Supreme Court Confirms Contract Terms Control Who Decides If a Dispute Is Subject to Arbitration 

From Lexology, David W. Howenstine discusses a recent Supreme Court case in which the court said that the arbitration agreement can state who decides if an issue is subject to arbitration. David writes:

In its decision, the Supreme Court adopted a strict application of the Federal Arbitration Act and rejected the so-called “wholly groundless” exception. The Federal Arbitration Act establishes that “[a] written provision … in a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract … shall be valid, irrevocable, and enforceable, save upon such grounds as exit at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Under this framework, the Court reiterated that arbitration is a matter of contract and that courts must enforce arbitration agreements based on their terms.

The Supreme Court made short work of the “wholly groundless” exception. Although recognizing that some courts had applied this exception as a means to block frivolous attempts to transfer disputes from the court system to arbitration, the Court concluded that the exception was inconsistent with the text of the Federal Arbitration Act and not contained anywhere in the statute itself. Accordingly, the Court ruled that the threshold issue of arbitrability had to be decided by looking to the terms of the contract. The Court summarized its holding:

When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks the argument that the arbitration agreement applies to a particular dispute is wholly groundless.

Opinion at 6. This rule does not change the requirement that, before referring a dispute to an arbitrator, a court must determine whether a valid arbitration agreement exists. However, “if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.” Id. In reaching this decision, the Court emphasized that arbitrators, like courts, can efficiently dispose of frivolous cases by determining that a claim is not arbitrable.

The Supreme Court did not decide whether the arbitration agreement between Archer and White and Schein actually delegated the arbitrability question to an arbitrator, but instead remanded the case for further proceedings.

Read the full story at Supreme Court Confirms Contract Terms Control Who Decides If a Dispute Is Subject to Arbitration – Lexology

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