NOTE: In MMAWC, LLC v. Zion Wood Obiu Wan Trust, 135 Nev. Adv. Op. 38, __ P.3d __ (2019), the Nevada Supreme Court ruled that NRS 597.995 is preempted by the FAA.
Are you certain you have and enforceable arbitration agreement in Nevada? In this 2016 post, we discussed Nevada Revised Statute 597.995’s peculiarly-worded requirement that an arbitration clause or an agreement to arbitrate is void and unenforceable unless it contains a “specific authorization” that the parties have “affirmatively agreed” to the arbitration provision. The Nevada Supreme Court recently decided the case of Fat Hat, LLC v. Diterlizzi, and NRS 597.995’s requirement for an affirmative agreement played a central role in the matter. This article gives an update to the discussion with some unofficial guidance from the Nevada Supreme Court, and provides some best practices for drafters.
Facts: Six employees and independent contractors of Fat Hat, the owner of a burlesque nightclub inside the Mandalay Bay Hotel and Casino, sued Fat Hat, claiming that it secretly filmed them in their dressing areas as they changed clothing. Fat Hat asked the court to compel arbitration based on arbitration clauses in the plaintiffs’ employment or independent contractor agreements with the club. The district court judge Valerie Adair “denied Fat Hat’s motion without explanation.” Fat Hat appealed to the Supreme Court.
The Statute is Not ambiguous. First, the court determined that although the statute does not describe with particularity what is meant by the requirement of “specific authorization,” is it not ambiguous.
The Statute is Not Limited to Consumer Agreements. Second, the court rejected an argument from the plaintiffs that NRS 597.995 only applies to consumer contracts, indicating that it applies to all arbitration contracts not specifically excepted by the statute (collective bargaining agreements are excepted by the statute).
A Signature For the Entire Contract is Not Sufficient. Third, the court denied the appeal as to four of the plaintiffs where their contracts only contained an arbitration provision directly above the signature line on the last page of the contract. The court indicated that this signature line indicated “consent to all the terms of the contract” and not a “specific authorization” specially related to the arbitration clause. Thus, the court determined, “those signatures do not qualify as specific authorizations for the arbitration provision.”
Initialing the Bottom of Every Page is Not Sufficient. Fourth, the court rejected an argument that one of the plaintiffs had initialed at the bottom of every page and therefore gave “specific authorization” for the arbitration clause, as she initialed the page on which it is found. The court decided that since she initialed every page, “her initials fail to demonstrate that she affirmatively agreed to the arbitration provision.”
A Requirement to Fill in Name and Address is Sufficient. Two of the plaintiffs signed agreements that required them to fill out their name and address next to the arbitration provision, “explicitly stating that the agreement to arbitrate was effective.” The court ruled that the arbitration provisions in these contracts were “valid and enforceable.”
This statute is likely not enforceable in light of the Federal Arbitration Act’s prohibition on state restrictions on agreements to arbitrate. Until someone challenges that idea, it is best to behave as though it is enforceable. Since the goal is to create an enforceable arbitration clause, we should employ best practices. The court clearly liked the fact that the plaintiffs had to take affirmative action in the arbitration clause, which indicated that they gave that specific authorization. Since this practice was approved by the court, it would obviously be best practice in Nevada (or when drafting a contract calling for arbitration in Nevada) to include this requirement.
In addition to these pointers on how to write a better arbitration clause, I also recommend having a separate signature line either next to or underneath the arbitration clause no matter where it is found in the document. It should require the contracting party to acknowledge the following:
I, ______________ (name) of _______________________________________(address), do hereby acknowledge that I have read this arbitration agreement and affirmatively agreed to and give this specific authorization to submit to arbitration any dispute arising between the parties to this Agreement, as provided for in the above Paragraph ___, and that I am bound to the same.
Signed: ____________________________, this ___ day of ______, 20__.
In light of the Mohamed v. Uber Technologies, Inc. decision, you should give some consideration to including specific authorization for the arbitrator, not the court, to decide if the dispute is arbitrable. See this article for further discussion. Finally, consider that giving an opt-out provision may make the enforceability of your arbitration clause stronger, as it did in the Uber matter. That clause may look something like:
Opting out of Arbitration. You (but not we) have the sole right to reject this arbitration provision as a means of resolving disputes with us at any time within thirty (30) days following your execution of this Agreement. To reject this arbitration provision you must give us written notice of your rejection of this arbitration provision by U.S. Mail, return receipt requested. Your notice to us opting out of this arbitration provision should include your name, address as well as a statement that you do not wish to resolve disputes with us through arbitration. You hereby agree and acknowledge that you may only opt out of this arbitration provision in the manner described above and it is not sufficient to notify us of your intent to opt out of this arbitration provision via telephone or any other means. You can only reject this arbitration provision until the thirtieth (30th) day following your signature on this Agreement; thereafter, you will be bound by the terms of this arbitration provision.
Consider including a specific authorization for this clause as well. These opt-out clauses are especially effective when there is disparate bargaining power, such as a large company contracting with a consumer.
* This is an unpublished opinion. According to Nevada Rules of Appellate Procedure (“NRAP”) 36(C)(2), it has no value as a precedent except in subsequent matters involving the same parties. NRAP 36(C)(3), however, suggests that a “party may cite for its persuasive value, if any, an unpublished disposition issued by this court.“