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Is an Unsigned Contract Containing an Arbitration Clause Enforceable?

A recent Michigan Court of Appeals decision highlights important considerations for anyone potentially subject to a contract containing an arbitration clause. In TBI Solutions, LLC v. Gall, a former employer filed a demand for arbitration against an ex-employee, Gall. In response, Gall filed a lawsuit arguing that he never signed the employment contract and that the arbitration should be stayed. The trial court held that, despite the lack of Gall’s signature on the employment contract, he had assented to the terms of the employment agreement by his continued employment. The trial court then dismissed the lawsuit and the matter returned to arbitration.

In the arbitration, Gall argued that he could not have breached the terms of his employment agreement because he never signed it. However, the arbitrator held that Gall could not re-litigate the issue of the enforceability of the employment agreement under the doctrines of res judicata and collateral estoppel. Gall appealed the unfavorable arbitration award, arguing that he should not be bound to the terms of the unsigned contract.

The Michigan Court of Appeals affirmed the arbitration award, holding that collateral estoppel barred Gall’s re-litigation of whether the unsigned contract was enforceable. Gall argued that, under the Uniform Arbitration Act, the existence of an arbitration agreement is an issue for the court to decide, while the merits of an arbitrable dispute are for the arbitrator to decide. Gall sought to narrow the trial court’s prior ruling regarding the enforceability of the arbitration provision to the issue of whether the arbitration provision applied and not whether the entire contract was enforceable. The Court of Appeals disagreed, holding that Gall had argued that the contract, as a whole, was not enforceable because he did not execute it. Thus, Gall’s argument that there was no agreement to arbitrate “necessarily required the trial to determine whether the contract, as a whole, was binding.” (emphasis in original).

This unique case teaches several lessons to parties potentially subject to an agreement containing an arbitration clause. First, litigants and their counsel must plead and argue about arbitration carefully and specifically. Since Gall did not challenge the specific language of the arbitration clause in court, but rather argued about the global enforceability of the entire contract, he eliminated his right to later challenge the contract’s overall enforceability in the arbitration. Second, parties should be aware that they may not be able to avoid the provisions of a contract simply because they never executed it. If they act with knowledge of the contract and do not specifically object to its terms, a court may find that a party is bound by the contract.

https://www.courts.michigan.gov/493d0a/siteassets/case-documents/uploads/opinions/final/coa/20220224_c356747_30_356747.opn.pdf

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