The Intersection Between Arbitration Agreements and Statutory Rights

By Scott L. Bonder and Joseph A. White

In recent years, courts throughout the country (including, notably, the United States Supreme Court) have issued decisions tending to strengthen the rights of defendants to compel arbitration of all types of disputes.  What happens, however, when a contractual arbitration provision collides with a plaintiff’s statutory right to seek judicial relief?  The Georgia Court of Appeals recently addressed that issue in Regal Nissan, Inc. v. Scott.

In Scott, the widow of a corporate shareholder sought to exercise her statutory right, under Georgia Code Section 14-2-1602, to inspect the corporation’s books.  When the corporation refused to allow her to inspect its books, the widow filed a “Petition for Inspection of Corporate Records” in a Georgia trial court.  The corporation moved to compel arbitration of the widow’s claim, invoking a provision in the corporate shareholder agreement that required arbitration of disputes arising “in connection with” the agreement.  The trial court denied the corporation’s motion to compel arbitration and the Georgia Court of Appeals affirmed that decision.

The appellate court held that the shareholder agreement, though broadly worded, did not control because the widow sought to enforce a statutory right, not a contractual right arising under the shareholder agreement.  The appellate court reasoned as follows:

“The right at issue . . . is based in statute and not on any rights or obligations set out in the Shareholder Agreement, which, in fact, is silent on the inspection issue. Therefore, because the issue presented by [the widow’s] petition is completely independent from, and may be resolved without regard to, the Shareholder Agreement, this case is governed by our Supreme Court’s decision in Ga. Rehabilitation Center, Inc. v. Newnan Hosp., 283 Ga. 335 (2008). In that case, the Supreme Court considered a somewhat broader arbitration clause providing that “[a]ny dispute, controversy or claim arising out of or in connection with, or relating to,” the parties’ operating agreement be submitted to arbitration. That dispute involved a corporate dissolution commenced under a statute setting out an independent legal mechanism for dissolving a limited liability company and not under any of the grounds for dissolution set out in the operating agreement. The Supreme Court held that the dispute was not subject to arbitration because it did not arise out of or relate to the parties’ agreement. Likewise, because the dispute in this case does not fall under the terms of the Shareholder Agreement, we affirm the trial court’s denial of Regal’s arbitration motions.”

Thus, even in this legal climate—in which courts nationwide seem to increasingly favor the enforcement of arbitration agreements—Scott illustrates that a defendant still cannot, by invoking an arbitration provision, deprive a plaintiff of her ability to sue to enforce a statutory right.

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