10 Oct AGENCY PRINCIPLES MAY BE USED TO DETERMINE SCOPE OF ARBITRATION CLAUSES
Arbitration clauses are becoming increasingly more prevalent, especially in the context of employment. So too, is their scope. While it is clear that the language of the agreement generally determines whether a certain dispute is covered by a given arbitration agreement, what remains less clear is the scope of arbitration agreements as applied to the conduct of officers and agents serving on behalf of a corporation. This was the issue the Michigan Supreme Court had to resolve in a recent case, Altobelli v. Hartmann.
Altobelli, a partner at a law firm, decided to take a leave of absence and work as an assistant football coach for the University of Alabama. As a partner, Altobelli signed an operating agreement providing for mandatory arbitration of “[a]ny dispute, controversy or claim” between “the Firm or the Partnership” and any “current or former Principal.” Although originally warm to the idea, the firm’s CEO later soured on Altobelli’s leave of absence and considered Altobelli’s departure a voluntary withdrawal from the firm. Having lost his partner status, and challenged the firm’s conduct pursuant to his mandatory arbitration agreement. However, while arbitration proceedings were in motion, he also filed suit in the Ingham Circuit Court, not naming the Firm itself as a defendant, but rather individual principals and managers of the firm, with the content of his complaint “substantially similar to those he had alleged in arbitration.” The trial court ruled that the arbitration agreement was confined only to disputes between the firm itself and a principal; the court of appeals agreed.
On appeal, the Michigan Supreme Court, noted that “arbitration is a matter of contract,” and thus generally relegated to the realm of contract law. However, the Court found that although “no Michigan court has explicitly applied agency principles when interpreting an arbitration clause, it is well established that ‘corporations can act only through officers and agents.” The court also noted that this principle applies to other organizational structures as well, noting that the firm was organized as an LLC. After identifying the organizational structure of the firm as a limited liability company, the Court extended its reasoning to organizational structures beyond corporations. The Court then found that the operating agreement “clearly endows [these particular defendants] with agency authority to administer the Firms affairs” and accordingly “the individually named defendants must be included within the meaning of “the Firm” in the arbitration clause.” As a result of this broad reasoning and application of agency principles to arbitration agreements, the Court granted the motion to compel arbitration and held that the case “is subject to binding arbitration under the arbitration clause of the Operating Agreement” and “must be resolved by the arbitrator.”
This case is important for two reasons. First, it underscores the fact that other areas of law can, and often are, implicated in the interpretation of contract. Second, the Michigan Supreme Court has, for the first time, applied agency principles to set the scope of an arbitration agreement.
If you have any questions regarding arbitration, or any other related matter, please contact Masud Labor Law Group.