Arbitration: Idaho Supreme Court, in an Arbitrability Decision, Sends Case to ADR (Web)

The Idaho Supreme Court rejected a multipronged challenge to avoid arbitration and, affirming a state district court, rejected a claim that consumer protection complaints against a computer vendor go to a court.

In Dan Wiebold Ford Inc. v. Universal Computer Consulting Holding Inc., No. 31136, 2005 WL 3488932 (Idaho Dec. 22, 2005)(http://www.isc.idaho.gov/opinions/wiebold.pdf)(Opinion not yet released for publication and remains subject to revision or withdrawal.)

Idaho’s top court awarded the defendant computer support services firm appeals costs.

In Dan Wiebold Ford, the Court considered a challenge to the arbitration provision of a contract for computer hardware and software, and software support services. Dan Wiebold Ford, a Nampa, Idaho, auto dealership, alleged that the contract violated the Idaho Consumer Protection Act. The dealer said that the arbitration provision was unconscionable and should be declared void.

The Court considered whether (i) the arbitration clause was unconscionable; (ii) the arbitration clause applied to claims asserted under the Idaho Consumer Protection Act; (iii) the arbitration clause applied to the defendants who did not sign the contract; and (iv) the district court's holding that the arbitration provision applied to Dan Wiebold Ford's claims should be reversed on the ground that the time for requesting arbitration under the contract had expired. Id. at *1-2.

The contract provided that it would be governed by Michigan law; accordingly, the Court analyzed the validity and scope of the arbitration provision under Michigan law.

In a unanimous opinion by Justice Daniel T. Eismann, the Court found that for the arbitration provision to be struck as unconscionable, it would have to be unconscionable both procedurally–meaning that there was no realistic alternative to Dan Wiebold Ford’s acceptance of the provision--and substantively, which is a shock-the-conscience standard.

The Court focused its analysis on procedural unconscionability, which Dan Wiebold Ford claimed existed because no representative of the computer consulting company defendants had discussed, reviewed or explained the arbitration provision to Dan Wiebold Ford’'s founder and owner.

The Court backed the lower court’s view, holding that Dan Wiebold Ford had not proven procedural unconscionability because its founder and owner had 20 years’ experience with contracts for the sale of goods and services, which often contain arbitration provisions. The dealership also had access to legal resources for contract negotiations.

Moreover, the Court held that even if the contract was an adhesion contract, it was not a relevant factor for determining procedural unconscionability under Michigan law.

Having found that Dan Wiebold Ford had not proven procedural unconscionability, the Court did not address the district court's holding that the provision was not substantively unconscionable.

The Court also held that the arbitration provision applied to claims asserted under the Idaho Consumer Protection Act. The provision was very broad, and covered all claims arising out of or relating to the contract. The Court found that the provision would apply to any dispute that was arguably within the scope of the provision and "any doubts about the arbitrability of an issue should be resolved in favor of arbitration." Id. at *4.

The Court held that under Michigan law, even though the arbitration provision did not expressly mention statutory claims, Dan Wiebold Ford’s claim under the Idaho Consumer Protection Act could be subject to arbitration because it arguably was within the arbitration provision’s scope.

The Court rejected Dan Wiebold Ford's argument that requiring arbitration of the statutory claim would contravene public policy because it would deny the opportunity to seek class relief and injunctive relief. The Court found that the arbitration provision did not expressly prohibit class relief, and that Dan Wiebold Ford had not provided any support for the argument that it could not obtain injunctive relief through arbitration.

The Court also rejected Dan Wiebold Ford's argument that it should not be required to arbitrate its claims against certain defendants–an acquiring company and its parent and service providers–that had not signed the contract.

Citing a number of unpublished Michigan opinions addressing the question whether a party could be subject to an arbitration provision when it did not sign onto the agreement where the provision appeared, the Court held that a nonsignatory can be bound to an arbitration provision in that agreement under ordinary contract and agency principles.

Finally, the Court held that under Michigan law, arbitrators, rather than courts, should decide whether certain defenses to arbitration--including contractual limitation periods, statutes of limitation and laches--apply to an arbitrability dispute. The Court rejected Dan Wiebold Ford's argument that the district court's order dismissing its claims should be reversed because the time period within which to demand arbitration had expired. Id. at *8.

In a concurring opinion, Justice Jim Jones commented on Dan Wiebold's “curious argument” that the defendants waited too long to demand arbitration. "Apparently,” Jones wrote, “the assumption is that, if a demand for arbitration is not made within the one year period in the arbitration provision, the arbitration provision expires and either party can then bring their case to court." Id. at *9.

Jones noted that Dan Wiebold Ford had provided no authority for this "novel contention.”

The Court affirmed the judgment of the district court, holding that the arbitration provision was valid and that all of Dan Wiebold's claims were subject to arbitration.

--By Kristien Kahn, Associate, Dewey Ballantine LLP