Lanham Act claim ordered to arbitration

Oyler v. Financial Independence & Resource Education, 2008 WL 275729 (M.D. Pa.)

Plaintiff Oyler and defendant FIRE entered into a contract providing that FIRE would negotiate settlements from Oyler’s creditors in exchange for a fee. The contract provided for binding arbitration for any claim between the parties “arising from or relating in any way to this agreement.” Oyler later sued under the Lanham Act for false advertising. (Comment: Oyler seems like a consumer here, not a competitor.)

The Federal Arbitration Act (FAA) creates a strong pro-arbitration presumption. A court addressing a motion to compel arbitration must assess (1) whether there’s a valid agreement to arbitrate, and (2) whether the dispute at issue falls within the scope of that agreement.

Oyler argued that the agreement was invalid for unconscionability. The contract specified Florida law, and that choice was valid because FIRE is located in Florida and thus Florida law has a substantial relationship to the contract. Florida law requires both substantive and procedural unconscionability before declaring an arbitration provision unenforceable. Substantive unconscionability requires terms so outrageously unfair as to shock the judicial conscience, while procedural unconscionability relates to the parties’ relative bargaining power and their abilities to know and understand the disputed terms.

The fact that the contract was one of adhesion favored Oyler, but not dispositively, as long as the purchaser is free to obtain similar services elsewhere. Here, debt reduction services were available from other sources, so imbalance in bargaining position did not itself lead to unconscionability. There was no evidence Oyler was incapable of knowing and understanding the terms; in fact, Oyler discussed any contract terms he didn’t understand with FIRE’s representative. The arbitration provision was in the same type as the rest of the agreement and was on the front, and Oyler seperately initialed each paragraph. With no procedural unconscionability, substantive unconscionability was irrelevant.

Absent clear provision otherwise, the arbitrability of a dispute is a question of law. Under federal law, a court should compel arbitration unless the arbitration clause isn’t susceptible of an interpretation that covers the asserted dispute. FIRE’s arbitration clause, covering “any claim or dispute ... arising from or relating in any way” to the agreement between the parties was “a quintessentially broad provision,” as to which the presumption of arbitrability is particularly strong. The clause didn’t expressly exclude Lanham Act claims.

Oyler thus needed to show strong evidence of an intent to exclude Lanham Act claims. He argued that his claim – FIRE intentionally made false statements when promoting its debt reduction services in radio ads – related to conduct that predated the entry into the contract. A panel of the Ninth Circuit, as well as several district courts, have all rejected this argument as applied to arbitration of Lanham Act claims where the allegedly false claims led to the contract at issue. Thus, the court enforced the arbitration clause.