13.11 Arbitration Agreements

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

13.11 ARBITRATION AGREEMENTS

One of the most striking developments in contract law over the past several years is the extent to which both the federal and state court decisions have expanded the role of arbitrators and the deference shown to their decisions. The Fourth Circuit has reminded practitioners that "judicial review of arbitration awards is among the narrowest known to the law." ⁴²⁸ In reviewing an arbitration award, a court must "determine only whether the arbitrator did his job—not whether he did it well, correctly, or reasonably, but simply whether he did it." ⁴²⁹ The Virginia Supreme Court echoed this deferential language in a case decided under the Federal Arbitration Act, noting that

Under the Act, arbitrators do not exceed their powers if they misinterpret a contract or make errors of law. Even serious errors of interpretation are not sufficient to overturn an arbitration award. Instead, for arbitrators to exceed their powers within the meaning of section 10(a)(4) of the Act, the arbitrators must egregiously depart from the authority conferred by the parties in their arbitration contract. ⁴³⁰

Virginia adopted the Uniform Arbitration Act in 1986. ⁴³¹ Where parties include an agreement to arbitrate disputes as part of their written contract, section 8.01-581.01 of the Virginia Code creates a presumption that these agreements are valid. The Virginia Supreme Court has held that the adoption of the Uniform Arbitration Act evidences a public policy favoring the arbitration of disputes and has upheld the validity and enforceability of contract provisions giving a party the right to demand the arbitration of contractual disputes. ⁴³²

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The Supreme Court of Virginia has held that in determining whether the parties have agreed to submit a dispute to arbitration, courts are to apply general rules of contract law and "there is no presumption in favor of arbitrability. Rather, the party seeking arbitration has the burden of proving the existence of the agreement." ⁴³³ Once the existence of an agreement has been proved, however, a presumption in favor of arbitrability arises, and "the remaining question is whether the scope of the agreement is broad enough to include the disputed issue." ⁴³⁴

Federal courts applying the Federal Arbitration Act ⁴³⁵ have also enforced contractual provisions requiring the arbitration of disputes where there is a valid agreement to arbitrate. "In determining whether the parties executed a valid agreement to arbitrate, courts generally apply ordinary state-law principles that govern the formation of contracts." ⁴³⁶ It should be noted, however, that in In re Cotton Yarn Antitrust Litigation, ⁴³⁷ the Fourth Circuit held that the evidence established arbitration was a "usage of trade in the textile industry" and thus an agreement to arbitrate was held to have been incorporated into the parties' oral contracts under the North Carolina Uniform Commercial Code even though arbitration was never mentioned in the parties' conversations. ⁴³⁸

The Federal Arbitration Act expressly provides that an agreement to arbitrate may be held unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." ⁴³⁹ But "where a party seeks to avoid arbitration, or the stay of a federal court proceeding pending the out-come

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of arbitration, the grounds upon which the party relies 'must relate specifically to the arbitration clause and not just to the contract as a whole.'" ⁴⁴⁰

Because arbitration is a matter of contract, "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." ⁴⁴¹ The terms of the contract determine whether the particular dispute is arbitrable. ⁴⁴² Indeed, "the question of who decides arbitrability is itself a question of contract" as the parties can validly delegate the arbitrability question to the arbitrator. ⁴⁴³ In deciding whether a dispute is arbitrable, "a court should uphold a claim that a dispute is subject to arbitration 'unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation...