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Knowing Verses Signing an Arbitration Agreement

Case Law cite: Braga v. VMR Capital Markets, No. B144584 (Cal. App., 2Dist. 2/13/02).

RE: Arbitration Agreement involving Contractual Issues (Mutual Assent), Waiver, State Law, Applicability of Federal Arbitration Act (Section2).

According to The Federal Arbitration Act (Section 2)

Section 2. Validity, irrevocability, and enforcement of agreements to arbitrate.

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

Enforcement of an arbitration agreement requires proof that the parties knowingly entered into the agreement, not just that they signed it. (My emphasis).

Ms. Braga lost $9,000 of a $14,000 investment with a VMR broker who has now “disappeared” -- and her lawyers chose court. VMR moved for arbitration of the dispute, based upon an account agreement that Ms. Braga concededly signed, but the trial court has found that Ms. Braga’s knowing assent to arbitrate was blocked by several factors related to VMR’s presentation of the agreement.

Observed the lower court: Given these deficiencies, VMR’s burden both to prove the agreement and to prove the lower court wrong, and Plaintiff’s unrebutted declarations with respect to not being given a copy of the “agreement,” this Court accepts the judgment below.

First, the page signed by Ms. Braga appears as an “application form,” not a contract. She was not told that contract terms, including a pre-dispute arbitration clause, appeared on pages and the backs of page that lay behind the new account form she signed. Moreover, the contractual text was in such small print that the bold-type language, intended by SRO (self-regulatory organization) rules to highlight the arbitration clause, actually added to the obscurity of the type. The required acknowledgment about the arbitration clause did appear above the signature line where Ms. Braga put pen to paper, but this Court and the court below found ambiguous “at best” the reference to a “pre-dispute arbitration clause.”


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