Second Circuit Holds Court, Not Arbitrator, Must Decide Whether A Dispute Is Arbitrable

In his ADR Highlights blog, Dave Reif provides an excellent discussion of the Second Circuit’s recent decision in DDK Hotel, LLC v. Williams-Sonoma, Inc., noting that “the holding is a big deal in the litigation of motions to compel arbitration.”

In DDK Hotel, the parties’ agreement incorporated by reference the American Arbitration Association Commercial Rules, including Rule 7(a)’s admonition that, with respect to jurisdiction, “[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.” However, as the Second Circuit held, while incorporation of the AAA rule provides evidence of the parties’ intention to delegate the question of arbitrability to the arbitrator, it is not determinative. According to the court, “context matters”: “Where…the arbitration agreement is narrower, vague, or contains exclusionary language suggesting that the parties consented to arbitrate only a limited subset of disputes, incorporation of rules that empower an arbitrator to decide issues of arbitrability, standing alone, does not suffice to establish the requisite clear and unmistakable inference of intent to arbitrate

In DDK Hotel, as Mr. Reif explains, “[t]he parties’ arbitration clause was not a ‘broad’ one covering all disputes, but, rather, applied only to ‘Disputed Matters,’ which the agreement defined as those ‘requiring Board or Member approval.’”  Thus, while “Disputed Matters” were subject to the AAA rules, “[i]f the parties’ dispute raises any other question, there is no referral of the merits to the AAA and none of its rules, including those invoking competence-competence, clearly apply.”

Mr. Reif suggests the Second Circuit decision may engender interest by the United States Supreme Court.  

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