NOTE: Stoel Rives LLP represented amicus National Crop Insurance Services in this appeal.

In Weidert v. Hanson, the Washington Supreme held that a court may not ignore a federally mandated arbitration agreement on equitable grounds.

Background:

This appeal involved a Multiple Peril Crop Insurance (“MPCI”) policy issued by Petitioner Producers Agriculture Insurance Company (“ProAg”) and reinsured by the Federal Crop Insurance Corporation pursuant to the Federal Crop Insurance Act, 7 U.S.C. § 1501, et seq.. The policy contained a dispute resolution clause that provided, in relevant part, that if ProAg and the policyholder “fail to agree on any determination” by ProAg, then “the disagreement must be resolved through arbitration. The policy also stated: “If you fail to initiate the arbitration and complete the process, you will not be able to resolve the dispute through judicial review.”

After suffering crop losses, Respondents Tim Weidert and L.W. Weidert Farms submitted a claim to ProAg under their MPCI policy. Dissatisfied with the compensation they received, the Weiderts initiated arbitration pursuant to their MPCI policy. The Weiderts then filed a lawsuit without completing the arbitration process. Accordingly, ProAg moved to compel arbitration and stay the trial court proceedings as required by the MPCI policy. The trial court denied the motion, ruling that “its equitable powers allow the Court to override any arbitration requirement, under the unique facts of this case.” ProAg appealed.

On appeal, ProAg argued that the trial court erred in overriding the arbitration agreement because both the Federal Crop Insurance Act and the Federal Arbitration Act “preempt Washington law.” The Court of Appeals did not accept that argument; instead, it concluded that the trial court did not abuse its discretion in denying ProAg’s motion “because tenable grounds exist to support the trial court’s decision to exercise its equitable powers.” ProAg then filed a Petition for Review asserting, among other arguments, that the proper application of federal preemption principles is an issue of substantial public interest that should be determined by the Washington Supreme Court.

Analysis:

The Washington Supreme Court granted review and, without supplemental briefing or argument, reversed in a per curiam opinion. The Court held:

• An agreement to submit a controversy to arbitration is valid, enforceable, and irrevocable “except upon a ground that exists at law or in equity for the revocation of a contract.” RCW 7.04A.060(1).
• The phrase “as exists at law or in equity” refers to general contract defenses such as fraud, duress, and unconscionability, which may be applied to invalidate arbitration agreements without violating the federal arbitration mandate.
• “There is no support for the notion that a court may ignore an otherwise valid arbitration agreement on equitable grounds.”
• Here, the arbitration clause was federally mandated. The Federal Arbitration Act “prohibits a state court from ignoring a valid federally mandated arbitration clause on equitable grounds.”

The court, having so ruled, granted the petition for review, reversed the court of appeals’ contrary ruling, and remanded the matter to the superior court for further proceedings consistent with its opinion.