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Franke v. Poly-America Medical and Dental Benefits Plan: ARBITRATION - error denying motion to compel based on illegality of some contract terms

United States Court of Appeals
No. 08-1637
James G. Franke, and all others *
similarly situated, *
Appellee, * Appeal from the United States
* District Court for the
v. * District of Minnesota.
Poly-America Medical and Dental *
Benefits Plan, *
Appellant. *
Submitted: November 14, 2008
Filed: February 5, 2009
Before WOLLMAN, BEAM, and BENTON, Circuit Judges.
WOLLMAN, Circuit Judge.
Poly-America Medical and Dental Benefits Plan (the Plan) appeals from the
district courts denial of its motion to compel arbitration. We reverse and remand for
entry of an order compelling arbitration.
James G. Franke has been employed by Up-North Plastics Inc., an affiliate of
Poly-America, L.P., since 2001. Through this employment, Franke enrolled in the
Plan, which is governed by the Employee Retirement Income Security Act (ERISA),
29 U.S.C. 1001 et seq. During each year of his employment, Franke acknowledged
in writing his agreement to arbitrate any claims associated with his enrollment in the
After suffering a myocardial infarction in November 2006, Franke submitted
his medical bills to the Plan for payment. Following the denial of the request for
payment, Franke appealed to the Plans Administrator, Chuck Kramer, who upheld
the original decision. Kramer informed Franke that he could file a written request
with the Plan Administrator for final and binding arbitration.
Franke chose instead to file suit in federal district court. The Plan moved to
compel arbitration. In its submissions to the court, the Plan recognized that certain
provisions in the arbitration agreement were unlawful under ERISA, but argued that
those provisions should be corrected pursuant to the severability clause in the contract
and that the arbitration agreement should be enforced. The district court disagreed,
however, and concluded that the mere existence of the illegal provision, in this
instance, unduly inhibits or hampers the processing of appeals and therefore renders
the arbitration requirement in the Plan unenforceable.
We review de novo the district courts denial of the Plans motion to compel.
EEOC v. Woodmen of the World Life Ins. Society, 479 F.3d 561, 565 (8th Cir. 2007).
The Federal Arbitration Act (FAA) requires that [a] written provision in any . . .
contract evidencing a transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of
any contract. 9 U.S.C. 2. The FAA intended to reverse the longstanding judicial
hostility to arbitration agreements . . . and to place arbitration agreements upon the
same footing as other contracts. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
20, 24 (1991). In light of this federal policy, arbitration agreements are to be
enforced unless a party can show that it will not be able to vindicate its rights in the
arbitral forum. Faber v. Menard, Inc., 367 F.3d 1048, 1052 (8th Cir. 2004). This
strong federal policy applies equally to claims grounded in statutory rights, and we
have found no compelling basis to treat agreements to arbitrate ERISA claims
differently. Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475, 479
(8th Cir. 1988). When reviewing the enforcement of an arbitration agreement, we
determine only whether there is a valid arbitration agreement and whether the dispute
at issue falls within the terms of that agreement. Faber, 367 F.3d at 1052. If there is
a valid agreement and the dispute is properly within the terms of the agreement, the
agreement must be enforced.
Franke concedes that the dispute falls within the agreement. He argues,
however, that certain provisions contained in the agreement are in violation of ERISA
and thus undermine the agreement to arbitrate. As noted by the district court, the two
provisions that appear to be unlawful are the agreements assertion that arbitration is
binding and the requirement that arbitration costs be shared. Despite the presence of
these two provisions, the agreement before us is distinguishable from the cases on
which Franke relies. For example, it does not approach the sham system unworthy
even of the name arbitration at issue in Hooters of America, Inc. v. Phillips, 173 F.3d
933, 940 (4th Cir. 1999). In that case, the agreement was riddled with biased
provisions that allowed Hooters, among other things, to choose the arbitrators and
unilaterally modify the arbitral rules without notice, presumably even during
arbitration. Id. at 938-39. A member of the American Arbitration Associations board
of directors testified that the agreement was without a doubt the most unfair
arbitration program I have ever encountered. Id. at 939. Equally misplaced is
Frankes reliance on Graham Oil Co. v. Arco Products Co., 43 F.3d 1244 (9th Cir.
1994), for the proposition that the mere presence of unlawful provisions can invalidate
an arbitration agreement, given that we have refused to follow its holding. See
Larrys United Super, Inc. v. Werries, 253 F.3d 1083, 1086 (8th Cir. 2001).
Rather, the case before us is more akin to the facts in Woodmen, Faber, and
Gannon v. Circuit City Stores, Inc., 262 F.3d 677 (8th Cir. 2001). In each of those
cases the severability clause found in the arbitration agreements specifically state[d]
the intent of the parties in the event a provision within the agreement is found
invalid, i.e., that arbitration proceed once any invalid terms have been severed.
Gannon, 262 F.3d at 680. The same is true here. Although Franke and the district
court voice the concern that Plan participants cannot be expected to know that the
provisions at issue are unlawful, that is not a sufficient basis upon which to deny the
motion to compel. We will not extend [our limited] review to the consideration of
public policy advantages or disadvantages resulting from the enforcement of the
agreement. Faber, 367 F.3d at 1052 (citing Gannon, 262 F.3d at 682) (internal
quotations omitted).
The judgment is reversed, and the case is remanded to the district court for entry
of an order compelling arbitration under the Plan as modified pursuant to the
stipulated-to amendment.


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