Magnolia Capital Advisors v. Bear Sterns Teaches How to Make A Colorable Denial of An Agreement to Arbitrate

In the case Magnolia Capital Advisors Inc. v. Bear Stearns, the 11th Circuit Court reversed a decision of the Northern District of Florida to order the parties to arbitration pursuant to their purported agreement. The 11th Circuit found that Magnolia had met the requirements set forth by court precedent and 9 USC § 4 to challenge the enforcement of the arbitration agreement, thus compelling the district court to hold a trial on the issue of the agreement’s enforceability before compelling arbitration. Because the district court failed to hold such a trial, the 11th Circuit reversed the district court’s decision and remanded the case for that trial. The requirements to challenge the enforcement of an arbitration agreement and compel a trial under 9 USC § 4 are not new. However, there have not been that many reported cases where a plaintiff has actually succeeded in meeting those requirements. The Magnolia case is instructive, therefore, in demonstrating the type of evidence a plaintiff can submit to make a “colorable denial” of the arbitration agreement.

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