Failure To Communicate . . .
Cool Hand Luke. "What we've got here is failure to communicate."
Reversing the district court's order to compel arbitration, the Ninth Circuit holds that the issue of formation of the contract to arbitrate should have been decided by the court, despite delegation of issues of validity and arbitrability to an arbitrator in the employment agreement. Ahlstrom v. DHI Mortgage Company, Ltd., L. P., No. 20-15114 (9th Cir. 12/29/21) (Pregerson, Wardlaw, Berzon).
The procedural history is somewhat complicated and the facts are screwball. Cutting to the chase, what happened is this: Ahlstrom signed an employment agreement with D.R. Horton containing an arbitration clause and a provision delegating certain gateway isssues to an arbitrator. However, the parties ended up agreeing that Ahlstrom's actual employer was DHI Morgage Company, not D.R. Horton. So the purported employment agreement described a relationship that did not exist.
As Judge Pregerson, sitting by designation, explains, "Put simply, the [Mutual Arbitration Agreement], as drafted, describes and governs a relationship between Ahlstrom and D.R. Horton that does not exist, and thus does not constitute a properly formed agreement to arbitrate."
COMMENT: What is the difference between arbitrability and validity, on the one hand, and formation, on the other? Arbitrability and validity issues can be delegated, but formation issues cannot be delegated, even though all might be described as "gateway issues." Formation goes to the very existence of the contract. If a contract does not exist, there is no need to delegate issues of validity and arbitrability.
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