Arizona Court of Appeals Division One holds that a court must decide whether a party’s claims are subject to arbitration before addressing the merits of the claims; if the court finds the claims are subject to binding arbitration, it lacks the authority to address the merits.

A woman took a home-based job and signed an arbitration agreement as a condition of employment.  She resigned a few months later and then filed several lawsuits against her former employer in federal and state courts alleging wrongful termination and the violation of several federal statutes.  In the case filed in Arizona superior court, the employer filed a combined motion to compel arbitration and motion to dismiss.  In its motion, the employer asked the court to dismiss the complaint for failure to state a claim if it found that none of the woman’s claims were cognizable, arguing that it would be proper to do so because there would be nothing to arbitrate.  The employer also argued that dismissal would be proper even if there were a cognizable claim, because the claims were already considered and dismissed with prejudice in the federal case and so were precluded by res judicata.

After oral argument on the motion, the superior court dismissed the complaint for failure to state a claim and because the claims were barred by res judicata.  The court determined that it was not necessary to address the employer’s motion to compel arbitration and entered a final judgment.  The woman appealed the dismissal order to the court of appeals.

The court of appeals vacated and remanded.  The court explained that disputes over whether an arbitration agreement is enforceable are governed by Arizona’s version of the Revised Uniform Arbitration Act, which requires the court to determine whether there is an enforceable arbitration agreement before it can move on to address other issues.  Therefore, once the employer moved to compel arbitration, the superior court was obligated to consider that motion as a preliminary matter.  If it found there was a binding arbitration agreement, the court could either grant the motion to compel and stay the lawsuit or dismiss the lawsuit without prejudice to allow arbitration to occur, but it could not address the merits of the claims.

The court rejected the employer’s argument that the woman had waived enforcement of the arbitration agreement by failing to ask for arbitration in the superior court.  In fact, the woman had argued that the arbitration agreement was not enforceable.  However, the court of appeals found that Arizona law does not permit parties to waive enforcement of an arbitration agreement, both because the statutory framework clearly requires enforcement and because permitting waiver would run contrary to the public policy of favoring arbitration as a speedy and affordable means for resolving disputes.  On remand, the court of appeals ordered the trial court to first determine whether an enforceable arbitration agreement exists and reconsider the motion to dismiss only if it finds no binding arbitration agreement.

Judge Brown authored this opinion; Judges Cruz and Thumma joined.

Posted by: Heather Robles