Wednesday, August 12, 2015
Panel Allows Arbitrator to Decide Whether Arbitration Compelled
Ninth Circuit Rejects Claim That California Law Requires Judge to Decide Issue
By KENNETH OFGANG, Staff Writer
Federal, not state, law determines whether an arbitrator or a court should rule on the enforceability of an arbitration agreement, unless the parties have unambiguously agreed otherwise, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
The panel affirmed a ruling by U.S. District Judge Ricardo Martinez of the Western District of Washington in favor of Irvine-based Opus Bank. The district judge ruled that an arbitrator must determine whether Opus Bank may compel a former executive vice president of the bank, Carey Brennan, to arbitrate his wrongful termination claim.
Brennan had argued that because his employment contract contained a California choice-of-law clause, California law committing the question of arbitrability to the court also applied.
Brennan and the bank entered into an employment contract and arbitration agreement in December 2010. The agreement provided that Brennan would serve as executive vice president and director for strategy and corporate development, and would perform the duties normally associated with that position, “including such duties as are delegated to him from time to time by the Chief Executive Officer.”
By late 2011, however, Brennan claimed, he was being frozen out of major actions normally associated with his position and being relegated to “mundane tasks” not consistent with his title. In March 2012, he notified the bank that he was resigning “with good reason,” making him eligible for severance pay and other benefits.
The bank then suspended Brennan and hired outside counsel to determine whether Brennan had “good reason” to resign and whether Brennan’s refusal to perform certain duties, including attending various meetings, constituted good cause to fire him.
The attorney concluded that Brennan did not have good reason to resign, nor did the bank have good cause to fire him. The bank then told Brennan that it was adopting the lawyer’s findings and recommendations, but would treat Brennan’s March notice as a resignation without good reason, making him ineligible for severance or termination benefits.
The plaintiff then sued in federal court under diversity jurisdiction, claiming the bank breached the employment contract, violated California and Washington law on wrongful termination, and withheld wages in violation of Washington law.
He acknowledged in the complaint that the agreement contained a requirement that any employment-related dispute be resolved “by binding arbitration in accordance with the Rules of the American Arbitration Association,” but contended the clause was substantively and procedurally unconscionable.
The bank moved to compel arbitration under the Federal Arbitration Act, and argued that both the arbitrability question and the substance of the dispute were subject to binding arbitration. Martinez agreed and dismissed the lawsuit.
Senior Judge J. Clifford Wallace, writing for the Ninth Circuit, said the district judge was correct.
FAA Held Applicable
Because the contract involves interstate commerce, Wallace explained, the FAA applies. And under the FAA, as interpreted by the Ninth Circuit, he explained, the question of arbitrability is to be determined by an arbitrator “absent clear and unmistakable evidence that the parties agreed to apply non-federal arbitrability law.”
The substantive choice-of-law clause does not incorporate California law on the question of arbitrability, Wallace said.
“While the Employment Agreement is clear that California’s procedural rules, rights, and remedies apply during arbitration, it says nothing about whether California’s law governs the question whether certain disputes are to be submitted to arbitration in the first place,” the appellate jurist wrote. He agreed with the district judge that the incorporation of the AAA rules constituted “clear and unmistakable” evidence that the parties intended to have an arbitrator decide the threshold question of arbitrability.
The case is Brennan v. Opus Bank, 13-35580.
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