Security agreements--in which Debtor grants Creditor a security interest in goods as collateral--often include arbitration clauses, which can lead to interesting clashes between arbitration and the important creditor's remedy of replevin. When Debtor defaults, Creditor can get a court to issue a Writ of Replevin instructing the sheriff to take the collateral from Debtor and give possession of it to Creditor so Creditor may then hold a foreclosure sale of it. Suppose though, that Debtor appears in court and argues that the court may not issue a writ of replevin because the security agreement requires arbitration of disputes and Debtor asserts the existence of a dispute with Creditor--such as a dispute about the amount of money Debtor owes or whether Creditor is acting in a commercially reasonable manner.
Creditors typically want a writ of replevin quickly and will not want such a writ delayed by having to arbitrate something first. So Creditor may rely on an old case like Lease Plan Fleet Corp. v. Johnson Transp., Inc., 67 Misc. 2d 822, 823, 324 N.Y.S.2d 928, 929–30 (Sup. Ct. 1971), which stated: “After the vehicles are replevied the replevin action may be stayed pending the determination of the arbitrator. It has been held that an agreement to arbitrate will not preclude a party to the agreement from obtaining a warrant of attachment. Similarly, the agreement to arbitrate should not preclude the petitioner from replevying the leased vehicles pursuant to CPLR 7102.”
Or Creditor may have drafted the security agreement to carve-out replevin actions from the agreement to arbitrate. For instance the following clause might be interpreted to include not just Creditor's self-help repossession, but also a replevin action:
“Dispute” does not include any repossession of the Vehicle upon Your default and any exercise of the power of sale of the Vehicle under this Contract or any individual action by You to prevent Us from using any such remedy, so long as such individual action does not involve a request for monetary relief of any kind.
Gillette v. Serv. Intelligence LLC, No. 19-C-275, 2019 WL 5268570, at *1 (E.D. Wis. Oct. 17, 2019).
Such a carve-out was enforced in Hamilton v. Ford Motor Credit Co., 99 Ark.App. 124 (Ct. App.
2007), which affirmed a trial court's grant of replevin and denial of the debtor's motion to compel arbitration:
The trial court did not err when it denied the Hamiltons’ request to arbitrate the issue of replevin. This is true because the arbitration clause specifically, and unambiguously, provides that FMC does not give up the ‘‘[r]ight to enforce the security interest in the vehicle, whether by repossession or through a court of law.’’ In its replevin request, FMC is simply enforcing its security interest in the vehicle by seeking to repossess the vehicle.
But even if the arbitration agreement carves out replevin actions, Debtor may still be able to prevent a writ of replevin until arbitration occurs. That is because many creditors--perhaps unknowingly--draft arbitration agreements sending to arbitrators the question whether an arbitrable dispute exists. Creditors do this when they agree to arbitrate under the Commercial Rules of the American Arbitration Association or similar rules of JAMS.
See, e.g., Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 208 (2d Cir.2005) (“[W]hen . . . parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator.”); Citifinancial, Inc. v. Newton, 359 F.Supp.2d 545, 549–52 (S.D.Miss.2005) (holding that by agreeing to be bound by procedural rules of AAA, including rule giving arbitrator power to rule on his or her own jurisdiction, defendant agreed to arbitrate questions of jurisdiction before arbitrator); Sleeper Farms v. Agway, Inc., 211 F.Supp.2d 197, 200–03 (D.Me.2002)(since the AAA rules constitute “a clear and unmistakable delegation of scope-determining authority to an arbitrator,” the court “refers this dispute” to the arbitrator “to determine * * * what issues * * * are covered by the arbitration clause.”)
See also JAMS Comprehensive Arbitration Rules and Procedures, Rule 11(c) (“Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.”), available at http://www.jamsadr.com/rules-comprehensive-arbitration/#Rule 11; Monex Deposit Co. v. Gilliam, 616 F.Supp.2d 1023, 1025 (C.D.Cal.2009) (granting motion to compel arbitration and noting that agreement “incorporates JAMS Rules providing that the arbitrator decides scope and validity disputes with respect to particular claims.”); Greenspan v. Ladt, LLC, 111 Cal.Rptr.3d 468, 494–95 (Ct.App.2010)(“LADT interprets the concluding language of Rule 11(c) to mean the arbitrator makes an initial decision on arbitrability, and, later, the courts independently make the final decision. Not so. For one thing, LADT’s interpretation would conflict with JAMS Rule 11(a), which provides that “[t]he resolution of the issue by the Arbitrator shall be final.” * * * [T]he arbitrator decides arbitrability issues at the outset, and his decision is final.”)
These holdings are perhaps strengthened by the Supreme Court's unanimous 2019 opinion in Henry Schein, Inc. v. Archer & White Sales, Inc., which held that if an arbitration agreement (or the rules it incorporates) sends to arbitrators (rather than judges) the issue of which disputes the parties agreed to arbitrate, then a court cannot refuse to enforce that agreement by finding "wholly groundless" the argument that the particular dispute is covered by the arbitration agreement.
Thanks to terrific Secured Transactions casebook authors Lynn LoPucki and Bob Lawless for getting me to think about these issues, on which my thoughts are still evolving.
