What Happens When Designated Arbitrator is Unavailable?

The Eighth Circuit Court of Appeals and the Eleventh Circuit Court of Appeals recently applied the same analysis to reach opposite results regarding enforcement of arbitration clauses.  When the arbitrator designated in the arbitration provision was not available, the Eighth Circuit instructed the trial court to appoint a different arbitrator, but the Eleventh Circuit upheld the denial of a motion to compel arbitration.

In Robinson v. Pine Hills, the Eighth Circuit considered whether an arbitration agreement between a nursing home and its resident was enforceable where the entities designated by contract to perform the arbitration were unavailable.  The Eighth Circuit ultimately affirmed the enforcement of the arbitration clause.  The court relied on Section 5 of the Federal Arbitration Act, which states that in these instances, the court must appoint a substitute arbitrator.

The Eighth Circuit acknowledged a court-created exception to Section 5, when the choice of arbitrator is “integral” to the arbitration agreement.  If the arbitrator is integral, the arbitration cannot be compelled.  The facts before the Eighth Circuit, however, did not warrant this exception because it was unclear whether every arbitration organization designated by the contract was actually unavailable, and the first designated organization had actually ceased performing arbitrations nearly a year prior to the parties entering into the agreement.

By contrast, in the unpublished opinion of Parnell v. CashCall, Inc., the Eleventh Circuit affirmed the denial of the defendant’s motion to compel arbitration.  Similar to the Robinson case, the parties in Parnell had agreed to arbitration conducted by an arbitrator from a particular organization, but the lower court had previously found that representatives for the designated organization were unavailable to handle the dispute.  The Eleventh Circuit held that the use of an arbitrator from the designated organization was “integral” to the parties’ agreement, and a substitute therefore could not be appointed.

The court was also not persuaded by the defendants’ argument that only an arbitrator could determine the enforceability of the arbitration clause, because the court had already interpreted the same contract language—both the arbitration clause and the clause delegating its enforceability to an arbitrator—in a prior case.  In that case, the court had found that the arbitration clause’s use of the word “shall,” its failure to reference any additional options for arbitrators to conduct the arbitration and the contract’s repeated references to the designated arbitration organization all indicated that the chosen arbitration organization was “integral” to the parties’ agreement.

Weiner Brodsky Kider regularly represents mortgage lenders and servicers in arbitration proceedings throughout the United States.