Originally from Dispute Resolution Journal

CONSUMER

Courts Decide Whether a Contract Is Formed

The 9th Circuit held that courts, not arbitrators, decide whether arbitration was agreed in a contract whose existence is challenged.

Patricia Sanford purchased workout tapes over the phone. This purchase automatically enrolled her in a trial membership in a discount buyers program operated by MemberWorks. If she did not want to be charged the annual fee, she had to cancel before the trial membership ended. She did not cancel and was charged $72 for the first year and $84 for a renewal membership. Sanford claimed never joined the program or renewed. MemberWorks refunded the $84, but not the $72. Sanford sued, alleging unfair trade practices in violations of federal law and state law. MemberWorks moved to compel arbitration. Relying on Prima Paint Corp. v. Flood & Conklin Manufacturing Co. (388 U.S. 395, 1967) for the principle that any challenges to the overall contract are for arbitrators to decide, the district court granted the motion.

The arbitrator initially found that he lacked jurisdiction to decide whether a contract had been formed, but later concluded that the court must have found that a contract existed. But when ruling on Sanford’s federal claim, the arbitrator determined that there was no offer and acceptance, and therefore no contract between the parties.