Business Conflict Blog by Peter Phillips
Thanks to Loyola Prof. Imre Szalai for bringing to our attention the interesting Ninth Circuit decision in Breazeale v. Victim Services, Inc., holding that disputes between a putative criminal defendant and a private company contracted by a prosecutor pursuant to a criminal diversion process are not subject to arbitration.
Victim Services Inc. (VSI), a Delaware corporation, is contracted by the offices of various California District Attorneys to resolve suspected violations of California’s Bad Check Statute, which criminalizes the writing of bad checks with an intent to defraud. The putative violator is contacted by mail on District Attorney stationery and offered the opportunity to avoid criminal prosecution by entering into a program of restitution and fees that is administered by VSI. The letter also provides that any dispute between the violator and the program administrator VSI would be subject to arbitration pursuant to AAA rules. That “agreement” (really, an announcement) also provides that “no arbitrator or court can permit or certify a class action, representative action, private attorney-general action or consolidated arbitration in connection with [the] arbitration agreement.”
Plaintiffs brought this action in federal district court, alleging “that VSI’s use of official district attorney letterhead conveys the false impression the letters were sent by law enforcement, that the letters contained the false threat that failure to pay would result in arrest or imprisonment, and that the initial form letter failed to contain statutorily required notices, all in violation of” state law. VSI moved to compel arbitration. The district court denied the motion and the Ninth Circuit affirmed the denial, on the ground that the putative arbitration provision of the letter was not a “contract evidencing a transaction involving commerce” within the meaning of the Federal Arbitration Act.
The holding: An agreement between an individual and a state prosecutor addressing criminal liability is not a private commercial contract and therefore not arbitrable pursuant to the FAA. “A plea bargain is not a commercial exchange.”
It will be interesting to see the convoluted logic that the Supreme Court will employ if and when this question is before them and, consistent with its ever-broadening interpretation of arbitration law, the Ninth Circuit is reversed.
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