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A Michigan federal court has compelled arbitration in a dispute over the Stroh’s Brewing Company pension plan. But the court split the baby, compelling arbitration for the claims arising after the parties signed a 2002 arbitration agreement and sending the pre-agreement disputes to court.
At issue in Watson Wyatt Corp. v. SBC Holdings, Inc., No. CIV.05-71473, 2006 WL 2023549 (E.D. Mich. Jun 30, 2006), is an accounting error made in 2001 by Watson Wyatt, which provided actuarial services to the former Stroh’s Brewing Company pension plan. The error affected several decisions made by SBC Holdings, the plan’s administrator, between 2001 and 2003. During this period, the parties entered into a broad agreement to arbitrate “any dispute or claim.” When SBC sued Watson Wyatt upon learning of the error, Watson Wyatt moved to compel arbitration.
SBC opposed arbitration, arguing that the arbitration agreement did not reach conduct occurring before the agreement was signed. Because the error occurred before the agreement was signed, SBC argued, no aspect of the dispute was subject to arbitration.
Watson Wyatt argued that because any doubts over arbitrability of a dispute are to be decided in favor of arbitration, the broad arbitration language in the parties’ agreement covered the entire dispute.
The Court recognized an apparent conflict in the law it was required to apply. On the one hand, any doubts concerning the scope of the agreement should be construed in favor of arbitration. On the other hand, Michigan contract law unequivocally states that contracts cannot be construed to apply retroactively. Compounding the dilemma, the Second and Tenth Circuits have decided that broad arbitration clauses such as the clause at issue do apply retroactively.
To reconcile the apparent conflict, the Court noted that the federal rule in favor of compelling arbitration applies only where the language of the contract is “doubtful, unclear, or ambiguous.” In Michigan, silence in a contract is not “doubtful, unclear, or ambiguous,” the Court reasoned, because Michigan law does not allow courts to interpret contractual silence as including retroactivity. Without an ambiguity, the Court would not reach the federal rule that favors compelling arbitration.
Because the arbitration agreement did not expressly include pre-agreement disputes, the Court denied Watson Wyatt’s motion to compel arbitration with respect to decisions made before the arbitration agreement was signed. The Court did, however, compel arbitration over the issues that arose later. Although the error occurred before the agreement, the Court reasoned, some of the damages did not accrue until after the agreement was signed.
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