A previous post in this blog discussed the impact that arbitration rules can have on how an eventual dispute is resolved. In arbitration, the parties can chose—or even make—the rules that will apply. Often they will chose, without considering, AAA rules.
A recent decision by the Washington Court of Appeals, Raven Offshore Yacht Shipping, LLP v. F.T. Holdings, LLC, illustrates how adopting what would appear to be a “standard” set of institutional arbitration rules can effectively waive any right to have a court decide whether a dispute that later arises is within the scope of the arbitration agreement at all—i.e., whether the court descried arbitrability. In effect, this threshold question of who decides arbitrability may determine who decides the whole case.
Absent an agreement otherwise, questions of arbitrability are generally decided by the court, not an arbitrator. But the parties can agree, by contract, to delegate the question of arbitrability to the arbitrator.
In Raven Offshore Yacht Shipping, a yacht owner sued a carrier for damages that the plaintiff’s yacht had sustained in shipping—alleging claims for negligence, misrepresentation and violation of the Consumer Protection Act but not breach of contract. The defendant (“Raven”) moved to compel arbitration based on the arbitration clause in the shipping contract. The trial court denied Raven’s motion and thus would have allowed the action to proceed in court.
Raven appealed, and the Court of Appeals reversed. The court found that the parties had agreed to delegate the question of the arbitrability of the dispute to the arbitrator. In reaching this decision, the court relied on the provision in the parties’ arbitration agreement that certain disputes would be resolved through arbitration “conducted in accordance with the Rules of the Maritime Arbitration Association of the United States” (“MAA Rules”). The MAA Rules provide that, unless the parties otherwise agree, the arbitral tribunal has the power not only to decide the merits of a dispute but also to decide issues regarding the jurisdiction of the arbitral tribunal and the existence, scope, or validity of the underlying arbitration agreement.
Faced with this arbitration rule, the court addressed a question of first impression in Washington: the effect of incorporating the rules of an arbitration body into an arbitration clause. The court held that, by incorporating the MAA rules, “the parties clearly and unmistakably manifested their agreement to be bound by those rules.” And because those rules contained a provision that delegated the question of arbitrability to an arbitrator, the parties had agreed to have an arbitrator—not the trial court—decide whether the dispute was subject to arbitration. The Court therefore reversed the trial court’s denial of the motion to compel arbitration.
As a result, the parties were required have an arbitrator decide whether the plaintiff’s claims were subject to arbitration in the first place. If so, the arbitrator would then have to decide the merits. But for the fact that the shipping contract referenced MAA Rules, this dispute would have been resolved in court, as the plaintiff wanted.
Raven illustrates the impact that selecting arbitration rules in an agreement to arbitrate—a seemingly unremarkable issue—can have on the resolution of a dispute. At least where a party has the ability to negotiate such details, it is important to review and understand those rules at the time of the agreement, not when party finds itself in a dispute.
–Brandi B. Balanda