Rule 9 of the Construction Industry Arbitration Rules published by the American Arbitration Association (AAA) empowers the arbitrator to decide issues regarding the “existence, scope, or validity of the arbitration agreement” and “the existence or validity of a contract of which an arbitration clause forms a part.” This is referred to as a delegation clause. Delegation provisions can be found in various standard rules provided by the AAA and other arbitration administration organizations.
In Rent-A-Ctr. W., Inc. v. Jackson, 561 U.S. 63 (2010), the U.S. Supreme Court held that a clear and unmistakable delegation provision is an additional arbitration agreement — separate from the underlying agreement calling for arbitration — which is enforceable under the Federal Arbitration Act, or FAA (assuming the arbitration provision is contained in a contract subject to the FAA such a contract evidencing interstate commerce).
Two recent Missouri court decisions have enforced delegation clauses.
The Missouri Supreme Court in State ex rel. Jesse Newberry v. The Honorable Steve Jackson, — S.W.3d — , 2019 WL 2181859 (May 21, 2019) considered an employment agreement that incorporated by reference AAA’s Employment Arbitration Rules, including the rule stating that arbitrators “shall have the power to rule on [their] own jurisdiction, including any objection with respect to the existence, scope or validity of the arbitration agreement.” The employment contract, however, contained terms superseding the rule insofar as the “scope or enforceability” of the arbitration agreement.
The employer in the Newberry case filed a motion to compel arbitration. The two employees filed an opposition on the basis that the employment agreement purportedly lacked consideration, and therefore they should not be required to arbitrate. The court ruled that the lack of consideration contention is a validity or formation issue and not a scope or enforceability issue. Moreover, since the employees only contested the arbitration provision itself and did not pose any specific attack on the delegation clause, the court concluded that whether the arbitration agreement was a valid one must be decided by the arbitrator.
In Hughes v. Ancestry.com, 2019 WL 2260666 (May 28, 2019), Ancestry.com and the customer agreed to arbitrate disputes, except for certain claims not involved in the case. The parties’ arbitration agreement adopted by reference AAA’s Consumer Arbitration Rules, including Rule R-14(a), which provides that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”
The customer in Hughes contended that the arbitration agreement lacked consideration and is unconscionable. The court ruled the delegation clause was clear and unmistakable, a necessary prerequisite for a delegation clause. The court then enforced the delegation clause, reasoning that (1) such a clause must be enforced unless a specific challenge is raised to that clause itself, and (2) no specific challenge was raised before the trial judge vis-à-vis the delegation clause. As such, the arbitrator was empowered to determine whether the arbitration agreement lacked consideration or was unconscionable.
Interestingly, while the Newberry and Hughes courts adopted very similar reasoning, Hughes, decided only one week after Newberry, did not cite Newberry.
The above cases involve circumstances where both parties agreed to terms in writing that included a delegation clause and an arbitration provision. It would appear that where one of the parties never evidenced acceptance to a written document containing an arbitration clause, a court would likely be the proper forum to decide arbitrability.
However, the lessons from the two recent Missouri decisions are clear: Unless the delegation clause lacks sufficient clarity or one can muster a valid, specific challenge to the delegation provision itself, Missouri courts will as a general rule enforce such a provision and therefore permit the arbitrator(s) to ascertain the arbitrability issue.