JAMS Clause Delegating Validity Issue To Arbitrator Was Not Clear and Unmistakable Delegation Of Legality Issue.
Who decides whether an arbitration agreement is part of an enforceable legal services agreement, the judge or the arbitrator? That was the issue addressed by the Hon. Harold E. Kahn in an "Order Denying Defendants' Petition for Order Compelling Arbitration," filed December 12, 2017 in Marble Bridge Funding Group, Inc. v. Buchalter, et al., CGC-17-560501 (SF Sup. Ct.).
The general rule is that the legality of a contract is decided by the court. Loving & Evans v. Blick, 33 Cal.2d 603 (1949). But in Marble Bridge Funding Group, Inc. v. Buchalter, the issue of validity was delegated by JAMs rules to the arbitrator. The court here decided that the delegation of the issue of validity was not a "clear and unmistakable" delegation of the issue of illegality to the arbitrator.
The court further ruled that Buchalter had a conflict of interest making the arbitration language in its service agreement unenforceable.
COMMENT: Obviously, conflict checks and waiver agreements are intended to prevent such a problem from ever arising in the first instance. Perhaps a delegation clause that delegated the issue of illegality to the arbitrator would have also solved the problem, at least, from the standpoint of the party seeking to compel arbitration with language that is "clear and unmistakable".
HAT TIP to Rebecca M. Coll of Quadra & Coll, LLP, who brought Judge Kahn's order to my attention. Ms. Coll represented Marble Bridge Funding Group, Inc.
Comments