Opinion ID: 422096
Heading Depth: 1
Heading Rank: 2

Heading: Court or Arbitrator

Text: 9 Having determined that we have jurisdiction, we now focus upon the key issue presented by this appeal: whether a claim of rescission of the entire contract is to be resolved by the federal court or by the arbitrator. The important statutory provisions are sections 2, 3, and 4 of the United States Arbitration Act of 1925. 3 10 Section 2 provides that a written provision for arbitration in any contract evidencing a transaction involving commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Section 3 requires a federal court in which suit has been brought upon any issue referable to arbitration under an agreement in writing for such arbitration to stay the court action pending arbitration once it is satisfied that the issue is arbitrable under the agreement. Section 4 provides a federal remedy for a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration, and directs the federal court to order arbitration upon being satisfied that the making of the agreement for arbitration ... is not an issue.... 11 In this case, the parties do not dispute the making of an agreement which included an arbitration clause. Wilson Wear argues, however, that the question of making impliedly includes the question of unmaking or recission of an agreement to arbitrate and that recission unmakes the agreement to arbitrate. By way of dicta in Halcon International, Inc. v. Monsanto Australia Limited, 446 F.2d 156, 159 (7th Cir.1971), we accepted this argument and indicated that unmaking as contemplated by the Arbitration Act would include mutual cancellation of the contract ... [and] voiding of the transaction due to fraud, mistake or duress. Under the doctrine of severability as announced in Prima Paint v. Flood & Conklin, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), a court must first determine whether the issue of making or unmaking concerns the arbitration clause itself or the entire contract and only then, may the court determine whether it or the arbitrator should resolve the issue. 12 The question before the Court in Prima Paint was whether the federal court or an arbitrator is to resolve a claim of 'fraud in the inducement,' under a contract governed by the United States Arbitration Act of 1925. Id. at 396-97, 87 S.Ct. at 1802. The Court observed that the circuits were split concerning whether a claim of fraud in the inducement of the entire contract should be resolved by the federal court or referred to the arbitrator. After reviewing the various positions, the Court adopted the view of the Court of Appeals for the Second Circuit that arbitration clauses as a matter of federal law are 'separable' from the contracts in which they are embedded, and that where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud. Id. at 402, 87 S.Ct. at 1805. Accordingly, the Court held that in passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate. Id. at 404, 87 S.Ct. at 1806. 13 Thus, following Prima Paint we hold that when the dispute of mutual cancellation relates to the entire contract, rather than the arbitration clause, the question of cancellation is referable to the arbitrator, provided of course that the dispute falls within the scope of the arbitration clause 4 and the parties have not otherwise demonstrated an intention to the contrary. Therefore, we affirm the ruling of the district court ordering arbitration.