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An Ohio federal court construed an arbitration agreement as requiring the party who is seeking arbitration to initiate the arbitration even if the party is not the claimant in the dispute.
In Akbar v. American General Finance Corp., No. 3:06-CV-314, 2006 WL 3742215 (S.D. Ohio Dec. 15, 2006), Akbar obtained a loan from American General. Akbar rescinded the loan and later brought suit against American General in state court, claiming violations of the Truth in Lending Act. American General removed the dispute to federal court and moved to compel arbitration pursuant to the arbitration agreement contained within the parties' contract.
The arbitration agreement stated that either the lender or borrower could elect arbitration and that the procedure to be followed in order to elect arbitration was to "complete a demand for arbitration" with the National Arbitration Forum (FORUM). The magistrate judge interpreted this language to require that the party seeking to compel arbitration must have first demanded the arbitration with the FORUM.
American General had not demanded arbitration, arguing that it could not do so because it was not asserting a claim and could not logically change its party status from defendant to plaintiff. The Court reasoned that American General had already removed the dispute from state to federal court. "Only a defending party [could] make that particular forum choice." And the Court concluded that American General could also demand a change in forum to arbitration as the defending party.
The Court also rejected American General's reliance on the FORUM's rule that the party claiming damages must assert the amount of damages claimed. In effect, the arbitration agreement's explicit language dictating how arbitration would be initiated had overridden the elected arbitration rules. Finally, the Court noted that it would be "prepared to stay these proceedings in favor of arbitration" once arbitration has been properly initiated in accordance with the terms of the contract.
Here, the parties' detailed arbitration agreement was interpreted very literally by the Court and the Court concluded that the only effective mechanism for electing arbitration under the agreement would be to actually file an arbitration claim. Parties drafting arbitration agreements that require all claims be arbitrated or that simply rely on the arbitration rules to define how a claim is initiated should not run into this problem enforcing their agreement to arbitrate.
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