Federal Court Rejects Arbitration Provision As Being Contrary To Public Policy

In RTM Capital Partners, Inc. v. Barnes, a decision by my long ago law firm colleague, U.S. Magistrate Judge Dave Vatti, the court provides a detailed analysis of an arbitration provision that is worth reading in its entirety. Perhaps most interesting, however, is Judge Vatti’s view that the arbitration agreement, facially broad in that it purports to encompass “any dispute, claim, disagreement or other matter arising from or relating to this Agreement or the alleged breach of this Agreement,” is violative of public policy as to a party’s attempt to invoke it to address issues pertaining to a charging order against an asset of a judgment debtor. As the court explained, “[i]f this were a first party action … there is little dispute that this would fall within the purview of the Operating Agreement’s arbitration provision.”

However, insofar as the claims presented pertained to the enforcement of a court judgment, the court rejected arbitrability:

“In this Court’s view, there is an obvious and strong public interest in federal courts’
enforcement of their own judgments…. In this Court’s view, the ability of a party to enforce a judgment and the Court’s inherent ability recognized in Peacock to supervise such enforcement and conduct any proceedings to adjudicate issues relevant to and enforce a judgment are fundamental to inspiring the public’s confidence in the integrity of federal court judgments. It is a critical and important structural feature of the federal courts and the federal judiciary’s proper functioning.”

According to the court, judicial precedent and statutory authority governing judgments and their enforcement, create a framework which “embodies an explicit public policy by which federal courts have supervisory authority over their judgments and should not cede that authority to an arbitration forum, one of the major risks of which is the likelihood of delay… Severing [the issues pertaining to the charging order] to be litigated in arbitration would directly contravene a strong public policy interest in having this Court retain its ability to supervise a proceeding to enforce its judgment, to ensure against undue delay and to manage this process in a way that promotes efficient resolution of these proceedings.”