10th Circuit rejects a “death by discovery” approach when determining the threshold question of whether the parties agreed to arbitration
If there is one topic that has captured the attention of federal courts around the country in the past few years, it’s the applicability of mandatory arbitration in putative class actions. (Indeed, during our humble blog’s brief existence, we have covered the issue numerous times, most notably here, here and here). A recent decision from the Tenth Circuit may provide the most entertaining and candid examination of the procedure district courts should take in answering that question.
In Howard v. Ferrellgas Partners, L.P., Case No. 13-3061, 2014 WL 1363963 (10th Cir. Apr. 8, 2014), the court admonished all parties involved when it reversed an order from the District of Kansas denying arbitration after a year and a half of discovery on the issue of whether arbitration even applied to the parties dispute. The time spent on discovery appeared to baffle Judge Gorsuch, who writing for the court, noted that the case seemed to rest on a simple factual premise: Mr. Howard called Ferrellgas to order propane to heat his home; Ferrellgas agreed to sell him some. Was a final and complete oral contract formed during that initial phone call? Or did Ferrellgas subsequently modify their agreement by delivering a contract with the disputed arbitration clause?
The court noted that the Federal Arbitration Act (FAA) directs “district courts to proceed summarily to [a] trial of the relevant facts” when it’s not clear whether the parties opted for arbitration because “the object is always to decide quickly … so the parties can get on with the merits of their dispute.” The Tenth Circuit held that the district court’s Kafka-esque procedure of discovery and motion practice was error because “[p]arties should not have to endure years of waiting and exhaust legions of photocopiers in discovery and motions practice merely to learn where their dispute will be heard. The [FAA] requires courts [to] process the venue question quickly so the parties can get on with the merits of their dispute in the right forum. It calls for a summary trial — not death by discovery.”
This opinion is also worth reading for its analysis of Kansas contract law, and for particular import to class action practitioners in our area is whether a subsequent writing can modify an oral contract. If the parties had orally agreed to a on-going purchase agreement with no mention of any written terms, then under Kansas law, the introduction of a subsequent mandatory arbitration clause could only modify the parties’ pre-existing oral agreement with the express consent of the other party. Ensuring that consent could save you from litigating the procedural quagmire the parties faced in Howard.