On Monday the Supreme Court issued Nitro-Lift Technologies, L.L.C. v. Howard, a bit of a smack down to the Oklahoma Supreme Court. The short version: Two parties had a contract dispute, the contract had a mandatory arbitration clause, one party said the entire contract was unenforceable, and the Oklahoma Supreme Court held–despite Supreme Court precedent to the contrary–that the Oklahoma courts had the power to determine the enforceability of the contract regardless of the arbitration clause.
Why? Well, because according to the Court “[t]he Oklahoma Supreme Court’s decision disregards this Court’s precedents on the FAA.” The Supreme Court wasn’t really interested in what Oklahoma law had to say about arbitration provisions and the enforceability of contracts. “[T]he Oklahoma Supreme Court must abide by the FAA, which is ‘the supreme Law of the Land,’ U. S. Const., Art. VI, cl. 2, and by the opinions of this Court interpreting that law.” (It’s always a smack down when the Supreme Court cites the Supremacy Clause.) As for the Oklahoma Court’s own interpretation of the FAA . . . nobody cares. “It is [the Supreme] Court’s responsibility to say what a statute means, and once the Court has spoken, it is the duty of other courts to respect that understanding of the governing rule of law.” So the Supreme Court vacated the Oklahoma Court’s decision.
Now, I found out about this Supreme Court decision because I follow Cornell’s Supreme Court RSS feed. It seems like Division 3 of the Washington Court of Appeals doesn’t follow the Supreme Court RSS feed. Or maybe it doesn’t even have an RSS reader. I don’t know. But whatever it is, it seems like Division 3 missed out on Nitro-Lift.
How do I know that? Well, I read today’s opinion in Weidert v. Hanson (Division 3, November 29, 2012). Here’s what happened: Mr. Weidert purchased an insurance policy from Producers Agriculture Insurance Company (“ProAg”). That policy had a mandatory arbitration clause. Mr. Weidert (a farmer) experienced a loss resulting from a drought, and wasn’t happy with his coverage. So he sued (1) ProAg and (2) the insurance agent who sold him the policy. There was no contract between Mr. Weidert and the agent, so those two individuals were not subject to an arbitration clause. ProAg moved to stay the litigation and compel arbitration of its dispute with Mr. Weidert.
The trial court used its “equitable” powers to deny the motion to compel. The Court of Appeals approved the trial court’s decision. Why? Sure, the Court of Appeals noted that the FAA (and a similar Washington statute) were relevant to the dispute, but the Court was more impressed by Washington courts’ extensive equitable powers: “Our state constitution vests trial courts with the power to fashion equitable remedies.” Well okay then! Oh, and those equitable powers are “as broad as equity and justice require.”
According to the Court of Appeals, “[o]rdering a portion of the proceedings to be arbitrated and the other portion tried in the superior court results in discouraged piecemeal litigation.” The trial court’s denial of the motion to compel was therefore appropriate.
There are a couple of things wrong here. First, guess how many federal court decisions the Court of Appeals relied on in determining whether the FAA required arbitration in these circumstances. Did you guess zero? Then you’re right! There was a lot of nonsense about Washington courts’ equitable powers, but nothing about the FAA or how the FAA’s requirements under federal law might, you know, govern what state courts have to do in these sorts of situations. The fact that the Court of Appeals didn’t even look to federal law shows that the Court of Appeals didn’t get the message of Nitro-Lift.
So what if the Court of Appeals had looked to federal courts? Okay, okay, the Ninth Circuit, E.D. Wash., and W.D. Wash. don’t bind the Washington Courts of Appeals. Fine. I get it. But the United States Supreme Court binds the Washington Courts of Appeals on matters of federal law like the FAA. Does the Supreme Court have anything to say about whether duplicative parallel proceedings are sufficient to defeat the FAA’s policy favoring arbitration? Well indeed! The Supreme Court does have something to say about that:
It is true, therefore, that if [the defendant] obtains an arbitration order for its dispute, the [plaintiff] will be forced to resolve these related disputes in different forums. That misfortune, however, is not the result of any choice between the federal and state courts; it occurs because the relevant federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement. Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.
Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 20 (1983) (emphasis added).
That seems like the sort of thing the Court of Appeals should have cited before deciding that “piecemeal litigation” is a sufficient reason for a Washington trial court to employ equitable powers to reject an arbitration provision.
Also, regardless of whether the Supreme Court had anything to say about it, compelling arbitration must be the right result. A plaintiff shouldn’t be able to avoid a mandatory arbitration provision by simply adding a second defendant (with whom the plaintiff has no arbitration agreement) to the complaint. Such an easy side-step around the FAA can’t possibly be allowed.
Anyway, we’ll see if the Washington Supreme Court has anything to say about this. And if not, well, perhaps we’ll get another GVR per curiam from the Supreme Court. Who knows, maybe Division 3 was trying to pick a fight. Bring it on!