First Things First: There Must Be An Arbitration Agreement In Order To Compel Arbitration
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Two courts recently refused to compel arbitration because the defendants could not prove that the parties had entered into an arbitration agreement at all. Therefore, the musical accompaniment to this post is “Do Re Mi” from The Sound of Music. “Let’s start at the very beginning, a very good place to start. When you read, you begin with ABC,” [and I add] “when you compel you begin with we agree.”
In Bellman v. i3Carbon, LLC, 2014 WL 2210739 (10th Cir. May 29, 2014), two plaintiffs sued for securities fraud, alleging that defendants had made misstatements when convincing plaintiffs to invest $600,000 in an energy company. Defendants then moved to compel arbitration based an arbitration agreement in the (unsigned) Operating Agreement. However, Defendants were unable to prove that there was any meeting of the minds with respect to an arbitration agreement, so the district court denied the motion and the appellate court affirmed the denial. As the Tenth Circuit explained:
Defendants’ argument essentially boils down to their assertion that Plaintiffs’ mere investment in i3Carbon following their receipt of a binder containing an unsigned Operating Agreement somehow establishes that Plaintiffs agreed to, and accepted, the terms of the Operating Agreement, including its arbitration provision. However… this argument is unpersuasive.
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