The Three Arbitrability Issues

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The Three Arbitrability Issues

• Did The Parties Agree to Let the Arbitrator
  Determine if The Arbitrator can Determine
  Arbitrability?
• Did the Parties Agree to Let the Arbitrator
  Determine the Scope and Validity of the Disputed
  Issues?
• Is the Issue of Arbitrability Wholly
  Groundless? Qualcomm v. Nokia, 466 Fed. Cir 1336
  (2006) Is this unique? See Lewis v. Circuit City,
  2007 U.S. App. 21073 (10th Cir).

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Types of arbitrability

• Jurisdictional arbitrability
• Subject matter arbitrability

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The 5 parts to the First Options Rule

• If the parties did agree to submit the issue to
  an arbitrator, the court should give
  considerable leeway to the arbitrator, setting
  aside his or her decision only in certain narrow
  circumstances.
• the question who has the primary power to
  decide arbitrability turns upon what the parties
  agreed about that matter.
• If, the parties did not agree to submit the
  arbitrability question itself to arbitration,
  then the court should decide the question
  independently.
• Courts should not assume that the parties agreed
  to arbitrate arbitrability unless there is clear
  and unmistakable evidence that they did so.
• 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 of
  whether a particular merits-based dispute is
  arbitrable because it is within the scope of a
  valid arbitration agreement. (514 US
  943-945) (emphasis added)

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• Buckeye Arbitrator decides operational validity
  challenges directed at the contract and Court
  decides creation and competition challenges
  directed at the contract, and challenges directed
  at arbitration clause.
• Unconscionability Need both procedural and
  substantive unconscionability. Procedural about
  how the contract came into being. Substantive
  about the operation of the contract.
• So who decides issues involving unconscionability?

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Why do we care?Paul Bennett Marrowwww.marrowlaw.
com
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WHY DO WE CARE?

• Arbitrator as a Pariah
• Role of the publics suspicion What underlies
  these concerns
• Concern about increasing authority of an
  arbitrator
• No appeal
• Role of Napoleons famous adage Victory belongs
  to the most persevering

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The Pariah

• David and Goliath
• PaineWebber v. Bybyk, 81 F. 3d 1193 (2nd Cir
  1996)
• Alliance Bernstein v. Alliance Capital, 445 F. 3d
  121 (2nd Cir 2006)

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It is All About Ambiguity

• When there is ambiguity what standard for review
  applies?
• Where there is ambiguity about the validity of
  the contract itself, there is a presumption in
  favor of arbitration because the parties have no
  issue about the agreement to arbitrate. Buckeye
  rules apply.
• Where there is ambiguity about the issue of
  arbitrability, the presumption reverses in favor
  of judicial review and state law governs the
  determination of the intentions of the parties.
  First Options rules apply.

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The Gateway According to Buckeye
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BUCKEYE RULE

• First, as a matter of substantive federal
  arbitration law, an arbitration provision is
  severable from the remainder of the contract.
• Second, unless the challenge is to the
  arbitration clause itself, the issue of the
  contract's validity is considered by the
  arbitrator in the first instance.
• Third, this arbitration law applies in state as
  well as federal courts.
• Forth, look to the Crux of the complaint to
  determine the nature of the challenge.

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BUCKEYE FOOTNOTE 1

• The issue of the contract's validity is
  different from the issue of whether any agreement
  between the alleged obligor and obligee was ever
  concluded. Our opinion today addresses only the
  former, and does not speak to the issue decided
  in the cases cited by respondents (and by the
  Florida Supreme Court), which hold that it is for
  courts to decide whether the alleged obligor ever
  signed the contract, (citation), whether the
  signor lacked authority to commit the alleged
  principal, (citations), and whether the signor
  lacked the mental capacity to assent, (citation).

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CPR RULE 8

• Rule 8 Challenges To The Jurisdiction Of The
  Tribunal
• 8.1 The Tribunal shall have the power to hear and
  determine challenges to its jurisdiction,
  including any objections with respect to the
  existence, scope or validity of the arbitration
  agreement.
• 8.2 The Tribunal shall have the power to
  determine the existence, validity or scope of the
  contract of which an arbitration clause forms a
  part. For the purposes of challenges to the
  jurisdiction of the Tribunal, the arbitration
  clause shall be considered as separable from any
  contract of which it forms a part.

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AAA COMMERCIAL RULE 7

• R-7. Jurisdiction
• (a) The arbitrator shall have the power to rule
  on his or her own jurisdiction, including any
  objections with respect to the existence, scope
  or validity of the arbitration agreement.
• (b) The arbitrator shall have the power to
  determine the existence or validity of a contract
  of which an arbitration clause forms a part. Such
  an arbitration clause shall be treated as an
  agreement independent of the other terms of the
  contract. A decision by the arbitrator that the
  contract is null and void shall not for that
  reason alone render invalid the arbitration
  clause.
• (c) A party must object to the jurisdiction of
  the arbitrator or to the arbitrability of a claim
  or counterclaim no later than the filing of the
  answering statement to the claim or counterclaim
  that gives rise to the objection. The arbitrator
  may rule on such objections as a preliminary
  matter or as part of the final award.

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Cases About the AAA Rules

• Contec Corp. v. Remote Solutions, 398 F. 3d 205
  (2nd Cir 2005) A scope or validity case focused
  on a non-signatory that inherits arbitration
  through merger.
• Fraternity Fund v. Beacon Hill, 371 F. Supp 2d
  571 (S.D.N.Y 2005) A scope or validity case
  focused on meaning of all controversies and
  disputes used in an arbitration clause.
• Shlomo Bar-Ayal v. Time Warner, 2006 U.S. Dist
  Lexis 75972 (S.D.N.Y 2006) A jurisdiction and
  scope or validity case finding that all
  arbitrability issues are for arbitrator when AAA
  rules incorporated.
• Dream Theater v. Dream Theater, 124 Cal App 4th
  547 (2004) A scope or validity case that follows
  2d Circuit jurisprudence.

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Technical requirements

• Where scope or validity an issue, agreement must
  be read to inclusive, catagorical, unconsitional
  and unlimited and words like any and all are
  to be read as being elastic. Paine Webber v.
  Bybyk, 81 F 3d 1193 (2d Cir 1996)
• There must be an exppressed agreement about
  incorporating rules. John Hancock v. Wilson, 254
  F 3d 48 (2d Cir 2001)
• Cases about need for party to be either a
  signatory or a party through some other means
  like association membership. Contec Corp. v.
  Remote Solutions, 398 F 3d 205 (2d Cir 2005)
  Alliance Berstein v. Shaffran, 445 F 3d 121 (2d
  Cir 2006)