Opinion ID: 3048284
Heading Depth: 3
Heading Rank: 2

Heading: The 2002 Order Compelling Arbitration

Text: [5] It is axiomatic that “[a]rbitration is a matter of contract and a party cannot be required to submit any dispute which he has not agreed so to submit.” AT&T Tech., Inc. v. 6 After the district court denied Sanford’s motion for reconsideration, Sanford moved the court for a final judgment so that she could appeal the order compelling arbitration. In an October 2003 order, the district court refused to do so. Under a bold heading entitled “No Final Judgment,” the court “decline[d] to issue a Final Judgment at this time. There has been no motion by Defendants to dismiss this case due to expiration of the arbitration period, and thus Plaintiff’s request for a final judgment is premature.” 7 MemberWorks asserts for the first time at oral argument that Sanford’s appeal of the dismissal of the class allegations as moot is untimely under Fed. R. Civ. P. 23(f). Assuming without deciding that the rule applies, “[n]othing within the language of the Rule 23(f), its authorizing statute (28 U.S.C. § 1292(e)), or its history indicates that it is meant to provide the exclusive route to obtaining appellate review or to impose time limits on [ ] appeals proper under other statutory provisions.” Bates v. United Parcel Serv., 465 F.3d 1069, 1076 n.5 (9th Cir. 2006). SANFORD v. MEMBERWORKS, INC. 4277 Commc’n Workers of Am., 475 U.S. 643, 648 (1986). As a result, when one party disputes “the making of the arbitration agreement,” the Federal Arbitration Act requires that “the court [ ] proceed summarily to the trial thereof” before compelling arbitration under the agreement. 9 U.S.C. § 4. We have interpreted this language to encompass not only challenges to the arbitration clause itself, but also challenges to the making of the contract containing the arbitration clause. Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991). Issues regarding the validity or enforcement of a putative contract mandating arbitration should be referred to an arbitrator, but challenges to the existence of a contract as a whole must be determined by the court prior to ordering arbitration. Id.8 [6] The parties here do not dispute that Sanford challenged the existence of a contract with MemberWorks, and therefore under Three Valleys the district court was required to rule upon the contract formation issue before compelling arbitration. Their quarrel regards whether the district court in fact did so. Sanford claims that the district court misinterpreted Three Valleys and therefore inappropriately referred the contract formation issue to the arbitrator. MemberWorks responds that, while the district court did not explicitly find that a contract was formed, the July 2002 order should be understood as implicitly having decided this question. MemberWorks asserts that the July 2002 order was premised on the finding of a contract due to “the authorities upon which it relied to support its holding.” Citibank, N.A. v. Wells 8 Although the Supreme Court has not yet spoken on this issue, it has specifically noted the distinction between the validity of the contract and the question whether any agreement was formed. See Buckeye Check Cashing, Inc. v. Cardegna, 126 S. Ct. 1204, 1208 n.1 (2005). The Court explained that while its ruling relegated the question of contract illegality to the arbitrator, it “does not speak to the issue decided in the cases cited by respondents . . . which hold that it is for courts to decide whether the alleged obligor ever signed the contract.” Id. 4278 SANFORD v. MEMBERWORKS, INC. Fargo Asia Ltd., 495 U.S. 660, 669-70 (1990). The order correctly stated that it must determine “whether a valid agreement to arbitrate exists” and cited Three Valleys at one point, indicating that the court was familiar with the decision. Therefore, MemberWorks argues, it would be unreasonable to construe the 2002 order as having referred the contract formation question to the arbitrator. [7] MemberWorks’ argument is unpersuasive. The 2002 order could not have implicitly decided the question of contract formation; it explicitly refused to decide the question. The operative language from the order reads: Under the FAA, the court is limited to determining (1) whether a valid agreement to arbitrate exists, and, if it does, (2) whether the agreement encompasses the dispute at issue. A party challenging the validity of the contract, as a whole, is a question for the arbitrator and not the Court. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). The hold- ing in Prima Paint extends to attempts to rescind contracts on other grounds. Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140 (9th Cir. 1991). Therefore, a plaintiff must challenge the arbitration agreement itself. Here, Plaintiff contends that she was not aware that she was part of the membership program until she canceled in February 2000. In essence, she chal- lenges the validity of the contract and not specifically the arbitration agreement. Accordingly, this is an issue for the arbitrator and not the court. (Quotation marks and citations omitted). The order did not decide that the parties formed a contract. Rather, it interpreted Prima Paint as mandating that the court decide all challenges to an arbitration clause but the arbitrator decide all challenges to the contract as a whole. We rejected SANFORD v. MEMBERWORKS, INC. 4279 this argument in Three Valleys, which limited Prima Paint “to challenges seeking to avoid or rescind a contract—not to challenges going to the very existence of a contract that a party claims never to have agreed to.” Three Valleys, 925 F.2d at 1140 (emphasis in original). The district court’s lone citation to Three Valleys thus misconstrues that case: the order claims that Three Valleys extended Prima Paint, when in fact it limited Prima Paint by precluding its application to the very issue that Sanford presented to the district court.9 [8] The 2002 order clearly stated that “Plaintiff’s conten[- tion] that she was not aware that she was part of the membership program” was a “challenge[ to] the validity of the whole contract” and “[a]ccordingly [ ] is an issue for the arbitrator and not the Court.” This holding is erroneous under Three Valleys. We must therefore vacate the July 2002 order compelling arbitration and remand the case to the district court to determine whether a contract was formed between Sanford and MemberWorks. 9 Defendants also assert that a finding of contractual formation was appropriate because Sanford failed to offer evidence rebutting MemberWorks’ motion to compel arbitration. Even assuming that Rule 56 procedures are applicable to a motion to compel, but cf. Hamilton v. ShearsonLehman Am. Exp., Inc., 813 F.2d 1532, 1535 (9th Cir. 1987), we cannot say that the evidence MemberWorks proffered in support of its motion shows the absence of a genuine issue of material fact. MemberWorks introduced a declaration that its business records indicated that Sanford was enrolled in the Essentials program and sent a membership kit, along with copies of the kit and of MemberWorks’ sales script. As Sanford notes (and the arbitrator subsequently found), this evidence could be interpreted as supporting her claim that MemberWorks’ practices were misleading and that no assent ever occurred. “The district court, when considering a motion to compel arbitration which is opposed on the ground that no agreement to arbitrate had been made between the parties, should give to the opposing party the benefit of all reasonable doubts and inferences that may arise.” Three Valleys, 925 F.2d at 1141 (citation omitted). We therefore decline to find that MemberWorks has demonstrated the absence of a material fact on the issue of contract formation. 4280 SANFORD v. MEMBERWORKS, INC.