developing American approach to arbitrability, The

Dispute Resolution Journal, Feb-Apr 2003 by Bennett, Steven C

The concept of "arbitrability" is critical to any effective arbitration system. There must be a way to determine whether parties have agreed to arbitrate, which parties have agreed to arbitrate, what issues are subject to arbitration, and many related issues. In this article, the author traces the development of the concept of arbitrability in the United States to the present day, including the latest Supreme Court pronouncements on the subject. He places American arbitrability law in the context of developments in other countries and suggests the likely direction that American arbitrability law

The power to determine whether an arbitration proceeding has been properly commenced and the breadth of the issues subject to arbitration, and whether any public policy concerns limit the ability of an arbitrator to resolve a dispute-all of these (and more) may be called matters of "arbitrability." The resolution of such matters can greatly affect the conduct of an arbitration proceeding. Indeed, arbitrability may be the ultimate trump card in arbitration. If arbitrability issues may be raised in court proceedings before the arbitration can be completed, the arbitration process may be halted or disrupted even before it really begins. And, if a court may freely review arbitrability issues once an arbitration proceeding is complete, then the arbitration may prove to have been a waste of time and effort; the arbitration results, even if otherwise fair and just, may be undone on grounds of "inarbitrability."

In the opposite direction, if issues of arbitrability cannot be addressed by a court until after an arbitration proceeding is complete, and if a court's review of arbitrability issues must necessarily be limited, then there is a risk that arbitrators will overreach, and litigants may be unjustly subjected to arbitration. As a result, confidence in the arbitration process may be undermined.

With so much at stake, one might expect that clear rules to determine arbitrablity would be established by legislative action or definitive judicial rulings. Yet, in this area, the rules have developed slowly, with much less predictability than in many other areas of arbitration law. Nevertheless, American arbitrability law today is clearer, and more certain, than ever before.

This article briefly charts the course of the developing law of arbitrability in the United States. The first section examines the various potential meanings of the term "arbitrability," as used by courts, arbitrators and practitioners. The second section reviews a few of the major Supreme Court pronouncements on the subject of arbitrability. The third section considers legislative and rules-based responses to the arbitrability question. The last section outlines potential future developments in the area of arbitrability, noting in particular the extent to which U.S. law in this area has harmonized with the law in other countries.

What Is "Arbitrabilitv?"

The concept of arbitrability has many facets.1 In its most basic sense, arbitrability means exactly what it suggests-there are simply some matters that are impossible to arbitrate. Thus, for example, because arbitration is a creature of contract, it may be impossible to conduct a class action in arbitration. The thinking is that all the absent members of the class may not have consented to arbitration (and the counter-party to the class may not have consented to arbitration with the class as a whole, rather than in individual, separate arbitration proceedings).2

In addition, there may be categories of matters that are incapable of being arbitrated because, as a matter of public policy, arbitration is considered to be inappropriate. This potential public policy limitation on the disputes appropriate for arbitration (sometimes referred to as "substantive" or "subject matter" "arbitrability") has shrunk greatly in recent years, as the Supreme Court has repeatedly indicated that various disputes of potential public concern (securities, antitrust, and RICO claims, to name a few) are all subject to arbitration, if the parties have so agreed.3 Nevertheless, in theory at least, if there is a clear legislative direction that a particular type of dispute should not be arbitrated as a matter of public policy, such disputes might be considered inarbitrable.4 Certain disputes (e.g., criminal matters), are almost certainly not appropriate for arbitration, even if the parties could consent to arbitration.

Questions of arbitrability may also arise based on the lack of a binding arbitration agreement. The Federal Arbitration Act (FAA) and parallel state statutes generally require a written agreement as the basis for arbitration.5 (The "writing" may be supplied in many forms.6) If there is no writing, there is no basis for arbitration (unless the parties have agreed, after the dispute arises, to submit the matter to arbitration). Significant issues also arise where a nonsignatory to the arbitration agreement (such as the parent company of a subsidiary that is a signatory) is made the object of an arbitration against its wishes. A number of theories exist upon which to require a nonsignatory to arbitrate.7