The U.S. Court of Appeals for the Fifth Circuit recently held conflicting arbitration agreements contained in loan and insurance agreements were valid and enforceable because the parties showed an intent to arbitrate. The dispute arose after a defendant sought to dismiss a case alleging violations of TILA and a related bankruptcy proceeding or to compel arbitration. The dispute centered on an installment loan agreement that contained a second agreement for the purchase of insurance. Both the loan agreement and the insurance policy were accompanied by arbitration provisions that were significantly in conflict. Upon review, the bankruptcy court and district court found that no arbitration agreement existed between the parties.
The bankruptcy court determined that the arbitration agreements differed in “the number of arbitrators, (2) selection of arbitrators, (3) time allowed to respond, (4) location of the arbitration, (5) who pays the arbitration costs, (6) who is entitled to attorneys’ fees and on what showing, and (7) when arbitration doesn’t apply.” Disagreeing with the bankruptcy court, the Court of Appeals first decided that the loan agreement and insurance agreement were part of the same contract under Mississippi law because the documents were executed “at the same time, by the same parties, as part of the same transaction.” Next, and central to the case, the court determined that the conflicts within the arbitration provisions were “non-essential,” and therefore the arbitration agreement was valid and enforceable.
Under Mississippi law, the Fifth Circuit found that despite the conflicts above, the parties entered into valid and enforceable arbitration agreements that showed a “meeting of the minds.” The court also stated that the two agreements show a “baseline intent to arbitrate” and that “the conflicting provisions do not change that result.” As the court explained, the conflicting terms are not “essential terms” such as “price and rent.” Because the court reasoned that the above terms were procedural terms and were “non-essential,” the court found it was reversible error to conclude there was no agreement to arbitrate since the “parties validly contracted to arbitrate.”
The dissent disagreed, arguing that this was a consumer transaction, not a negotiation between merchants, and therefore the court should be cautious finding the parties here showed “mutual assent” to arbitrate. Furthermore, the dissent observed that the conflicting terms were not just procedural and had significant effects on the parties’ rights, depending on whether the first or second agreement’s terms controlled the matter at issue. For instance, the dissent noted that if the first agreement controlled, a party has “thirty days to deliver an answering statement after receiving notice,” and only “twenty days” under the second agreement. If a party does not file in time, the agreement makes it so “opposing party is entitled to select the arbitrator,” which according to the dissent is a “material distinction.” Finally, the dissent found that disagreements in terms over the location, the selection of arbitrator, and the party paying for arbitration were all conflicts “in favor of a determination that there was no formation of a contract to arbitrate.”