“Arcane” Questions of Arbitrability Resolved by the Courts, Not Arbitrators

There are still arenas where common sense prevails in the changing world of litigation concerned with the enforcement of contractual arbitration provisions.

The beginning for all discussions on this subject is the axiom that arbitration “is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit.” Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960).

However clear that principal may appear, if the underlying contract is silent or ambiguous with respect to the particular matter in dispute, it is not at all obvious how it should be applied.

In addressing such disputes over the years, the courts have delineated two “interpretive rules” to bridge the gap in the contract. Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (U.S. 2002).

Where the dispute arises out of “any doubts concerning the scope of arbitrable issues [it] should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 (U.S. 1983).

However, the presumption is reversed where the dispute arises out of the question of who should decide arbitrability. First Options v. Kaplan, 514 U.S. 938, 944-945 (U.S. 1995) (“In this manner the law treats silence or ambiguity about the question ‘who (primarily) should decide arbitrability’ differently from the way it treats silence or ambiguity about the question ‘whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement.'”).

Those disputes are resolved by the courts rather than in arbitration. The reason for the different treatment is understandable:

The [former] question arises when the parties have a contract that provides for arbitration of some issues. In such circumstances, the parties likely gave at least some thought to the scope of arbitration. And, given the law’s permissive policies in respect to arbitration, one can understand why the law would insist upon clarity before concluding that the parties did not want to arbitrate a related matter. On the other hand, the [latter] question — the “who (primarily) should decide arbitrability” question — is rather arcane. A party often might not focus upon that question or upon the significance of having arbitrators decide the scope of their own powers.

Id. The question of arbitrability is simply, in the view of the Supreme Court of the United States, too “arcane” an issue to assume the parties have considered it.

For that very sensible reason, in the absence of “clear and unmistakable” evidence of the parties’ intent to the contrary, the courts decide questions of arbitrability. Id. at 944 (“Courts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so.”) (quoting AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649 (1986)).

Although the liberal federal policy favoring arbitration has been elevated above state law and perhaps even the mandates of other federal statutes, important limitations remain. It is important for litigators and, in particular, class action litigators, to keep the presumptions described above in mind.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.