BAM Key Details:
- HomeServices of America filed a petition on Friday, February 2, 2024, asking the Supreme Court to reject the Sitzer/Burnett trial and its verdict due to an arbitration agreement signed by the plaintiffs after a request to compel arbitration was dismissed by the Eighth U.S. Circuit of Appeals.
- The appellate court upheld a lower court ruling denying HomeServices the right to compel arbitration since the arbitration agreement was signed by the plaintiffs and subsidiaries of HomeServices, not by the parent company also named as a defendant.
In a petition filed Friday, February 2, 2024—a day after Keller Williams announced its $70 million settlement agreement with the Sitzer/Burnett plaintiffs—HomeServices of America filed a petition asking the U.S. Supreme Court to review the Sitzer/Burnett case.
The petition specifically addresses the Eighth Circuit’s decision to reject arbitration agreements and proceed with a class action lawsuit against the Sitzer/Burnett defendants.
The question at the crux of their argument is who should decide—the courts or the arbitrators—whether an arbitration agreement should be enforced when a non-signatory parent entity associated with one of the named defendants seeks to compel arbitration.
The Eighth Circuit’s erroneous decision to usurp the arbitrator’s authority subjected HomeServices to an unwarranted class trial and a resulting jury verdict of $1.8 billion…
That trial should never have occurred because the plaintiffs are required to arbitrate their claims — and their arguments opposing arbitration must be resolved by the arbitrator, not a court.
Read on for the highlights.
Who decides—the arbitrators or the courts?
According to the HomeServices petition, every HomeServices client contract states the “signatories can arbitrate any claim or dispute arising out of the contract.”
But the plaintiffs in Sitzer/Burnett, who signed the arbitration contract with subsidiaries of HomeServices—BHH Affiliates and HSF Affiliates—opted to sue HomeServices, a non-signatory parent company.
In so doing, they “asserted liability based on the non-signatory’s relationship with its subsidiary.”
Because of this, HomeServices then sought to compel arbitration (as a named defendant) to determine whether the plaintiffs’ claims were subject to arbitration.
The Federal Arbitration Act (“FAA”) requires courts to enforce arbitration agreements ‘according to their terms,’ including agreements that require arbitration of ‘gateway questions’ concerning whether a particular claim must be arbitrated.
In their petition to the Supreme Court, HomeServices argues the Eighth Circuit violated the FAA “when it decided for itself whether the plaintiffs’ antitrust claims against HomeServices are subject to arbitration.”
The plaintiffs willingly signed contracts with mandatory arbitration provisions—requiring the arbitrator, not the courts, to resolve any disputes about the contracts.
Yet, rather than enforce those provisions and order arbitration, the Eighth Circuit interpreted the contract under state law, releasing the plaintiffs from any obligation to arbitrate claims against HomeServices—-the parent company of the brokerages that signed arbitration agreements with them.
Under Missouri state law, HomeServices would have needed to be named as a third-party beneficiary on the client contracts to compel arbitration. Since it was not, the court decided to nix that requirement and move forward with the class action trial that resulted in a verdict for the plaintiffs.
HomeServices filed its motion to compel arbitration in March 2020, less than one year after the lawsuit was filed.
Now, due to the alleged “misguided approach” taken by the Eighth Circuit, HomeServices is asking the highest court in the U.S. to review the case and decide whether the court’s ruling should be reversed.
As the petition argues, the plaintiffs signed the contract, agreeing to arbitration and waiving their right to pursue class litigation against HomeServices. Yet they managed to sue anyway and to win $1.78 billion in damages, which will likely be tripled to over $5.3 billion.
The Supreme Court takes only 100-150 of the roughly 7,000 cases put forward for its review, focusing on cases that—
- “Could have national significance,
- “Might harmonize conflicting decisions in the federal circuit courts, and/or
- “Could have precedential value.”
In that case, it’s significant that, according to the filing, the circuit courts are currently split on the HomeServices petition’s question.
- For the First, Second, Third, and Sixth Circuits, the question of arbitrability should be left to the arbitrator
- For the Fourth, Fifth, Eighth, and Ninth, the court has the prerogative to decide that for itself, even if a signed contract has delegated that issue to the arbitrator.
That, combined with the national import of the Sitzer/Burnett verdict, could persuade the Supreme Court to consider the case.
Chris Kelly, an executive vice president at HomeServices, said the following in an emailed statement, arguing the case could have “far-reaching implications for the validity of arbitration clauses in the United States.”
HomeServices filed a Writ of Certiorari with the United States Supreme Court seeking a review of the determinations made by the trial court and the Eighth Circuit regarding our right to pursue arbitration as the contractually-agreed method of resolving any dispute. As we explain in the filing, there is no dispute that the contracts at the core of this matter include mandatory arbitration provisions, meaning these issues should have been reviewed by an arbitrator, not a court. This appeal highlights a substantial inconsistency among circuit courts regarding the interpretation of arbitration agreements and delegation clauses. By bringing this issue before the Supreme Court, we aim not only to seek a resolution for this specific case but also to ensure the uniform application of the Federal Arbitration Act nationwide, thereby preserving the integrity and intended function of arbitration agreements.
Stay tuned as we learn more about the HomeServices petition and the Supreme Court’s reaction to it.