Two recent appellate decisions, one from the Michigan Court of Appeals and the other from the U.S. Court of Appeals for the Sixth Circuit (which has jurisdiction over Michigan), illustrate the disfavor the judiciary has for technical arguments for escaping an arbitration agreement a party has signed.

In Rooyakker & Sitz v. Plante & Moran, the Michigan Court of Appeals upheld an arbitration clause in an agreement between Plante & Moran (P&M) and three accountants who had worked in P&M’s Gaylord, Michigan office.  When P&M closed that office, the accountants resigned and opened their own office.  P&M soon initiated arbitration proceedings against them for violating a clause in the agreement that prohibited solicitation of P&M clients.  The three ex-employees then sued to have the agreement or the arbitration clause declared unenforceable.

The accountants first argued that P&M was not entitled to arbitration because the arbitration clause did not specifically refer to entry of judgment by a “circuit court,” but rather stated that judgment may be entered “in any court having jurisdiction.”  This was a very technical argument based on the Michigan Arbitration Act’s provision that, if an agreement to settle a dispute by arbitration states that “a judgment of any circuit court may be rendered upon the award,” the agreement is one for “statutory arbitration” and may not be unilaterally cancelled.  (In contrast, a “common law” arbitration agreement that does not provide for entry of judgment on the award is revocable by either party under Michigan law before an arbitration award is made.)  Invoking Michigan’s public policy favoring arbitration, the court held that it was unnecessary to identify the circuit court by name to create a statutory arbitration agreement, so long as the agreement clearly provided for court enforcement.

The accountants also argued that their request to declare the agreement’s non-solicitation clause unenforceable because it allegedly violated the Michigan Antitrust Reform Act (MARA) could not be referred to arbitration because MARA states that a lawsuit may be brought in “a circuit court where venue is proper.”  The court again disagreed, holding that this grant of jurisdiction to the circuit court did not mean that a MARA action could not be arbitrated:  “If the Legislature intended to exempt all antitrust actions from arbitration, it could have done so.”

The Sixth Circuit case is Electronic Data Systems Corp. v. Donelson.  Donelson had sued EDS, alleging that his termination resulted from race and disability discrimination in violation of Michigan law.  After discovery, the parties agreed to have the dispute resolved by a panel of three arbitrators rather than in court.  When the arbitration hearing began, EDS asked the arbitrators to include findings of fact and conclusions of law in their award, even though there was no such requirement in the arbitration agreement.  After the hearing, when the panel did not render its award within the agreed-upon period, EDS claimed that the panel’s power had lapsed.  Two weeks later, the panel issued an award against EDS that did not include findings of fact or conclusions of law.  EDS then sued in U.S. District Court to vacate the arbitration award, contending that the panel had exceeded its powers and manifestly disregarded the law – two of the few grounds in the Federal Arbitration Act for nullifying an arbitration award.

The Sixth Circuit was not convinced.  It noted first that a number of procedural fairness requirements applied in the context of pre-dispute agreements to arbitrate where employees have prospectively waived their right to a judicial forum as a condition of employment, but the arbitration agreement here was post-dispute -- i.e., after Donelson had been discharged, retained counsel, filed suit, and conducted discovery.  Under these circumstances, the court reasoned, Michigan law did not require the arbitration panel to make findings of fact or conclusions of law.

As to Donelson’s claim that the panel had engaged in “manifest disregard of the law,” this elevated standard fits only if a legal principle is clearly defined, not subject to reasonable debate, and the arbitrators plainly refuse to heed it.  EDS could not remotely satisfy that standard because no record had been made of the arbitration hearing.  Furthermore, the court reasoned, the award was impervious to attack because an allegedly discriminating supervisor kept a black-faced doll suspended in the air by a rope around its neck, and she had been involved in the terminations of four black employees (and no whites) within just a few months.

Noel D. Massie