This article was published in the March 2018 issue of AGC Law in Brief (Volume 4, Issue 2), Practical Construction Law & Risk Issues. It is reprinted here with permission.
Courts determine whether a dispute is subject to arbitration, also known as questions of “arbitrability,” unless the parties agree to submit arbitrability disputes to the arbitrator. However, you should be mindful that incorporating an arbitration provider’s rules or a broad arbitration provision in your agreement may delegate the arbitrability determination to the arbitrator.
This article will survey the effects of incorporating an arbitration provider’s rules or common arbitration provisions on who determines questions of arbitrability.
Unless the Parties Agree Otherwise, Courts Ordinarily Decide Questions of Arbitrability
The Supreme Court long ago recognized that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute that he or she has not agreed to submit.1 Accordingly, when a dispute arises, it must first be determined whether the parties are bound by an arbitration agreement and whether they agreed to submit their particular dispute to arbitration. These questions of “arbitrability” are ordinarily decided by a court.2 A court will review the parties’ arbitration agreement, as with any other contract, with an eye to what the parties intended. When doubt exists as to the parties’ intentions to arbitrate, the Federal Arbitration Act (FAA) — and similar state arbitration statutes — express a strong presumption in favor of arbitration, requiring that doubt to be resolved in favor of arbitration.
While questions of arbitrability are ordinarily decided by a court, contracting parties can agree to delegate questions of arbitrability to an arbitrator instead.3 Because an arbitrator deciding questions of arbitrability is contrary to the ordinary course of events, contracting parties must express their intent to delegate questions of arbitrability to an arbitrator “clearly and unmistakably.”4 When doubt exists as to the parties’ intent to “arbitrate arbitrability,” the FAA’s presumption in favor of arbitrability is reversed.5
Courts generally apply state law principles governing the formation of contracts to determine whether parties “clearly and unmistakably” agreed to arbitrate arbitrability.6 Courts interpreting the FAA have also developed a similar federal common law of arbitrability, which is applicable to any contract involving interstate commerce. Many courts have held that parties “clearly and unmistakably” agreed to arbitrate arbitrability simply by incorporating an arbitration provider’s rules or a broad arbitration provision into their agreement.
Incorporating a Particular Arbitration Provider’s Rules Into Your Agreement Can Be a “Clear and Unmistakable” Delegation of Authority to Decide Questions of Arbitrability
Arbitration provisions frequently state that the contracting parties agree to arbitrate with a particular provider, and many go on to specifically incorporate the rules of the arbitration provider into the agreement. Many courts have held that specifically incorporating an arbitration provider’s rules, which recognize the arbitrator’s discretion to determine their own authority’s scope, into an agreement is a clear and unmistakable delegation of authority to decide questions of arbitrability to arbitrators.7
Arbitration providers’ rules almost universally recognize arbitrators’ discretion to determine the scope of their own authority. For example:
Even if an arbitration provision does not expressly incorporate a provider’s rules, the rules themselves often state that merely by agreeing to arbitrate with the particular provider, the rules are deemed to be incorporated into the agreement. While many courts have held that incorporation of a provider’s rules is evidence of the parties’ intent to arbitrate arbitrability, other evidence could render this intent less than clear and unmistakable.
Incorporating a Broad Arbitration Provision Into Your Agreement Can Also Be a “Clear and Unmistakable” Delegation of Authority
Some state and federal courts have found that the broad arbitration provisions recommended by arbitration providers alone are clear and unmistakable delegations of authority to decide questions of arbitrability to arbitrators. These provisions include:
Neither of these provisions expressly states that the contracting parties intend to arbitrate arbitrability. Nonetheless, courts have found that each represents “the paradigm of a broad clause”10 and “the broadest language the parties could reasonably use.”11 A few courts have found that the broad language “any dispute” or “all disputes” must be read to include disputes about arbitrability.12 So even without an express statement that an arbitrator will decide arbitrability, these broad arbitration provisions have been interpreted to overcome the presumption that a court will decide the arbitrability issue. Courts sometimes bolster this interpretation by referencing a policy against dividing disputes into different portions, some of which are decided by arbitrators, and some of which are decided by courts.13
While many courts have held that broad arbitration provisions calling for arbitration of “any dispute” or “all disputes” alone do not clearly and unmistakably express the necessary intention to arbitrate arbitrability,14 you should be aware that, by including broad arbitration provisions in a contract, you may unintentionally allow the arbitrator to decide the scope of your arbitration agreement.
In sum, if you want a court to decide whether, and to what extent, your dispute is subject to arbitration, you must be mindful of the impact that incorporating an arbitration provider’s rules or a broad arbitration provision into your agreement can have on the question of who will decide arbitrability. If you wish to arbitrate under a particular provider’s rules, but reserve questions of arbitrability to the courts, you should draft your arbitration provision to specifically carve out arbitrability from the arbitrator’s authority.15
1 Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960).
2 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83–84 (2002).
3 Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013); see also Hayes v. Delbert Servs. Corp., 811 F.3d 666, 671 n.1 (4th Cir. 2016) (“empowering an arbitrator to determine arbitrability in the first instance ‘cuts against the normal rule.’”).
4 AT&T Techs., Inc. v. Commc’ns Workers, 475 U.S. 643, 649 (1986).
5 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).
7 See Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 10-12 (1st Cir. 2009); Schneider v. Kingdom of Thailand, 688 F.3d 68, 72–74 (2d Cir. 2012) (“Where parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator.”); Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) (parties’ express incorporation of American Arbitration Association rules constituted clear and unmistakable evidence that parties agreed to arbitrate question of arbitrability); Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009); Oracle Am., Inc. v. Myriad Group A.G., 724 F.3d 1069, 1072–1077 (9th Cir. 2013) (in arbitration agreement between sophisticated parties to commercial contract, parties’ incorporation of arbitration rules of United Nations Commission on International Trade Law delegates questions of arbitrability to arbitrator). But see Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 751 (3d Cir. 2016) (finding that an incorporation of the AAA rules is not a clear and unmistakable delegation to the arbitrators).
8 See Luzerne Cty. v. D.A. Nolt, Inc., No. 3:14-cv-00831, 2014 U.S. Dist. LEXIS 123994 (M.D. Pa. Sept. 5, 2014).
9 See Shaw Group, Inc. v. Triplefine Int’l Corp., 322 F.3d 115 (2d Cir. 2003).
10 See Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 20 (2d Cir. 1995).
11 See Fleet Tire Serv. v. Oliver Rubber Co., 118 F.3d 619, 621 (8th Cir. 1997).
12 See, e.g., PaineWebber Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996).
13 See, e.g., Pettinaro Constr. Co. v. Harry C. Partridge, Jr., & Sons, Inc., 408 A.2d 957, 963 (Del. Ch. 1979) (citing John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964)).
14 See e.g., McLaughlin Gormley King Co. v. Terminix Int’I Co., 105 F.3d 1192 (8th Cir. 1997) (clause requiring arbitration of “any controversy arising out of” or “relating to” the agreement did not clearly and unmistakably evidence arbitrator’s authority to determine arbitrability”); Spahr v. Secco, 330 F.3d 1266, 1270-71 (10th Cir. 2003) (use of “any controversy” or “any and all disputes” does not clearly and unmistakably demonstrate an agreement to arbitrate arbitrability); Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 780 (10th Cir. 1998) (clause calling for arbitration of “any and all disputes arising out of or relating to” the contract, as applied to the question of whether an agreement to arbitrate exists or was terminated).
15 The Supreme Court has made clear that contracting parties may expressly agree to not be bound by certain of the arbitration provider’s rules, including rules giving arbitrators discretion to determine the scope of their own authority. However, parties should ask their attorneys whether doing so jeopardizes the enforceability of the entire arbitration provision. For example, the National Arbitration Forum’s Rule 48(E) provides that the Forum or the arbitrator may decline to arbitrate “where the agreement of the Parties has substantially modified a material portion of the Code.”
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.