September 21, 2011
Authored by: Luke Lantta
If you actually want to forego the courtroom and cast your lot with an arbitrator, incorporating an arbitration provision into your standard client contracts can be an effective tool because these provisions tend to be strictly enforced by courts. It’s an example of where boilerplate may have some benefits. Recently, in Hemenway v. Millennium Trust Company, LLC, the United States District Court for the Northern District of Illinois essentially terminated – at least least temporarily – a lawsuit against Millennium Trust Company by enforcing an arbitration agreement contained in a standard client contract.
Edward L. Hemenway”s Roth Individual Retirement Account Agreement and his Traditional Individual Retirement Account Custodial Agreement had an identical and standard arbitration provision which broadly encompassed “disputes between the parties.”
Nevertheless, Hemenway filed a lawsuit in federal court alleging that the money he contributed to his Roth and IRA accounts was lost, that Millennium Trust Company failed to follow his instructions regarding his contributions, and that Millennium misrepresented itself, its services, and the amount of money in his accounts. Hemenway’s complaint made claims for breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation, and violation of state law. Millennium sought to stay the lawsuit pending arbitration of Hemenway’s claims.
Hemenway unsuccessfully tried to get out of the arbitration provisions by raising some of the usual arguments.First, Hemenway argued that the Roth and IRA agreements, themselves, were invalid because he only entered into them because of Millennium’s alleged misrepresentations. The court noted that it was limited to considering the validity of the arbitration provisions – not the validity of the entirety of the Roth and IRA agreements. Thus, while the agreements as a whole may ultimately be proven to be invalid, this was an argument Hemenway would have to make to an arbitrator. The arbitration provisions themselves were valid.
Second, Hemenway claimed that the provisions were “unfair” because “he had no real opportunity of becoming acquainted [with them] before the conclusion of the contract.” This argument also failed. Under Illinois law, a party who signs a contract is presumed to have known what the agreement meant and agreed to be bound by that agreement.
Millennium cleverly did not seek an order compelling arbitration, so – unlike many other cases – the court did not order the parties to arbitrate the case and the burden was left on Hemenway to initiate arbitration proceedings.