Contract Designated Arbitration Tribunal’s Closure Renders Arbitration Provision Unenforceable

A California appeals court has affirmed the denial of a petition to compel arbitration in a dispute between an elderly individual and the residential care facility where she lived. The agreement between the parties provided for the arbitration of claims to be “administered by the National Arbitration Forum under the Code of Procedure then in effect.”

The lower court found “the arbitration provision was unenforceable because the National Arbitration Forum (NAF) was no longer in the business of providing arbitration services and the parties’ selection of NAF was integral to the parties’ agreement.” The appellate court agreed.

As the court explained in Miller v. MBK Senior Living, LLC, under California law “an agreement to arbitrate before a particular forum is as integral a term of a contract as any other, which courts must enforce…if an arbitration agreement designates an exclusive arbitral forum…and arbitration in that forum is not possible, courts may not compel arbitration in an alternate forum by appointing substitute arbitrators.”

According to the court, “the NAF arbitral forum and procedure terms selected by defendants were integral to the arbitration provision of the assisted living residence and services agreement. That NAF is no longer available to serve as arbitral forum renders the arbitration provision unenforceable.”

The takeaway for contract drafters: if there is any doubt as to the ongoing viability of a designated arbitration tribunal, include language enabling the parties or the court to select an alternative provider if the need arises.

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