When an agreement to arbitrate contains a clear and unmistakable “delegation” provision, gateway questions of arbitrability are for the arbitrator to decide. See, e.g., Kubala v. Supreme Prod. Servs., 830 F.3d 199, 201-02 (5th Cir. 2016), citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995); Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010). But a determination of the delegation issue is not always obvious, and it is sometimes presented to an arbitrator, rather than to a court, in the first instance. In that case, a party challenging arbitrability may feel some trepidation about submitting its challenge to the very arbitrator who could ultimately be deciding the merits of the case. And another, possibly surprising, concern should be the risk that making such a challenge too vigorously in the arbitration proceeding will foreclose a fulsome judicial review of the arbitrator’s ruling on the scope of his or her own authority.
Published in Law360 (June 22, 2018)
“Gateway” arbitration issues, including the validity, enforceability, and scope of an arbitration agreement, are presumptively to be decided by a court, rather than by an arbitrator. However, such gateway issues may be “delegated” to an arbitrator, e.g., AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 106 S.Ct. 1415 (1986), if the pertinent arbitration agreement clearly and unmistakably manifests the parties’ intention to do so, First Options of Chicago v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920 (1985); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct. 588 (2002); Greentree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402 (2003). But what if the arbitration agreement is in doubt — could such a purported delegation be enforced if one of the concerned parties did not execute the arbitration agreement in question? Spoiler alert: arguably not.
In a proceeding under the Federal Arbitration Act (“FAA”) to determine if a dispute must be arbitrated, a federal district court performs a more limited function than in a plenary civil action. On an application to stay an action allegedly referable to arbitration, the court decides only if “the issue involved in such suit or proceeding is referable to arbitration under [a written arbitration] agreement.” 9 U.S.C. § 3. On a petition to compel arbitration, the court decides only whether “ the making of the agreement for arbitration or  the failure to comply therewith” are in issue. 9 U.S.C. § 4. If the court is satisfied that the two matters are not in issue, it must direct the parties to arbitrate in accordance with the agreement. But if either matter is in issue, the court must proceed summarily to trial. Id.
Is there such a thing as an arbitration joke? Here is a test. Two plaintiffs walk into a court, claiming that each was wrongfully terminated by a bank (UBS). The bank moves to compel arbitration by plaintiff one; and it moves to dismiss the judicial claim of plaintiff two because that plaintiff had already brought his claim in an arbitration that he commenced. The Court finds that both plaintiffs are bound by arbitration agreements with UBS and that their claims are within the scope of the arbitration clauses. The punchline: “the court denies UBS’s motion to dismiss [plaintiff two’s] claims and to compel arbitration of [plaintiff one’s] claims.” See Zoller v. UBS Secs. LLC, 2018 U.S. Dist. LEXIS 44170 (N.D. Ill. Mar. 9, 2018) (emphasis added).
Arbitration is a creature of contract. So is the law concerning contracts with an arbitration clause the same as the law concerning any other contract? Almost. One must always bear in mind the “separability” or “independence” of the arbitration agreement — the autonomy principle.