Arbitration Agreement Unenforceable

March 12, 2011 | Erin Herbold

In 2004, three individuals purchased the corporate stock of a scrap metal storage yard. Each party signed a promissory note for the stock purchase and a stock restriction agreement which set parameters for selling or transferring the stock. One of the buyers, the plaintiff, entered into a five-year employment contract with the corporation that contained a “mandatory arbitration agreement.”  That agreement provided that if a dispute or claim arose, the dispute would be resolved before a panel of three arbitrators- one appointed by the corporation, one by the employee and one by the American Arbitration Association. Near the end of his five-year contract, the plaintiff’s employment was terminated. 

The plaintiff sued the corporation at the trial court level for specific performance of his employment agreement, for wrongful termination, unjust enrichment by the remaining owners of the corporation, intentional interference with corporate contracts and a breach of the fiduciary duties owed to him as a shareholder of the corporation. The corporation, however, motioned the trial court to order the plaintiff to submit the matter to arbitration.  However, the trial court found that the arbitration clause was not enforceable under Iowa law.

The defendant sought the Iowa Supreme Court’s review of the matter, but failed to request review within thirty days.  So, the Court could not review the request to compel arbitration, but did send the case to the Iowa Court of Appeals to address the issue of whether the arbitrator or the court should determine whether the arbitration agreement should be enforced. But, the court of appeals determined that the overarching issue of whether the arbitration agreement should be enforced had already been determined.  Thus, they did not need to examine the authority of the arbitrators.  Gibler v. Rosenman’s, Inc., et al., No. 1-115/10-0779, 2011 Iowa App. LEXIS 200 (Iowa Ct. App. Mar. 7, 2011).