Originally from The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration, Fifth Edition

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Arbitration is an alternative or exception, a carve out by party agreement, from the right of parties to resolve legal disputes in court. American law has linked arbitration to state power by making arbitration agreements and awards judicially enforceable. To make certain that parties avoid their right to go to court, including the right to have a jury decide their fate, only when they really intend to, courts make sure that this happens only when the parties genuinely agree. Arbitrations, therefore, often involve questions of jurisdiction over parties and subject matter—the power to decide the rights of the parties before the arbitrator—and whether courts or arbitrators are to decide what goes to arbitration when this is disputed. “Arbitrability” covers these questions and is the topic of this chapter.

I.            INTRODUCTION

A dispute is not subject to being arbitrated and is, therefore, not arbitrable unless there is an enforceable written arbitration agreement between the parties or with a non-signatory that fits into a category in which the law treats a non-signatory as effectively a party to the arbitration agreement. Moreover, for the dispute to be arbitrable, the following requirements must be met: (1) the parties’ arbitration agreement must cover the dispute’s subject matter, (2) the arbitration must be permissible under governing law, and (3) any prerequisites to arbitration must be satisfied. It is not unusual for a party to appear before arbitrators only to contend that one or more of these requirements has not been satisfied and the dispute should be heard in court.

When a party challenges a dispute’s arbitrability, it and its opposing party may agree—expressly or by their conduct—that the arbitrators have the power to decide the challenge. Parties may expressly delegate this power to arbitrators in their arbitration agreement. Otherwise, courts retain primary authority to decide the issue and will review the arbitrators’ determination de novo when asked to confirm or vacate the arbitral award.

  When the arbitrators are asked by the parties to decide arbitrability, or a court directs them to make that decision, arbitrators should apply ordinary principles of contract interpretation and not presumptions in favor of or against arbitration. Two topics—waiver and class claims—pose special issues of jurisdiction and arbitrability. Finally, when a party asserts or opposes arbitrability challenges, recurring administrative issues also arise. This chapter addresses all of these subjects.

II.           THE FIVE TYPES OF CHALLENGES TO ARBITRABILITY

When a party challenges its obligation to arbitrate, the party potentially can make five different kinds of challenges:

•            Type 1 Challenge: “No signed contract with an agreement to arbitrate exists or I am not, directly or inferably, a party to the contract containing an arbitration agreement” (the contract formation or contract existence challenge).

•            Type 2 Challenge: “I may, directly of inferably, be a party to the contract with an arbitration agreement, but arbitration of this kind of dispute is prohibited as a matter of law” (the subject matter non-arbitrability challenge).

•            Type 3 Challenge: “I may, directly or inferably, be a party to the contract with an arbitration agreement, but the arbitration agreement is unenforceable as a matter of law, such as illegality, unconscionability, fraud in the inducement, or waiver” (the enforceability or validity challenge).

•            Type 4 Challenge: “I may, directly or inferably, be a party to the contract with an arbitration agreement, and the arbitration agreement may be enforceable (lawful), but the dispute is outside the scope of the matters I, or my benefactor, agreed to arbitrate” (the scope of arbitration challenge).

•            Type 5 Challenge: “I may, directly or inferably, be a party to the contract with an arbitration agreement, the arbitration agreement may be enforceable, and the dispute within its contemplated scope and lawful to arbitrate, but the opposing party failed to satisfy a prerequisite or condition to arbitration, such as pre-arbitration mediation or timely submission of the claims” (the procedural or prerequisite challenge).

As is described in more detail below, Type 1 existence challenges and Type 2 subject matter challenges are almost always for a court to decide. Conversely, Type 5 condition-not-met challenges are always for the arbitrator. Whether an arbitrator or a court decides Type 3 enforceability or Type 4-scope challenges turn on additional factors, including on the existence and validity of a delegation clause.