|
The Louisiana Court of Appeals upheld an arbitration clause between a law firm and its vendor for payroll support service and ordered the parties to arbitrate their dispute. The Court enforced the agreement even though it found troublesome a provision allowing the drafter to litigate claims for money past due.
In Hoffman, Siegel, Seydel, Bienvenu & Centola, APLC v. Lee, 936 So.2d 853 (La. Ct. App. 2006), Delbert Lee was the Chief Financial Officer (CFO) for the Hoffman Siegel law firm. As CFO, Lee contracted with Paychex, Inc., to provide payroll support services for the firm.
Shortly thereafter, Hoffman Siegel’s bank account did not have sufficient funds to cover payroll taxes, apparently because Lee had been embezzling money from the account. Hoffman Siegel did not discover the problem until the IRS sent a delinquency notice several years later.
Hoffman Siegel sued Lee and Paychex, alleging that Paychex was liable for discontinuing the payment of payroll taxes and for failing to notify a partner at the firm that there were insufficient funds in the firm’s bank account.
Paychex moved to compel arbitration pursuant to its contract with Hoffman Siegel. The contract contained a clause that required arbitration of all disputes with a carve-out allowing Paychex to litigate any claims for money past due. The trial court denied the motion, holding the arbitration clause was part of a contract of adhesion.
On appeal, the Court analyzed the contract under the guidance of Aguillard v. Auction Management Corp., 908 So.2d 1 (La. 2005). In Aguillard, the Louisiana Supreme Court resolved a split of authority among Louisiana courts by adopting a “liberal interpretation policy favoring arbitrability.” Aguillard also set forth factors to be applied in determining whether an arbitration clause is part of a contract of adhesion.
Applying those factors, the Court determined that Paychex’s arbitration clause was not part of a contract of adhesion. First, the arbitration clause did not use smaller print, and it was printed twice within the six-page contract. Second, there was no evidence demonstrating that Hoffman Siegel was in an inferior bargaining position.
Finally, although the carve-out allowing Paychex to litigate past due claims was “[t]he most problematic provision found in the arbitration clause,” the Court found it insufficient “to invalidate a contract where the ‘weaker party’ had the ability to negotiate the terms of the contract or simply to utilize another service provider.”
Having upheld the arbitration clause, the Court remanded the case to the trial court with instructions to order arbitration.
One of the judges wrote a concurring opinion to highlight the unfairness of “a contractual provision that requires one party to submit contractual disputes to arbitration but permits the other party to elect between arbitration and some other forum.” Parties who reserve a unilateral right to sue in court, even if limited to certain claims, often lose their right to arbitrate. See, e.g., Dunham v. Environmental Chemical Corp., No. C 06-03389 JSW, 2006 WL 2374703 (N.D. Cal. Aug. 16, 2006).
To ensure enforceability and to allow all parties to gain the benefits from arbitration, parties can and should mutually agree to arbitrate all claims and disputes. Arbitrators can provide all parties with the same rights and remedies available in court.
Subscribe to a free weekly update on ADR case law and
legislation
|