Source: https://www.mintz.com/insights-center/viewpoints/2196/2018-07-potential-pitfalls-contesting-arbitrability-arbitration
Timestamp: 2019-04-24 10:01:43+00:00

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When an agreement to arbitrate contains a clear and unmistakable “delegation” provision, gateway questions of arbitrability are for the arbitrator to decide. See, e.g., Kubala v. Supreme Prod. Servs., 830 F.3d 199, 201-02 (5th Cir. 2016), citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995); Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010). But a determination of the delegation issue is not always obvious, and it is sometimes presented to an arbitrator, rather than to a court, in the first instance. In that case, a party challenging arbitrability may feel some trepidation about submitting its challenge to the very arbitrator who could ultimately be deciding the merits of the case. And another, possibly surprising, concern should be the risk that making such a challenge too vigorously in the arbitration proceeding will foreclose a fulsome judicial review of the arbitrator’s ruling on the scope of his or her own authority.
Ordinarily, arbitration awards are subject to very limited and deferential review. E.g., Sanders v. Gardner, 7 F. Supp. 2d 151 (S.D.N.Y. 1998), citing Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997). Generally, an arbitrator’s determination can only be vacated on the basis of one of four grounds enumerated in the Federal Arbitration Act (“FAA”): fraud, impartiality, misconduct, and evidence that the arbitrator exceeded its authority. 9 U.S.C. § 10(a); Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 n.4 (2008). And a court’s review of an arbitral award is deferential. Thus, an award will not be vacated “even if the arbitrator’s interpretation of the contract is clearly erroneous, so long as such Award is explained in terms that offer even a barely colorable justification for the outcome reached.” Hygrade Operators, Inc. v. ILA Local 333, 945 F.2d 18, 22 (2d Cir. 1991); accord Fertilizer Corp. of India v. IDI Management, Inc., 517 F. Supp. 948, 960 (S.D. Ohio 1981); Mobile Oil Corp. v. Oil, Chemical & Atomic Workers Int’l Union & Local Union No. 4-522, 777 F. Supp. 1342, 1348-49 (E.D. La. 1991); Portland GE v. United States Bank Trust N.A., 38 F. Supp. 2d 1202, 1208 (D. Ore. 1999).
The same rules apply generally when a court is reviewing an award that includes an arbitrator’s determination of his/her own authority to decide a dispute (i.e., arbitrability) and that issue was clearly and unmistakably delegated by the parties to the arbitrator for decision. See, First Options, 914 U.S. at 944-45. On the other hand, courts should review de novo an arbitrator’s decision regarding his/her own jurisdiction if it does not appear that the party seeking to vacate such an arbitration award “clearly agree[d] to submit the question of arbitrability to arbitration.” See id.at 946, 947.
In that regard, the objecting party must take care to preserve a court’s ability to consider the arbitrability question de novo after an arbitration award has been issued. The U.S. Supreme Court has opined that “arguing the arbitrability issue to an arbitrator does not indicate a clear willingness to arbitrate that issue.” First Options, 514 U.S. at 946. Hence, and based on the usual rule that challenges to jurisdiction are waived if not timely raised, a reasonable practitioner might assume that he or she should vigorously contest the arbitrator’s authority to decide the arbitrability question at the outset of arbitration. See Opals on Ice Lingerie, Designs by Bernadette, Inc. v. Bodylines Inc., 320 F.3d 362, 368 (2d Cir. 2003) (“[I]f a party participates in arbitration proceedings without making a timely objection to the submission of the dispute to arbitration [on grounds that it is not arbitrable], that party may be found to have waived its right to object to the arbitration.”); Jones Dairy Farm v. Local No. P-1236, United Food and Commercial Workers Int’l Union, AFL-CIO, 760 F.2d 173, 175-76 (7th Cir. 1985) (“If a party voluntarily and unreservedly submits an issue to arbitration [without questioning the arbitrator’s jurisdiction], he cannot later argue that the arbitrator had no authority to resolve it.”).
However, since First Options was decided, federal courts in various jurisdictions have opined that it is possible for a party to go too far in contesting an arbitrator’s jurisdiction, and thus to waive its right to a court’s de novo review of the issue. For example, in Writers Guild of America, West, Inc. v. Sweetpea Entertainment Corp., 225 Fed. Appx. 114 (9th Cir. 2007), the Ninth Circuit determined that by “filing a motion on the arbitrability issue, arguing the issue in a hearing before the arbitrator, and then allowing the arbitrator to rule on the issue,” the appellants — who later sought vacatur of the eventual arbitral award — had “gone too far down the slippery slope in submitting its dispute to arbitration.” 225 Fed. Appx. at 115 (internal citation omitted). The Ninth Circuit held that although the appellants had then declined to argue the merits of their case at arbitration, they had “waived their right to seek a de novo judicial determination of the [arbitrability] issue” by “submit[ing] the question of arbitrability to the arbitrator.” Id.; cf. Pioneer Roofing Org. v. Sheet Metal Workers’ Local 104, Case No. 17-15296 (9th Cir. June 4, 2018) (unpublished).
S & G Flooring Inc. v. N.Y. Dist. Council of Carpenters Pension Fund, 2009 U.S. Dist. LEXIS 1188, *17-18 (S.D.N.Y. Dec. 18, 2009) (internal citations omitted). In S & G Flooring, the court found that the petitioner struck the right balance. At the outset of arbitration, the petitioner moved for a stay on grounds that it was not bound by the arbitration agreement. The arbitrator denied the stay and held proceedings on the arbitrability issue, in which the petitioner refused to participate. The petitioner then sought to vacate the arbitration default award, challenging the arbitrator’s jurisdiction over the underlying proceeding. The S & G court reviewed the arbitrability issue de novo. Id. at *19-20. See, Opals on Ice, 2002 U.S. Dist. LEXIS 10738 (numerous letters indicating objection, refusing to brief the issue for the arbitrator, and moving for a stay before the court were sufficient for preservation of objection to arbitrability).
If the arbitrator declines to stay proceedings, the party contending that it is not bound to arbitrate the dispute should not submit legal briefs or otherwise participate in a hearing or argument in the arbitration on the issue of arbitrability (or on the merits).
See S & G Flooring, 2009 U.S. Dist. LEXIS 118832 at *16-20 (objection to arbitrability preserved); Opals on Ice, 2002 U.S. Dist. LEXIS 10738 at *16-19 (same); Writers Guild, 255 Fed. Appx. at 115 (de novo review of award re arbitrability waived by briefing and arguing issue before arbitrator); Crossville, LLC, 485 Fed. Appx. at 823-25 (objection to arbitrability preserved).
Finally, notwithstanding the recent seeming consensus concerning such perplexing doctrine, practitioners should always check precedent in the relevant jurisdictions to ensure that they take the steps necessary to preserve their clients’ objection(s) to an arbitrator’s authority.
Todd Rosenbaum is a Mintz litigator whose practice encompasses general commercial litigation, securities litigation, white collar criminal defense, government enforcement matters, and internal investigations. Todd represents clients at trial and appellate courts as well as arbitration.

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