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Ahlstrom v. DHI Mortgage Co. (9th Cir. 20-15114 12/29/21) Arbitration/Formation

By December 29, 2021December 30th, 2021Arbitration, Employment Law

Home under constructionThe panel reversed the district court’s order dismissing a putative class action complaint and granting the defendant’s motion to compel arbitration pursuant to the Federal Arbitration Act, and remanded for further proceedings.

When the plaintiff was hired as a loan officer by DHI Mortgage Co. (“DHIM”), he signed a Mutual Arbitration Agreement (“MAA”) with D.R. Horton, the parent company of DHIM. The MAA included a delegation clause providing that the arbitrator would have “exclusive authority to resolve any dispute relating the formation, enforceability, applicability, or interpretation” of the MAA. The plaintiff brought employment-related claims. DHIM moved to compel arbitration and to dismiss the putative class claims. The plaintiff opposed the motion, contending that the MAA was never properly formed due to a failure to satisfy a condition precedent in the MAA. The district court granted DHIM’s motion. Citing the delegation clause, the district court concluded that formation issues, including the plaintiff’s condition precedent argument, could not be decided by the court, and were instead delegated to the arbitrator.

The panel held that it is well-established that some “gateway” issues pertaining to an arbitration agreement, such as issues of validity and arbitrability, can be delegated to an arbitrator by agreement. Agreeing with other circuits, the panel held, however, that parties may not agree to delegate issues of formation to an arbitrator.

The panel further held that the MAA did not constitute a properly formed agreement between the plaintiff and D.R. Horton, with which the plaintiff had no employment relationship. The panel concluded that the MAA, as drafted, described a relationship between the plaintiff and D.R. Horton that did not exist, and thus did not constitute a properly formed agreement to arbitrate.