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Alternative Dispute Resolution
University of San Diego School of Law
Schulman, Alan

Prof. Schulman
Alternative Dispute Resolution
Fall 2010
       I.            FAA fundamentals
§ § 1&2: Recognize specific enforceability in transactions involving interstate commerce power
§ 1 id's circumstances where federal law applies
Congress has taken expansive view of commerce power
§ 2 = centerpiece of FAA – establishes legal validity of arbitration agreements
Enforceable except on grounds to revoke K (state substantive or procedural K laws)
State law K defenses that govern validity and enforceability of K generally (fraud, duress, unconscionability, etc) may be applied w/o contravening § 2
BUT FAA doesn't give effect to state law if it singles out an arbitration agreement for strict scrutiny (Doctor's Associates v. Cassorotto)
AND arbitration clause is severable from main agreement so if K as a whole is attacked, attacks against the K as a whole don't apply to arbitration clause (Prima Paint)
No preemption clause expressly contained in FAA, but courts have used supremacy clause to uphold arbitration (Doctor’s Associates; Southland Corp. v. Keating)
§ 3: gives Fed courts authority to stay litigation where a dispute is covered by valid agreement to arbitrate
When court is notified of existence of arbitration agreement, can only inquire into arbitrability:
Whether agreement to arbitrate is a valid K AND
Whether the dispute is covered by the arbitration agreement (scope)
§ 4: authorizes court to compel party compliance w/ agreement to arbitrate (order to compel arbitration)
As long as court is satisfied that the making of the arbitration agreement is not at issue
Source of the severability doctrine
§ 5: empowers courts to appoint arbitrators if parties can't agree on one
§ 6: petition for arbitration must be made as motion
                               f.            § 7: gives arbitrators authority to issue summonses (subpoenas)
Allows non-testifying parties to appear as witnesses
Can't enforce the summonses tho, but can apply to court for enforcement
Disagreement about whether court can compel attendance at depos (§ 7 just says hearings)
§ 9: provides that a victorious party may petition in court to enter arbitration award as court judgment if so provided for in the arbitration agreement
If petition filed w/in 1 year of award, court must grant judgment unless it modifies or vacates the award
Once judgment is secured, = court judgment
§ 10: sets grounds for vacatur
Award secured by fraud, corruption, or undue means
Evident partiality in the arbitrator
Arbitrator misconduct in refusing to postpone hearing or in refusing to admit evidence material to the controversy, or any other misbehavior prejudicing the rights of the parties
Excess of arbitrator power
§ 11: sets grounds for modification/correction of award
Evident miscalculation of award, or evident material mistake in the description of person/thing/property referred to in award
Arbitrators have made award on matter not submitted to them, unless the matter doesn’t affect the merits of the decision of the matter submitted
Award is imperfect in form not affecting the merits
    II.            Arbitrability
Establishes which disputes can be lawfully submitted to arbitration
Questions of arbitrability =
Whether there is a valid/enforceable agreement to arbitrate
Whether the dispute in question is covered by the arbitration agreement
Defense to arbitration submission = inarbitrability
Dispute isn't covered OR
Not an enforceable agreement (K)
First Options of Chicago v. Kaplan: Investment Co signed arbitration agreement, but managers didn't.  Merits question: are the managers individually liable for debts of Kaplan?  Arbitrability issue:
Arbitrability issue: who decides whether the parties agreed to arbitrate the merits dispute (i.e., who decides the arbitrability of the K?)
Black letter law: absent clear and unmistakable intent in the agreement, courts shouldn't assume parties want arbitrator to decide arbitrability issues (court decides)
If K is silent on arbitrability, court decides
If K says arbitrator will decide arbitrability, then arbitrator decides and court reviews w/ regular standard of review (deferential)
In CONTRAST, if K is silent on scope of arbitration agreement, presumption is that parties meant scope to be unrestricted
Note: not affected by Rent-a-Center
Arbitrability does not cover procedural Qs
I.e., what kind of arbitration proceeding the parties agreed to
 IV.            Severability
Provides that agreement to arbitrate is separate from the main K
Arbitration clause can be upheld even in an invalid/unenforceable/illegal K
Challenging party must first establish that alleged invalidity bears directly on the arbitration clause
Prima Paint: ∏s claim whole K was a fraud, so can't be held to arbitration.  Entered federal court on diversity jurisdiction
Arbitrability issue: who decides the K defense of fraudulent inducement to the K as a whole where the K contains a broad arbitration clause w/ no clear indication that the parties intended that an arbitrator would not have that issue?
Arbitration clause said “Any controversy or claim…”
SCOUTUS took the case due to split in the circuits: 2nd said sever unless party claims fraud in making the actual arbitration clause;

ions: Investment Co. signed arbitration agreement, but managers didn’t.  Merits Q: are managers individually liable for debts of Kaplan?  Disagreement about whether they agreed to arbitrate this dispute (= arbitrability Q: is the dispute covered by valid/enforceable agreement?)
                                                        i.            Held: absent clear & unmistakable evidence in the agreement, court won’t presume parties want arbitrator to decide questions of arbitrability
                              b.            Prima Paint: ∏s claim whole K was fraudulently induced (∆ claimed to be solved when ∏ purchased but was really bankrupt).  Arbitration clause is broad; says all claims will be arbitrated – does this mean claim that entire K = fraud is submitted to arbitration?  Who answers this Q (Q of arbitrability)?
                                                        i.            Held: under § 4, arbitration clauses are severable giving arbitrator power to decide K claim unless party is claiming fraud in the inducement of the arbitration agreement
                               c.            Buckeye Checking: ∏s brought putative class action, alleging that fees they were charged for check cashing were in violation of state law, making the Agreement criminal on its face.  Agreement included arbitration clause.  Under Prima, challenges to legality of K as a whole go to arbitrator but these ∏s said Prima doesn’t apply in state court.
                                                        i.            Held: Prima Paint’s severability rule applies in both state and fed courts.  Challenges to agreement/K as a whole decided by arbitrator under § 4.  Only challenges to making of arbitration clause go to court.
                              d.            Rent-a-Center: EE filed discrimination suit (§ 1981) against ER in Dist. Ct.  ER moved to compel arbitration under Agreement – Agreement purported to cover all state & fed discrim claims.  Agreement contained “delegation provision”: gave arbitrator power to “resolve any dispute relating to the enforceability of the Agreement… including claim that any part of the Agreement is void or voidable.”  EE claimed unconscionability (procedural: condition of employment; substantive: fee-sharing provision)