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Law Firm Must Arbitrate Arbitrability

SAN FRANCISCO (CN) - A bankruptcy law firm that claims it was discriminated against when an electronic transaction service provider canceled its account must arbitrate whether the issue should be arbitrated, a federal judge ruled.

Square, Inc. provides a service that allows businesses to accept electronic credit card payments through mobile devices without having to sign up with a Visa or MasterCard bank.

The law firm, Shierkatz RLLP, signed up for the service in July 2013, but Square canceled its account, telling it in an email that "your business is prohibited by Section 6 of [Square's] Seller Agreement, which means we cannot accept payments related to your business. Unfortunately, our decision to deactivate your account is final. Due to the obligations of our agreements with card networks and other financial institutions, we cannot reverse this decision and are unable to provide additional details."

Shierkatz filed a class action against Square on May 15, alleging discrimination in violation of California's Unfair Competition Law and Unruh Civil Rights Act. The firm, which seeks damages and attorneys' fees, says Square can refuse service to anyone through a vague description of the businesses and business activities it does not allow, and by singling out others, such as bankruptcy law firms.

"Each and every ... category of business/business activity whose business/business activity [Square, Inc.] deems a 'business [that] is prohibited' is either so vaguely described as to be unintelligible or else constitutes an entirely lawful business/business activity under any and all applicable federal and state laws," according to the second amended complaint filed in October. "This specifically includes but is not limited to the business/business activity of [Shierkatz RLLP], which entity's business establishment requires licensure by the State Bar, admission to the Federal Bar of the Ninth Circuit, as well as the Federal Bar of the Northern District of California and other federal districts and which business establishment is otherwise specifically protected from discrimination of the sort being practiced against [Shierkatz, RLLP]."

Square filed a motion to dismiss on Sept. 16.

U.S. District Judge Jon Tigar applied federal arbitrability law because "the Square Seller Agreement's choice-of-law provision does not expressly state that California law governs the question of arbitrability."

Tigar, ruling within the scope of American Arbitration Association rules, said that "the parties clearly and unmistakably agreed to arbitrate the threshold issue of arbitrability."

He added: "The court further declines to find that the Delegation Provision within the Square Seller Agreement is unconscionable as a matter of California contract law, at least as it pertains to these parties. Accordingly, the court grants Square's motion to compel arbitration and will stay further proceedings in this case."

Attorney for the plaintiff, William McGrane in San Francisco, did not immediately return a phone call.

Tigar ordered the parties to submit status reports by March 17, 2016.

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