Don't Bet the Business

Even when parties have agreed to arbitrate disputes, questions sometimes arise over whether an issue actually is subject to arbitration.  Also, quite common are questions over who decides the issue of arbitrability – the court or the arbitrator?

The U.S. Court of  Appeals for the Sixth Circuit in Blanton v Domino’s Pizza Franchising LLC provided clarity on this question. In this case, certain employees brought a putative class action against their employer, claiming that the employer's franchise agreements violated federal antitrust and state laws. The district court judge granted the employer's motion to compel arbitration and dismissed the employees’ lawsuit. The employees appealed.

In affirming the trial court’s dismissal in favor of arbitration, the appellate court observed that while the courts typically look to state law to interpret arbitration agreements (e.g., to examine questions of contract formation) the U.S. Supreme Court, applies federal law, requiring “clear and unmistakable” evidence that the parties agreed to have an arbitrator decide the issue of arbitrability. This requirement effectively eliminates any presumption in favor of arbitration when it comes to questions of “arbitrability.”

In Blanton, the arbitration agreement incorporated the rules of the American Arbitration Association (AAA). Those rules plainly empower the arbitrator to decide questions of arbitrability. The appellate court recognized that other trial courts in the Sixth Circuit, and the Sixth Circuit itself, have previously relied upon the incorporation of AAA rules to find a clear and unmistakable agreement to arbitrate questions of “arbitrability.” Also persuasive to the court was the fact that 11 of the 12 circuits, having considered the issue, had concluded that the incorporation of the AAA or similar rules provides clear and unmistakable evidence that an agreement to arbitrate “arbitrability.”

Blanton stands for the rather unremarkable rule that incorporation of AAA rules into an arbitration agreement means that an arbitrator will decide all question over which disputes are subject to arbitration. But the lesson to be taken from the Blanton decision is that not all arbitration clauses or agreements are the same. Planning requires thoughtful understanding of what your arbitration agreement says – and means.