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Legal Memorandum: Order to Stay Proceedings and Compel Arbitration

Issue: Is an employer may be entitled to an order staying proceedings and compelling arbitration if the arbitration provisions in an employment contract are both procedurally and substantively unconscionable?

Area of Law: Alternative Dispute Resolution, Employee Law
Keywords: Order staying proceedings; Compelling arbitration; Procedurally and substantively unconscionable
Jurisdiction: Virgin Islands
Cited Cases: 328 F.3d 1165; 514 U.S. 938; 321 F. Supp. 2d 142; 400 F.3d 370; 116 P.3d 479; 407 F.3d 546; 565 F.2d 255
Cited Statutes: Restatement (Second) of Contracts § 208; 24 V.I.C. § 451b; 5 V.I.C. § 815; V.I. Legis., Act No. 6917, § 9 (2007)
Date: 05/01/2007

To rule on a motion to stay, the court must first decide whether the moving party has established that a particular matter is referable to arbitration.  To make this determination, the court must conduct a two-question inquiry into the “gateway issues”:  “(1) Did the parties seeking or resisting arbitration enter into a valid arbitration agreement? (2) Does the dispute between those parties fall within the language of the arbitration agreement?”  John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir. 1998).  Unless the evidence compels an answer to both questions in the affirmative, the matter is not referable to arbitration and the motion cannot be granted. 

In considering these gateway questions, “ordinary state-law principles that govern the formation of contracts” should apply when deciding whether the parties agreed to arbitrate the dispute in question.  First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).  “[A]rbitration agreements . . . are subject to all defenses to enforcement that apply to contracts generally.”  Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003).  Of particular relevance here, “[a]n agreement to arbitrate may be unenforceable based on a generally applicable contractual defense, such as unconscionability.”  Alexander v. Anthony Int’l, L.P. 341 F.3d 256, 264 (3d Cir. 2003) (emphasis added). 

Although there is a strong federal policy favoring arbitration, this policy does not operate without regard to contracting parties’ intent.  Keymer v. Mgmt. Recruiters Int’l, Inc., 169 […]

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