From Lexology, John C. Hawk IV discusses a case in which the court enforced a provision in an arbitration issue that said that the arbitrator determined the “gateway” issue as to whether an issue was subject to arbitration. John writes:
Last week, the Fourth Circuit reaffirmed the critical importance of a strong arbitration agreement, finding that a “delegation clause” required arbitration of the “gateway” issue of arbitrability. In an unpublished opinion, it compelled arbitration of a FCRA claim against a Credit One, Bank, N.A., even after Credit One had assigned the account to a debt collector.
As set forth in Novic v. Credit One, 2019 WL 103878 (4th Cir. Jan 4. 2019), Charleene Novic entered into a credit agreement to obtain a credit card with Credit One. The Cardholder Agreement contained an arbitration provision with a delegation clause: “Claims subject to arbitration include . . . disputes related to . . . enforceability or interpretation of this Agreement.”
After Novic accrued a past-due balance, Credit One assigned Novic’s account to a debt collector. She claimed the debt was a result of fraudulent charges, and the debt collector filed suit in state court. Novic ultimately prevailed in the state court action, and then initiated this FCRA lawsuit in Maryland state court against Credit One, alleging that Credit One violated FCRA by failing to conduct a reasonable investigation of her claim that she did not owe the past-due balance. Credit One removed to federal district court, where it moved to compel arbitration under the terms of the delegation clause of the arbitration provision. The district court denied the motion, concluding that Credit One lost its right to compel arbitration after assigning Novic’s account for collection. Credit One appealed, arguing that the arbitration provision plainly states that an arbitrator, rather than the district court, should decide both the “gateway” question of arbitrability and the merits of the parties’ dispute.
The Fourth Circuit agreed. It noted that, as part of an agreement to arbitrate, parties may consent to arbitrate the gateway issue of arbitrability. This allows the arbitrator, rather than the courts, to determine the arbitrator’s jurisdiction. To be enforceable, though, the parties’ agreement to give this power to the arbitrator must be set out in “clear and unmistakable” language. This standard is “exacting.” After reviewing the delegation clause at issue, the Fourth Circuit found that it “unambiguously require[d] arbitration of any issues concerning the ‘enforceability’ of the arbitration provisions entered into by the respective parties.” It therefore vacated the district court’s judgment and remanded the matter for entry of a stay of proceedings and an order compelling arbitration.