{"id":894605,"date":"2018-07-25T12:05:35","date_gmt":"2018-07-25T18:05:35","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894605"},"modified":"2018-07-25T12:05:35","modified_gmt":"2018-07-25T18:05:35","slug":"potential-pitfalls-contesting-arbitrability-arbitration","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/potential-pitfalls-contesting-arbitrability-arbitration\/","title":{"rendered":"The Potential Pitfalls of Contesting Arbitrability in the Arbitration"},"content":{"rendered":"<p>Todd Rosenbaum | <a href=\"https:\/\/www.lexology.com\/library\/detail.aspx?g=a3136278-bbb8-45bd-8225-dd0ad2645e11\" target=\"_blank\" rel=\"noopener\">Mintz Levin Cohn Ferris Glovsky and Popeo PC<\/a> | July 16, 2018<\/p>\n<p>When an agreement to arbitrate contains a clear and unmistakable \u201cdelegation\u201d provision, gateway questions of arbitrability are for the arbitrator to decide.\u00a0<em>See, e.g.<\/em>,\u00a0<em>Kubala v. Supreme Prod. Servs.<\/em>, 830 F.3d 199, 201-02 (5th Cir. 2016), citing\u00a0<em>First Options of Chi., Inc. v. Kaplan<\/em>, 514 U.S. 938, 942 (1995);\u00a0<em>Rent-A-Ctr., W., Inc. v. Jackson<\/em>, 561 U.S. 63 (2010). But a determination of the delegation issue is not always obvious, and it is sometimes presented to an arbitrator, rather than to a court, in the first instance. In that case, a party challenging arbitrability may feel some trepidation about submitting its challenge to the very arbitrator who could ultimately be deciding the merits of the case. And another, possibly surprising, concern should be the risk that making such a challenge too vigorously in the arbitration proceeding will foreclose a fulsome judicial review of the arbitrator\u2019s ruling on the scope of his or her own authority.<\/p>\n<p>Ordinarily, arbitration awards are subject to very limited and deferential review. E.g.,\u00a0<em>Sanders v. Gardner<\/em>, 7 F. Supp. 2d 151 (S.D.N.Y. 1998), citing\u00a0<em>Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp.<\/em>, 103 F.3d 9, 12 (2d Cir. 1997). Generally, an arbitrator\u2019s determination can only be vacated on the basis of one of four grounds enumerated in the Federal Arbitration Act (\u201cFAA\u201d): fraud, impartiality, misconduct, and evidence that the arbitrator exceeded its authority. 9 U.S.C. \u00a7 10(a);<em>\u00a0Hall St. Assocs., L.L.C. v. Mattel, Inc.<\/em>, 552 U.S. 576, 582 n.4 (2008). And a court\u2019s review of an arbitral award is deferential. Thus, an award will not be vacated \u201ceven if the arbitrator\u2019s interpretation of the contract is clearly erroneous, so long as such Award is explained in terms that offer even a barely colorable justification for the outcome reached.\u201d\u00a0<em>Hygrade Operators, Inc. v. ILA Local 333<\/em>, 945 F.2d 18, 22 (2d Cir. 1991);\u00a0<em>accord Fertilizer Corp. of India v. IDI Management, Inc.<\/em>, 517 F. Supp. 948, 960 (S.D. Ohio 1981);\u00a0<em>Mobile Oil Corp. v. Oil, Chemical &amp; Atomic Workers Int\u2019l Union &amp; Local Union No. 4-522<\/em>, 777 F. Supp. 1342, 1348-49 (E.D. La. 1991);\u00a0<em>Portland GE v. United States Bank Trust N.A.<\/em>, 38 F. Supp. 2d 1202, 1208 (D. Ore. 1999).<\/p>\n<p>The same rules apply generally when a court is reviewing an award that includes an arbitrator\u2019s determination of his\/her own authority to decide a dispute (i.e., arbitrability)\u00a0<u>and<\/u>\u00a0that issue was clearly and unmistakably delegated by the parties to the arbitrator for decision.\u00a0<em>See<\/em>,\u00a0<em>First Options<\/em>, 914 U.S. at 944-45. On the other hand, courts should review\u00a0<em>de novo<\/em>\u00a0an arbitrator\u2019s decision regarding his\/her own jurisdiction if it does not appear that the party seeking to vacate such an arbitration award \u201cclearly agree[d] to submit the question of arbitrability to arbitration.\u201d\u00a0<em>See id.<\/em>\u00a0at 946, 947.<\/p>\n<p>In that regard, the objecting party must take care to preserve a court\u2019s ability to consider the arbitrability question\u00a0<em>de novo<\/em>\u00a0after an arbitration award has been issued. The U.S. Supreme Court has opined that \u201carguing the arbitrability issue to an arbitrator does not indicate a clear willingness to arbitrate that issue.\u201d\u00a0<em>First Options,\u00a0<\/em>514 U.S. at 946. Hence, and based on the usual rule that challenges to jurisdiction are waived if not timely raised, a reasonable practitioner might assume that he or she should vigorously contest the arbitrator\u2019s authority to decide the arbitrability question at the outset of arbitration.\u00a0<em>See Opals on Ice Lingerie, Designs by Bernadette, Inc. v. Bodylines Inc.<\/em>, 320 F.3d 362, 368 (2d Cir. 2003) (\u201c[I]f a party participates in arbitration proceedings without making a timely objection to the submission of the dispute to arbitration [on grounds that it is not arbitrable], that party may be found to have waived its right to object to the arbitration.\u201d);\u00a0<em>Jones Dairy Farm v. Local No. P-1236, United Food and Commercial Workers Int\u2019l Union, AFL-CIO<\/em>, 760 F.2d 173, 175-76 (7th Cir. 1985) (\u201cIf a party voluntarily and unreservedly submits an issue to arbitration [without questioning the arbitrator\u2019s jurisdiction], he cannot later argue that the arbitrator had no authority to resolve it.\u201d).<\/p>\n<p>However, since\u00a0<em>First Options<\/em>\u00a0was decided, federal courts in various jurisdictions have opined that it is possible for a party to go\u00a0<em>too far<\/em>\u00a0in contesting an arbitrator\u2019s jurisdiction, and thus to waive its right to a court\u2019s\u00a0<em>de novo\u00a0<\/em>review of the issue. For example, in\u00a0<em>Writers Guild of America, West, Inc. v. Sweetpea Entertainment Corp.<\/em>, 225 Fed. Appx. 114 (9th Cir. 2007), the Ninth Circuit determined that by \u201cfiling a motion on the arbitrability issue, arguing the issue in a hearing before the arbitrator, and then allowing the arbitrator to rule on the issue,\u201d the appellants \u2014 who later sought\u00a0<em>vacatur<\/em>\u00a0of the eventual arbitral award \u2014 had \u201cgone too far down the slippery slope in submitting its dispute to arbitration.\u201d 225 Fed. Appx. at 115 (internal citation omitted). The Ninth Circuit held that although the appellants had then declined to argue the merits of their case at arbitration, they had \u201cwaived their right to seek a\u00a0<em>de novo<\/em>\u00a0judicial determination of the [arbitrability] issue\u201d by \u201csubmit[ing] the question of arbitrability to the arbitrator.\u201d\u00a0<em>Id.; cf. Pioneer Roofing Org. v. Sheet Metal Workers\u2019 Local 104,\u00a0<\/em>Case No. 17-15296 (9th Cir. June 4, 2018) (unpublished).<\/p>\n<p>As one court in the Southern District of New York observed, there is a considerable difference between not objecting to the arbitrator\u2019s authority strenuously enough, and objecting too ardently:<\/p>\n<p>\u201cA simple statement of reservation of rights is not enough, however, but rather a \u2018forceful objection\u2019 is necessary to indicate an unwillingness to submit to arbitration. Further, it appears under these cases that where a party has not actually participated in the argument regarding arbitrability and has explicitly objected to jurisdiction, they will be deemed to have reserved the right to object at a later court proceeding.\u201d<\/p>\n<p><em>S &amp; G Flooring Inc. v. N.Y. Dist. Council of Carpenters Pension Fund<\/em>, 2009 U.S. Dist. LEXIS 1188, *17-18 (S.D.N.Y. Dec. 18, 2009) (internal citations omitted). In\u00a0<em>S &amp; G Flooring<\/em>, the court found that the petitioner struck the right balance. At the outset of arbitration, the petitioner moved for a stay on grounds that it was not bound by the arbitration agreement. The arbitrator denied the stay and held proceedings on the arbitrability issue, in which the petitioner refused to participate. The petitioner then sought to vacate the arbitration default award, challenging the arbitrator\u2019s jurisdiction over the underlying proceeding. The\u00a0<em>S &amp; G\u00a0<\/em>court reviewed the arbitrability issue\u00a0<em>de novo<\/em>.\u00a0<em>Id.<\/em>\u00a0at *19-20.\u00a0<em>See<\/em>,<em>\u00a0Opals on Ice<\/em>, 2002 U.S. Dist. LEXIS 10738 (numerous letters indicating objection, refusing to brief the issue for the arbitrator, and moving for a stay before the court were sufficient for preservation of objection to arbitrability).<\/p>\n<p>Indeed, after\u00a0<em>First Options<\/em>, there seems to be an emerging judicial consensus regarding how a party should preserve its challenge to an arbitrator\u2019s jurisdiction so as to be entitled to\u00a0<em>de novo<\/em>\u00a0review in court:<\/p>\n<ol>\n<li>The objection to arbitrability should be made early in the proceeding, either on the record or in correspondence with the arbitrator;<\/li>\n<li>The party\u2019s basis for the objection should be articulated clearly as the arbitrator\u2019s lack of authority to arbitrate the dispute at hand; and<\/li>\n<li>If the arbitrator declines to stay proceedings, the party contending that it is not bound to arbitrate the dispute should not submit legal briefs or otherwise participate in a hearing or argument in the arbitration on the issue of arbitrability (or on the merits).<\/li>\n<\/ol>\n<p><em>See S &amp; G Flooring<\/em>, 2009 U.S. Dist. LEXIS 118832 at *16-20 (objection to arbitrability preserved);\u00a0<em>Opals on Ice<\/em>, 2002 U.S. Dist. LEXIS 10738 at *16-19 (same);\u00a0<em>Writers Guild<\/em>, 255 Fed. Appx. at 115 (<em>de novo<\/em>\u00a0review of award re arbitrability waived by briefing and arguing issue before arbitrator);\u00a0<em>Crossville, LLC<\/em>, 485 Fed. Appx. at 823-25 (objection to arbitrability preserved).<\/p>\n<p>Finally, notwithstanding the recent seeming consensus concerning such perplexing doctrine, practitioners should always check precedent in the relevant jurisdictions to ensure that they take the steps necessary to preserve their clients\u2019 objection(s) to an arbitrator\u2019s authority.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Todd Rosenbaum | Mintz Levin Cohn Ferris Glovsky and Popeo PC | July 16, 2018 When an agreement to arbitrate contains a clear and unmistakable \u201cdelegation\u201d provision, gateway questions of arbitrability are for the arbitrator to decide.\u00a0See, e.g.,\u00a0Kubala v. Supreme Prod. Servs., 830 F.3d 199, 201-02 (5th Cir. 2016), citing\u00a0First Options of Chi., Inc. v.&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/potential-pitfalls-contesting-arbitrability-arbitration\/\">Continue reading <span class=\"screen-reader-text\">The Potential Pitfalls of Contesting Arbitrability in the Arbitration<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[41],"tags":[9895,42],"class_list":["post-894605","post","type-post","status-publish","format-standard","hentry","category-arbitration","tag-advise-consult","tag-arbitration-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Potential Pitfalls of Contesting Arbitrability in the Arbitration - Advise &amp; 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