If you ever wanted an “Exhibit A” for how drafting arbitration agreement(s) could go very, very wrong, the Tenth Circuit has just provided it. In Ragab v. Howard, __ F.3d __, 2016 WL 6832870 (10th Nov. 21, 2016), a majority of the panel concluded that because the parties had six differing arbitration agreements, they had never reached a meeting of the minds on arbitration and their dispute would stay in court.
The parties had six agreements that governed their business relationship. Each agreement had an arbitration agreement. But, those arbitration agreements did not provide for the same set of rules to govern the arbitration, or the same method of choosing an arbitrator, or the same notice period before arbitration, or the same opportunity to recover attorneys’ fees. Even so, when Mr. Ragab sued the defendants for misrepresentation and statutory violations, the defendants moved to compel arbitration.
Mr. Ragab’s claims fell within the scope of all six arbitration agreements, so the differing terms could not be brushed aside by implicating just a few agreements. Applying Colorado contract law, the district court found that there was no meeting of the minds as to how claims would be arbitrated, and denied the motion to compel.
The Tenth Circuit noted that “whether parties can be compelled to arbitrate given conflicting arbitration provisions” was a novel question under Colorado law, but that New Jersey, Florida, and California courts had already concluded that “irreconcilable” differences across arbitration provisions made them unenforceable. It reasoned that the courts that have granted motions to compel in similar circumstances found “the contracts themselves provided the solution,” via a merger clause. Because the six agreements at issue in this case did not allow one to override the others, the court found it could not “arbitrarily pick one to enforce because doing so could violate the other five.” Therefore, it concluded “there was no meeting of the minds” on arbitration, and affirmed the district court.
The dissenting judge pointed out that there is no “doubt that the parties before [the court] did intend to arbitrate. All six – yes, six – of the parties’ interrelated commercial agreements contain arbitration clauses.” That judge urged a solution whereby the court would treat the procedural details surrounding arbitration as nonessential terms, and enforce the basic agreement to arbitrate.
For anyone involved with drafting contracts, this is an important lesson. If the parties intend their choice of arbitration to be binding and enforceable, the arbitration agreements in interrelated agreements must be compatible.