Courts Tell Parties (Albeit In Different Ways) That Arbitration Must Proceed Even Where The Parties Disagree As To The Applicability Of Consumer Or Commercial Rules

Last week, I referenced an article by Brendan Gooley discussing the decision by a federal court in Ohio that denied a motion to compel arbitration and dismissed the case brought by a plaintiff based on allegations that the defendant was refusing to arbitrate under the American Arbitration Association’s consumer rules. The court determined that the parties had not exhausted the procedural avenues open to them to arbitration and thus the court lacked jurisdiction.

In Lazzo v. Frontier Wealth Management, the Kansas District Court has confronted similar issues in a somewhat different procedural manner. In Lazzo, the plaintiff–asserting frustration at the alleged failure of the defendant to agree to arbitration under the AAA’s consumer rules–filed a federal complaint seeking adjudication of his substantive claims. The defendant balked, claiming that the dispute was arbitrable, and moved to compel arbitration. Granting the motion, the court held that while it was unclear whether the AAA’s consumer or commercial rules should apply, there remained ample arbitration runway to be discussed among themselves and AAA.

The common thread between the two recent cases is the court’s determination to defer to the arbitration administrator (here, the AAA) to determine the arbitration rules and procedures, and not to supplant the parties’ agreement to arbitrate.

The differing procedural postures resulted from the nature of the court filings. In case #1, where the plaintiff instituted federal litigation for purposes of seeking a motion to compel, the court determined that a hands off approach was appropriate, since the defendant was not disputing the propriety of arbitration, simply which rules apply. In case #2, plaintiff had abandoned the arbitration process and was seeking to adjudicate his substantive claims in court, giving rise to the need for an affirmative court determination compelling arbitration.

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