|
The Kansas Court of Appeals held that two arbitration provisions with conflicting procedural rules were sufficient to show the parties’ intent to arbitrate because the conflict concerned ancillary details of arbitration not the central agreement of the parties to arbitrate.
In Franklin v. Sunflower Imports, Inc., No. 95,299, 2006 WL 3257461 (Kan. Ct. App. Nov. 9, 2006), Franklin bought a motor vehicle from Sunflower Imports (Sunflower). During the transaction, Franklin signed two agreements: (1) a “Retail Buyer’s Order” and (2) an “Installment Contract.”
Both agreements contained a provision for mandatory arbitration, but the two arbitration provisions differed on several procedural matters, including the designation of an administrator and the payment of fees.
When Franklin sued for alleged fraud, Sunflower filed a motion to compel arbitration. In opposing the motion, Franklin argued that the conflicting procedural rules created an ambiguity that stymied the formation of a valid arbitration agreement. Persuaded by that argument, the trial court denied the motion.
On appeal, the Court explained the distinction between ambiguity and indefiniteness. Ambiguity is “a consideration in contract interpretation” that may be construed against the drafter. Indefiniteness “prevents contract formation,” but only if the purported contract is “so vague and indefinite that the intentions of the parties cannot be ascertained.”
The Court thus proceeded to consider whether the procedural differences rendered the two arbitration provisions so vague and indefinite that the intention to arbitrate could not be ascertained. In answering that question, the Court discussed two lines of authority.
In Linea Navira De Cabotaje v. Mar Caribe, 169 F.Supp.2d 1341 (M.D. Fla. 2001),the court held that conflicting provisions for arbitrator selection were “insufficient to negate the separate yet unequivocal intention of both parties to arbitrate” because the variance was an “ancillary logistical concern.” Conversely, in Rockel v. Cherry Hill Dodge, 847 A.2d 621 (2004), the court held that the trial court erred in ordering arbitration where there were two inconsistent arbitration provisions.
The Court adopted the reasoning of Linea Navira, largely because that decision applied the federal law of arbitrability whereas Rockel applied state law. The Court thus held that the two arbitration provisions were “sufficiently definite to show an intent of the parties to arbitrate.” The Court remanded the case with instructions for the trial court to order arbitration while also deciding which of the conflicting procedural rules should be followed.
The distinction between ambiguity and indefiniteness raises an interesting question: Does the presumption in favor of arbitrability apply only to the scope of an arbitration agreement, or does it also apply to the determination of whether there is a valid arbitration agreement? As the Court noted, there is a split of authority on this question. Compare Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3rd Cir. 2005) (“When determining both the existence and the scope of an arbitration agreement, there is a presumption in favor of arbitrability.”) with Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002) (stating that the “federal policy favoring arbitration does not apply to the determination of whether there is a valid agreement to arbitrate”).
But even without a presumption, prevailing contract law will enforce an agreement to arbitrate unless the language clearly does not establish the intent of the parties to arbitrate.
Subscribe to a free weekly update on ADR case law and
legislation
|