Arbitration & Mediation

NY Court Questions Whether Arbitrability is Best for Court or Arbitrator

By Christopher B. Hopkins, Esq.

Earlier this month in Jaylene v. Steuer, Judge Northcutt examined the Second District's method of leaving questions of arbitrability to the arbitration panel. Since we believe this is an issue which will be explored and expanded, we turn our gaze north to see how other states have addressed such issues.

At first glance, Life Receiveables Trust v. Goshawk Syndicate 102 at Lloyd's seems like a post-Hall Street v. Mattel dispute over whether parties can contractually expand the court's grounds to review an arbitration award (no, they cannot).

But the meat of the issue is who decides arbitrability. In Life Receiveables, it is the concurring opinion which pins down that the case is really about whether a court or arbitrator should decide if the arbitration agreement is invalid/unenforceable.

Much like Florida, New York law apparently applies ordinary state contract law principles to arbitration clauses. The new case notes that the 1985 U.S. Supreme Court case of First Options of Chicago v. Kaplan suggests that such issues are for the trial court. In that case, the High Court determined that silence/assent over "who" decides arbitrability should be treated differently (less defferentially) than "whether" a dispute is arbitrable.

In Kaplan, the Court suggested that (1) at the time an agreement is hammered out, parties are not inclined to focus on an arcane issue of arbitrators deciding the scope of their own power and (2) given that arbitration can only be ordered for claims which the party agreed to arbitrate, using silence/assent as the basis of agreement might too often force an unwilling party to arbitrate.

Back in the contemporary case at bar, there was unmistakable evidence that the sophisticated parties repeatedly agreed to arbitrate. The concurring judge went on to agree that the parties knowingly included the provision at issue.

Citing two federal cases in New York and California, the court questioned whether, even the in face of the parties agreeing that the arbitrator decided arbitrability, challenges of fraudulent conduct and unconscionability should still be decided by the arbitrator.

Without question, there will be more disputes over arbitrability in the near future...

Full post as published by Florida Arbitration Law on December 15, 2009 (boomark / email).