Tenth Circuit Finds That Conflicting Language Voids Arbitration Provision

Edgar M. Rivera, Esq.

Arbitration agreements between employees and employers often strongly favor the employer’s interests at the employee’s expense. As a result, an unsuccessful opposition to a motion to compel arbitration can be disastrous to a plaintiff’s case. Although a commercial case, the Tenth Circuit’s recent decision in Ragab v. Howard is relevant for plaintiffs and may help defeat a motion to compel arbitration.

In Ragab, the Tenth Circuit affirmed the District Court of Colorado’s denial of Ultegra Financial, its CEO Muhammad Howard, and Clive Funding, Inc.’s motion to compel arbitration.  There were six agreements between plaintiff Sami Ragab and defendants Ultegra and Clive Funding relevant to Ragab’s claims. The agreements contained clear but conflicting arbitration provisions, including conflicts regarding the essential terms of any arbitration, like which rules would govern and how the parties would select the arbitrator. The Circuit Court found that these conflicts between essential terms demonstrated that the parties did not have a meeting of the minds and, therefore, there was no actual agreement to arbitrate.

In 2013, Mr. Ragab entered into a business relationship with Ultegra under six agreements: a Consulting Agreement, a Membership Interest Purchase Agreement, an Operating Agreement, an Assignment of Limited Liability Company Interest Agreement, an Employment Agreement, and a Non Circumvention, Non Disclosure & Confidentiality Agreement.  In 2015, Mr. Ragab sued Ultegra and related companies for misrepresentation for violating several consumer credit repair statutes. Ultegra moved to compel arbitration. Although the district court found that the claims fell within the scope of all six arbitration provisions, it denied Ultegra’s motion to compel arbitration because it concluded that there was no meeting of the minds as to how the claims would proceed in arbitration. Ultegra appealed, and the Tenth Circuit affirmed the district court’s decision on the same grounds.

The Federal Arbitration Act requires courts to compel arbitration, unless the arbitration provision is, for any reason, unenforceable.  Under Colorado contract formation requirements, all arbitration provisions require agreement between the parties as to the essential terms of arbitration.  Without evidence of agreement on those terms, the arbitration provision is unenforceable.  Here, there were six conflicting arbitration provisions, none of which had a merger clause or other language suggesting that one arbitration provision would override the others in the event of a conflict, which indicated no meeting of the minds as to arbitration.  The Tenth Circuit relied on the New Jersey Appellate Division’s decision in NAACP of Camden Cty. E. v. Foulke Mgmt. Corp., where the court held that the irreconcilable differences across multiple arbitration provisions indicated that the parties did not agree. Here, the arbitration provision was unenforceable, as the language among the agreements conflicted to such an extent that the parties could not have had a meeting of the minds on the essential terms of the arbitration.

It is important that workers review all the paperwork that they receive during their employment. As shown above, a discrepancy between arbitration provisions can be the difference between pursuing employment claims in federal court or in arbitration. If you need assistance negotiating or litigating an employment agreement, contact The Harman Firm, LLP.