{"id":894645,"date":"2018-08-01T15:17:06","date_gmt":"2018-08-01T21:17:06","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894645"},"modified":"2018-08-01T15:17:06","modified_gmt":"2018-08-01T21:17:06","slug":"contract-includes-arbitration-clause-decides-arbitrability-dispute","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/contract-includes-arbitration-clause-decides-arbitrability-dispute\/","title":{"rendered":"When Your Contract Includes an Arbitration Clause: Who Decides the Arbitrability of the Dispute?"},"content":{"rendered":"<p>Robert K. Cox | <a href=\"http:\/\/www.williamsmullen.com\/news\/when-your-contract-includes-arbitration-clause-who-decides-arbitrability-dispute\" target=\"_blank\" rel=\"noopener\">Williams Mullen<\/a> | July 27, 2018<\/p>\n<p>It is a common situation in the world of construction project disputes \u2013 the parties\u2019 contract includes an arbitration clause. One party files a lawsuit in a court over a dispute, and the other party files a motion to stay or dismiss the lawsuit and compel arbitration, citing the contract\u2019s arbitration clause. Who decides the arbitrability of the dispute \u2013 the court in which the lawsuit was filed, or an arbitrator?<\/p>\n<p>You would think the answer to this \u201cgateway\u201d question to be easy; instead, the answer only comes after a multi-step inquiry.<\/p>\n<p><strong><u>The Inquiry<\/u><\/strong><\/p>\n<p>A court resolving an arbitrability dispute must engage in a two-step inquiry.\u00a0<u>Peabody Holding Co., LLC v. United Mine Workers of Am.,<\/u>\u00a0665 F.3d 96, 101 (4th Cir. 2012). First, the court must determine\u00a0<u>who<\/u>decides whether a particular dispute is arbitrable \u2013 an arbitrator or the court. Second, if the court determines that it is the proper forum to adjudicate the arbitrability of the dispute, then the court must decide\u00a0<u>whether<\/u>\u00a0the dispute is in fact arbitrable.<\/p>\n<p>As the starting point is the principle that arbitrability is an issue for judicial determination unless the agreement \u201c\u2018clearly and unmistakably\u2019 provide[s] that the arbitrator shall determine what disputes the parties agreed to arbitrate.\u201d\u00a0<u>Id.<\/u>\u00a0at 102. Although this is an exacting standard, \u201c[v]itrually every circuit to have considered the issue has determined that incorporation of the American Arbitration Association\u2019s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.\u201d\u00a0<u>Oracle Am., Inc. v. Myriad Grp. A.G.<\/u>, 724F.3d 1069, 1074 (9th Cir. 2013).<\/p>\n<p>In December, 2017, the U.S. Court of Appeals for the Fourth Circuit adopted the reasoning of the majority of its sister circuits with respect to another category of arbitration rules, holding that \u201cthe explicit incorporation of JAMS [Comprehensive Rules &amp; Procedures] serves as \u2018clear and unmistakable\u2019 evidence of the parties\u2019 intent to arbitrate arbitrability.\u201d\u00a0<u>Simply Wireless, Inc. v. T-Mobile US, Inc.<\/u>, 877 F.3d 522, 528 (4th Cir. 2017).<\/p>\n<p>This, however, is not the end of the inquiry. If a dispute between the parties does not relate to the contract containing the arbitration clause, is the inclusion of an organization\u2019s rules of arbitration (e.g. AAA) in an arbitration clause nonetheless a binding agreement to have an arbitrator decide the arbitrability of each and every dispute no matter how separate and distinct from that contract containing the arbitration clause? The answer is no.<\/p>\n<p>The U.S. Courts of Appeals for the Fourth, Fifth, Sixth and Federal Circuits have adopted the \u201cwholly groundless\u201d test as part of their inquiry on the arbitrability of a dispute. In\u00a0<u>Simply Wireless<\/u>, the Fourth Circuit reasoned that the Court should not leave the issue of arbitrability to an arbitrator if \u201ca party\u2019s assertion that a claim falls within an arbitration clause is frivolous or otherwise illegitimate.\u201d\u00a0<u>Simply Wireless<\/u>, 877 F.3d at 529. In fact, where parties have agreed to arbitrate only some issues, an arbitrator does not have authority to decide the arbitrability of a party\u2019s claim that clearly falls outside the scope of the arbitration clause.\u00a0<u>See Douglas v. Regions Bank<\/u>, 757 F.3d 460, 464 (5th Cir. 2014) (\u201c[E]ven\u00a0<u>if<\/u>\u00a0there is a delegation provision (step one), the court must ask whether the averment that the claim falls within the scope of the arbitration agreement is wholly groundless (step two).\u201d);\u00a0<u>Turi v. Main Street Adoption Servs., LLP,<\/u>\u00a0633 F.3d 496, 511 (6th Cir. 2011 (\u201c[E]ven where the parties expressly delegate to the arbitrator the authority to decide the arbitrability of the claims related to the parties\u2019 arbitration agreement, this delegation applies only to claims that are at least\u00a0<u>arguably<\/u>\u00a0covered by the agreement.\u201d) (\u201cIf . . . the court concludes that the parties to the agreement did clearly and unmistakably intend to delegate the power to decide arbitrability to an arbitrator, then the court should perform a second, more limited inquiry to determine whether the assertion of arbitrability is wholly groundless.\u201d) Accordingly, a court may not delegate the question of arbitrability to an arbitrator if it is clear that the claim of arbitrability is wholly groundless.\u00a0<u>Local No. 358, Bakery &amp; Confectionery Workers Union v. Nolde Bros., Inc.<\/u>, 530 F2d 548, 553 (4th Cir. 1975,\u00a0<u>aff\u2019d<\/u>, 430 U.S. 243 (1977);\u00a0<em>see<\/em>,\u00a0<u>Evans v. Building Materials Corporation of America<\/u>, 858 F.3d 1377 (Fed. Cir. 2017).<\/p>\n<p><strong><u>The Take Away<\/u><\/strong><\/p>\n<p>Parties wishing to ensure resolution of \u201cgateway\u201d questions of arbitrability by a specific decision-maker \u2013whether the court or arbitrator \u2013should spell out their preference as clearly as possible in the arbitration clause.<\/p>\n<p>If the parties want an arbitrator to decide the arbitrability of a dispute: 1) write that into the arbitration clause (best choice), or 2) include in the arbitration clause that an arbitration organization\u2019s rules authorizing the arbitrator to decide the arbitrability of disputes are the governing rules of arbitration (second best choice). The courts will still likely apply the \u201cwholly groundless\u201d test, but assuming the dispute arises from the construction contract, that should not cause the court, rather than the arbitrator, to decide the arbitrability of the dispute.<\/p>\n<p>If, however, the parties want the court to decide all \u201cgateway\u201d questions of arbitrability, then the parties should include an \u201canti-delegation\u201d provision that clearly states a court must decide all questions regarding the scope and applicability of an arbitration clause to a dispute.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Robert K. Cox | Williams Mullen | July 27, 2018 It is a common situation in the world of construction project disputes \u2013 the parties\u2019 contract includes an arbitration clause. One party files a lawsuit in a court over a dispute, and the other party files a motion to stay or dismiss the lawsuit and&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/contract-includes-arbitration-clause-decides-arbitrability-dispute\/\">Continue reading <span class=\"screen-reader-text\">When Your Contract Includes an Arbitration Clause: Who Decides the Arbitrability of the Dispute?<\/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":[41,9],"tags":[9895,42,224],"class_list":["post-894645","post","type-post","status-publish","format-standard","hentry","category-arbitration","category-construction-contracts","tag-advise-consult","tag-arbitration-2","tag-construction-contract","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>When Your Contract Includes an Arbitration Clause: Who Decides the Arbitrability of the Dispute? 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