What Does It Mean For An Arbitration To “Have Been Had In Accordance With The Terms Of The Agreement” When A Party Is Unable To Pay Arbitration Fees?
We revisit a recurring problem that occurs in arbitration. In federal court, a party successfully moves to compel arbitration under the FAA, and the court stays litigation. Arbitration commences. Next, one of the parties to the arbitration is unable to pay the costs of arbitration, and therefore stops paying. Under the rules of the AAA, the AAA can suspend the arbitration if the other party does not pay for the arbitration. The other party refuses to pick up the tab, and the AAA suspends the proceeding. What happens next? Are the parties definitively done, because they agreed to arbitrate, and the arbitration has not been had, or can they proceed in court? Under such circumstances, just what does it mean for an arbitration to have been had? That is the scenario the Ninth Circuit confronted in Tillman v. Rheingold Firm, No. 13-56624 (9th Cir. 6/15/16) (Berzon, Gould, Steeh) after defendant/appellant ReneeTillman stopped paying arbitration fees.
Relying on Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010 (9th Cir. 2004), the district court had erroneously held that it “lack[ed] the power to allow further litigation.” Lifescan, Inc. was a case in which, “despite Premier’s non-payment of its share of arbitration fees, there was ‘no basis for an order requiring Premier to pay the fees, or compelling arbitration.’” Compelling arbitration would have been inappropriate, because the arbitration had been had according to the agreed-upon AAA rules, allowing the AAA to suspend the proceeding in Lifescan upon non-payment. However, in Tillman, the Ninth Circuit pointed out that “Lifescan’s only conclusion was that compelling arbitration would be inappropriate. . . Nothing in the FAA requires dismissal of the litigation under Lifescan’s circumstances or the present ones.”
In Tillman too, the arbitration had been had according to the rules of the AAA, allowing for dismissal upon a non-payment of arbitration fees. Because the FAA “provides that district courts must stay pending proceedings on issues subject to arbitration until such arbitration had been had, 9 U.S.C. section 3,” the stay could now be lifted. Nor was there a basis to compel arbitration, because ReneeTillman had not failed, neglected, or refused to arbitrate.
In dictum, the panel suggests that the outcome could be different if Tillman had willfully refused to pay the arbitrator’s fees, or if Tillman was the one seeking a stay in federal court, “as that would frustrate the Rheingold firm’s attempts to have the case heard in either the court or the arbitral forum.”
NOTE: On February 29, 2012, I posted on a similar scenario in Cinel v. Christopher, in which failure to pay fees resulted in termination of an arbitration that then bounced back to federal court.