The parties in Turi v. Main Street Adoption Servs. (pdf), Case No. 09-2229, will be battling it out in arbitration and federal court, due to a very narrow arbitration clause. The Court’s detailed analysis of whether (and which) of the numerous claims were subject to arbitration means that many of the more high-profile claims will be litigated in open court.
In Turi, numerous couples sued their adoption agency and asserted claims ranging from federal RICO, conspiracy, fraud, and infliction of emotional distress to unjust enrichment and conversion. The adoption agency argued that all of the claims should be sent to arbitration and the arbitrator should get to decide what, if anything, was outside the scope of the contractual arbitration clause.
Not so, said the Court. The Court contrasted the narrow clause in this case that only required arbitration of “claims regarding fees charged by [the agency]” to broad clauses that mandate arbitration of any dispute between the parties or or any dispute arising out of the contract. This distinction was critical. The Court held that because the arbitration clause was narrow, “the [Federal Arbitration Act’s] presumption of arbitrability regarding the merits of a dispute does not apply with equal force” as it does with broad arbitration clauses. The narrowness of the clause also meant that the court, rather than an arbitrator, gets to decide which claims must be arbitrated. The Court characterized its opinion as following its recent decisions in Simon v. Pfizer, Inc., 398 F.3d 765 (6th Cir. 2005) (pdf), and Bratt Enter. v. Noble Int’l Ltd.,338 F.3d 609 (6th Cir. 2003) (pdf), applying a strict approach to narrow arbitration clauses.
The Court also rejected the argument that all of the claims had to go to arbitration because there was factual overlap between the fee-related and the non-fee-related claims. Instead, the Court ruled that claims must be “substantially identical” to piggy-back into arbitration. Here, because only the unjust enrichment and conversion claims were related to the agency’s fees, everything else stays in federal court. The Court has thus reinforced the message that if parties want to maximize the chance that their dispute goes to arbitration, they should use broad arbitration clauses.