Betsy R. Danner v. MBNA America Bank, N.A.
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SUPREME COURT OF ARKANSAS
No.
06-1429
Opinion Delivered April
BETSY R. DANNER,
26, 2007
APPELLANT,
VS.
MBNA AMERICA BANK, N.A.,
APPELLEE,
APPEAL FROM THE CLARK
COUNTY CIRCUIT COURT,
NO. CV2005-181,
HON. JOHN ALEXANDER THOMAS,
JUDGE,
REVERSED AND REMANDED.
JIM HANNAH, Chief Justice
This case involves the validity of an alleged arbitration agreement between appellant
Betsy Danner and appellee MBNA America Bank, N.A. Danner appeals an order granting
summary judgment and confirming an arbitration award in favor of MBNA. We reverse and
remand to the circuit court.
The record reveals that a dispute arose between the parties concerning the nonpayment of charges on an MBNA credit card issued to Danner. MBNA alleges that after
Danner agreed to its original credit-card agreement, an amendment to the agreement was
mailed to Danner requiring her to arbitrate any future dispute. The relevant language of the
amendment is as follows:
As provided in your Credit Card Agreement and under Delaware law, we are
amending the Credit Card Agreement to include an Arbitration Section.
Please read it carefully because it will affect your right to go to court, including
any right you may have to have a jury trial. Instead, you (and we) will have to
arbitrate claims. You may choose not to be subject to this Arbitration Section
by following the instructions at the end of this notice. This Arbitration Section
will become effective on February 1, 2000. This Arbitration Section reads:
Arbitration: Any claim or dispute (“Claim”) by either you or us against the
other, or against the employees, agents or assigns of the other, arising from or
relating in any way to this Agreement or any prior Agreement or your account
(whether under a statute, in contract, tort, or otherwise and whether for money
damages, penalties or declaratory or equitable relief), including Claims
regarding the applicability of this Arbitration Section or the validity of the
entire Agreement or any prior Agreement, shall be resolved by binding
arbitration.
The arbitration shall be conducted by the National Arbitration Forum
(“NAF”), under the Code of Procedure in effect at the time the claim is filed.
. . . Any arbitration hearing at which you appear will take place within the
federal judicial district that includes your billing address at the time the Claim
is filed. This arbitration agreement is made pursuant to a transaction involving
interstate commerce, and shall be governed by the Federal Arbitration Act, 9
U.S.C. §§ 1-16 (“FAA”). Judgment upon any arbitration award may be
entered in any court having jurisdiction. . . .
THE RESULT OF THIS ARBITRATION SECTION IS THAT, EXCEPT
AS PROVIDED ABOVE, CLAIMS CANNOT BE LITIGATED IN
COURT, INCLUDING SOME CLAIMS THAT COULD HAVE BEEN
TRIED BEFORE A JURY, AS CLASS ACTIONS OR AS PRIVATE
ATTORNEY GENERAL ACTIONS.
If you do not wish your account to be subject to this Arbitration Section, you must write
to us at MBNA America, P.O. Box 15565, Wilmington, DE 19850. Clearly print
or type your name and credit card account number and state that you reject this
Arbitration Section. You must give notice in writing; it is not sufficient to telephone us.
Send this notice only to the address in this paragraph: do not send it with a payment.
We must receive your letter at the above address by January 25, 2000 or your
rejection of the Arbitration Section will not be effective.
After a dispute over payment arose, MBNA submitted a claim to arbitration, and on
August 31, 2005, the arbitrator rendered an award in favor of MBNA in the amount of
$6,198.13. On December 13, 2005, MBNA filed a petition with the circuit court seeking
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to confirm the award. MBNA noted that under the FAA, the time period for Danner to
challenge the arbitration award had passed. Danner responded, alleging that she had never
entered into an arbitration agreement with MBNA, that she did not participate in the
arbitration, and that she had never waived her due-process rights with respect to any disputes
related to any business or other relationship that may have existed between the parties.
MBNA then filed a motion for summary judgment, stating that based on the petition and
Danner’s response, the circuit court should conclude that the arbitration award was proper.
The circuit court granted MBNA’s motion and confirmed the award.
On appeal, Danner argues that the circuit court erred in confirming the arbitration
award because no valid arbitration agreement existed. MBNA contends that the circuit court
did not err in granting summary judgment and confirming the arbitration award because
Danner did not timely challenge the award. The standard of review when summary
judgment has been granted is well settled:
“Summary judgment is to be granted by a trial court only when it is clear that
there are no genuine issues of material fact to be litigated, and the party is
entitled to judgment as a matter of law.” Wallace v. Broyles, 331 Ark. 58, 66,
332 Ark. 189, 961 S.W.2d 712 (1998) ( Wallace I ) (citing Pugh v. Griggs, 327
Ark. 577, [940 S.W.2d 445 (1997)]). The standard is whether the evidence is
sufficient to raise a fact issue, not whether the evidence is sufficient to compel
a conclusion. Id. (citing Caplener v. Bluebonnet Milling Co., 322 Ark. 751, 911
S.W.2d 586 (1995)). A fact issue exists, even if the facts are not in dispute, if
the facts “may result in differing conclusions as to whether the moving party
is entitled to judgment as a matter of law.... [I]n such an instance, summary
judgment is inappropriate.” Wallace v. Broyles, 332 Ark. 189, 961 S.W.2d 712
(1998) (supplemental opinion denying rehearing) ( Wallace II ).
On review, this court determines if summary judgment was appropriate based
on whether the evidence presented in support of summary judgment leaves a
material question of fact unanswered. Wallace I, supra. This court views the
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evidence in a light most favorable to the party against whom the motion was
filed, resolving all doubts and inferences against the moving party. Wallace I,
supra. Our review focuses not only on the pleadings, but also on the affidavits
and other documents filed by the parties. Id. (citing Angle v. Alexander, 328
Ark. 714, 945 S.W.2d 933 (1997)).
Ultracuts Ltd. v. Wal-Mart Stores, Inc., 343 Ark. 224, 231, 33 S.W.3d 128, 133 (2000).
It should first be noted that the Federal Arbitration Act (FAA), not the Arkansas
Uniform Arbitration Act, applies in the instant case because the transaction involves interstate
commerce. See Walton v. Lewis, 337 Ark. 45, 49, 987 S.W.2d 262, 265 (1999). The relevant
provisions of the FAA are as follows:
§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate
A written provision in any maritime transaction or a contract evidencing a
transaction involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction, or the refusal to perform the whole
or any part thereof, or an agreement in writing to submit to arbitration an
existing controversy arising out of such a contract, transaction, or refusal, shall
be valid, irrevocable, and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract.
9 U.S.C. § 2 (2000).
§ 12. Notice of motions to vacate or modify; service; stay of proceedings
Notice of a motion to vacate, modify, or correct an award must be served upon the adverse
party or his attorney within three months after the award is filed or delivered. If the
adverse party is a resident of the district within which the award was made,
such service shall be made upon the adverse party or his attorney as prescribed
by law for service of notice of motion in an action in the same court. If the
adverse party shall be a nonresident then the notice of the application shall be
served by the marshal of any district within which the adverse party may be
found in like manner as other process of the court. For the purposes of the
motion any judge who might make an order to stay the proceedings in an
action brought in the same court may make an order, to be served with the
notice of motion, staying the proceedings of the adverse party to enforce the
award.
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9 U.S.C. § 12 (2000) (emphasis added).
In this case, the arbitrator’s award was issued on August 31, 2005. The certificate of
service on the face of the award indicates that the award was mailed to the parties the same
day. Danner did not challenge the award until MBNA sought confirmation, which as
Danner admits, was 104 days following issuance of the award. Pursuant to 9 U.S.C. § 12,
Danner had three months after the award was filed or delivered to challenge the award.
MBNA states that even allowing a week for delivery by the postal service, the time limit for
bringing a challenge had already expired on January 10, 2006, the day Danner filed her
response to MBNA’s petition to confirm the award. Thus, MBNA maintains that Danner
is time-barred from bringing a challenge. For her part, Danner contends that she was not
required to file a petition to set aside the arbitration award within three months of the filing
or delivery of the award because she disputes entering into an arbitration agreement, she did
not participate in the arbitration, and MBNA failed to provide proof that she had actually
received notice of the award.
In support of this proposition, Danner cites MCI
Telecommunications Corp. v. Exalon Industries, Inc., 138 F.3d 426 (1st Cir. 1998). In that case,
MCI brought an action to enforce an arbitration award against Exalon, a former customer.
Id. at 428. An arbitrator was appointed and a hearing was scheduled for July 10, 1995. Id.
Exalon failed to respond to the notice, and on August 29, 1995, the arbitrator rendered an
award in favor of MCI in the amount of $83,233.24. Id. Exalon contended that no written
agreement existed between the parties binding them to arbitrate the controversy. Id. Exalon
thus claimed the arbitration award was invalid and unenforceable. Id.
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The arbitration provisions were included in a tariff regulation filed by MCI with the
Federal Communications Commission. Id. at 427-28. MCI contended that Exalon was
bound by the mandatory arbitration provisions of the tariff, which was in writing and of
which, it was argued, Exalon was presumed by law to have knowledge. Id. at 428. MCI
argued that, because Exalon failed to participate in the arbitration proceedings, Exalon was
bound by the award entered against it. Id. Citing title 9, section 12, of the FAA, MCI also
argued that, in any case, Exalon’s failure to challenge the award within three months after it
was filed or rendered barred it from contesting its validity before the district court. Id. The
United States Court of Appeals for the First Circuit disagreed, holding that “the time limits
provided by section 12 for the vacation, modification, or correction of an award do not
prevent a party who did not participate in an arbitration proceeding from challenging the
validity of the award at the time of its enforcement on the basis that no written agreement to
arbitrate existed between the parties.” MCI, 138 F.3d at 431 (footnote omitted). The court
explained:
We find no indication that Congress intended for a party to be found to have
waived the argument that there was no written agreement to arbitrate if that
party failed to raise the argument within the time period established by section
12. To the contrary, a different conclusion would be inconsistent with the most
natural reading of section 4 of the FAA. Section 4 of the FAA provides, in
pertinent part:
A party aggrieved by the alleged failure, neglect, or refusal of another to
arbitrate under a written agreement for arbitration may petition any ... district
court ... for an order directing that such arbitration proceed in the manner
provided for in such agreement.
9 U.S.C. § 4. Upon receipt of such a petition, the district court determines
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whether there was an agreement to arbitrate. If the existence of the agreement
is not in issue, the court must proceed forthwith to “make an order directing
the parties to proceed to arbitration.” In contrast, “[i]f the making of the
arbitration agreement or the failure, neglect, or refusal to perform the same be
in issue, the court shall proceed summarily to the trial thereof.” MCI's position
is that a party “aggrieved by the failure ... of another to arbitrate” may initiate
arbitration on its own and prevail by default, rather than first seeking an order
under section 4. But the focus of section 4 is on the party seeking arbitration,
who must affirmatively petition for a court order enforcing the agreement. It
is unlikely that Congress intended to allow the provisions of section 4 to be
bypassed so easily.
We thus conclude that, as a general matter, section 12, as well as section 2 and
the other enforcement provisions of the FAA, do not come into play unless
there is a written agreement to arbitrate. Thus, if there is no such agreement,
the actions of the arbitrator have no legal validity. It follows that one is not
required to mount a collateral challenge to such an ineffectual action, for if the
agreement to arbitrate does not exist, there is no obligation to arbitrate-and a
noncontracting person’s failure to appear at the arbitration hearing does not
create such an obligation.
A party that contends that it is not bound by an agreement to arbitrate can
therefore simply abstain from participation in the proceedings, and raise the
inexistence of a written contractual agreement to arbitrate as a defense to a
proceeding seeking confirmation of the arbitration award, without the
limitations contained in section 12, which are only applicable to those bound
by a written agreement to arbitrate. Of course, if a court later determines that
an arbitration agreement was in effect, and that the non-appearing party was
bound by its conditions, the FAA would then fully come into operation,
including the time limitations of section 12.
Id. at 430.
While decisions of the federal circuit courts are not binding on this court, we find the
First Circuit’s interpretation of the FAA to be highly persuasive. We agree with the MCI
court’s conclusion that the time limit imposed by 9 U.S.C. § 12 is not triggered unless there
is a written agreement to arbitrate. In this case, there is a fact issue as to whether such an
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agreement existed between Danner and MBNA. Accordingly, we hold that the circuit court
erred in granting summary judgment in favor of MBNA. We reverse and remand this case
to the circuit court to determine whether a written agreement to arbitrate existed between
Danner and MBNA.
Reversed and remanded.
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06-1429
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