No Binding Agreement to Arbitrate Where One Party Could Unilaterally Amend the Agreement Otherwise

No Binding Agreement to Arbitrate Where One Party

Could Unilaterally Amend the Agreement Otherwise

      In a recent decision by Judge Coffman of the Federal District Court, it was held that there existed no agreement to arbitrate where one of the parties held the unilateral right to strip from the agreement the arbitration provision.  Wallace v. Fortune Hi-Tech Marketing, Inc., 2012 WL 4364086 (Ed. Ky. Sept. 24, 2012).

      The contract at question contained an agreement to arbitrate.  The Court, however, found that the agreement failed for lack of consideration.  “The parties did not agree to arbitrate because there was no exchange of consideration,” citing Cuppy v. General Accident Fire & Life Assurance Corp., 378 S.W.2d 629, 632 (Ky. 1964).  While a promise may serve as consideration for an agreement, in this instance the promise made by Fortune Hi-Tech Marketing was illusory because it retained the right to unilaterally amend all of its obligations under the subject agreement.  As such, FHTM had undertaken no actual obligation to arbitrate.  Further, it could effect such an amendment without the requirement of any notice.  As such:

There is no promise “to maintain the arbitration agreement” for a specified period of time, and, therefore, not enough of  a limitation on FHTM’s ability to terminate or amend the arbitration agreement to constitute consideration.  2012 WL 4364086, *2.

On that basis, the FHTM’s motion to compel arbitration and to either dismiss or stay the court proceedings in light thereof was denied.

      The question that would seem to be outstanding was whether, applying this analytic paradigm, there ever existed a valid agreement between Fortune Hi-Tech Marketing and the counterparties to its various agreements.