SUPREME COURT HOLDS ARBITRATOR CAN FULLY DECIDE THRESHOLD ARBITRABILITY ISSUE

shutterstock_1018025605The United States Supreme Court recently decided parties to a contract can agree, under the Federal Arbitration Act, an arbitrator, rather than a court, can fully resolve the initial arbitrability question.  Henry Schein, Inc. v. Archer and White Sales, Inc., 2019 WL 122164 (2019).  The arbitrability question is whether the dispute itself is subject to arbitration under an arbitration provision.  Parties that do not want to arbitrate try to circumvent this process by filing a lawsuit and asking the court to determine the threshold arbitrability question.  

 

In Henry Schein, Inc., the contract at-issue provided:

 

This Agreement shall be governed by the laws of the State of North Carolina.  Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property) shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.  The place of arbitration shall be in Charlotte, North Carolina.

 

The plaintiff in this case asserted a claim for injunctive relief (among other claims) and argued that, therefore, the dispute is not subject to arbitration based on the exception in the provision.  The initial, threshold issue became whether the dispute was subject to arbitration and, importantly, who decides this issue. The Court further looked at whether a trial court can resolve this issue under the “wholly groundless” exception, i.e.,the court can decide the issue if the argument for arbitration is wholly groundless.  

 

The Supreme Court held that, “[w]hen the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract.  In those circumstances, a court possesses no power to decide the arbitrability issue.  That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” Henry Schein, Inc, supra, at *4.  Through this ruling, the Court rejected the wholly groundless exception that would allow a trial court to rule on an threshold arbitrability question if the argument for arbitration is wholly groundless. 

 

The Court did not rule as to whether the arbitration provision at-issue delegated the arbitrability question to the arbitrator.   However, the American Arbitration Association’s rules provide that arbitrators have the power to resolve such threshold arbitrability questions so there is an argument that the provision through reference to the American Arbitration Association gave this authority to the arbitrator.  But, the best thing to do, as always, is to be clear.   Include language in the arbitration provision that specifically states that an arbitrator is authorized to decide the arbitrability of issues, particularly if it is your arbitration provision and you want disputes resolved by arbitration.  Conversely, if you want the initial, threshold issue of arbitrability to be decided by a court, make sure to specify that in the provision.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

 

 

 

DRAFTING A CONTRACTUAL ARBITRATION PROVISION

shutterstock_505551922A recent Florida case discussing a contractual arbitration provision in a homebuilder’s contract discussed the difference between a narrow arbitration provision and a broad arbitration provision.  See Vancore Construction, Inc. v. Osborn, 43 Fla.L.Weekly D2769b (Fla. 5th DCA 2018).   Understanding the distinction between the two types of arbitration provisions is important, particularly if you are drafting and/or negotiating a contractual arbitration provision.

 

A narrow contractual arbitration provision includes the verbiage “arises out of”  the contract such that disputes arising out of the contract are subject to arbitration.  Arbitration is required for those claims the have a direct relationship with the contract.

 

A broad contractual arbitration provision includes the verbiage “arises out of or relating to” the contract such that disputes arising out of or relating to the contract are subject to arbitration.  Arbitration is required for those claims that have a significant relationship to the contract. A significant relationship exists if there is a nexus between the claim and the contract meaning the “claim presents circumstances in which the resolution of disputed issues requires either reference to, or construction of, a portion of the contract.”  See Vancore Construction, Inc., supra, (citation omitted). 

 

When drafting or negotiating an arbitration provision, make sure you understand those claims that will be subject to arbitration and those potential claims that will not.    Typically, if you want a arbitration provision in your contract, you more than likely prefer a broad arbitration provision such that claims arising out of or relating to the contract will be subject to arbitration.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

OWNERS BOUND BY ARBITRATION CLAUSE ON ROOFING SHINGLES PACKAGING

shutterstock_1084249700In today’s age, you are probably familiar with terms such as a shrinkwrap contract (terms and conditions), which is a boilerplate contract included with a retained product, or a clickwrap contract (terms and conditions), which is generally a boilerplate contract that is digitally accepted when purchasing software or an electronic product. These are are boilerplate terms from manufacturers or vendors of products or software.  Arbitration provisions in these types of agreements have generally found to be enforceable.

 

In the recent ruling by the Eleventh Circuit Court of Appeals in Dye v. Tamko Building Products, Inc., 2018 WL 5729085 (11th Cir. 2018), the court held that an arbitration provision included in a product-purchase limited warranty agreement on the package of every roofing shingles binds a homeowner to arbitrating disputes over the opened and retained product with the manufacturer, irrespective of whether the shingles were purchased by an owner’s roofer.   The shingles do not have to be purchased and opened by the owner for the arbitration provision to apply. If the roofer uses or retained the shingles for purposes of the owner’s home, such knowledge of the product-purchase limited warranty agreement on the packaging of the shingles is imputed to the owner (end-user of the shingles).  In this manner, the court summarized:

 

 

At the end of the day, the point is simply this: modern consumers are on notice that products come with warranties and other terms and conditions of purchase.  And they are free to research (or not), request (or not), and read (or not) those terms before unwrapping their purchases.  As to the case before us, Florida law makes clear that providing conspicuously printed product packaging is an OK way to convey purchase terms.  Florida consumers who purchase, open, and retain a product are thus bound in accordance with warranty terms conspicuously printed on that product’s packaging, whether they actually take the time to read them or not. 

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To summarize, then, acceptance of Tamko’s [roofing manufacturer] purchase terms—arbitration clause and all—was incidental to, and reasonably necessary to accomplish the homeowner’s express grant of agency authority to their roofers to purchase and install shingles, and in any event, the roofers’ notice of the terms printed on the shingle wrappers in properly imputed to the homeowners. 

Dye, supra. 

 

Arbitration clauses are favored.  So, the next time you purchase or download a product and receive a boilerplate contract with terms and conditions, such as a limited warranty document that contains an arbitration provision, remember, the arbitration provision will likely be deemed enforceable.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

QUICK NOTE: UNENFORCEABLE LANGUAGE IN ARBITRATION PROVISION

imagesAlthough arbitration is a dispute resolution provision provided for in a contract, the scope of judicial review of an arbitrator’s award is still governed by law.  There are limited circumstances in which an arbitrator’s award can be challenged under the law.  One of those circumstances is not because a party believes that an arbitrator applied the incorrect law.  

 

In a recent construction case, discussed in more detail here, an arbitration provision provided that a party can essentially appeal/challenge an arbitrator’s award to the circuit court if the arbitrator applied the incorrect law.  The appellate court held this language was unenforceable because it attempted to expand the legal scope of judicial review of an arbitration award.  The issue, here, became more than just the unenforceable language but whether the entire arbitration clause should be deemed unenforceable.  In other words, the issue became whether the unenforceable language that expanded the scope of judicial review of an arbitration award could be severed from the provision such that the parties would still be required to arbitrate (hence, the importance of a severability provision in a contract) OR the entire arbitration provision should be deemed unenforceable.  This is a HUGE difference because in one instance the parties still can arbitrate absent the expanded scope of judicial review and in the other instance the arbitration clause is unenforceable in entirety and the parties would be required to litigate. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.