|
The California Court of Appeal held that a trial court erred by holding an evidentiary hearing after, not before, denying a motion to compel arbitration. This sequence of proceedings improperly relieved the opposing party of its burden of showing that the arbitration agreement was unenforceable.
In Hotels Nevada v. L.A. Pacific Center, Inc., No. B185814, 2006 WL 3199735 (Cal. Ct. App. Nov. 7, 2006), Hotels Nevada and L.A. Pacific were negotiating the sale of two Las Vegas properties. After the parties signed a purchase agreement, a dispute arose over the repayment period contemplated by a $5 million “holdback” provision. When Hotels Nevada sued for fraud, L.A. Pacific moved to compel arbitration pursuant to the purchase agreement.
L.A. Pacific satisfied its initial burden of proof by “quoting the pertinent portions of the arbitration clause” in its motion papers. However, the trial court denied the motion to compel arbitration, finding that L.A. Pacific failed to meet its burden because the allegations in Hotels Nevada’s complaint would render the contract and arbitration clause unenforceable. The trial court also found that the allegations in Hotels Nevada’s complaint required an evidentiary hearing as to whether there was a meeting of the minds on “material issues” in the contract.
On appeal, the Court found that the trial court misapplied the burdens of proof. As the Court observed, a court must determine facts relevant to the enforcement of an arbitration agreement before denying a motion to compel arbitration. Instead of proceeding in this manner, the lower court denied the motion to compel arbitration based solely on the allegations in Hotels Nevada’s unverified complaint.
The proper procedure, the Court held, was to hold an evidentiary hearing after L.A. Pacific satisfied its initial burden of introducing the arbitration agreement. At that hearing, the burden would shift to Hotels Nevada to show that no arbitration agreement existed. Hotels Nevada would have to carry this burden of proof for the court to deny the motion to compel arbitration. In this case, the trial court denied the motion to compel arbitration without any evidence that the arbitration agreement was unenforceable. As such, the Court reversed the trial court’s ruling and remanded the case with instructions to follow the proper procedure.
Once a moving party meets its initial burden of proof on an issue, the burden shifts to the other party to prove its side of the dispute. Motions regarding arbitration are no different. Once a party demonstrates by a preponderance of evidence that an arbitration agreement exists, the burden shifts to the party opposing arbitration to prove there is some defense precluding arbitration.
Subscribe to a free weekly update on ADR case law and
legislation
|