Second Circuitholds that district court must first determine whetherparties agreed to an arbitration clause that assigns toan arbitral panel questions about the scope of their arbitration agreement before seeking to answer questionsof arbitrability itself.

VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners, No. 12-593-cv (2d Cir. 2013) [click for opinion]

In 2007, a Brazilian airline purchased VRG from two of MatlinPatterson’s subsidiaries.  MatlinPatterson did not sign the main purchase agreement, which included an arbitration clause, but it did sign a non-compete agreement that referenced the main purchase agreement. 

Subsequently, a dispute arose over an adjustment to the purchase price, and VRG referred the dispute to arbitration.  Over MatlinPatterson’s objections, the arbitral panel found that MatlinPatterson had agreed to arbitration and that the arbitration agreement encompassed the purchase price dispute; it issued an award finding MatlinPatterson liable for fraudulent misrepresentations it made during the sale of VRG. 

VRG filed a petition in the Southern District of New York seeking confirmation of the award under the Convention of the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), 9 U.S.C. §§ 201-208.  The district court refused to enforce the arbitration award, ruling that even if MatlinPatterson had agreed to arbitrate disputes over the non-compete clause, it had not agreed to arbitrate questions relating to the purchase agreement, which it had not signed. 

The Second Circuit remanded the case to the district court for it to determine whether the parties had agreed to an arbitration clause that clearly and unmistakably entrusted questions of arbitrability to the arbitral panel, rather than to the court.  Under the Supreme Court case of First Options of Chi, Inc. v. Kaplan, a court must answer this initial question of who decides the question of arbitrability before the question of whether the dispute is to be arbitrated can be answered.

Although it is usually up to a court to decide questions of arbitrability, the arbitration agreement may show that the parties intended for these questions to be answered by the arbitral panel instead.  The Second Circuit noted that, under its precedent, an arbitration clause such as the one at issue—subjecting disputes to the rules and procedures of the ICC International Court of Arbitration—does in fact commit to arbitration any questions about the arbitrability of particular disputes. 

Thus, on remand, the district court was directed to determine whether MatlinPatterson had agreed to the clause subjecting disputes to the ICC rules and procedures.  If so, the court would be required to confirm the award.