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The Businessperson’s Federal Arbitration Act FAQ Guide III: Pre-Award Federal Arbitration Act Litigation – Gateway Questions about Whether Arbitration Should Proceed (Part I)

January 29th, 2020 Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Authority of Arbitrators, Businessperson's FAQ Guide to the Federal Arbitration Act, Clear and Unmistakable Rule, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Fraud, Nuts & Bolts, Nuts & Bolts: Arbitration, Rescission and Reformation, Separability, Severability 3 Comments »
Arbitration Law | Gateway Questions | Arbitrability

This third instalment of the Businessperson’s Federal Arbitration Act FAQ Guide concerns pre-award litigation under the Federal Arbitration Act (the “FAA” or the “Federal Arbitration Act”) and focuses on so-called “gateway” disputes about whether arbitration should proceed.

What is the Difference between Pre-Award and Post-Award Litigation under the Federal Arbitration Act?

The Federal Arbitration Act contains certain remedial provisions that are designed to address specific problems that arise before an arbitrator or arbitration panel makes a final award on matters submitted (or allegedly submitted) to arbitration. The litigation these provisions authorize is “pre-award” FAA litigation. Other provisions of the Federal Arbitration Act apply only to arbitration awards. The litigation those other provisions authorize is “post-award” FAA litigation.

Sections 3, 4, 5, and 7 of the FAA, concerning stays of litigation in favor of arbitration, motions to compel arbitration, the appointment of arbitrators, and the enforcement of subpoenas issued by arbitrators. They therefore pertain to pre-award FAA litigation.

Section 8 allows a party to invoke the Court’s admiralty jurisdiction “by libel and seizure of the vessel or other property of the other party. . . ,” and subsequently to obtain an order directing parties to proceed to arbitration, with the court “retain[ing] jurisdiction to enter its decree upon the award. . . .” Section 8 thus authorizes both pre-award and post-award relief, albeit only in cases falling under the admiralty jurisdiction.    

Sections 9, 10, 11, 12, and 13, which concern motions to confirm, vacate, or modify awards, pertain to post-award FAA litigation.

What are Gateway Questions?

A “gateway” question is one which “determine[s] whether the underlying controversy will proceed to arbitration on the merits.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). Disputes raising gateway questions arise when one party fails or refuses to proceed to arbitration or asserts that it is not required to proceed to arbitration on the merits.

For example, suppose A and B, parties to a contract containing an FAA-governed  arbitration agreement find themselves embroiled in a dispute. A thinks the arbitration agreement does not require it to submit the dispute to arbitration but B disagrees.

A accordingly commences litigation in a federal district court, which has subject matter jurisdiction because the parties are citizens of different states and the amount of A claim against B exceeds $75,000, exclusive of interest and costs. 

B moves the court under FAA Section 3 to stay litigation in favor of arbitration, and under Section 4 to compel arbitration. 9 U.S.C. §§ 3 & 4.

The dispute between A and B over whether B is required to arbitrate the dispute presents a gateway question because it will determine whether A’s and B’s dispute on the merits will proceed to arbitration.

Who Decides Gateway Questions?

Some gateway questions are for the courts, with the answer determining whether the Court directs the parties to proceed to arbitration on the merits. Other gateway questions are for the for the arbitrator (or arbitration panel), and the Court simply directs the parties to submit their gateway question to arbitration, the arbitrator decides the question, and, if the answer to the gateway question is that arbitration on the merits may proceed, then the arbitrator decides the merits.

Whether or not a court or an arbitrator decides a particular gateway question depends on whether or not the question is a “question of arbitrability.”

The term “question of arbitrability” is a term of art. The Federal Arbitration Act embodies and implements a federal policy in favor of arbitration, applicable in both state and federal courts. See, e.g., Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500, 501 (2012). But arbitration’s “first principle” is that arbitration is “strictly a matter of consent,” Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1415-16 (2019) (citation and quotations omitted), and “a party cannot be required to submit to submit to arbitration any dispute which he has not agreed so to submit.” Steelworkers v. Warrior Gulf Nav. Co., 363 U.S. 574, 582 (1960); see also First Options of Chicago v. Kaplan, 543 U.S. 938, 942-943 (1995); Howsam, 537 U.S. at 83.

Courts presume that the question “whether the parties have submitted a particular dispute to arbitration” to be a “question of arbitrability,” which is for the Court to decide unless the parties “clearly and unmistakably” agree otherwise. Howsam, 537 U.S. at 83 (quotations and citations omitted).

This, however, is an “interpretive rule” that is narrower than might first appear. Howsam, 537 U.S. at 83. The Supreme Court has said “[l]inguistically speaking, one might call any potentially dispositive gateway question a “question of arbitrability,” but “for purposes of applying the interpretive rule, the phrase ‘question of arbitrability’ has a far more limited scope.” Howsam, 537 U.S. at 83.

The term “question of arbitrability” is “applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they  had agreed that an arbitrator would do so, and consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well have not agreed to arbitrate.” Howsam, 537 U.S. at 83-84.

Questions of arbitrability thus turn on whether: (a) the dispute is legally capable of resolution by arbitration; (b) the scope of an arbitration agreement, that is, whether the parties agreed to arbitrate particular controversy or type of controversy; (c) the validity or enforceability of an arbitration agreement “upon upon such grounds as exist at law or in equity for the revocation of any contract[,]” 9 U.S.C. § 2; or (d) whether an arbitration agreement has been formed or concluded, that is, whether an arbitration agreement exists in the first place. See Howsam, 537 U.S. at 84 (citing examples and cases); Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019) (“To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.”); Compucredit Corp. v. Greenwood, 565 U.S. 95, 104 (2012) (finding federal statutory claims arbitrable “[b]ecause the [statute] is silent on whether claims under the [statute] can proceed in an arbitra[l] forum, [and accordingly] the FAA requires the arbitration agreement to be enforced according to its terms”); Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 296-97, 299, 303 (2010) (“[O]ur precedents hold that courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties’ arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue.”)

But not every question about what a party agreed to arbitrate is, within Howsam’s interpretive rule, a “question of arbitrability” presumptively for the court to decide. The term “question of arbitrability” is “not applicable in other kinds of general circumstance where parties would likely expect that an arbitrator would decide the gateway matter.” Howsam, 537 U.S. at 84 (emphasis in original).

One such “general circumstance” concerns “procedural questions which grow out of the dispute and bear on its final disposition,” which are “presumptively not for the judge, but for an arbitrator, to decide.” Howsam, 537 U.S. at 84 (emphasis in original) (quotations and citation omitted). Likewise, “allegation[s] of waiver, delay and like defenses to arbitrability[,]” are presumptively for the arbitrator. See Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); Howsam, 537 U.S. at 84.

Gateway questions concerning conditions precedent and other “prerequisites” to arbitration, “such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate” are also presumptively for arbitrators, not courts. See Howsam, 537 U.S. at 84-85 (emphasis deleted; quotations omitted) (quoting Revised Uniform Arbitration Act of 2000 (“RUAA”) § 6(c), and comment 2, 7 U.L.A. 12-13 (Supp. 2002)).

While Howsam distinguishes between “questions of arbitrability” and questions which are not questions of arbitrability, sometimes courts distinguish between “issues of “substantive arbitrability,” which are presumptively for the Court, and “issues of procedural arbitrability,” which are presumptively for the arbitrators to decide. See Howsam, 537 U.S. at 85 (quoting RUAA § 6, comment 2, 7 U.L.A. 13) (quotations omitted).  

How do Parties Clearly and Unmistakably Agree to Submit Questions of Arbitrability to Arbitrators?

The presumption that courts get to decide arbitrability questions can be rebutted if the parties clearly and unmistakably submitted (or agreed to submit) those questions to arbitrators. See First Options, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995). As a practical matter that means the party seeking to arbitrate an arbitrability question must show that the parties: (a) unambiguously agreed to submit questions of arbitrability (or questions concerning the arbitrators’ “jurisdiction”) to the arbitrators; or (b) during an arbitration unreservedly  submitted to the arbitrator an arbitrability question to arbitration. See First Options, 543 U.S. at 944-46.

Unreservedly submitting a question to the arbitrator means that both parties argue the merits of the arbitrability question to the arbitrator without either party informing the arbitrator that it believes it did not agree to submit the arbitrability question to the arbitrator and that any decision the arbitrator makes on that issue will be subject to independent (non-deferential) review by a court on a motion to vacate the award. First Options, 543 U.S. at 944-46.

Suppose the Court has compelled Parties A and B from our earlier hypothetical to arbitrate their breach of contract claim, which arises out of B’s alleged breach of Contract 1. During the arbitration Party A requests that the arbitrator determine whether Party B breached not only Contract 1, but a different contract, Contract 2, which does not contain an arbitration agreement. B argues to the arbitrator that it did not agree to arbitrate A’s claim for alleged breach of Contract 2, and that, in any event, it did not agree to arbitrate arbitrability questions, which are for the Court to decide.

Under those facts, Party A did not unreservedly submit to the arbitrator arbitrability questions because it argued that the arbitrator did not have the authority to decide arbitrability questions. If the arbitrator decides that Party A agreed to arbitrate claims arising out of A’s breach of Contract 2, then Party A should be entitled to independent (non-deferential) review of the arbitrability question by the Court on a motion to vacate the arbitration award. See First Options, 543 U.S. at 944-46.

That said, A would have been well-advised not only to argue that the arbitrator had no authority to resolve arbitrability questions, but to explicitly advise the arbitrator in writing that all of its arguments concerning the arbitrability of the Contract 2 breach claim, and the arbitrator’s power to decide arbitrability questions, were made under a full reservation of A’s rights to obtain independent, judicial review of those questions.   

Now suppose the same basic scenario, except that A does not argue that the arbitrator has no authority to decide arbitrability questions, and clearly and unmistakably represents to the arbitrator that it is submitting the merits of the arbitrability question for a final and binding determination by the arbitrator, without reservation of any right it might otherwise have to independent judicial review of that question. Under that scenario, A will have unreservedly submitted the arbitrability question to arbitration and will not be entitled to independent review upon a timely motion to vacate the award.

While the notion of agreeing to arbitrate arbitrability questions may seem odd to the uninitiated (which is why the clear and unmistakable requirement exists in the first place), such agreements are not uncommon. For example, an unambiguous agreement to arbitrate according to an arbitration-provider’s rules that clearly provide for arbitration of arbitrability questions generally will satisfy the clear and unmistakable requirement.  See, e.g., Dish Network L.L.C. v. Ray, 900 F.3d 1240, 1245-46 (10th Cir. 2018); Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 208 (2d Cir.2005); Apollo Computer, Inc. v. Berg, 886 F.2d 469, 473 (1st Cir.1989). The rules of leading arbitration providers provide that arbitrators decide such questions. See, e.g., American Arbitration Association, Commercial Rules and Mediation Procedures, Including Procedures for Large, Complex Commercial Disputes, R. 7(a); JAMS Comprehensive Arbitration Rules and Procedures, R 11(c); International Institute for Conflict Prevention & Resolution (“CPR”) 2007 Non-Administered Arbitration Rules, R. 8.

Agreements to arbitrate arbitrability questions are often referred to as “Delegation Provisions” or “Delegation Agreements.” (See, e.g., Loree Reinsurance and Arbitration Law Forum posts hereherehere, and here.)

Typically, a “Delegation Provision” states in clear and unmistakable terms that arbitrability questions are to be decided by the arbitrators. For example, by making part of their contract Rule 8.1 of the 2018 version of the International Institute for Conflict Prevention and Resolution (CPR)’s Non-administered Arbitration Rules, parties agree to the following broad Delegation Provision:

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. This authority extends to jurisdictional challenges with respect to both the subject matter of the dispute and the parties to the arbitration.

CPR Non-Administered Arbitration Rule 8.1 (2018) (emphasis added).

Are there any Arbitrability Disputes that Courts Decide when the Contract at Issue Clearly and Unmistakably Provides for the Arbitrator to Decide Questions of Arbitrability?

Yes. But to understand why, when, and to what extent that is so, we need to understand that: (a) typically a clear and unmistakable Delegation Agreement or Delegation Provision is part of the parties’ arbitration agreement; (b) the arbitration agreement, and the Delegation Agreement it contains, is also, in turn, ordinarily part of a larger agreement; and (c) the Federal Arbitration Act doctrine of “separability” requires Courts to consider each of those three agreements as separate and independent from the other two. See Rent-A-Center v. Jackson, 561 U.S. 63, 70-75 (2010) Buckeye Check Cashing v. Cardegna, 546 U.S. 440, 448-49 (2006); Prima Paint v. Flood Conklin, 388 U.S. 395, 403-04, 406-07 (1967).

Within this “separability” framework, Courts always decide whether a Delegation Agreement was formed and exists. See Henry Schein, 139 S. Ct. at 530.

Ordinarily, that does not present problems from the standpoint of the separability doctrine. For example, suppose A signs a contract under which B undertakes to perform services for A. The contract contains an arbitration agreement as well as a Delegation Agreement. But the contract is signed by C, purportedly as agent for B, not by B itself. As it turns out, B never authorized C to sign the contract on its behalf, and C did not have apparent or inherent authority to sign for B.

B (understandably) does not perform the contract, and A demands arbitration against B. B refuses to arbitrate, contending that it never entered into the contract because C was not authorized to act on B’s behalf.

A then brings an action in court seeking to compel B to arbitrate, B asserts it is not obligated to arbitrate because it never agreed to do so, and A contends that, in any event, the Court must compel arbitration of the issue whether the contract exists because of the Delegation Agreement in the contract C signed. B counters that just as it never agreed to the arbitration agreement, so too, it never agreed to the Delegation Agreement.

In this hypothetical, B wins—the Court would determine whether C was authorized to act on behalf of B, and would presumably conclude that A and B never entered into a contract, let alone an arbitration or Delegation Agreement.

Courts also decide whether a Delegation Agreement is valid, but only when the challenge to the Delegation Agreement relates specifically to the Delegation Agreement itself, not just the contract containing the arbitration and Delegation Agreements, and not just the arbitration agreement containing the Delegation Agreement. See Rent-a-Center, 561 U.S. at 70-75.

Suppose C was authorized to act on behalf of B, but further suppose that C made fraudulent representations to A about B’s qualifications, experience, and ability to perform the services that B undertook to perform for A. A entered into the contract, reasonably and justifiably relying on C’s false representations, which were made on behalf B.

A discovers the fraud and sues B, seeking rescission of the contract. A demands arbitration but B says it is not required to arbitrate because if A prevails on the rescission claim, then it means the arbitration and Delegation Agreements will also be rescinded, and the arbitrator’s conclusion will demonstrate that she had no authority to decide the matter in the first place.

This time A wins. Under the doctrine of separability the contract itself is separate from its arbitration and delegation agreements. See Buckeye Check Cashing, 546 U.S. at 448-49; Prima Paint, 388 U.S. at 403-04, 406-07. Because the alleged fraud does not specifically relate to the arbitration agreement, and because the arbitration agreement is at least arguably broad enough to encompass the fraud claim, the Court will direct the parties to arbitrate the rescission claim. See 546 U.S. at 448-49; 388 U.S. at 406-07.

Now let’s change the facts yet again. This time A demands arbitration against B and B resists arbitration on the ground that the arbitration agreement is unconscionable on state law grounds because it limits the number of depositions that may be taken. A counters that the unconscionability claim directed at the arbitration agreement is a question of arbitrability that, under the Delegation Agreement, must be submitted to the arbitrator for decision. B does not contend that the Delegation Agreement itself is unconscionable because the arbitration agreement limits deposition discovery.

A wins again. Under the doctrine of separability the Delegation Agreement is separate from the arbitration agreement and, consequently, a challenge to the validity of the arbitration clause, which does not specifically relate to the delegation agreement, does not affect the parties’ obligations to arbitrate arbitrability. See Rent-a-Center, 561 U.S. at 70-75.

While the arbitration agreement limits deposition discovery, B did not (and probably could not) demonstrate that the arbitration agreement’s limits on deposition discovery would provide an independent basis for finding the Delegation Agreement unconscionable. To show that the unconscionability argument was specifically directed at the Delegation Agreement, B would have had to demonstrate not only that the limits on deposition discovery applied to arbitrability determinations made under the Delegation Agreements, but that it was unconscionable for A to have required B to agree to allow the arbitrator to make arbitrability determinations with only limited deposition discovery. See Rent-a-Center, 561 U.S. at 71-75.

It is one thing to argue that such a limitation on deposition discovery might be unconscionable in an agreement to arbitrate factbound disputes on the merits, but it is another to argue that the same principle applies equally to a agreement to arbitrate arbitrability disputes, which courts commonly decide without the need for deposition discovery. See Rent-a-Center, 561 U.S. at 71-75.

More to come….

In Part II of “Gateway Disputes about Whether Arbitration Should Proceed” we will begin by addressing the question, “What is the presumption of arbitrability?”  

Please note. . .

This guide, including the instalments that will follow in later posts, and prior instalments, is not designed to be a comprehensive recitation of the rules and principles of arbitration law. It is designed simply to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face and how engaging a skilled, trustworthy, and experienced arbitration attorney can help them confront those challenges more effectively.

This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they voluntarily elect to do so.

If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should contact an experienced and skilled attorney with a solid background in arbitration law.

About the Author

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has nearly 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitrations and litigations.

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and frequently serves as co-counsel, local counsel or legal adviser to other domestic and international law firms requiring assistance or support.

Loree & Loree was recently selected by out of a group of 1,763 persons or firms reviewed to be one of’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

You can contact Phil Loree Jr. at (516) 941-6094 or at

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

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The Repeat Player, Arbitration Providers, Evident Partiality, and the Ninth Circuit

November 18th, 2019 Arbitration Practice and Procedure, Arbitration Providers, Award Vacated, Confirmation of Awards, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Repeat Players, United States Court of Appeals for the Ninth Circuit, Vacate Award | Evident Partiality, Vacatur Comments Off on The Repeat Player, Arbitration Providers, Evident Partiality, and the Ninth Circuit
Evident Partiality | Disclosure | Repeat Player

Federal Arbitration Act (“FAA”) Section 10 permits Courts to vacate awards “where there was evident partiality. . . in the arbitrators. . . .” 9 U.S.C. § 10(a)(2). If an arbitrator fails to disclose an ownership interest in an arbitration provider, which has a nontrivial, repeat player relationship with a party, should the award be vacated for evident partiality?

What constitutes evident partiality and under what circumstances is a controversial and sometimes elusive topic. We’ve written about it extensively over the years, including here, here, here, and here, as well as in other publications. The author has briefed, argued, or both, a number of U.S. Courts of Appeals and federal district court cases on the subject over the years, including, among others, Certain Underwriting Members of Lloyds of London v. State of Florida, Dep’t of Fin. Serv., 892 F.3d 501 (2018); and Nationwide Mutual Ins. Co. v. Home Ins. Co., 429 F.3d 640 (2005).

The most recent significant evident partiality development is the U.S. Court of Appeals for the Ninth Circuit’s 2-1 decision in Monster Energy Co. v. City Beverages, LLC, ___ F.3d ___, No. 17-55813, slip op. (9th Cir. Oct. 22, 2019), a case that involved an award made in favor of a repeat player party in an administered arbitration. Monster held that an arbitrator who failed to disclose his ownership interest in an arbitration provider was guilty of evident partiality because the arbitration provider had nontrivial business relationship with the repeat player party.

The Repeat Player Problem

In administered arbitration the (inevitable) existence of repeat players raises important questions that bear on evident partiality. Repeat players are parties who use the services of an arbitration provider on a regular basis, and therefore are a source of repeat business for the provider.

Arbitrators who are part of an arbitration provider’s appointment pool have earned their appointments by satisfying certain criteria set by the arbitration provider, and may also be trained by the arbitration provider. Ordinarily they are not employees of the arbitration provider, and, at least ostensibly, are independent from the arbitration provider.

But the economic interests of these arbitrators are aligned with those of the arbitration provider. What’s good for the arbitration provider is generally good for the arbitration provider’s pool of arbitrators. Repeat business is good for arbitration providers, just as it is good for lawyers and others.

Let’s assume that an arbitrator appointed in an arbitration administered by provider X has never before served as an arbitrator for parties A and B. If the contract between A and B is a form contract used by Party A that appoints X to administer arbitrations, and the contract concerns a subject matter in which disputes are fairly common (e.g., a consumer, employment, or franchise matter), then the arbitrator knows or has reason to know that the customer is either a repeat player or is likely to be one in the not too distant future.

If party B is, for example, a consumer, employee, or franchisee, and is not a repeat player, then one might suggest that our hypothetical arbitrator has at least an indirect interest in the outcome of the arbitration, specifically, one that would be best served by an outcome favoring party A, the repeat player.

That creates a potential evident partiality problem, for to be neutral, arbitrators have to be not only independent, and unbiased, but also disinterested. To be disinterested, the arbitrator cannot have have “a personal or financial stake in the outcome of the arbitration.” Certain Underwriting Members, 892 F.3d at 510 (citations and quotations omitted).

Does the kind of indirect and general financial or personal interest in the outcome described above, without more, establish evident partiality? It should not, although arbitrators are well-advised to disclose the existence of such indirect or general financial or personal interests.

We think an argument for evident partiality based solely on an arbitrator having reason to believe that one of the parties is a repeat player with respect to the arbitration provider’s services would prove too much. Carried to its logical conclusion it would destroy, or at least severely diminish, the utility of the arbitration-provider-administered arbitration model in a large number of cases.

But that doesn’t mean that administered-arbitration awards in favor of repeat players and against non-repeat-players are immune from evident partiality challenge in all circumstances. Monster Energy provides an example and may be a harbinger of closer scrutiny of repeat player evident partiality challenges. 

We discuss the majority opinion in Monster Energy below. In a future post or posts, we will discuss the dissenting opinion, what to make of the case, and how it might (or not) influence how other courts address repeat-player-related issues that may arise in future cases.

Continue Reading »

Gateway Keeping: The Third Circuit Joins the Sixth in Holding that Courts get to Decide whether Parties Consented to Class Arbitration

August 28th, 2014 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consent to Class Arbitration, Consolidation of Arbitration Proceedings, Drafting Arbitration Agreements, Existence of Arbitration Agreement, Judicial Review of Arbitration Awards, Practice and Procedure, Stay of Litigation, United States Court of Appeals for the Sixth Circuit, United States Court of Appeals for the Third Circuit, United States Supreme Court Comments Off on Gateway Keeping: The Third Circuit Joins the Sixth in Holding that Courts get to Decide whether Parties Consented to Class Arbitration

On June 10, 2013 the U.S. Supreme Court in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) considered whether an arbitrator exceeded his powers under Federal Arbitration Act (“FAA”) Section 10(a)(4) by finding that a fairly run-of-the-mill arbitration agreement authorized class arbitration. Applying the deferential, manifest-disregard-of-the-agreement outcome-review standard authorized by FAA Section 10(a)(4), the Court upheld an arbitrator’s determination that an arbitration agreement authorized class arbitration because the arbitrator had, at least arguably, interpreted the arbitration agreement, albeit in a highly creative and doubtful way. (See Loree Reins. & Arb. L. Forum posts here, here, here & here.)

In a footnote, the Court explained that it “would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.’” 133 S. Ct. at 2068 n.2. The Court said that Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 680 (2010), “made clear that this Court has not yet decided” whether class-arbitration-consent presents a question of arbitrability. But “Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures[,]” and “Oxford submitted that issue to arbitrator not once, but twice—and the second time after Stolt-Nielsen flagged that it might be a question of arbitrability.” 133 S. Ct. at 2068 n.2. (emphasis added)

Had Oxford opted to request the Supreme Court to determine whether class- arbitration consent presented a question of arbitrability, and had the Court determined that it was such a question, then the Court would have determined independently—that is, without deferring to the arbitrator’s decision—whether the parties consented to class arbitration. See BG Group plc v. Republic of Argentina, No. 12-138, slip op. at 6 (U.S. March 5, 2014); First Options of Chicago, Inc. v. Kaplan, 543 U.S. 938, 942 (1995). And we doubt that a majority of the Supreme Court would have upheld the Oxford award had it reviewed the class-arbitration-consent determination de novo. See, e.g., Oxford, 133 S. Ct. at 2071 (Alito, J., concurring) (“If we were reviewing the arbitrator’s interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred “[a]n implicit agreement to authorize class-action arbitration … from the fact of the parties’ agreement to arbitrate.”) (quoting Stolt-Nielsen, 559 U.S. at 685).  

Those who have been tracking developments in class and consolidated arbitration since the turn of this century no doubt recall that, after a plurality of the Court determined in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003), that a class-arbitration-consent-related dispute did not present a question of arbitrability, but merely a procedural question, parties began to submit routinely and unreservedly class-arbitration-consent questions to arbitration.

But after Stolt-Nielsen, and, no doubt with renewed vigor after Oxford, class arbitration opponents began to argue that class-arbitration-consent presented a question of arbitrability for the Court to decide. And U.S. Circuit Courts of Appeals are beginning to rule on those challenges.

The first one to do so was the U.S. Court of Appeals for the Sixth Circuit in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), where the Court in November 2013 held “that the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved for judicial determination unless the parties clearly and unmistakably provide otherwise.” 734 F.2d at 599 (quotation and citation omitted).

The second, and most recent Circuit Court of Appeals to rule on the issue, was the U.S. Court of Appeals for the Third Circuit in Opalinski v. Robert Half Int’l Inc., ___ F.3d ___, No. 12-4444, slip op. (3rd Cir. July 30, 2014), which on July 30, 2014 “join[ed] the Sixth Circuit Court of Appeals in holding that.  .  .  “the availability of” class arbitration “is a substantive gateway question rather than a procedural one[,]” and thus “is a question of arbitrability.” Slip op. at 15, 16-17.  The Court’s decision turned on “the critical differences between individual and class arbitration and the significant consequences of that determination for both [a] whose claims are subject to arbitration[;] and [b] the type of controversy to be arbitrated.” Slip op. at 15 (emphasis added). Where, as in Opalinski, the arbitration agreement did not “mention” class arbitration, the Court “believ[ed] the parties would have expected a court, not an arbitrator, to determine the availability of class arbitration[,]” and that was “especially so given the critical differences between individual and class arbitration and the significant consequences” of the class-arbitration-consent determination as respects “whose claims are subject to arbitration and the type of controversy to be arbitrated.” slip op. at 16-17.

The Third Circuit’s Opalinski decision, like the Sixth Circuit’s in Reed Elsevier, is well reasoned and reaches the conclusion we likewise think is required by the Supreme Court’s long-line of arbitrability jurisprudence, and by its post-Bazzle class-arbitration cases, beginning with Stolt-Nielsen. We suspect that other circuits will, for largely the same reasons, that class-arbitration-consent presents a question of arbitrability.

Let’s have a look at what transpired in Opalinski.  .  .  . Continue Reading »

Part II.B.2(B): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Will the Arbitration be Administered or Ad Hoc?

January 8th, 2014 Arbitration Agreements, Arbitration Practice and Procedure, Making Decisions about Arbitration, Small Business B-2-B Arbitration Comments Off on Part II.B.2(B): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Will the Arbitration be Administered or Ad Hoc?


The last two segments of this Small Business B-2-B Arbitration series have focused on certain key structural aspects of pre-dispute arbitration agreements. Perhaps some might think that an examination of even the most basic structural components of arbitration agreements is too much information for a business person, but most successful business people know about all relevant aspects of the contracts they negotiate, not just the basic structural components of those contracts (e.g., price and performance terms).

Given that an arbitration agreement can fundamentally alter the risk-benefit calculus of a deal, one would naturally expect that successful business people would be familiar with at least the basic structural aspects of such agreements, but in our experience that is not necessarily the case. In fact, were it so, we would expect there would be far fewer arbitration-related disputes that could be traced back to a party’s un- or ill-informed decision about whether to agree to arbitrate, and if so, on what terms.

In Part II.B.2(A) we identified three key structural aspects of pre-dispute arbitration agreements and discussed the first—the scope of disputes to be arbitrated—in some detail. This Part II.B.2(B) briefly discusses the second: how an arbitration under the agreement will be administered and by whom. Continue Reading »

Small Business B-2-B Arbitration Part II.B.2(A): Other Structural Aspects of Pre-Dispute Arbitration Agreements—What am I Agreeing to Arbitrate?

January 2nd, 2014 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Drafting Arbitration Agreements, Making Decisions about Arbitration, Small Business B-2-B Arbitration Comments Off on Small Business B-2-B Arbitration Part II.B.2(A): Other Structural Aspects of Pre-Dispute Arbitration Agreements—What am I Agreeing to Arbitrate?

In the last installment of our B-2-B Arbitration series we focused on one of the most important structural aspects of pre-dispute arbitration agreements: the mutual promise to submit disputes to arbitration, what it means and how its performance by the parties through their post-dispute submission defines and delimits the scope of authority parties actually delegate—as opposed to promise to delegate—to arbitrators to resolve particular disputes.

But there are other important structural aspects of arbitration agreements about which business people should be mindful if they wish to make informed decisions about arbitration. While a comprehensive discussion of them would be far beyond the scope of this post, let’s focus briefly on arbitration-agreement terms that bear on the following questions: Continue Reading »

The $4.1 Billion Arbitration Award: Update

June 19th, 2009 Awards, California State Courts Comments Off on The $4.1 Billion Arbitration Award: Update

On June 14 we reported on the $4.1 billion arbitration award recently confirmed by a California state court, and provided our readers with some links to other articles on the subject.  (Post available here.)   Since that time we have been told that the defendants did not cross-move to vacate or otherwise respond to the motion to confirm, at least in any meaningful fashion.  We have not verified that assertion, but if true, there would not appear to be any meaningful ground for an appeal.    Continue Reading »

A Case to Watch Carefully: The $4.1 Billion Arbitration Award

June 14th, 2009 Authority of Arbitrators, Awards, California State Courts, Commercial and Industry Arbitration and Mediation Group 1 Comment »

Arbitration fans following the blogosphere — or participating in LinkedIn’s Commercial and Industry Arbitration and Mediation Group (here) — have no doubt heard about the $4.1 billion arbitration award recently confirmed by a California state court.   Check out the coverage in Victoria Pynchon’s Settle It Now Negotiation Blog, here and here, and Victoria VanBuren’s Disputing blog, here.  These posts feature a news article, related links and copies of the judgment and arbitration award.   One of Victoria Pynchon’s posts includes a very amusing video clip from Cabaret, featuring Liza Minelli!

The award arose out of an employment dispute between Paul Chester, the former chief operating officer of  iFreedom Communications, Inc., and iFreedom and its founder, Timothy Ringgenberg.  Mr. Chester claimed, and JAMS arbitrator William F. McDonald, a retired judge, agreed, that iFreedom did not receive commissions, back wages and other benefits due him under his employment agreement, and that he was fired without cause after he confronted his employer about this.  The compensatory component of the award is roughly $1 billion, which Arbitrator McDonald trebled based on iFreedom’s alleged bad faith.  The award is quite lengthy (27 pages), and provides a detailed breakdown of the various claims and corresponding damages.  The award states that the damages are ” appropriate to punish and make an example of defendants.”  (Query whether “making an example of Defendants” is a proper subject of private arbitration. ) Continue Reading »