November 12, 2021

November 12, 2021:

"Virtually all courts to consider the question, including this one, have concluded that, in contracts between sophisticated parties, incorporation of rules with a provision on the subject is normally sufficient 'clear and unmistakable' evidence of the parties' intent to delegate arbitrability to an arbitrator."  Rohm Semiconductor USA, LLC v. Maxpower Semiconductor, Inc., 17 F.4th 1377 (Fed. Cir. 2021).

The U.S. Supreme Court has determined that for an arbitrator to have the power to decide arbitrability, the parties must "clearly and unmistakably" grant that power to the arbitrator.  AT&T Techs. Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986).  Absent such a clear and unmistakable grant, arbitrability is for a court to decide.          

Arbitration agreements commonly adopt arbitration rules of an ADR organization, for example, the Commercial Arbitration Rules of the American Arbitration Association ("AAA").  The AAA Commercial Arbitration Rules grant to the arbitrator the power to decide arbitrability.  Specifically, Commercial Arbitration Rule R-7(a) provides that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim."  The AAA construction, consumer, employment, and labor arbitration rules contain essentially identical provisions.          

The question arises: When parties incorporate by reference arbitration rules that grant to the arbitrator the power to decide arbitrability, does that incorporation by reference satisfy the "clear[] and unmistakabl[e]" standard?  In Rohm, the Federal Circuit answered that question: Yes, such incorporation by reference does meet that standard.                  

In Rohm, the parties' arbitration agreement provided that an arbitration was to be conducted in accordance with the California Code of Civil Procedure.  That Code, like the AAA arbitration rules referenced above, provides that the arbitrator may decide the arbitrator's own jurisdiction.  As indicated by the quotation in the headline above, citing decisions by the Second, Fifth, Eighth, Eleventh, District of Columbia, and its own Federal Circuit, the Rohm court concluded that "[v]irtually all courts to consider the question" have agreed that incorporation by reference of arbitration rules that grant the arbitrator the power to decide arbitrability meets the "clear[] and unmistakabl[e]" standard.  The Federal Circuit declined to follow an outlier -- a Florida intermediate state court decision that reached the opposite conclusion, but was still subject to further review by the Florida Supreme Court.                

Rohm should put this issue to rest.  When parties incorporate by reference arbitration rules that grant the arbitrator the power to decide arbitrability, as now established by decisions of six of the federal circuit appellate courts, that incorporation by reference satisifes the "clear[] and unmistakabl[e]" standard.  In this situation, the arbitrator, not a court, should decide arbitrability.    


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