Is this arbitration clause enforceable in South Dakota, and does it matter that this is an employment contract or an insurance policy?
A written arbitration agreement is presumptively valid, and South Dakota's version of the Uniform Arbitration Act expressly reaches employment agreements while excluding insurance policies. SDCL 21-25A-1: "A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This chapter also applies to arbitration agreements between employers and employees or between their respective representatives." Once a valid agreement is shown, SDCL 21-25A-5 makes enforcement close to automatic: "On application of a party showing an agreement described in § 21-25A-1, and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration." Rossi Fine Jewelers, Inc. v. Gunderson confirms the resulting presumption: "If there is doubt whether a case should be resolved by traditional judicial means or by arbitration, arbitration will prevail." The chapter carries a date limit of its own: it "applies only to agreements made subsequent to June 30, 1971."
The trap
South Dakota's Act takes the opposite position from states whose arbitration statutes exclude employer-employee agreements by default: SDCL 21-25A-1's second sentence affirmatively brings employment arbitration agreements INTO the chapter rather than carving them out, so a drafter should not assume an opt-in clause is needed to make an employee arbitration agreement subject to this chapter. Insurance is treated the opposite way: SDCL 21-25A-3 removes insurance policies from the chapter entirely and goes further, making an arbitration or forum-limiting clause in an insurance policy affirmatively VOID: "This chapter does not apply to insurance policies and every provision in any such policy requiring arbitration or restricting a party thereto or beneficiary thereof from enforcing any right under it by usual legal proceedings in ordinary tribunals or limiting the time to do so is void and unenforceable." That voiding rule has its own exception, though: the same section preserves arbitration clauses between insurance companies themselves: "nothing in this chapter may be deemed to impair the enforcement of or invalidate a contractual provision for arbitration entered into between insurance companies." A drafter should confirm which side of the insurance-policy line a clause falls on before assuming either the general validity rule or the insurance-policy voiding rule applies. One more thing § 21-25A-5 does that "the court shall order the parties to proceed with arbitration" alone does not show: the order is not automatic where the agreement itself is denied. The section continues "but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied." A party that disputes ever having agreed gets that threshold question decided by the court, and the application can be DENIED. Three further things stand between a valid clause and an actual arbitration. First, the right can be waived. Rossi holds that "waiver cannot be lightly inferred" but that "Courts apply a two-part test for deciding whether arbitration has been waived. There must be (1) conduct or activity inconsistent with the right to arbitration and (2) prejudice to the party claiming waiver," and that the waiver question "is one for a court to decide"; on those facts the defendants kept the right, because "we therefore hold that defendants did not waive their right to arbitrate." Second, severability. Stoebner v. Konrad says, in a footnote while dismissing an appeal for want of appellate jurisdiction, that the South Dakota approach "is consistent with the United States Supreme Court's reading of the FAA in Buckeye Check Cashing, Inc. v. Cardegna," which held that "an arbitration provision is severable from the remainder of the contract" and that "unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance." Third, the same opinion holds that "an interlocutory order as the one at hand is not appealable as a matter of right," so a party ordered into arbitration has no appeal as of right from the order. Separately, a provider-and-patient arbitration agreement is not a bare § 21-25A-1 clause: SDCL 21-25B-3 requires the agreement between hospitals or physicians and patients to "contain the following provision in twelve-point boldface type immediately above the space for signature of the parties," telling the patient that the agreement to arbitrate "is not a prerequisite to health care or treatment" and that signing gives up "your right to a jury or court trial."
11 authorities
- statuteSDCL § 21-25A-1enactment date not established
The words that state the rule
A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This chapter also applies to arbitration agreements between employers and employees or between their respective representatives.
- statuteSDCL § 21-25A-3enactment date not established
The words that state the rule
This chapter does not apply to insurance policies and every provision in any such policy requiring arbitration or restricting a party thereto or beneficiary thereof from enforcing any right under it by usual legal proceedings in ordinary tribunals or limiting the time to do so is void and unenforceable.
- statuteSDCL § 21-25A-3enactment date not established
The words that state the rule
However, nothing in this chapter may be deemed to impair the enforcement of or invalidate a contractual provision for arbitration entered into between insurance companies.
The words that state the rule
If there is doubt whether a case should be resolved by traditional judicial means or by arbitration, arbitration will prevail.
- statuteSDCL § 21-25A-5enactment date not established
The words that state the rule
On application of a party showing an agreement described in § 21-25A-1 , and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied.
- statuteSDCL § 21-25A-2enactment date not established
The words that state the rule
This chapter applies only to agreements made subsequent to June 30, 1971.
The words that state the rule
Since there is a dominant policy favoring arbitration, however, waiver cannot be lightly inferred. Id. The question whether one has waived one’s right to arbitrate turns on the significance of the action taken in a judicial forum; this question is one for a court to decide. Id. Courts apply a two-part test for deciding whether arbitration has been waived. There must be (1) conduct or activity inconsistent with the right to arbitration and (2) prejudice to the party claiming waiver.
The words that state the rule
The trial court found that defendants’ pretrial activity had not been extensive. Our review of the record convinces us that the trial court’s determination was correct, and we therefore hold that defendants did not waive their right to arbitrate.
The words that state the rule
This approach under South Dakota’s version of the Uniform Arbitration Act is consistent with the United States Supreme Court’s reading of the FAA in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006). Buckeye held that “[f]irst, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.”
The words that state the rule
We only have “such appellate jurisdiction as may be provided by the Legislature[,]” S.D. Const. art. 5, § 5, and without such authority provided by statute to review an order compelling arbitration, we conclude that an interlocutory order as the one at hand is not appealable as a matter of right.
- statuteSDCL § 21-25B-3enactment date not established
The words that state the rule
The arbitration agreement between hospitals or physicians and patients shall contain the following provision in twelve-point boldface type immediately above the space for signature of the parties: The agreement to arbitrate is not a prerequisite to health care or treatment. By signing this contract you are agreeing to have any issue of medical malpractice decided by neutral arbitration and you are giving up your right to a jury or court trial.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.