Opinion ID: 1436064
Heading Depth: 1
Heading Rank: 10

Heading: Whether the Presumption in Favor of Arbitration Applies to the Initial Question Whether the Parties Agreed to Arbitrate

Text: The strong federal policy in favor of arbitration manifests itself in a presumption favoring arbitration. But the parties dispute whether this presumption applies to both or only the latter of the questions (1) whether there is a valid arbitration agreement between the parties and (2) whether a particular merits-based dispute must be arbitrated because it is within the scope of the valid arbitration agreement. See Kirleis, 560 F.3d at 160. Though Century acknowledges that there is a policy favoring arbitration that results in a presumption that a particular merits-based dispute is arbitrable, it argues that the presumption does not apply to the threshold determination of whether the parties agreed to arbitrate in the first place. Lloyd's, on the other hand, argues that the presumption applies to both questions. See Trippe, 401 F.3d at 532 (When determining both the existence and the scope of an arbitration agreement, there is a presumption in favor of arbitrability.) (emphasis added). Though we do not agree with the District Court's approach on this point in which it relied on Trippe to conclude that the presumption applies to both questions, we acknowledge that it was not unreasonable for it to take that approach. In Trippe, we addressed the question whether an audio-equipment company could compel a manufacturer to arbitrate their dispute pursuant to an arbitration clause in a distribution agreement between the audio-equipment company and a third party, even though the manufacturer was not a signatory to that agreement. Id. at 530-32. The audio-equipment company claimed that it could compel arbitration based on a separate asset-purchase agreement between the manufacturer and the third party under which the manufacturer assumed certain of the third party's assets and liabilities. Id. Applying New York contract-law principles, we held that the manufacturer was bound to arbitrate claims arising out of obligations it had assumed expressly through the asset-purchase agreement, but not those claims based on obligations that the manufacturer had not assumed expressly, because under New York law an assignee that has assumed an assignor's liabilities contained in an underlying agreement is bound by an arbitration clause in that agreement. Id. at 532-33. Before reaching this conclusion, however, we stated in Trippe that [w]hen determining both the existence and the scope of an arbitration agreement, there is a presumption in favor of arbitrability. Id. at 532. We then quoted from AT & T Technologies, 475 U.S. at 650, 106 S.Ct. at 1419: An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Trippe, 401 F.3d at 532 (internal quotation marks omitted). But, as Century argues, the quotation in Trippe from AT & T Technologies obscures the context of the quotation. There the Supreme Court stated: where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage. AT & T Techs., 475 U.S. at 650, 106 S.Ct. at 1419 (internal citations and quotations omitted). Critically, the presumption of arbitrability that the Supreme Court recognized applies where the contract contains an arbitration clausethat is, where it has been determined that there is a valid agreement to arbitrate. Cf. Volt Info. Scis., 489 U.S. at 475, 109 S.Ct. at 1253 (the federal policy in favor of arbitration requires that ambiguities as to the scope of the arbitration clause itself [be] resolved in favor of arbitration). But the question whether this presumption applies to the threshold inquiry which requires a determination whether there is an agreement to arbitrate in the first place is another matter. The FAA does not require parties to arbitrate a dispute when they have not agreed to do so. Id. at 478, 109 S.Ct. at 1255. The liberal federal policy favoring arbitration agreements . . . is at bottom a policy guaranteeing the enforcement of private contractual arrangements. Mitsubishi, 473 U.S. at 625, 105 S.Ct. at 3353 (internal citations and quotations omitted). Because arbitration is a matter of contract[,] a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. AT&T Techs., 475 U.S. at 648, 106 S.Ct. at 1418 (internal citations and quotations omitted). See China Minmetals, 334 F.3d at 281. Therefore, some of the language in Trippe may be misleading to the extent it suggests that there is a presumption in favor of arbitration in the absence of an agreement to arbitrate. As we have stated both before Trippe and since, a party cannot be compelled to arbitrate unless that party has entered into a written agreement to arbitrate that covers the dispute. Kirleis, 560 F.3d at 160; Chimicles, 447 F.3d at 209; China Minmetals, 334 F.3d at 289-90. We determine whether a party has done so by applying ordinary state-law principles that govern the formation of contracts, not by applying a presumption in favor of arbitration. First Options, 514 U.S. at 944, 115 S.Ct. at 1924. See Kirleis, 560 F.3d at 160. Several other courts of appeals have made it clear that in their view the presumption in favor of arbitration applies to the question whether a particular dispute falls within an existing agreement's scope, but not to the threshold question as to the existence of an agreement between the parties to arbitrate. See Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381 (5th Cir.2008) (We apply the federal policy favoring arbitration when addressing ambiguities regarding whether a question falls within an arbitration agreement's scope, but we do not apply this policy when determining whether a valid agreement exists.); Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir.2002) (The presumption in favor of arbitration is properly applied in interpreting the scope of an arbitration agreement; however, this presumption disappears when the parties dispute the existence of a valid arbitration agreement.) (citing First Options, 514 U.S. at 944-45, 115 S.Ct. at 1924); McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994) (Once agreement between parties has been proven, the federal policy favoring arbitration requires that any doubts concerning the scope of an arbitrable issue be resolved in favor of arbitration, but this policy does not extend to situations in which the identity of the parties who have agreed to arbitrate is unclear.) (internal quotation marks omitted) (citing Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. at 941-42, and PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990)); Grundstad v. Ritt, 106 F.3d 201, 205 n. 5 (7th Cir.1997) ([T]he federal policy favoring arbitration applies to issues concerning the scope of an arbitration agreement entered into consensually by contracting parties; it does not serve to extend the reach of an arbitration provision to parties who never agreed to arbitrate in the first place.) (citing McCarthy, 22 F.3d at 355). We are satisfied that to decide whether a party may be compelled to arbitrate a dispute with another party, we must determine (1) whether there is a valid agreement to arbitrate between the parties and, if so, (2) whether the merits-based dispute in question falls within the scope of that valid agreement. Kirleis, 560 F.3d at 160. The presumption in favor of arbitration applies to the second question but probably does not apply to the first question. Id.; Chimicles, 447 F.3d at 209; see China Minmetals, 334 F.3d at 280-81. Though we have addressed the question of the applicability vel non of the presumption in determining if there is a valid agreement to arbitrate, we have done so because the District Court addressed the point and the law as we have set it forth on the point in various cases is unclear. We, however, need not reach a definitive conclusion on the breadth of the presumption in favor of arbitration, because even without applying the presumption in this case we conclude that the parties entered into a valid agreement to arbitrate.