Chapter 8 - § 8.6 • WHO DETERMINES EACH SPECIFIC ARBITRABILITY ISSUE UNDER THE FAA?

• Jurisdiction: Colorado

§ 8.6 • WHO DETERMINES EACH SPECIFIC ARBITRABILITY ISSUE UNDER THE FAA?

Given that the attempt of the courts to address the question of who decides issues that may prevent arbitration is generally confusing, this section turns to the subject of who decides the specific issues of arbitrability. The U.S. Supreme Court has provided general rules under the FAA as to the decision-maker of arbitrability issues, absent agreement of the parties: The question of whether the parties have agreed to arbitrate a particular dispute is for the court.

[T]he question of "arbitrability" is limited to the gateway substantive issue of whether the parties are bound by a given arbitration clause. "Procedural" questions which grow out of the dispute and bear on its final disposition, such as allegations of waiver, delay, [time limits, notice, laches, estoppel,] or other "conditions precedent" are for the arbitrator to determine.⁹⁰

"'Question[s] of arbitrability' is a term of art covering 'dispute[s] about whether the parties are bound by a given arbitration clause' [i.e., formation] as well as 'disagreements] about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy' [i.e., scope]."⁹¹

The Tenth Circuit, in EEC, Inc. v. Baker Hughes Oilfield Operations, Inc.,⁹² has clearly followed Howsam v. Dean Witter Reynolds, Inc.,⁹³ quoting: "[T]he question of arbitrability[] is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise."

In the absence of clear and mistakable evidence, questions of arbitrability are presumptively resolved by the court, whether they are related to scope or formation.⁹⁴ This also applies to defenses to enforcement of the agreement.

§ 8.6.1—Whether The Parties Have Agreed In Writing To Arbitrate?

The FAA provides that in order to stay litigation or to order arbitration, the court must find the issue is referable to arbitration under an agreement in writing for arbitration.

The answer to this question involves several issues:

• The court decides whether the signatory was authorized — was it ultra vires.⁹⁵
• Is there an agreement to arbitrate? Absent clear and unmistakable evidence of the parties' intent to the contrary, whether the parties entered into an agreement to arbitrate is an issue for the court, unless the parties specifically agree otherwise.⁹⁶

"[A] federal court may consider only issues relating to the making and performance of the agreement to arbitrate. . . . [A] challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator."⁹⁷

Thus, the "infancy doctrine" (whether a signatory's age negates the existence of a contract) is for the court, not the arbitrator.⁹⁸ The U.S. District Court for the District of Maine attempted to define the boundaries between the jurisdiction of the court and the arbitrator, absent agreement of the parties:

• There are two types of threshold challenges to the agreement to arbitrate.⁹⁹

1) Challenges to the validity of the contract are generally for the arbitrator.
2) Challenges to the arbitration clause are generally for the court.

They are referred to by some as questions of arbitrability. Arbitrability challenges do not include challenges to the validity of a contract generally. But the court does determine issues of "whether any agreement between the alleged obligor and obligee was ever concluded."¹⁰⁰

The court decides whether the signor had mental capacity to assent.¹⁰¹

• "[A] party seeking to substitute an arbitral forum for a judicial forum must show, at a bare minimum, that the protagonists have agreed to arbitrate some claims."¹⁰²
• "[C]hallenges going to the very existence of a contract that a party claims never to have agreed to" are for the court to decide.¹⁰³
• A challenge to whether a contract was ever validly concluded is for the courts.

Perhaps a starting point is which party has the burden of proof. Normally, the proponent of the existence of a contract — the party seeking to compel arbitration — has the burden of proving the existence of the contract.¹⁰⁴ The party denying the obligations of the asserted contract may dispute the existence of the contract, but also assert affirmative defenses to the enforcement of the contract.¹⁰⁵ These defenses, absent agreement of the parties otherwise, normally seem to be for the arbitrator's decision.

Who determines the proper parties to the arbitration? Determination of the parties to an arbitration agreement generally falls to the courts and not the arbitrators, unless there is a clear and unmistakable intent of the parties to submit such determinations to the arbitrators. Thus, this is a determination of whether a party has agreed to arbitrate the dispute, i.e., whether the party is a party to an arbitration agreement.¹⁰⁶

Is the arbitration agreement binding on nonsignatories? Courts sometimes hold that a nonsignatory to an arbitration agreement can be compelled to arbitrate or be otherwise bound by the arbitration results. Absent a clear and unmistakable intent of the parties to submit the issue to arbitration, it becomes an issue for the court to decide.¹⁰⁷

Note that while the arbitration statutes require that the agreement be in writing or a record, the signing thereof is not required.¹⁰⁸

§ 8.6.2—Whether The Agreed-Upon Dispute Resolution Procedure Is "Arbitration" Within The Scope Of The FAA?

Applicability of the FAA to the dispute generally is an issue for the court. However, many terms of a statute can become terms of a contract.

In LS Development Enterprises, Inc. v. Forest City Commercial Group, Inc.,¹⁰⁹ Judge Matsch stated: "The plaintiff's arguments about the scope of the arbitration agreement and its contentions that this matter is not arbitrable because of procedural defects or delay on the part of defendant are matters to be determined in the context of the arbitration proceeding."¹¹⁰

In sum, whether a dispute resolution procedure constitutes arbitration, and therefore is subject to state and/or federal arbitration law may be of critical importance. However, if it is not "arbitration" for purposes of the FAA, and therefore there is no preemption, it could be arbitration under the Colorado statutes.

See also §§ 2.3, 3.4.1, 3.7-3.8, 4.3.5, and 7.2.4.

§ 8.6.3—Whether The Dispute Is Within The Scope Of The Agreement?

Determination of whether a particular dispute is within the scope of the concededly binding arbitration agreement is an issue usually determined by the court.¹¹¹ In Cabs, Inc. v. Delivery Drivers, Warehousemen & Helpers Local Union No. 435,¹¹² the Colorado Court of Appeals suggested that if there is a reasonable basis for finding that the dispute is within the scope of the arbitration agreement, then the scope should be determined by the arbitrator, unless the arbitration agreement otherwise provides.

However, the subsequently passed Colorado Revised Uniform Arbitration Act, C.R.S. § 13-22-206(2), provides: "The court shall decide whether . . . a controversy is subject to an agreement to arbitrate." Under § 204, § 206(2) by negative implication may be waived by the parties at any time: the parties may otherwise agree.

The U.S. Supreme Court has frequently held that, absent clear and unmistakable intent of the parties to the contrary, a court should determine whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.¹¹³ See § 8.5.1.

The Tenth Circuit, applying the FAA, stated that once a "court independently determines the parties agreed to arbitrate an issue, it should give 'extreme deference' to an arbitrator's decision regarding the scope of the issue . . . '[being] the same level of deference as his determination on the merits.'"¹¹⁴

§ 8.6.4—Whether An Affirmative Defense Bars Enforcement Of The Agreement To Arbitrate?

The U.S. Supreme Court held under the FAA that issues of procedural arbitrability — time limits, notice, laches, estoppel, conditions precedent, waiver, and delay — are for determination by the arbitrator, perhaps unless the parties otherwise agree. Similarly, questions of substantive arbitrability, such as whether the parties agreed to arbitrate and whether the dispute is within the scope of the agreement, generally are for the court.¹¹⁵

Fraudulent Inducement to Enter into the Contract

See § 8.6.7.

Duress

This defense probably is an issue subject to the Prima Paint analysis and is for the arbitrator. See "Coercion," below.

Coercion

Coercion is an issue for determination by the arbitrator, as it is a challenge to the validity of the contract, and not to its formation.¹¹⁶ However, when the alleged duress relates to the entire contract, and not specifically to the arbitration clause, the issue is for resolution by the arbitrator under the Prima Paint analysis.¹¹⁷

Mistake

Mistake is presumptively an issue for the arbitrator, and the Prima Paint approach applies.¹¹⁸

Illusory Contract

Illusory contract is generally a question for the court.¹¹⁹ The issue goes to whether a contract was founded.

Expiration of the Arbitration Clause or Agreement

Expiration of the arbitration clause or agreement is usually a question for the court.¹²⁰

Statute of Limitations

The Tenth Circuit held that under the FAA, the court has jurisdiction to determine whether an arbitration claim is time barred.¹²¹ In determining the validity of the arbitration agreement to which the FAA is applicable, state law governs, unless the parties otherwise agree — to date it has not been preempted by federal law.¹²² Other courts have held that whether a claim is barred by a statute of limitations generally is for determination by the arbitrator.¹²³

Contractual Time Limits

The U.S. Supreme Court held that under the FAA, the issue of compliance with a contractual time limit should, in the first instance, be addressed by the arbitrator, absent clear evidence of a contrary intent of the parties.¹²⁴

Laches...