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Commercial Arbitration
University of North Carolina School of Law
Weidemaier, W. Mark C.

Commercial Arbitration Outline

· Three main questions from class

o How to get into arbitration

o The process

o How to get a review of the result

· What is Arbitration:

o FAA and state arbitration statutes don’t define arbitration

o Parties must:

§ Chose a judge

§ Who renders a binding decision

§ On the merits

§ Based on the proof presented by the parties

§ This is Rush v Moran

· AMF v Brunswick

o NAD was in practice a final decision maker

o Counts as arbitration

§ Cheng- Canindin v Renaissance hotels

· Defines arbitration as

o Third party decision maker

o Mechanism for ensuring neutrality

o Decision maker chosen by the parties

o Opportunity for both parties to be heard

o Binding decision

· This is a way to enforce fairness, so something can be so one sided that it isn’t actually arbitration


o Who decides what is arbitrable?

§ There are three contexts that matter here

· The party not wanting to arbitrate is the plaintiff:

o They simply file a lawsuit

§ The other party can ask for a stay under FAA section three OR ask for an order to compel arbitration under FAA section 4

· The defendant doesn’t want to arbitrate

o The other party try and set up arb, the D can then try for an injunction against arb

· An Independent lawsuit to compel arb under section 4

o FAA (and state statutes that adopt the UAA) make arb valid, irrevocable and enforceable FAA sec 2

o Arb agreement must be in writing (section 2 again)

o Enforcement of arb can be challenged at “such grounds at law or in equity for the revocation of any contract”

§ See below for more on this

o Prima Paint

§ Answers question of whether the court or the arbitrator decides question of fraud in the inducement of a contract

§ Supreme court says this question is for THE ARBITRATOR

· If the issue is fraud in the inducement of the arb clause itself, then the issue is for the court because it goes to the making of the agreement to arbitrate

§ But the arbitrator decides issues with contract generally

· This is true for both section 4 actions to compel and section three actions to stay

§ This is the seperability doctrine

· Arb clause is untainted by issues of fraudulent inducement of the contract itself

o First Options rule

§ Essentially answers question about who decides who gets to decide

· Kaplans didn’t think they were personally liable for their companies debt

· Didn’t think they had agreed to arbitrate the merits of the dispute

· And finally, disagreed about who should have the power to decide arbitrabilty

o Says court must defer to an arbitrators arbitrability decision when parties have contracted that the arbitrator can decide that

§ Courts don’t assume that parties agreed to arbitrate arbitrability unless there is “clear and unmistakable evidence” that they did so

o So, the court gets to decide whether or not you agreed to arbitrate certain things (unless you provide otherwise)

· Courts also decide challenges to the entire contract when the challenge implies that no contract exists (I agreed to nothing) because that is by definition a challenge to the arb clause

o So like saying I didn’t sign that, you forged my signature etc (this is footnote 1 in buckeye)

o However, fraud in the inducement or other things that would normally make the whole contract void ab initio STILL GO TO THE ARBITRATOR absent clear and convincing evidence

§ So questions of scope are for the court (questions of procedure are usually for the arbitrator as stated in the Howsam case

o Buckeye v Cardegna

§ State law distinctions between void and voidable don’t matter, go to the arbitra

the arbitrator

o Questions of scope go to judge

§ In cases where party concedes that there is a valid agreement but that a certain issue isn’t covered by it

§ Simula v Autoliv

· Issue is- does a parties agreement have them agreeing to arbitrate scope?

§ Language in question is that they agreed to arbitrate all claims : “arising in connection with this Agreement”

§ Determinations of arbitrability are de novo review

· Does this language include questions of scope?

· Not clear and unmistakeable

· So, turtle issue here- the question of whether scope is within the scope of the arbitration still goes to the court

· Contract Defenses to Arbitration

o Allowable because of the FAA language “save upon such grounds as exist at law or equity for the revocation of any contract”

§ Supreme court says this means arbitration agreements are subject to general contract law principles- Allied Bruce Terminix Cos. V Dobson

o Badie v Bank of America

§ Unilateral ability to modify agreement after customer enters them

· Try to add an ADR clause

· K formation and assent issue

o Court says the unilateral clause only applies to the parts of the contract which are intrinsic to the agreement

o No ADR clause in original K

o Badie thinks you need notice of which terms are subject to change- so it must be an integral term

§ Court uses standard rules of K interpretation

o Consideration

§ Gibson

· Employee signs promise to arbitrate, Employer isn’t required to.