Third Circuit advises parties to use plain language when drafting arbitration agreements

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Author Christopher Reese

Excerpts:

The Third Circuit recently affirmed the United States Bankruptcy Court for the District of Delaware’s denial of a motion to compel arbitration in In re Nortel Networks, Inc.  In doing so, the Third Circuit advised parties wishing to arbitrate their disputes to make that intent clear by “reducing agreements to arbitrate to plain language that can be recognized and enforced by courts examining only the text of the agreement,” and to avoid “hid[ing] their intent to [arbitrate their disputes] in the shadows of the text.”

The most interesting part of the Third Circuit’s decision is its admonition that parties wishing to arbitrate disputes take care to “not hide their intent to do so in the shadows of the text.”  The Third Circuit noted that parties may agree to arbitration without using the word “arbitration” in their agreement, but also stated that “the absence of common signal words” makes it more difficult to determine that the parties intended to resolve their disputes in arbitration.  Parties wishing to arbitrate their disputes should heed the advice of the Third Circuit and ensure that their arbitration agreements indicate as clearly as possible their intent to resolve any disputes in arbitration.  Doing so will pull such intent out of the “shadows of the text” and significantly increase the likelihood that a motion to compel arbitration will be granted.

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