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Two months ago, in my ADR article in The Legal, I stated that I would follow up with a discussion of the circumstances under which arbitrability might be determined. This question, of course, involves who should assume the responsibility for deciding whether a dispute between parties is subject to the jurisdiction of a court or an arbitrator; and, moreover, if arbitration is to be employed, who should decide how that arbitration should be conducted.

Sure enough, within a matter of days, the Legal reported a case, in which the 3rd U.S. Circuit Court of Appeals was confronted with whether an arbitrator or a court should decide if coverage disputes under essentially identical insurance contracts should be arbitrated separately on a contract-by-contract basis, or collectively in a consolidated arbitration. The court held that based upon decisions of the U.S. Supreme Court, the issue of consolidation should be decided by the arbitrator.

The arbitrability issue requires inquiry into who will decide the following:

Did the parties agree to arbitrate disputes arising between them?

If they did so agree, is the specific claim made within the scope of the agreement to arbitrate?

If the claim is within the scope of the agreement to arbitrate, is the issue one of “substantive arbitrability,” in which case it should be decided by the courts, or of “procedural arbitrability” in which case it should be decided by the arbitrator.

More than 20 years ago the Supreme Court spoke to the issue of who decides whether the parties agreed to submit the merits of a particular dispute to arbitration. The court determined “that a court must defer to an arbitrator’s arbitrability decision when the parties submitted that matter to arbitration.”

The court cautioned, however, that there should be no assumption that the parties agreed to submit the question of arbitrability to the arbitrator unless there is “clear and unmistakable evidence” that they did so. Moreover, the court emphasized that silence on this matter should not be interpreted as giving the arbitrators that power, as parties might end up being forced to arbitrate a matter they reasonably expected would be decided by a judge and not an arbitrator.

This decision, however, did not end all confusion. In numerous subsequent situations, courts were confronted with whether arbitrability of a particular issue should be for the arbitrator or the courts and often reached different conclusions. As a result, in recent years, the U.S. Supreme Court, in seeking to provide clearer guidelines, has been required to consider this matter on two separate occasions.

Thus, in 2002, in Howsam v. Dean Witter Reynolds Inc., the statute of limitations of the National Association of Securities Dealers stated that “no dispute claim or controversy shall be eligible for submission to arbitration under this code where six years had elapsed from the occurrence or event giving rise to the dispute, claim or controversy.” This limitations provision presented a “gateway” dispute which raised the question of whether arbitrability was for the courts to decide in the absence of a clear and unmistakable agreement to the contrary; or, was the “question of arbitrability” not applicable in such circumstances as the “parties would likely expect that an arbitrator would decide the gateway matter.”

The Supreme Court decided that what was involved was not a “question of arbitrability,” but a procedural issue to be resolved by the arbitrators, although it recognized that, “linguistically speaking, one might call any potentially dispositive gateway question a ‘question of arbitrability’ for its answer will determine whether the underlying controversy will proceed to arbitration on the merits.”

The court then proceeded to speak (in what is not particularly helpful language) about the “question of arbitrability” as being reflected in the expectations of the parties, i.e., “where the parties would 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 not have agreed to arbitrate.”

The Supreme Court, relying on the Revised Uniform Arbitration Act and comments thereto, did, however, provide examples to aid in categorizing questions of arbitrability. Thus, a court should decide issues of substantive arbitrability such as whether the arbitration contract binds parties who did not sign it, whether it survives a corporate merger or whether it applies to a particular type of controversy. On the other hand, an arbitrator should determine issues of procedural arbitrability such as whether prerequisites including grievance procedures had been completed prior to arbitration, or whether a party had waived its right to arbitrate by failing to comply with time limits, notice, laches, estoppel and other conditions precedent.

A similar issue was faced by the Supreme Court in Green Tree Financial Corp v. Bazzle, where the issue was whether the arbitrator or the courts should decide if class action certification was permissible where the agreement to arbitrate was silent on the matter. The Supreme Court again determined that it would be for the arbitrator to interpret the intentions of the parties as to whether a class action should be allowed as this did not fall within the “certain limited circumstances in which the courts may assume that the parties intended the courts and not arbitrators to decide a particular arbitration-related matter.”

Interestingly, however, this position reflected only a plurality view, as the fifth joining justice did so on the basis of his determination that because the decision of the state court was correct on this issue, it was unnecessary to consider whether the arbitrator should have made this decision initially.

It was on this basis that the 3rd Circuit, in the Underwriters case, determined that the gateway issue was not whether the parties wanted a judge or an arbitrator to decide the case, but, rather, upon what kind of arbitration proceeding the parties had agreed. Thus, it was for the arbitrator to determine as a procedural matter from the language or silence in the arbitration agreement whether the parties should engage in multiple arbitrations or one consolidated arbitration.

Commentators have noted, of course, that the determination of who decides arbitrability itself contains the potential for conflict of interest. After all, courts passing upon the arbitrability of disputes are often working under the intense pressure of caseloads and backlogs. A court that is able to pass any or all aspects of a case to an arbitrator may be relieving itself of some of this pressure. Conversely, an arbitrator who decides on arbitrability, including, for example, whether only one claim or numerous consolidated claims should be arbitrated, may benefit financially from a ruling which will allow her to arbitrate them together or separately.

What should be apparent, however, particularly in light of the plurality decision in Green Tree, supra, is that uncertainty does remain in the identification of and distinction between “substantive” and “procedural” arbitrability issues.

Accordingly, it would be advisable for parties to consider, whenever entering into an arbitration agreement of any complexity with respect to the future arbitration of as yet undetermined disputes, the inclusion of language specific to the arbitrator’s jurisdiction.

Certain ADR providers do, in fact, include within their rules broad powers in this regard. For example, the CPR Rules provide that “the tribunal shall have the power to determine challenges to its jurisdiction. It shall have the power to determine the existence, validity or scope of the contract . . . and/or the arbitration clause itself.”

In short, in drafting any arbitration agreement, thought should be given to the specific issues that the parties may want to have decided by the arbitrator, including the extent of the arbitrator’s jurisdiction. Otherwise, they may find themselves unexpectedly disputing jurisdiction in an unanticipated forum, by a judge or arbitrator, or, as stated by the Supreme Court, being forced to arbitrate a matter that they may well not have agreed to arbitrate.

With specific language included in the arbitration agreement, however, the parties should be able to clarify their intent and avoid uncertainty, delay and expense when disputes do arise.

ABRAHAM J. GAFNI is a mediator/arbitrator with ADR Options, and a professor at Villanova University School of Law.

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