ISSUES OF ARBITRABILITY – BENEFITS AND LIMITS OF DELEGATION PROVISIONS
Before a case proceeds to arbitration, the party seeking to arbitrate must establish that the parties agreed to arbitrate and the issues to be decided are arbitrable. To eliminate any ambiguity, parties can expressly agree that the arbitrator, rather than a court, will resolve the latter question of arbitrability.
These ‘delegation clauses’ delegate such issues to the arbitrator. But even when parties do so, if one party disputes whether there is a valid delegation clause in the first place, a court will decide that issue. In the context of domestic New York arbitration, some courts have held both that this must be decided by a court and employed a higher threshold (the New York Rule) for that determination.
Delegation clauses in the wake of Rent-A-Center
In Rent-A-Center, the Supreme Court held that if an arbitration agreement includes a delegation clause, and the delegation clause itself is not challenged, the arbitrator – and not a court – will adjudicate a challenge to the underlying arbitration agreement. As the court explained, however, “[i]f a party challenges the validity... of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement”.
Because a delegation clause is an agreement to arbitrate within an agreement to arbitrate, if a party challenges the validity of that clause, a court will decide that threshold issue. But unless the party opposing arbitration challenges “the delegation provision specifically”, the district court “must treat it as valid” and “must enforce it” by sending “any challenge to the validity” of the underlying arbitration agreement to the arbitrator. The plaintiff in Rent-A-Center challenged only the validity of the underlying agreement, but not the delegation clause itself.
Jan-Mar 2024 issue
Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates