Beware of Forum Selection Clauses
By Dick Borchers
Every day, arbitration agreements are becoming more common in all types of contracts. Some provisions in arbitration agreements exceed what may be considered fair or permissible in traditional contract negotiation. The Eleventh Circuit's recent opinion in
Inetianbor v. CashCall, Inc., 768 F.3d 1346 (11th Cir. 2014) is such a case. It is a case worth reading as it discusses the outer limits of forum selection clauses in arbitration agreements.
Abraham Inetianbor borrowed $2,600 from Western Sky Financial, LLC. The loan was turned over to CashCall, Inc. for servicing. Inetianbor paid CashCall the sum of $3,252.65 over a twelve-month period and believed that he had satisfied his obligations. CashCall disagreed, and sent a bill demanding more money. It also filed a credit entry showing a default on the loan. Inetianbor refused to pay any additional amount on the loan. Inetianbor then sued CashCall in federal court for defamation, usury violations, and violations of the Fair Credit Reporting Act (FCRA).
motion to compel arbitration. The loan agreement provided that any dispute that arose would be subject to arbitration, rather than litigation. A forum selection clause was included in the arbitration agreement. The clause provided that any arbitration would be conducted by an authorized representative of the Cheyenne River Sioux Tribal Nation (Tribe). The federal trial judge initially entered an order compelling arbitration. Pursuant to that order, Inetianbor attempted to pursue resolution of his claims by arbitration through the Tribe, but to no avail. The Tribe advised Inetianbor that it would not authorize an arbitration on the claims. Inetianbor went back to court to seek further guidance.
The district court changed its view on two occasions. The federal district judge noted that arbitration is a matter of contract, and the parties to that contract are granted the freedom to craft their contracts and included arbitration agreements as the parties see fit. The district court ultimately held that the forum selection clause was integral to the contract. In other words, the district court determined that the inclusion of the Tribe as the arbitration authority meant that arbitration could not be compelled, once the Tribe refused to authorize the arbitration. The arbitration clause was unenforceable due to the Tribe's action.
The Eleventh Circuit affirmed the decision of the district court. It held that the contract provided no basis for substitution of another arbitrator or group. The parties had agreed to use one group (the Tribe), thus leaving unenforceable the arbitration clause.
In keeping with the FAA's (Federal Arbitration Act's) purpose to enforce arbitration agreements according to their terms, we hold CashCall to the terms of the integral forum selection included in Mr. Inetianbor's loan agreement. Because the selected forum is unavailable, a substitute arbitrator pursuant to 9 U.S.C. ?5 cannot be appointed under the terms of the contract we consider here.
The forum selection clause was deemed to be integral to the contract itself. Since the Tribe refused to undertake the arbitration, the only remedy for the circuit court was to affirm the district court's decision that arbitration could not be compelled.
Forum selection clauses can pose a problem. Naming a specific arbitrator is fine, unless that arbitrator dies, has ill health, or is no longer professionally able to conduct an arbitration (e.g., appointed to a full-time judgeship). Inclusion of an agreed-upon substitute arbitrator can provide safety to the arbitration process. The same is true in agreeing to allow an arbitration group to designate an individual arbitrator. Failure to provide some form of process to select a substitute arbitrator could defeat the clause in its entirety.