Matthew E. Draper | Draper & Draper
Arbitration agreement
Arbitrability
Are there any types of disputes that are not arbitrable?
There are very few restrictions on the types of disputes that can be arbitrated under federal law. Certain intrastate family, consumer and municipal matters may be considered non-arbitrable under state law.
Requirements
What formal and other requirements exist for an arbitration agreement?
The FAA and the New York Convention require arbitration agreements to be made in writing. However, courts interpret this requirement in a commercially practical manner and, in appropriate cases, have enforced arbitration agreements where, for example, the final contract was unsigned or where the agreement to arbitrate was entered into via email or in circumstances discussed in answer 12.
Generally, US law permits non-signatories to be bound to an arbitration agreement through application of traditional principals of state law such as assumption, corporate veil piercing, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel. This year, the US Supreme Court clarified that in arbitrations governed by the New York Convention, a non-signatory to the arbitration agreement can be compelled to arbitrate based on the doctrine of equitable estoppel (see GE Energy Power Conversion Fr. SAS, Corp. v Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 [1 June 2020]).
An agreement to arbitrate may be set out in a document other than the contract in dispute, such as where that document is incorporated by reference into the main agreement. Parties may also agree to arbitrate after a dispute has arisen.
Enforceability
In what circumstances is an arbitration agreement no longer enforceable?
FAA section 2 permits challenges to arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract’, such as mistake, lack of capacity, fraudulent inducement, incapacity, rescission and termination of the arbitration agreement. Nonetheless, US policy strongly favours the enforcement of arbitration agreements, and these challenges will be scrutinised closely.
Courts respect the principle of separability, which requires that the arbitration agreement be treated as a distinct agreement that is not rendered invalid, non-existent or ineffective simply because the contract itself may be treated as such.
Separability
Are there any provisions on the separability of arbitration agreements from the main agreement?
The Federal Arbitration Act does not expressly provide for the separability of arbitration agreements from the main agreement. However, the US Supreme Court recognised this doctrine in Prima Paint, providing that ‘an arbitration clause in the contract is “separable” from the rest of the contract, and that allegations that go to the validity of the contract in general, as opposed to the arbitration clause in particular, are to be decided by the arbitrator, not the court’ (Prima Paint Corp v Flood & Conklin Mfg Co, 388 US 395, 409 (1967)).
Third parties – bound by arbitration agreement
In which instances can third parties or non-signatories be bound by an arbitration agreement?
Generally, third parties or non-signatories are neither bound by an arbitration agreement nor can they compel a signatory to arbitrate. There are, however, exceptions to this rule. Third parties and non-signatories can be bound to arbitrate a dispute based on common law contract and agency principles, such as incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel, succession in interest or assumption by conduct. The law governing the contract (or putative contract) is potentially relevant in such cases, as is the law of the place of incorporation and the law of the arbitral seat.
Third parties – participation
Does your domestic arbitration law make any provisions with respect to third-party participation in arbitration, such as joinder or third-party notice?
Many institutional rules provide mechanisms for joinder or consolidation of arbitration proceedings; US courts have generally respected these mechanisms.
Class arbitration may also be permitted, but only where the parties have expressly manifested their consent to such a procedure. Silence or ambiguity in the arbitration agreement is not a sufficient basis to permit class arbitration (see Stolt-Nielsen v Animalfeeds Int’l Corp, 559 US 662 (2010) and Lamps Plus, Inc v Varela, 139 S Ct 1407 (2019)). Waiver of class arbitration is also permitted. Consumer contracts that require arbitration but prohibit class arbitration are valid even when the cost of pursuing such claims on an individual basis would be prohibitively expensive, or seem to conflict with US labour protections (Epic Systems v Lewis, 138 S Ct 1612 (2018)); and even when an online user agreement notifies consumers of it simply through a hyperlink (Meyer v Uber Tech Inc, 868 F 3d 66 (Second Circuit, 17 August 2017)).
Groups of companies
Do courts and arbitral tribunals in your jurisdiction extend an arbitration agreement to non-signatory parent or subsidiary companies of a signatory company, provided that the non-signatory was somehow involved in the conclusion, performance or termination of the contract in dispute, under the ‘group of companies’ doctrine?
Although state and federal law do not recognise the group of companies doctrine, a non-signatory parent, subsidiary or affiliate of a signatory company may be bound to an arbitration agreement pursuant to the applicable law’s principles of agency, contract, estoppel or veil-piercing (Arthur Andersen LLP v Carlisle, 556 US 624 (2009)). Specific terms of the arbitration clause can be important in determining such matters.
Multiparty arbitration agreements
What are the requirements for a valid multiparty arbitration agreement?
A multiparty arbitration agreement must meet the same validity requirements as any arbitration agreement – it must be in writing and manifest the parties’ intent to be bound. Courts will generally enforce valid multiparty arbitration agreements.Consolidation
Can an arbitral tribunal in your jurisdiction consolidate separate arbitral proceedings? In which circumstances?
The FAA is silent on the consolidation of separate arbitral proceedings, as are the AAA Commercial Arbitration Rules and the JAMS Comprehensive Arbitration Rules and Procedures. However, the ICDR International Arbitration Rules provide for an appointment of a consolidation arbitrator under article 8, who may consolidate separate arbitral proceedings in the circumstances listed below. Rule 3.13 of the CPR Administered Arbitration Rules 2019 also provides for consolidation in certain circumstances. Further, certain state arbitration statutes, such as the California Arbitration Act (section 1281.3) (Cal Code Civ P paragraphs 1280-1294.4) also provide for consolidation.
Relevant considerations for consolidation are:
- the parties’ express agreement to consolidation;
- the appointment of one or more arbitrators in one or more of the arbitrations;
- the existence of common issues of law or fact creating the possibility of conflicting decisions;
- claims and counterclaims in the arbitrations arising out of the same arbitration agreement;
- undue delay and prejudice from failing to consolidate outweighs the prejudice caused to parties opposing it; and
- interests of justice and efficiency.
The US courts have provided arbitral tribunals with a substantial amount of discretion with respect to consolidation and have placed emphasis on the language of the arbitration agreement. A federal court in Ohio recently distinguished a bilateral arbitration from a class arbitration where the consent of every party is required for consolidation and held that courts do not require every party’s consent for consolidation (Parker v Dimension Serv Corp, 2018-Ohio-5248).
Law stated date
Correct on:
Give the date on which the information above is accurate.
1 January 2021