What's Certain is the Lack of Certainty about who Decides the Existence of the Arbitration Agreement - Dispute Resolution Journal - Vol. 59, No. 2
Stuart Widman is a partner in the law firm Miller Shakman & Hamilton in Chicago. A litigator, arbitrator and mediator, Mr. Widman can be reached at 312-759-7242 or at firstname.lastname@example.org.
Originally from Dispute Resolution Journal
There is little uniformity in the courts as to when an arbitration clearly and unmistakably calls for the arbitrator to determine the existence of an arbitration agreement. In this situation, litigants cannot predict whether their arbitration agreement will be honored. Courts should find a proper balance to avoid usurping the arbitrability decision themselves. This article suggests a balanced approach that courts could take that preserves the arbitrator’s right to make jurisdictional determinations. The goal is to keep the courts out of decisions that properly belong to the arbitrator and at the same time keep the parties out of arbitration on issues that they intended the court to decide.
Arbitration is a creature of contract, giving parties the ability to determine the rules under which it will occur. When parties agree to apply the arbitration rules of an institutional arbitration provider, like the American Arbitration Association (AAA), they make the chosen rules part of their contract.1 If there is a conflict between those rules and a provision in the parties’ arbitration agreement, their agreement will govern, but otherwise the chosen rules provide a “gap-filler” function.
A key provision in the AAA Commercial Arbitration Rules concerns the arbitrator’s authority to rule on arbitral jurisdiction. AAA Rule 7 (formerly Rule 8) provides, in relevant part, that 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.” (Emphasis added.) The rule also empowers the arbitrator “to determine the existence or validity of a contract of which an arbitration clause forms a part.”2
Rule 7 is very broad. It vests the arbitrator with the power of a “gatekeeper” whose responsibility is to determine two key “arbitrability” issues: (1) whether an agreement to arbitrate exists (referred to here as the “existence question”), and (2) the scope of that agreement (i.e., what disputes are covered by the agreement to arbitrate). One court called the existence question “the mother of arbitrability questions.”3
Courts have had no trouble referring to arbitrators the second arbitrability issue—challenges to the scope of the arbitration agreement. However, that is not the case with existence questions. Recent federal cases involving the predecessor to AAA Rule 7 show that courts are improperly making decisions on whether an arbitration agreement exists in the first instance. Precisely why this is happening is not clear. It looks like a “turf ” issue, but the courts are supposed to honor the parties’ agreement to apply that rule.
This article looks at these cases and finds that many courts are mishandling the existence question by failing to apply Rule 7 (or an analogous rule). It also suggests how courts should deal with the issue in order to appropriately respect the parties’ contract and applicable rule.