Eleventh Circuit Finds Error in Respondent’s Challenge to Arbitration Agreement

In Parnell v. Cashcall, Inc., No. 14-12082, 2015 WL 6504332 (11th Cir. Oct. 28, 2015), the Eleventh Circuit held that the Federal Arbitration Act, 9 U.S.C. §§ 2–4 (2012) requires courts to “treat a delegation provision as valid and permit the parties to proceed to arbitration” when the provision is not directly challenged by the plaintiff. Id. at *1. After the court concluded that the respondent did not directly challenge the arbitration agreement’s delegation provision, it reversed the denial of the petitioner’s motion to compel arbitration and remanded the case for further proceedings.

Respondent Joshua Parnell originally entered into a loan contract with Western Sky Financial, LLC (Western Sky). The terms of the contract—contained in the “Western Sky Consumer Loan Agreement” (Loan Agreement)—included a provision agreeing to arbitrate any potential disputes between the parties. Before the first payment was due, Western Sky transferred its interest in the loan to petitioner Cashcall. After sending his final payment, Respondent filed suit in state court against Petitioner and Western Sky. Petitioner removed the case to federal court where it moved to compel arbitration. The district court denied the motion after concluding that Respondent had sufficiently challenged the Loan Agreement’s arbitration provision and that the arbitration provision was unconscionable. Petitioner appealed.

First, the Eleventh Circuit considered whether the arbitration agreement contained a delegation provision, i.e., a provision committing to the arbitrator the threshold determination of whether the agreement to arbitrate is enforceable.  The Supreme Court has previously held that “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”  First Option of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).  Applying Georgia law of contract interpretation, the Eleventh Circuit concluded that the provision’s presence in the agreement was clear and unmistakable.  Specifically, the Loan Agreement’s arbitration provision commits all disputes to arbitration.  The third sub-paragraph of the provision defines a dispute, in part, as “any issue concerning the validity, enforceability, or scope of th[e] loan or the Arbitration agreement.” 2015 WL 6504332, at *4. This sub-provision, the court concluded, acts as a delegation provision by clearly committing the issue of arbitrability to the arbitrator.

Respondent argued that because the delegation language appears within a string citation of examples—rather that in a standalone provision—it is not a delegation provision. The court explained, however, that there is no requirement that the delegation provision be offset from other contractual language or solely discuss arbitration of arbitrability. Additionally, the court found the language committing all disputes to the arbitrator to be clear and unmistakable evidence that the parties intended to commit the issue of arbitrability to the arbitrator.

Second, the court considered whether the Respondent’s complaint directly challenged the validity of the delegation provision. The court concluded that the complaint possessed similar shortcomings as the complaint in Rent-A-Center, West, Inc. v. Jackson, in which the plaintiff challenged the “arbitration agreement as a whole.”  561 U.S. 63, 73 (2010).  Like the Court in Rent-A-Center, the Eleventh Circuit concluded that Respondent’s complaint—alleging that “the Loan Agreement is unconscionable”—addressed the validity of Loan Agreement as a whole rather than specifically addressing the delegation provision.

The Respondent argued that the court’s holding would require future plaintiffs to bring multiple challenges in order to sufficiently challenge a delegation provision contained in a sub-provision.  In response, the Eleventh Circuit explained that the result of the case merely follows the Court’s directive in Rent-A-Center, requiring plaintiffs to directly challenge delegation provisions.

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