Takeaways
- The duty to initiate arbitration may fall on the party seeking redress, even if they opposed arbitration in court.
- Arbitration policies must be interpreted in conjunction with the broader arbitration agreement, not in isolation.
- Clear and precise drafting of arbitration agreements and policies is essential to avoid procedural confusion and litigation delays.
The Second Appellate District of the California Court of Appeal published an opinion shedding light on the commonly raised dispute of which party bears the burden of initiating arbitration proceedings after an order compelling arbitration. The case, Arzate v. Ace American Insurance Company, delves into the nuances of the interpretation of arbitration clauses and contractual agreements, ultimately clarifying which party is expected to take the first step in the arbitration process. As employers increasingly rely on arbitration to resolve disputes, understanding the outcome and effect of Arzate is crucial to ensuring clarity in future agreements and policies.
Overview
Ace American Insurance Company successfully moved to compel the plaintiffs’ wage and hour class action suit to arbitration. The trial court then reversed course and lifted the stay of litigation after the parties failed to take action to initiate arbitration. The Court of Appeal reversed the trial court’s order lifting the stay of litigation based on the trial court’s misinterpretation of Ace’s arbitration policy.
The trial court’s ruling was based on two provisions of Ace’s arbitration policy: the first, requiring the “party who wants to start the [a]rbitration [p]rocedure [to] submit a demand within the time periods required by applicable law,” and a second requiring the demand for arbitration to be made within 30 days of a court order compelling arbitration. The trial court reasoned that because plaintiffs opposed arbitration, they did not “want” to start arbitration and the obligation to initiate arbitration rested on Ace, who waived the right to arbitration by failing to initiate the proceeding.
The Appellate Court disagreed with the trial court’s interpretation of Ace’s policy in isolation from the parties’ arbitration agreement and reasoned that, in construing Ace’s policy together with the arbitration agreement, the phrase “want[ing] to start the [a]rbitration [p]rocedure” cannot refer to a preference for arbitration over litigation when the arbitration agreement effectively eliminates the option for litigation, leaving arbitration as the only option. In this case, the phrase “want[ing] to start the [a]rbitration [p]rocedure” could only mean a desire to seek redress. Because plaintiffs were the party that sought redress by initiating the action in the first place, the obligation to initiate arbitration rested with plaintiffs.
Key Takeaways
Notably, both Courts engaged in an exercise of contract interpretation specifically employed by Ace, reaffirming the basic principle that the ordinary rules of contract interpretation apply to arbitration agreements. As such, Arzate does not constitute a generally applicable principle, but rather serves as a guide for future litigation and underscores the importance of clearly drafted arbitration agreements and policies for ensuring efficiency and avoiding unnecessary costs or complications of dispute resolution.
For more information regarding arbitration agreements, written arbitration rules or policies, or an assessment of existing agreements and policies, please contact the author of this article or your Dykema relationship attorney.