Opinion ID: 199031
Heading Depth: 2
Heading Rank: 2

Heading: Standard of Review and Interpretation of the Arbitration Clause

Text: 36 The question of the appropriate standard of review is multifaceted. The question whether the parties agreed to arbitrate certain matters was for the court to decide. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Indeed, in PaineWebber, Inc. v. Elahi, 87 F.3d 589 (1st Cir. 1996), we held that the question whether the subject matter of the underlying dispute is within the scope of an expressly limited arbitration agreement is an 'arbitrability' issue. Id. at 596 (construing AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 651 (1986)). And arbitrability depends on contract interpretation, which is a question of law. Id. at 592 (construing Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386, 388 (1st Cir. 1993)). 37 As stated in First Options, [c]courts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so. First Options, 514 U.S. at 944 (quoting AT&T Techs., 475 U.S. at 649) (second and third alterations in original). The limited arbitration clause in Coady's employment agreement contains no such clear and unmistakable language; there is in fact no evidence that the parties agreed to submit the question of arbitrability to arbitration. Thus, the arbitrators' views about what is arbitrable are not given the usual leeway courts give to arbitrators. See id. at 945-47. 38 Coady responds by citing the familiar doctrine that [a]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Even before First Options, however, that doctrine was subject to constraints. So long as the arbitrator, acting within the scope of his delegated authority, is arguably construing the contract, his decision must stand. El Dorado Tech. Servs., 961 F.2d at 319 (emphasis added). The Federal Arbitration Act expressly provides that an award may be vacated [w]here the arbitrators exceeded their powers. 9 U.S.C. § 10(a)(4). 39 To use the doctrine as Coady posits would be to undermine First Options. Where the arbitrability of a dispute is to be determined by a court and the court determines that an issue is not arbitrable, the arbitrators' contrary conclusion that an issue is arbitrable carries no weight and is not entitled to deference. This is true even when the district court's order of reference is in error, as here. If the rule were otherwise, a party who did not agree to arbitrate could be locked into an arbitral award through a series of errors. 10 40 Here, the district court's initial order of reference determined that the employment agreement authorized arbitration only of questions of ambiguity or interpretation of the contract and that questions of breach of contract were not within the scope of the clause. See Coady, 996 F. Supp. at 107. The arbitrators were without power to enlarge upon that ruling. Some language in the order of reference, however, went beyond the district court's core holding that only issues of contract interpretation were arbitrable, and suggested to the arbitrators that they could decide the ultimate issue of the size of the bonus owed to Coady. See id. at 108 ([t]he calculation of the bonus is the subject of arbitration). 41 Whether the arbitration clause mandates that the actual calculation of Coady's bonus is subject to arbitration is, in our view, an issue of interpretation of the contractual language ambiguities or questions of interpretation of this contract. The district court's ruling was one of interpretation, which did not turn on any factual findings. Thus, we review the point de novo, see MCI Telecomms. Corp. v. Exalon Indus., Inc., 138 F.3d 426, 428 (1st Cir. 1998); Keystone Shipping Co. v. New England Power Co., 109 F.3d 46, 50 (1st Cir. 1997), and find that it was error. 42 By its plain language, the arbitration clause is limited to ambiguities and questions of interpretation. When these parties wanted an arbitration clause that covered the application of contract terms to specific facts, they were capable of drafting such a clause. The arbitration clause in the 1991 prenuptial agreement, see supra note 7, applies to the construction, interpretation or application of this Agreement. Coady, 996 F. Supp. at 98 (original emphasis removed and new emphasis added); see also id. at 107 (contrasting the arbitration clause in the prenuptial agreement, which subjects to arbitration not simply the process of discovering and ascertaining the meaning of the contract[,] but also applying the terms of the Agreement to a specific set of facts, to the narrower clause in the employment agreement). At bottom, arbitration remains simply a matter of contract between the parties; it is a way to resolve the disputes -- but only those disputes -- that the parties have agreed to submit to arbitration. First Options, 514 U.S. at 943. The employment agreement plainly manifests the parties' intent to limit arbitration to the interpretation of ambiguous contract terms. 43 The stipulations presented by the law firm at the November 1998 arbitration hearings resolved the ambiguities and questions of interpretation surrounding Coady's bonus; indeed, they eliminated any dispute between Coady and the law firm on these points. 11 This left no issue concerning the bonus that was within the scope of the arbitrators' authority. But, given the language in the district court's order of reference, it is understandable that the arbitrators went further. 44 There was, of course, considerable dispute about the application of the agreed-upon interpretations -- for example, whether the law firm had violated accepted accounting practices. But these issues of breach and calculation of sums were properly part of the factfinding in the D.C. court litigation, and not part of the arbitrators' task.