Opinion ID: 221861
Heading Depth: 4
Heading Rank: 2

Heading: Parties' Choice of Arbitrability Law

Text: The more difficult question is how courts should decide whether the parties have agreed to apply non-federal arbitrability law. The general rule in interpreting arbitration agreements is that courts should apply ordinary state-law principles that govern the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The general rule would require the court to see whether the parties objectively revealed an intent to apply non-federal arbitrability law. Id. If we were to apply the general rule in this case, it may well be that English law would apply to determine arbitrability. There are, however, some situations concerning the determination of arbitrability in which courts require a higher showing of intent. In Kaplan, the Supreme Court held that courts should be cautious in determining whether the parties have agreed to arbitrate arbitrability. The Court held that [c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so. Id. at 944, 115 S.Ct. 1920 (citation, internal quotation marks and alterations omitted). Under Kaplan, the usual presumption that exists in favor of the arbitrability of merits-based disputes is replaced by a presumption against the arbitrability of arbitrability. Id. The Court reasoned that the question of whether a given merits-based dispute is arbitrable arises when the parties have a contract that provides for arbitration of some issues. In such circumstances, the parties likely gave at least some thought to the scope of arbitration. And, given the law's permissive policies in respect to arbitration, one can understand why the law would insist upon clarity before concluding that the parties did not want to arbitrate a related matter. On the other hand, the [question of] who (primarily) should decide arbitrability ... is rather arcane. A party often might not focus upon that question.... And, given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, one can understand why courts might hesitate to interpret silence or ambiguity on the who should decide arbitrability point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide. Id. at 945, 115 S.Ct. 1920 (internal citations omitted). Courts have taken different approaches to the question of how to determine whether the parties have agreed to apply non-federal arbitrability law. The Fifth Circuit in Ford appears to have applied standard contractual analysis in concluding that Texas arbitrability law applied. It held that the combination of a clause providing that any claim must be settled in accordance with the Texas General Arbitration Act; a bold-typed, all-caps, underlined statement on the first page of the agreement reading, Notice: This Agreement is subject to arbitration under the Texas Arbitration Act; and the fact that the agreement's drafters opposed arbitration all demonstrated that the parties intended Texas law ... to govern the scope of the arbitration clause. Ford, 141 F.3d at 246, 249. The Third Circuit, on the other hand, has held that a general choice-of-law provision is not enough to displace federal arbitrability law. Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 & n. 8 (3d Cir.1978). Several district courts have taken the same approach as the Third Circuit. In Chloe Z Fishing Co., 109 F.Supp.2d at 1252-54, the district court concluded that a general choice-of-law provision is insufficient to overcome the overriding basis the FAA creates for applying federal arbitrability law. In Sea Bowld Marine Group, LDC v. Oceanfast Pty., Ltd., 432 F.Supp.2d 1305, 1311-12 (S.D.Fla.2006), the district court held that a general choice-of-law provision was ambiguous concerning whether the parties specified the relevant arbitrability law. It reasoned that the Agreement here contains choice-of-law and arbitration provisions that both reference foreign law. While these designations are relevant to the substantive law to be used, and the location of arbitration, they say nothing, and mean nothing, as to the threshold issue of arbitrability. Id. at 1312. The district court in this case generally followed the reasoning in Sea Bowld. See Cape Flattery, 607 F.Supp.2d at 1185. In concluding that a general choice-of-law provision does not constitute an agreement to apply non-federal arbitrability law, none of these cases specifically relied on Kaplan. However, just as Kaplan was concerned about interpreting a general arbitration agreement to constitute an agreement to arbitrate arbitrability, these courts were concerned about interpreting a general choice-of-law provision to constitute an agreement to apply non-federal arbitrability law. We share these concerns and conclude that our approach to this question should be guided by Kaplan. Like the question of who should decide arbitrability, the question of what law governs arbitrability is rather arcane. In negotiating an agreement, parties are just as unlikely to give thought to the applicable arbitrability law as they are to give thought to the person determining arbitrability. Thus, if courts were to interpret silence or ambiguity concerning the applicable arbitrability law as providing for a non-federal arbitrability law, parties could be subjected to a foreign arbitrability law when they reasonably thought that federal arbitrability law would apply. We therefore conclude, following Kaplan, that courts should apply federal arbitrability law absent clear and unmistakable evidence that the parties agreed to apply non-federal arbitrability law. Kaplan, 514 U.S. at 944, 115 S.Ct. 1920 (citation, quotation marks, and alterations omitted). In this case, there is no clear and unmistakable evidence that the parties agreed to apply English arbitrability law. The arbitration provision states that [a]ny dispute arising under this Agreement shall be settled by arbitration in London, England, in accordance with the English Arbitration Act 1996 and any amendments thereto, English law and practice to apply. Under this provision, English arbitration law clearly applies to disputes that are subject to arbitration, and English law and practice are to be applied by the arbitrator. See Cape Flattery, 607 F.Supp.2d at 1185. However, the agreement is ambiguous concerning whether English law also applies to determine whether a given dispute is arbitrable in the first place. Faced with such ambiguity, we conclude that federal law applies to determine arbitrability.