The question of whether parties to a dispute have agreed to arbitration is often termed a “gateway” issue to be decided by a court, unless the parties agree otherwise. Both the Commercial and Construction Arbitration Rules of the American Arbitration Association expressly grant to the arbitrator “the power to rule on his or her jurisdiction.” Two recent cases confirm that incorporation of AAA Rules into an arbitration agreement evidences an intent to allow the arbitrator to determine what issues are arbitrable.
Gilman v. Waters, 61 F.Supp. 3d 794 (S.D. Ind. 2014) arose from disputes between investors in oil and gas limited partnerships, and the partnerships and their managing general partners. The limited partnership agreements provided for resolution of disputes by arbitration under the AAA Commercial Rules. After plaintiffs commenced a consolidated arbitration proceeding, the AAA case administrator instructed the plaintiffs to file separate arbitration proceedings for each contract at issue. Plaintiffs then filed suit, stating that the purpose of their complaint was to toll the applicable statute of limitations and seek a declaratory judgment to the effect that the disputes at issue should be decided by arbitration. Plaintiffs moved to stay the federal district court proceedings and compel arbitration. The motion was denied by a magistrate judge because the defendants had appeared in the arbitration proceeding and filed a response, and the arbitration could proceed upon the filing of an amended demand. Nine months later, the defendants moved to dismiss for lack of prosecution or to compel arbitration, based on plaintiffs’ failure to file an amended demand for arbitration. The motion to dismiss prompted plaintiffs to file another consolidated demand, to which defendants responded with a jurisdictional challenge. The AAA case administrator again instructed plaintiffs to file separate cases. The court then granted the motion to compel and directed plaintiffs to comply with the AAA’s instructions.
After plaintiffs filed separate cases, arbitrators were appointed and preliminary hearings were held in four of the cases to set deadlines and address plaintiffs’ objections to severing of the cases. The objection was granted and plaintiffs were allowed to file a consolidated amended claim. There were also disputes about whether certain claims were arbitrable. The defendants returned to court, moving to stay the arbitration pending the court’s determination of arbitrability. After considering what it described as the “overwhelming majority” of cases holding that incorporation of AAA Rules expresses an intent that an arbitrator determine arbitrability – but noting that neither the U.S. Supreme Court or the Seventh Circuit have explicitly ruled on the issue - the court determined that signatories to the contracts were bound by their prior agreement to arbitrate issues of arbitrability. As for non-signatories, the court rejected the plaintiffs’ arguments and determined that those parties were not bound by arbitration agreements.
A consistent result was reached in Fremont Cmty. Digester, L.L.C. v. Demaria Bldg. Co., Inc., 2015 WL 3917635 (Mich. Ct. App. June 25, 2015), a case involving the AAA Construction Industry Rules of Arbitration. The parties in that case entered into an engineering procurement and construction contract, which included an arbitration provision in which they agreed to arbitrate disputes in accordance with the AAA Construction Rules and Michigan law where the Rules were silent. After disputes arose, the parties signed a “letter agreement” in which they agreed that a single arbitrator would resolve disputes and that the arbitration would be conducted in accordance with the AAA Rules.
After the arbitrator decided the disputes and an award was entered, defendant made a demand for arbitration of additional claims. The plaintiff asserted that the new claims were outside the scope of the letter agreement and were instead subject to the contract provision, which would require arbitration by a three-member panel. After the arbitrator decided that the disputes were subject to the letter agreement plaintiff filed suit, contending that the arbitrator exceeding his authority and acted contrary to law in deciding the threshold issue of arbitrability.
The trial court decided the case in defendant’s favor, noting that the AAA Rules authorize the arbitrator to decide matters relating to jurisdiction. The Court of Appeals affirmed, defining the central issues as whether the new claims were within the scope of the letter agreement, recognizing that contract interpretation is an issue for the arbitrator. Significantly, plaintiff conceded that the letter agreement is a valid contract, and both parties agreed that the arbitrator has jurisdiction to decide claims falling within the scope of the agreement.