Arbitration 101

Congress enacted the Federal Arbitration Act (FAA) in 1925 to ensure that arbitration agreements are “enforced according to their terms” and to place such agreements “upon the same footing as other contracts.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 478 (1989) (quotations and citations omitted). 

Section 2 is the “primary substantive provision of the Act.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). It provides that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

The FAA contains two primary procedural mechanisms for enforcing an arbitration agreement. Section 3 allows a party to seek a stay of an action brought upon “any issue referable to arbitration.” Id. § 3. The court must grant the stay only “upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement.” Id. Section 4 permits a party to petition the court for an order compelling arbitration. Id. § 4. Faced with such a petition, “[t]he court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” Id. 

Section 4 also sets forth specific procedures a court must follow where “the making of the arbitration agreement” is at issue. Id. The party opposing arbitration “may . . . demand a jury trial of such issue.” Id. And, if “the jury find that no agreement in writing for arbitration was made,” the proceeding to compel arbitration must be dismissed. Id. 

The FAA reflects two key principles: a liberal federal policy favoring arbitration, see Moses H. Cone Mem’l Hosp., 460 U.S. at 24, and the notion that arbitration is fundamentally a matter of contract, see First Options, 514 U.S. at 943. Arbitration agreements remain “strictly ‘a matter of consent.’” Granite Rock, 561 U.S. at 299 (quoting Volt, 489 U.S. at 479). Arbitration “is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.” Id. (quoting First Options, 514 U.S. at 943).

Thus, under both the statute’s text and Supreme Court precedent, the application of the FAA depends, in the first instance, on the existence of a valid contract to arbitrate. See, e.g., Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019) (“To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.”).

Courts’ Typical Role in Evaluating Motions to Compel Arbitration. 

In an ordinary case, a court confronted with a motion to compel arbitration applies a familiar two-part test. The court first determines whether “a valid agreement to arbitrate exists between the parties.” Javitch v. First Union Secs., Inc., 315 F.3d 619, 624 (6th Cir. 2003). If the answer to that question is “yes,” the court then goes on to determine whether “the specific dispute [at issue] falls within the substantive scope of that agreement.” Id.

These antecedent questions—whether an arbitration agreement exists, whether that agreement is valid, and whether that valid agreement covers a particular dispute—are generally referred to as “gateway” questions or “questions of ‘arbitrability.’” See Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010).

In resolving the first gateway question—whether a valid arbitration agreement exists—courts “apply ordinary state-law principles that govern the formation of contracts.” First Options, 514 U.S. at 944. The party seeking to compel arbitration bears “the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014). 

 In resolving the second question—whether a dispute falls within the scope of the agreement—the burden is on the party opposing arbitration to show that the claims at issue are not covered by the agreement. See Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226‑27 (1987). In answering this second question, courts apply a presumption of arbitrability. See First Options, 514 U.S. at 945; Granite Rock, 561 U.S. at 301; Moses H. Cone Mem’l Hosp., 460 U.S. at 24‑25 (“[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .”). This thumb on the scale in favor of arbitration applies solely to the second part of the operative test. “[T]he presumption of arbitrability does not bear on the threshold issue of whether the parties entered into a binding agreement to arbitrate at all.” Begonja v. Vornado Realty Trust, 159 F. Supp. 3d 402, 413 (S.D.N.Y. 2016) (citing Applied Energetics, Inc. v. New Oak Capital Mkts., LLC, 645 F.3d 522, 526 (2d Cir. 2011)).