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Posts Tagged ‘Narrow Arbitration Clause’

The Businessperson’s Federal Arbitration Act FAQ Guide III: Pre-Award Litigation under Chapter 1 of the Federal Arbitration Act—Gateway Disputes about Whether Arbitration Should Proceed (Part II)

February 4th, 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, Authority of Arbitrators, Businessperson's FAQ Guide to the Federal Arbitration Act, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Preemption of State Law, 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 Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, McCarran-Ferguson Act, Moses Cone Principle, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Presumption of Arbitrability, Procedural Arbitrability, Questions of Arbitrability, Small Business B-2-B Arbitration, Stay of Litigation, Substantive Arbitrability 2 Comments »
gateway disputes

Gateway disputes, which concern whether parties are required to arbitrate a dispute on the merits, are the principal subject of pre-award Federal Arbitration Act litigation. In the last segment of this series, Gateway Disputes about Whether Arbitration Should Proceed (Part I), we answered a number of FAQs concerning gateway disputes, including who gets to decide those disputes:  

  1. What is the Difference between Pre-Award and Post-Award Litigation under the Federal Arbitration Act?
  2. What are Gateway Questions?
  3. Who Decides Gateway Questions?
  4. How do Parties Clearly and Unmistakably Agree to Submit Questions of Arbitrability to Arbitrators?
  5. 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?

Today we’ll answer some more FAQs about how gateway disputes are decided (or at least are supposed to be decided) by courts and arbitrators:

  1. What is the Presumption of Arbitrability?
  2. Does the Presumption of Arbitrability Apply to all Questions of Arbitrability?
  3. What Law Applies to Determine Gateway Disputes about Arbitrability to which the Presumption of Arbitrability does not Apply?
  4. How is Presumption of Arbitrability Applied to Resolve Gateway Questions about the Scope of an Arbitration Agreement?
  5. What Defenses, if any, Can Parties Assert against Enforcement of an Arbitration Agreement, and what Law Governs these Defenses?

The answers to these questions, along with the answers provided in Part I, will provide you with a solid foundation for understanding how pre-award Federal Arbitration Act litigation works and what to expect if your business is or becomes embroiled in it. The next segment will answer FAQs about the nuts and bolts of pre-award Federal Arbitration Act practice and procedure under Sections 2, 3, and 4 of the Act.

What is the Presumption of Arbitrability?

Back in 1983 the U.S. Supreme Court, in the landmark decision Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983), famously declared that “[t]he [Federal] Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” 

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Up Narrow Arbitration Clause Creek without a Papalote?—Narrow Arbitration Clauses and the Difference between Interpretation and Performance

March 26th, 2019 Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, Practice and Procedure, Presumption of Arbitrability, United States Court of Appeals for the Fifth Circuit 1 Comment »
Narrow Arbitration Clauses: Papalote
Hang Glider or Papalote

I am told “papalote” is a Spanish word meaning “kite” or “hang glider.” It also appears in the name of a party to a recent decision of the U.S. Court of Appeals for the Fifth Circuit concerning narrow arbitration clauses, Papalote Creek II, L.L.C. v. Lower Colo. River Auth., No. 17-50852, slip op. (5th Cir. Mar. 15, 2019) (“Papalote II”). The party was Papalote Creek II, L.L.C. (“Papalote”). It won the appeal.

What was the appeal about? Narrow arbitration clauses, and in particular whether a dispute about maximum, aggregate liability under a wind-energy purchase and sale contract was a dispute “with respect to performance” within the meaning of the parties’ narrow arbitration clause.

The appeal was not the first, but the second, and the procedural history was tangled, both in terms of what transpired in the disputed arbitration and in the district court. The first appeal, Papalote I, resulted in a remand because at the time the district court compelled arbitration, the district court lacked subject matter jurisdiction. The issue on which the arbitration proponent sought arbitration was not ripe, even though it became ripe during the time Papalote I was pending. See Lower Colo. River Auth. v. Papalote Creek II, L.L.C., 858 F.3d 916 (5th Cir. 2017) (“Papalote I”).

By the time Papalote I was decided, the arbitration panel had ruled against Papalote, the arbitration opponent. But Papalote I obligated the district court to vacate the arbitration award and to reconsider the issue of whether arbitration should be compelled under the narrow arbitration clause.

On remand the district court adhered to its previous decision that the dispute fell within the scope of the narrow arbitration clause, which resulted in another order to compel arbitration and the second appeal, Papalote II.

On the second appeal the Fifth Circuit reversed the district court’s decision on arbitrability, ruling that the dispute was not about “performance,” but about “interpretation.” Going forward that means that the parties will either have to settle their dispute or litigate it in court, even though they’ve both no doubt already spent not only a good deal of time, but money, litigating about arbitration, and arbitrating a dispute they did not mutually consent to arbitrate. (Perhaps for Papalote that’s not necessarily a bad outcome, but it’s just speculation on our part.)

Bottom line: Irrespective of whether the parties considered the potential consequences associated with their narrow arbitration clause, at least one of them (and perhaps even both) may, at least to some extent, now feel like they’re up that proverbial creek without a paddle—or even a papalote….

This post takes a closer look at Papalote II, focusing exclusively on the issue whether the dispute fell within or without the scope of the parties’ narrow arbitration clause.

Narrow Arbitration Clauses: Papalote II Background

Narrow Arbitration Clauses

In Papalote II the Fifth Circuit held that a narrow arbitration clause that covered disputes about the “performance” of a contract did not cover a dispute concerning the meaning of an aggregate liability provision in a wind-energy contract. That dispute, said the Court, concerned the interpretation of the contract, not its performance, and therefore the arbitration opponent was not required to submit it to arbitration.

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The AAA Commercial Rules and the Pig in a Poke: Gilbert Street Developers, LLC v. La Quinta Homes, LLC

June 24th, 2009 Arbitrability, Authority of Arbitrators, California State Courts, Grounds for Vacatur 3 Comments »

Introduction

Under the Federal Arbitration Act and federal labor law, arbitrators can decide arbitrability questions subject only to deferential review, provided the parties “clearly and unmistakably” delegate that power to them.  California’s state arbitration law follows this familiar federal rule. 

On June 11, 2009 the California Court of Appeal, Fourth District, Division 3, held that the parties to an arbitration agreement did not “clearly and unmistakably” agree to arbitrate arbitrability by incorporating the Commercial Rules of the American Arbitration Association into their contract, because at the time the parties agreed to arbitrate, the rules were silent on whether arbitrators could decide arbitrability questions.  See Gilbert Street Developers, LLC v. La Quinta Homes, LLC, ___ Cal. Rptr.3d ___, slip op (Cal. App. 4th Dist. June 11, 2009) (certified for publication) (copy available here).  The Court so held even though the parties agreed that the arbitration would be “conducted in accordance with the Rules of the American Arbitration Association existing at the date [of the arbitration].  .  .  . ,” and by the date of the arbitration the rules had been amended to provide expressly that the arbitrators had the authority to determine their own jurisdiction.  See slip op. at 2-3.  The Court also held that the operation of a “buyout” clause in the parties’ agreement did not fall within the scope of the parties’ arbitration clause because it involved discretionary matters, which were expressly excluded from arbitration.  See slip op. at 15-16.  Continue Reading »