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The Supreme Court of Montana rejected an arbitration award where the debtor unilaterally sought relief in an arbitral forum not specified the parties' arbitration agreement and the dispute was not covered by the arbitration agreement.
In Wells Fargo Bank v. Talmage, No. 05-706, 2007 WL 521180 (Mont. Feb. 21, 2007), Wells Fargo brought suit to collect a credit card balance of just over $112,000. Talmage moved to dismiss, citing an arbitration award issued in his favor by the National Arbitration Counsel (NAC).
The Court determined that the arbitration award was invalid ab initio and granted summary judgment in favor of Wells Fargo because there was never valid agreement to arbitrate the claim in the first place. The arbitration agreement between the parties only provided for arbitration of disputes involving $250,000 or more.
Furthermore, the parties' agreement provided that the American Arbitration Association (AAA) would resolve all disputes. Under the Federal Arbitration Act (FAA), an arbitration proceeding is only valid if the parties have agreed upon the arbitrator. 9 U.S.C. § 5; see also R.J. O'Brien & Assoc., Inc. v. Pipkin, 64 F.3d 257, 263 (7th Cir. 1995). Therefore, under the parties' agreement, an arbitration award issued by an arbitrator other than the AAA is invalid under the FAA.
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