this case was originally filed in 2010! Four years later, we are still uncertain whether the parties are supposed to litigate or arbitrate! How’s that for efficiency!) I’ve extensively examined archival materials from the drafters of the FAA, and the drafters would be rolling over in their graves if they saw how the FAA is used today. They intended for FAA petitions to be resolved in a few days, rather than months or years as is the case today. Third, when the FAA and similar state statutes were adopted during the 1920s, there was a concern that these statutes violated the 7th amendment right to a jury trial, and in order to alleviate such concerns, the drafters specifically included this trial provision regarding the making of the agreement. This right to a jury trial was a key piece of the legislation. The theory behind this provision in modern arbitration statutes was that if a right to a trial is preserved in connection with the making of the agreement, and if an agreement is found after the trial, then compelling arbitration would not violate the 7th amendment.