SUMMER 202 0 TODAY’S GENER AL COUNSEL
THE ANTITRUST LITIGATOR
Who Decides Arbitrability? By Jeffery M. Cross
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ore and more contracts contain arbitration clauses, as parties realize that arbitration can be an efficient and cost-saving way to resolve disputes. Furthermore, arbitration allows for a dispute to be resolved confidentially, which is valuable when there is sensitive information that could be exposed in litigation. In addition, recent Supreme Court cases have held that an arbitration clause can bar class actions. Such decisions have spurred the use of arbitration clauses in contracts with large numbers of parties on one side, such as consumer cell phone contracts and bank credit card agreements. However, sometimes the two sides to an agreement do not see eye-to-eye on the desirability or scope of arbitration. In such a situation, one or the other party seeks help from a court to compel arbitration, define the scope of arbitration or resist the demand for arbitration. Thus, it is important that the parties to contracts with arbitration clauses understand the rules regarding a court’s involvement in initially resolving whether a dispute must proceed to arbitration. In 1925, Congress passed the Federal Arbitration Act (FAA). It was reenacted and codified in 1947. The purpose of
Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Freeborn and Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com
the FAA was to reverse long-standing judicial hostility to arbitration agreements existing in English common law and adopted by American courts. The Supreme Court has stated that Congress accomplished this purpose by placing arbitration agreements on the same footing as other contracts. The Supreme Court has held that the FAA created a body of federal substantive law that is applicable to both state and federal courts. The Court has also held that the FAA applies to the enforcement of not only contract rights, but statutory rights.
The key provisions of the FAA in terms of the initial involvement of a court are Sections 2, 3, and 4. Section 3 permits a court to stay litigation involving an issue that is referable to arbitration. Section 4 permits a court to compel arbitration. Section 2 is the centerpiece provision of the FAA. It establishes that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” This is the so-called “savings clause.” It is Section 2 that places a written agreement to arbitrate on the same footing as any
