Will a Rhode Island court enforce this arbitration clause?
Yes, if it is “clearly written and expressed” and both sides assented, but Rhode Island’s Arbitration Act (ch. 10-3) imposes requirements the Federal Arbitration Act does not. Section 10-3-2(a) makes a written contract provision to arbitrate future controversies, or a written agreement to submit an existing one, “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”, but only “[w]hen clearly written and expressed”, a condition the Supreme Court has confirmed survived the 1976 amendment that dropped the old placement rule: the amendment “eliminated this requirement for most contracts but conspicuously left unaffected the statutory mandate that agreements to arbitrate be ‘clearly written and expressed’” (Stanley-Bostitch, Inc. v. Regenerative Environmental Equipment Co.). Clear drafting by one side is not enough: Stanley-Bostitch refused to compel arbitration, holding that “[t]he defendant confuses a clear expression of intent to arbitrate on the part of REECO with a clearly expressed agreement to arbitrate mutually assented to by both parties to the contract”, and “[m]utual assent objectively manifested by the writings of the parties is a condition precedent to the formation of a binding agreement to arbitrate.” A clause saying disputes “shall be submitted to binding arbitration” does satisfy the standard (Newman v. Valleywood Associates, Inc.). Section 10-3-2(a) then carves out collective employer-employee contracts “in respect to terms or conditions of employment” entirely, and gives the INSURED an option in “all contracts of primary insurance” whose arbitration provision “is not placed immediately before the testimonium clause or the signature of the parties”, and once the insured elects, this chapter “shall apply and be the exclusive remedy available to the insured” (Kraczkowski v. Quincy Mutual Fire Insurance). Formation is for the court: under § 10-3-5, where “the making of the arbitration agreement… is in issue, the court shall proceed summarily to the trial thereof”, with a jury on either party’s demand; and “[t]he issue of whether a dispute is arbitrable is a question of law that this Court reviews de novo” (R.I. Council on Postsecondary Education v. Hellenic Society Paideia, where the Court read the lease’s arbitration clause to cover the dispute, vacated the order refusing a stay and remanded “for entry of an order staying litigation pending arbitration proceedings”, over a dissent). Stanley-Bostitch’s refusal was a disposition as well as a holding: “the plaintiffs appeal is sustained”, the judgment was vacated and the case remanded.
The trap
Four Rhode Island-specific things. (1) The notice is regulated and cannot be drafted around. Section 10-3-2's insurance option is narrower than it reads: Kraczkowski holds that “[s]ection 10-3-2 applies in cases in which the insurer demands that an insured arbitrate a claim”, so an insured who itself demanded arbitration gets nothing from the testimonium-clause proviso and is barred from leaving arbitration for the Superior Court. Section 10-3-2(b) gives a party served with a demand or notice of intention to arbitrate twenty days to move to stay or be “precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time”, but the notice must be “served in the same manner as a summons or by registered or certified mail, return receipt requested”, § 10-3-2(c) requires the sender to “affirmatively include in the notice the rights being waived” in “bold print and highlighted”, and the subsection ends: “Any provision in an arbitration agreement or arbitration rules that waives the right to apply for a stay of arbitration or prescribes a manner of notifying a party of an intention to commence arbitration that is more burdensome than that described in this section is hereby declared null and void.” That sentence voids incorporated provider rules, not just contract text. (2) The drafting party pays or loses the clause. In an employment or consumer arbitration, if the fees to initiate are unpaid “within thirty (30) days after the due date the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration under § 10-3-4” (§ 10-3-23(a)(1)), but only in an arbitration that requires the drafting party to pay those fees and “unless there is a mutually agreed upon provision to split costs equally, the drafting party, unless otherwise specified, is to pay certain fees and costs before the arbitration can proceed”; the same rule applies to fees that keep a pending arbitration going (§ 10-3-24(a)(1)); and the court then “shall impose a monetary sanction” of the employee’s or consumer’s reasonable expenses and fees (§ 10-3-25(a)), with discovery, pleading-striking, default and contempt sanctions available under § 10-3-25(b) “unless the court finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust”. (3) Arbitration is an AFFIRMATIVE DEFENCE in Rhode Island: in JHRW, LLC v. Seaport Studios, Inc. the Court held the argument “has been waived because it was not pled in defendants’ answer”, and the right “can be waived when a party ‘manifests a willingness, if not a desire, to have the courts resolve the controversy.’” (4) In a consumer case the FAA may govern the merits and Rhode Island law still decides whether a contract was formed at all: DeFontes v. Dell, Inc. accepted that “because their transactions involved interstate commerce, the Federal Arbitration Act (FAA) is applicable” and still refused to compel, because “a reasonably prudent offeree” would not understand that keeping the computer accepted the enclosed terms.
36 authorities
- statuteR.I. Gen. Laws § 10-3-2enactment date not established
The words that state the rule
When clearly written and expressed, a provision in a written contract to settle by arbitration a controversy thereafter arising out of such contract, or out of the refusal to perform the whole or any part thereof, or an agreement in writing between two (2) or more persons to submit to arbitration any controversy existing between them at the time of the agreement to submit shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract;
- statuteR.I. Gen. Laws § 10-3-2enactment date not established
The words that state the rule
provided, however, that the provisions of this chapter shall not apply to collective contracts between employers and employees, or between employers and associations of employees, in respect to terms or conditions of employment;
- statuteR.I. Gen. Laws § 10-3-2enactment date not established
The words that state the rule
in all contracts of primary insurance, wherein the provision for arbitration is not placed immediately before the testimonium clause or the signature of the parties, the arbitration procedure may be enforced at the option of the insured, and in the event the insured exercises the option to arbitrate, then the provisions of this chapter shall apply and be the exclusive remedy available to the insured.
- statuteR.I. Gen. Laws § 10-3-2enactment date not established
The words that state the rule
stating that unless the party served applies to stay the arbitration within twenty (20) days after such service they shall thereafter be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time. Such notice or demand shall be served in the same manner as a summons or by registered or certified mail, return receipt requested.
- statuteR.I. Gen. Laws § 10-3-2enactment date not established
The words that state the rule
Any provision in an arbitration agreement or arbitration rules that waives the right to apply for a stay of arbitration or prescribes a manner of notifying a party of an intention to commence arbitration that is more burdensome than that described in this section is hereby declared null and void.
- statuteR.I. Gen. Laws § 10-3-2enactment date not established
The words that state the rule
The party required to send notice pursuant to subsection (b) of this section shall affirmatively include in the notice the rights being waived by failure to apply for the stay of arbitration. Said notice shall be done in bold print and highlighted.
- statuteR.I. Gen. Laws § 10-3-3enactment date not established
The words that state the rule
If any suit or proceeding be brought upon any issue referable to arbitration under an agreement in writing for arbitration, the court in which the suit is pending, upon being satisfied that the issue involved in the suit or proceeding is referable to arbitration under such an agreement, shall, on application of one of the parties, stay the trial of the action until the arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with the arbitration.
- statuteR.I. Gen. Laws § 10-3-5enactment date not established
The words that state the rule
If the making of the arbitration agreement or the failure, neglect, or refusal to perform the arbitration agreement is in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded, the court shall hear and determine the issue.
- statuteR.I. Gen. Laws § 10-3-5enactment date not established
The words that state the rule
Where such an issue is raised, either party may, on or before the return day of the notice of application, demand a jury trial of the issue, and upon the demand of a jury trial the court shall make an order referring the issue or issues to a jury as in equity causes.
- statuteR.I. Gen. Laws § 10-3-23enactment date not established
The words that state the rule
If the fees or costs to initiate an arbitration proceeding are not paid within thirty (30) days after the due date the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration under § 10-3-4.
- statuteR.I. Gen. Laws § 10-3-23enactment date not established
The words that state the rule
If the drafting party materially breaches the arbitration agreement and is in default under subsection (a) of this section, the employee or consumer may do either of the following: (1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction; or (2) Compel arbitration in which the drafting party shall pay reasonable attorneys’ fees and costs related to the arbitration.
- statuteR.I. Gen. Laws § 10-3-24enactment date not established
The words that state the rule
if the fees or costs required to continue the arbitration proceeding are not paid within thirty (30) days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration as a result of the material breach.
- statuteR.I. Gen. Laws § 10-3-25enactment date not established
The words that state the rule
The court shall impose a monetary sanction against a drafting party that materially breaches an arbitration agreement pursuant to § 10-3-23(a) or § 10-3-24(a), by ordering the drafting party to pay the reasonable expenses, including attorneys’ fees and costs, incurred by the employee or consumer as a result of the material breach.
- statuteR.I. Gen. Laws § 10-3-21enactment date not established
The words that state the rule
If a contractor principal on a bond furnished to guarantee performance or payment on a construction contract and the claimant are parties to a written contract with a provision to submit to arbitration any controversy thereafter arising under the contract, the arbitration provisions shall apply to the surety for all disputes involving questions of the claimant’s right of recovery against the surety.
- statuteR.I. Gen. Laws § 10-3-12enactment date not established
The words that state the rule
In any of the following cases, the court must make an order vacating the award upon the application of any party to the arbitration: (1) Where the award was procured by corruption, fraud or undue means.
- statuteR.I. Gen. Laws § 10-3-12enactment date not established
The words that state the rule
Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
- case697 A.2d 323Stanley-Bostitch, Inc. v. Regenerative Environmental Equipment Co.R.I.decided 1997read it at the source ↗
The words that state the rule
The most recent amendment to. § 10-3-2 of the act eliminated this requirement for most contracts but conspicuously left unaffected the statutory mandate that agreements to arbitrate be “clearly written and expressed.”
- case697 A.2d 323Stanley-Bostitch, Inc. v. Regenerative Environmental Equipment Co.R.I.decided 1997read it at the source ↗
The words that state the rule
The defendant confuses a clear expression of intent to arbitrate on the part of REECO with a clearly expressed agreement to arbitrate mutually assented to by both parties to the contract.
- case697 A.2d 323Stanley-Bostitch, Inc. v. Regenerative Environmental Equipment Co.R.I.decided 1997read it at the source ↗
The words that state the rule
Mutual assent objectively manifested by the writings of the parties is a condition precedent to the formation of a binding agreement to arbitrate.
The words that state the rule
The contract’s broad language stating that disputes “shall be submitted to binding arbitration” comports with the statutory requirement that an arbitration agreement be “clearly written and expressed.”
The words that state the rule
The result in this case is governed by G.L.1956 § 10-3-2, which provides that “in the event the insured exercises the option to arbitrate, * * * the provisions of this chapter shall apply and be the exclusive remedy available to the insured.”
- case202 A.3d 931Rhode Island Council on Postsecondary Education v. Hellenic Society PaideiaR.I.decided 2019read it at the source ↗
The words that state the rule
The issue of whether a dispute is arbitrable is a question of law that this Court reviews de novo.”
- case202 A.3d 931Rhode Island Council on Postsecondary Education v. Hellenic Society PaideiaR.I.decided 2019read it at the source ↗
The words that state the rule
[w]hen uncertainty exists about whether a dispute is arbitrable, this Court, like the United States Supreme Court, ‘has enunciated a policy in favor of resolving any doubt in favor of arbitration
The words that state the rule
we find that this argument has been waived because it was not pled in defendants’ answer.
The words that state the rule
the right to arbitration “can be waived when a party ‘manifests a willingness, if not a desire, to have the courts resolve the controversy.’
The words that state the rule
The parties acknowledge that because their transactions involved interstate commerce, the Federal Arbitration Act (FAA) is applicable.
The words that state the rule
We are not persuaded that a reasonably prudent offeree would understand that by keeping the Dell computer he or she was agreeing to be bound by the terms and conditions agreement and retained, for a specified time, the power to reject the terms by returning the product.
The words that state the rule
Because we hold that the hearing justice properly denied the defendants’ motion to compel arbitration on the ground that the plaintiffs did not agree to be bound by the terms and conditions agreement, we need not discuss any of the alternative grounds the hearing justice offered for denying the defendants’ motion to compel arbitration.
- statuteR.I. Gen. Laws § 10-3-23enactment date not established
The words that state the rule
In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, unless there is a mutually agreed upon provision to split costs equally, the drafting party, unless otherwise specified, is to pay certain fees and costs before the arbitration can proceed.
- statuteR.I. Gen. Laws § 10-3-25enactment date not established
The words that state the rule
In addition to the monetary sanction described in subsection (a) of this section, the court may order any of the following sanctions against a drafting party that materially breaches an arbitration agreement pursuant to § 10-3-23(a) or § 10-3-24(a), unless the court finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust:
- case697 A.2d 323Stanley-Bostitch, Inc. v. Regenerative Environmental Equipment Co.R.I.decided 1997read it at the source ↗
The words that state the rule
Having determined that no agreement to arbitrate exists between the parties, we conclude that Mueller, as an assignee of the contract between SBI and REECO, cannot compel the plaintiff to submit to arbitration. Accordingly, the plaintiffs appeal is sustained. We vacate the judgment of the Superior Court and remand the case for further proceedings consistent with this opinion.
The words that state the rule
Section 10-3-2 applies in cases in which the insurer demands that an insured arbitrate a claim.
The words that state the rule
Consequently, plaintiffs were barred by § 10-3-2 from opting out of arbitration and pursuing Heather’s claim in Superior Court.
- case202 A.3d 931Rhode Island Council on Postsecondary Education v. Hellenic Society PaideiaR.I.decided 2019read it at the source ↗
The words that state the rule
For the reasons set forth in this opinion, we vacate the order of the Superior Court and remand the case to the Superior Court for entry of an order staying litigation pending arbitration proceedings.
The words that state the rule
Accordingly, we are of the opinion that defendants have waived their right to arbitration of count I of plaintiff’s amended complaint.
The words that state the rule
Conclusion For the foregoing reasons, we reverse the judgment of the Superior Court and remand the case for further proceedings not inconsistent with this opinion. The record shall be returned to the Superior Court.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.