Following the Supreme Court in Liberal Construction of Arbitration Agreements Under the Federal Pro-Arbitration Policy

Arbitration as a private dispute resolution mechanism begins with parties’ mutual agreement. The process should be conducted according to what parties have stipulated in their agreement or by what tribunals and courts construe from their agreement. When it comes to interpretation of arbitration agreements in the United States, a strong federal policy favors arbitration rather than litigation. Therefore, courts ought to construe arbitration clauses in light of the policy, which in cases of doubt they should include the dispute in the clause rather than ruling for its exclusion. The policy is quite general and there is no particular formula provided for its application and the extent which doubt is sufficient enough to apply the policy is not clear. However, the general guideline is that where the Federal Arbitration Act (FAA) applies, interpretation of scope issues should be towards the policy.Since scope is a very broad topic in arbitration, what is chosen for detailed analysis in this paper are a few examples of scope that provide a clearer understanding of application of the federal policy by courts and ultimately how courts construe arbitration agreements:a. Contractual arbitrability of statutory claims, and claims for punitive damages (where choice-of-law clause and arbitration provision contradict) are scope issues that are discussed first. Two cases from the Supreme Court have addressed these issues differently. In the Mitsubishi case the court applies the policy favoring arbitration directly and promptly after having doubt whether anti-trust disputes are covered by the clause or not without getting into contract interpretation principles. In another case, Mastrobuono, the court went through a thorough application of contract interpretation principles to determine parties’ intentions and finally ruled for arbitrability.b. Later in the paper, retroactive application of an arbitration clause to disputes that occurred prior to execution of the clause (pre-existing disputes) are discussed. Retroactivity cases have received less attention in academia although there is a bundle of cases that practitioners have dealt with. The cases analyzed in the research show that courts had doubt whether they are allowed to give retroactive effect to a clause or not. On the one hand the policy directs courts to rule in favor of arbitration. On the other hand arbitration clauses are assumed to cover future disputes. And most importantly parties were not clear on the issue when drafting the clause. Thus the conflict makes retroactive application a fine example for detailed analysis on the main topic.The main question that this paper aims to provide an answer to is whether direct application of the policy would suffice when courts face doubt with regards to the scope of an arbitration clause, or there actually is a need to apply contract interpretation principles. In other words, from the time the court faces doubt to rule for or against arbitration, it may go through an interpretive process in which it tries to determine parties’ intentions based on ordinary contract interpretation principles. However, the court may also withdraw applying interpretive principles and apply the presumption of arbitrability instead provided by the policy favoring arbitration. This paper establishes that the authorities should apply the policy directly. However, in case any contract interpretation principles are being applied, such application should be in line with the policy. Thus, application of any principle that shall result in limiting arbitrability should be avoided.