Latest Salvo in the Arbitration Wars

** U.S. Supreme Court Grants Certiorari and Vacates Supreme Court of Hawaii’s Decision Voiding Pre-Dispute Arbitration Contract Provision ** 

The Supreme Court’s series of close decisions upholding agreements to arbitrate (including waivers of class arbitration) in private contracts in the face of unconscionability-type assertions —  AT&T Mobility v. Concepcion, 563 U.S. 333 (2011); American Express Co., et al. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) and DIRECTV, Inc. v. Imburgia, 577 U.S. ___ (2015) — has understandably quickened the pace of consumer companies deploying such provisions in their customer contracts and their on-line terms of use.  As those who have followed these cases would know, the rationale of this line of authority is that the Federal Arbitration Act (which provides for the enforceability of arbitration agreements) preempts state law to the contrary, i.e. that would prohibit contracts providing for mandatory arbitration (and class waivers).  But these important Supreme Court decisions are controversial and have been met with resistance by state courts around the country.  Perhaps the most “in your face” response to the Supreme Court’s arbitration decisions is the 2011 Genesis Healthcare case: where the West Virginia Supreme Court accused the Supreme Court of manufacturing “from whole cloth” its reasoning.  Brown ex. rel. Brown v. Genesis Healthcare Corp., 724 S.E.2d 250 (2011).  The Supreme Court was quick to “correct” the West Virginia Supreme Court. Marmet Health Care Center, Inc. v. Brown, 565 U.S. __ (2012).  Will this back-and-forth play out again in Hawaii? The Hawaii Supreme Court has entered the fray in Narayan, et al. v. The Ritz-Carlton Dev. Co., 350 P.3d 995 (2015).  The case involves an (undoubtedly tony) condominium complex at Kapalua Bay that went tragically south.  The purchase agreement included a jury trial waiver and other terms that suggested a right to a civil trial, but the agreement also referenced other documents including a condominium declaration recorded with the state that included a mandatory arbitration provision.  The Hawaii Supreme Court found the plethora of documents inconsistent and confusing and decided that no agreement to arbitrate existed.  It also determined that — even if an agreement to arbitrate existed — it was unconscionable because the fact that the purchasers were stuck with arbitration due to the recording of the declaration created an adhesion contract.  Further objectionable provisions (according to the court) were that the agreement precluded discovery, eliminated punitive and consequential damages, required secrecy, and imposed a one year statute of limitations.  On January 11, 2016, the U.S. Supreme Court granted writ of certiorari, vacated Hawaii’s decision, and remanded the matters “for further consideration in light of DIRECTTV, Inc. v. Imburgia,” (136 S. Ct. 800) signaling that it had made its decisions on this type of challenge to mandatory arbitration agreements (and perhaps signaling that it is done with the issue).  But with the recent passing of Justice Scalia – the author of Italian Colors and the primary architect of the Supreme Court’s arbitration jurisprudence – all eyes will be focused on 1 First Street NE to see if the minority’s strong dissents began to find their way into majority opinions.

 

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