Business Conflict Blog by Peter Phillips
The Supreme Court has granted certiorari to review the decision of the 1st Circuit in Oliveira v. New Prime, Inc. (No. 15-2364, May 12, 2017). One of the issues before the Court is particularly interesting: Whether a delegation clause vesting in an arbitrator questions of arbitrability of a claim has the effect of removing from a court any power to determine whether the court has jurisdiction to grant a motion to compel arbitration.
In this case, an employer sought an order pursuant to Section 4 of the Federal Arbitration Act to compel arbitration of the claim of a trucker who worked in interstate transportation — a class of claimants expressly excluded from the scope of the FAA.
(A second question arises as to whether an independent contractor is entitled to the same treatment under the FAA as someone with a “contract of employment … engaged in interstate commerce” in transport. But we set that question aside to simplify the first question before the Court.)
The employee argued that the court had no jurisdiction to issue such an order. The claim, asserted by a transportation worker, fell outside the FAA, and the court thus could not grant relief pursuant to a statute that excluded its jurisdiction.
The employer argued that the question whether the claim is arbitrable is one of arbitrability, and thus for the arbitrator to decide pursuant to the delegation clause.
The district court determined that a court, not an arbitrator, must determine whether Section 1 exempts the claim of a “worker in interstate transport,” and ordered fact discovery to make that determination. The employer appealed.
The 1st Circuit distinguished between a court’s power to grant statutory relief — that is, a court’s jurisdiction — and an arbitrator’s power to determine whether a given claim falls within the scope of an arbitration agreement — that is, arbitrability. To illustrate its analysis, the court posited an instance in which two parties entered into an arbitration agreement with a delegation clause as part of a “contract [that] is clearly a contract of employment of a transportation worker.” The argument might then be made that a court could grant relief pursuant to a statute that it had no jurisdiction to enforce. Relief would be granted under the FAA even though “the district court had no authority to act under the FAA in the first place.”
This position cannot be correct. When the only basis for seeking arbitration in federal court is the FAA, the district court can grant the requested relief only if it has authority to act under the FAA. If the FAA does not apply, private contracting parties cannot, through the insertion of a delegation clause, confer authority upon a district court [i.e., to compel arbitration under the FAA] that Congress chose to withhold. Therefore, the district court must make an antecedent determination that a contract is arbitrable under Section 1 of the FAA before ordering arbitration under Section 4.
Section 1 analysis is not one of arbitrability — it is one of jurisdiction. Or so argues the 1st Circuit.
Of course the Supreme Court will reverse. One does wonder, however, the grounds it will rely on.