Judge William S. Andrews (1858-1936) wrote the dissent in Palsgraf.

The arbitration clause in the Loan Agreement said:  "All disputes, claims, or controversies arising from or relating to this Agreement or the relationships which result from this Agreement . . . shall be resolved by binding arbitration."

The motion to compel arbitration raised the issue of whether the borrower's claims against a stranger to the Loan Agreement – the loan servicer — "aris[e] from or relat[e] to . . . the relationships which result from" the Loan Agreement.

The district court answered no.  The Fifth Circuit held the opposite.  Who got it right?

Blawgletter sees both sides of the argument.  The lender's post-Loan Agreement decision to assign servicing rights – including authority to collect loan payments and probably to enforce the Loan Agreement itself — in a but-for sense resulted from the original transaction.  As the Fifth Circuit noted, "without the Loan Agreement, there would be no loan for Green Tree to service".  Sherer v. Green Tree Servicing LLC, No. 07-60567, slip op. at 4 (5th Cir. Nov. 10, 2008) (per curiam).  The assignment to Green Tree thus, at least indirectly, produced the involuntary "relationship" between it and Mr. Sherer.

But putting so much stress on "result from" strikes Blawgletter as a stretch.  Presumably the loan to Mr. Sherer resulted in lots of other relationships as well.  The funds seem to have enabled him to buy a mobile home.  Did his relationship with the trailer-seller also result from the Loan Agreement?  How about his new relationship with the governmental authorities that taxed his purchase and required registration of his movable property?  What if the new digs won him a companion?  Didn't those connections also result from the loan?

Perhaps the notion of but-for causation, on which the Fifth Circuit latched, proves too much.  As the dissenting Judge Andrews said in Palsgraf:

Any philosophical doctrine of causation does not help us. A boy throws a stone into a pond. The ripples spread. The water level rises. The history of that pond is altered to all eternity.  It will be altered by other causes also. Yet it will be forever the resultant of all causes combined.

The answer likely lies in the commonplace that lenders of money for mobile home purchases often, and foreseeably, do assign servicing rights to third parties.  We would even wager that, with an extra sentence or two, the court could've pointed to contract language that specifically contemplated such an assignment.  That would've made us more confident in the, er, result.

The case more interestingly, in our view, points up the peculiar ability of using passive voice in contracts to extend rights and obligations from beyond the particular parties to a mass of strangers.  The "shall be resolved by binding arbitration" encompasses potentially anyone; it doesn't say who has to resolve disputes between (or among) themselves, only that classes of disputes "shall be resolved" in a certain way.

 Our feed denies that this post resulted from the Loan Agreement.