Drafters of arbitration clauses must understand the concept of arbitrability if the parties’ objectives are to be achieved. Arbitrability is the portmanteau for several distinct concepts:
- Is the clause/agreement enforceable?
- What is the scope of the clause, i.e., what disputes are subject to the parties’ agreement to arbitrate?
- Who, in addition to the signatories, will be required or entitled to participate in the arbitration?
Is there an agreement to arbitrate?
The Federal Arbitration Act (FAA) requires a finding of an enforceable arbitration agreement before a court may compel arbitration. The FAA makes agreements to arbitrate valid, irrevocable and enforceable, “save on grounds as exist in law or equity for the revocation of a contract” (9 U.S.C. § 2). State arbitration statutes (e.g., California Arbitration Act, Code Civ. Proc. § 1281) are similar.
The existence of an agreement to arbitrate is determined under state contract law principles as to the formation of contracts. The savings clause (FAA § 2) further allows for the assertion of defenses to enforcement, also per state contract law, on grounds for “revocation” of contract (e.g., fraud, duress, illusory agreement, illegal agreement, incapacity, apparent or actual authority, unconscionability). The FAA may preempt state law, however, where (1) it does not operate neutrally as to all agreements (see Doctor’s Assocs., Inc. v. Casarotto (1996)) or (2) the state law is anti-arbitration and thus violates the underlying principle of the FAA that arbitration is a favored process (see AT&T Mobility LLC v. Concepcion (2011)).
To learn more about Arbitrability, please read the full article from Law.com by clicking here.
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