Georgia Law does not allow arbitration “relating to terms and conditions of employment unless the clause agreeing to arbitrate is initialed by all signatories at the time of the execution of the agreement.” Today, in Vasuveda v. Dagnew, the Georgia Court of Appeals held that even if the arbitration clause is right above the party’s initials, or even the only clause on an initialed page, this requirement is not met. When a court chooses not to send a case to arbitration in the presence of an arbitration clause, it is a good time to pay attention.
The underlying facts of the case are not really important. What is important is that there was a very detailed arbitration clause. When Plaintiff sued, Defendant sought to enforce the clause. The clause itself was not in dispute. Indeed, the opinion sets it out – it’s 33 lines long (which turns out to be important). The clause started on page 21 of the agreement, and rolled over on to page 22. The parties not only signed every page, but they initialed at the bottom of every page. Because the clause continued from page 21 to page 22, the bottom of page 21 looked something like this:
(I say “something like” because that’s my own reconstruction.) On page 22, the only words were the remaining words of the provision, and “signatures on following page.”
Plaintiff advanced the argument that because the provision itself was not initialed, it was unenforceable under the initialing requirement of O.C.G.A. § 9-9-2 (c)(9). Defendant countered that because the initials were right under the language in one instance, and on a page where only the language appeared in another, the requirement had been met. The trial court agreed and this appeal followed. The trial court was reversed.
The court laid the groundwork by going over the basics – the Georgia Arbitration Act applied, O.C.G.A. § 9-9-2 (c)(9) in particular; the issue was a matter of law and was therefore de novo reviewable; and that statutes in derogation of the common law – like this one – must be strictly construed. The particular language to be construed was “the clause is initialed.” The court quoted related caselaw explaining that “the purpose of the requirement is to ensure that [signatories] are not compelled to give up their common law right of access to the courts unless they specifically acknowledge the intent to do so by initialing the arbitration clause.”
From there, they framed the inquiry as one of the parties’ intent. Specifically, the court looked to what the parties intended by the initials on each page. The court then reasoned that because the initials appeared on every page, the initials on every page had to have had the same intent and meaning. Thus, the initials on page 21 were no different than the initials on, say, page 9, which had nothing to do with arbitration. The case shall continue in court, and not in front of an arbitrator.
This is a classic lesson in malpractice avoidance. If lawyers drafted this contract, there are basically two possibilities: (a) the lawyers drafting the contract were unaware of the law, which I suspect could get them sued; or (b) the drafting lawyer was asked by a supervising lawyer “hey, you don’t have an initials blank next to the arbitration clause,” but concluded that the way it was done was “probably good enough.” I almost think (b) is worse than (a). What reason could there be to not spend the time to insert one additional initials block? Laziness? Arrogance? I’ve said this before – if someone involved in a case tells you something, there’s almost always a reason for it. Listen – don’t decide that something is probably good enough. Because if it’s not, you won’t like what happens next.
GEORGIA LEGAL UPDATE 