A key reason for using arbitration is to avoid the costs, delays and complications of litigating a dispute in court. But what happens when the dispute is about arbitration itself? A recent appellate court ruling says you can’t be forced to arbitrate about whether a dispute is subject to arbitration.

The case, Sargon Enterprises v. Browne George Ross, involves conflicting claims between Sargon, a maker of dental implants, and Browne George Ross (BGR), its law firm. Sargon claimed BGR had committed malpractice while representing the company in a patent dispute, and sued the firm in Los Angeles Superior Court.

BGR, citing a clause in its retainer agreement requiring arbitration of disputes about its services, asked the Superior Court to compel Sargon to have the case decided by an arbitrator. The court agreed and ordered the parties to arbitrate.

The arbitrator was then presented with two claims. One was Sargon’s claim, for the alleged malpractice. BGR filed a counterclaim against Sargon for breach of contract. It contended that Sargon violated the retainer agreement’s requirement for arbitration by filing its lawsuit.

Sargon could not pursue its malpractice claim, the arbitrator said, because of a release the company had signed previously.

The arbitrator also ruled that Sargon had breached the arbitration agreement by going to court, “in contravention of the clear contractual clause mandating arbitration for ‘any and all disputes, claims or proceedings’" between Sargon and BGW.

The law firm suffered injuries as a result of Sargon’s actions, the arbitrator said. The lawsuit against BGW and its allegations of malpractice attracted national attention, which “inflicted injury on BGR’s reputation.”

BGR also had to deal with a “multiplication of legal proceedings,” one of the very things that arbitration is intended to prevent.

Sargon was ordered to pay BGR $200,000 in damages. The trial court confirmed the arbitration award.

Sargon appealed, and won a partial victory from the Second District Appellate Court.

The higher court said the arbitrator erred in finding that the arbitration agreement included a promise to forgo litigation.

Although it acknowledged that the courts have only limited power to review arbitration awards, it found that “the arbitrator’s award violated Sargon’s statutory right” under California law “to seek a preliminary determination of arbitrability from a court.”

In other words, if you don’t think your dispute is subject to arbitration, it doesn’t make sense to require you to ask an arbitrator to decide whether it is.

The appellate court said there was no basis for reversing the arbitrator’s ruling on Sargon’s malpractice claim against the law firm.

But BGR's  breach-of-contract claim, which involved different facts and legal theories, was subject to review, the higher court said. It ordered the trial court to “correct” the arbitration award by striking the portion of the award that found Sargon had breached the contract and that it owed damages to BGR.

An arbitration agreement does require you to submit a dispute to arbitration if a court orders you to do so. But as the appellate decision pointed out, that doesn’t preclude you from filing a lawsuit over the dispute, or asking a court to resolve a dispute about whether the arbitration agreement is applicable or enforceable.

By M. Laurie Murphy