Delegation Clauses 101

Many arbitration clauses purport to do more than simply require arbitration of certain disputes. They also claim to commit some—or all—questions of arbitrability to the arbitrator to decide. These so-called delegation clauses beg the question: can an arbitration clause require an arbitrator—and not a court—to decide whether “a valid agreement to arbitrate exists between the parties” and whether “the specific dispute [at issue] falls within the substantive scope of that agreement”? Javitch, 315 F.3d at 624. 

The answer to that question depends on the nature of the gateway issue the arbitration clause seeks to delegate. When a party claims that an arbitration clause delegates arbitrability, the question of who (the court or arbitrator) has the power to decide the arbitrability issue “turns upon what the parties agreed about that matter.” First Options, 514 U.S. at 943. An “agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.” Rent–A–Center, 561 U.S. at 70. The only difference: courts analyzing delegation clauses employ a presumption in favor of courts deciding questions of arbitrability. First Options, 514 U.S. at 944‑45. “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” Id. at 944 (quoting AT & T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)) (alterations in original).

(a)        The scope of an arbitration clause may be delegated.

Applying these principles, parties may validly delegate to an arbitrator (through clear and unmistakable language) the question of coverage—that is, whether a “specific dispute falls within the substantive scope” of an otherwise valid agreement to arbitrate, Javitch, 315 F.3d at 624. See, e.g., Henry Schein, 139 S. Ct. at 528, 530. 

(b)        Severability principles allow delegation of challenges to the validity of the contract as a whole, but courts must decide challenges to the validity of the arbitration clause itself.

Different considerations come into play when a delegation clause purports to grant an arbitrator the power to determine the validity of an agreement to arbitrate. Validity challenges, as distinct from formation ones, include claims of unconscionability, fraud in the inducement, mistake, or impossibility, among others. See, e.g., Rent-A-Ctr., 561 U.S. 63 (unconscionability); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (fraud in the inducement).

As the Supreme Court has recognized, “[t]here are two types of validity challenges under § 2.” Rent-A-Ctr., 561 U.S. at 70. “‘One type challenges specifically the validity of the agreement to arbitrate,’ and ‘[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.’” Id. (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006)).

The Supreme Court has held that challenges directed broadly to the validity of the contract as a whole may be delegated to an arbitrator to decide. See Prima Paint, 388 U.S. at 403-04; Buckeye, 546 U.S. at 444-46; Preston v. Ferrer, 552 U.S. 346, 353 (2008).This is so because “as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.” Buckeye, 546 U.S. at 445; see also Rent-A-Ctr., 561 U.S. at 71. The FAA’s text supports this result as well: “§ 2 states that a ‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid, irrevocable, and enforceable’ without mention of the validity of the contract in which it is contained.” Rent-A-Ctr., 561 U.S. at 70. 

By contrast, where the party resisting arbitration challenges the validity of “the arbitration clause itself,” Prima Paint, 388 U.S. at 403 (emphasis added), the court (not an arbitrator) must decide the validity question. Rent-A-Ctr., 561 U.S. at 71. And just as arbitration clauses can be severable from the broader contracts that contain them, delegation clauses can be severable from a broader agreement to arbitrate. See generally id. at 70‑72. Thus, if a party wishes to challenge a delegation clause as invalid, she must direct the basis of her challenge specifically to the delegation provision. Id. at 72. 

(c)         The question of whether the parties agreed to arbitrate in the first place cannot be delegated.

Some arbitration clauses claim to go further yet: delegating to an arbitrator the authority to determine whether an agreement to arbitrate exists. Such provisions are almost never enforceable. The court cannot compel parties to arbitrate a dispute—including disputes over questions of arbitrability—without first satisfying itself that an agreement to arbitrate exists between the parties. See 9 U.S.C. § 4; Henry Schein, 139 S. Ct. at 530. 

The Supreme Court has made clear that its opinions on severability do not address threshold formation challenges—for example, where a party argues that it never signed the agreement, that the signor lacked the authority to bind the obligor, or that the signor lacked the mental capacity to assent. See Buckeye, 546 U.S. at 444 n.1 (“Our opinion today . . . does not speak to the issue decided in the cases . . . which hold that it is for courts to decide whether the alleged obligor ever signed the contract, whether the signor lacked authority to commit the alleged principal, and whether the signor lacked the mental capacity to assent.” (citations omitted)); Rent-A-Ctr., 561 U.S. at 70 n.2 (“The issue of the agreement’s ‘validity’ is different from the issue whether any agreement between the parties ‘was ever concluded,’ and, as in Buckeye . . ., we address only the former.”). 

In Granite Rock, the Supreme Court stated that before a court can determine that the parties agreed to arbitrate a dispute, it must first find that their arbitration agreement “was validly formed and (absent a provision clearly and validly committing such issues to the arbitrator) is legally enforceable and best construed to encompass the dispute.” 561 U.S. at 303. The placement of the parenthetical in Granite Rock draws a distinction between the issue of contract formation, which typically cannot be delegated to the arbitrator, and issues of enforceability and interpretation, which can. Ford v. Midland Funding, LLC, 264 F. Supp. 3d 849, 853‑54 (E.D. Mich. 2017) (citing Karen Halverson Cross, Letting the Arbitrator Decide Unconscionability Challenges, 26 Ohio St. J. on Disp. Resol. 1, 59-60 (2011)). Thus, courts “must resolve any issue that calls into question the formation or applicability of the specific arbitration clause that a party seeks to have the court enforce. . . . [T]hese issues always include whether the clause was agreed to, and may include when that agreement was formed.” Granite Rock, 561 U.S. at 297.

As Justice Gorsuch explained when he sat on the Tenth Circuit, “[e]veryone knows the Federal Arbitration Act favors arbitration. But before the Act’s heavy hand in favor of arbitration swings into play, the parties themselves must agree to have their disputes arbitrated.” Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 977 (10th Cir. 2014). Thus, this Court has repeatedly distinguished cases applying Prima Paint’s severability-based validity analysis from situations where parties challenge the very existence of an agreement to arbitrate. See, e.g., Moran v. Svete, 366 F. App’x 624, 632 (6th Cir. 2010) (“This is not a case in which it is alleged that the signor did not sign the contract, was an agent without authority to bind his principal, or lacked the mental capacity to assent.”); Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 630 n.2 (6th Cir. 2004) (“This is not like a case where, for instance, a contract is void for lack of a valid signature. In such cases, courts have indicated that an arbitration clause contained in the contract would not be binding.”); Burden v. Check Into Cash of Ky., LLC, 267 F.3d 483, 489 (6th Cir. 2001) (“[W]e are inclined to find that Prima Paint supports, rather than prohibits, excluding nonexistent contracts from the severability doctrine, because an allegation of a void contract raises exactly the same question as an allegation of a fraudulently induced arbitration agreement: whether the arbitrator has any power at all.”).

Other circuit courts—including the Third, Seventh, Eighth, Ninth, Tenth, Eleventh, and D.C. Circuits—have uniformly held that courts, not arbitrators, decide disputes over whether a party assented to an arbitration agreement. See Spahr v. Secco, 330 F.3d 1266, 1273 (10th Cir. 2003) (holding “the analytical formula developed in Prima Paint” does not apply to a claim that the signor lacked the mental capacity to assent); Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 591 (7th Cir. 2001) (“[T]he judiciary rather than an arbitrator decides whether a contract came into being.”); Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 107 (3d Cir. 2000) (holding courts must determine the threshold issue of the existence of an agreement); Chastain v. Robinson-Humphrey Co., Inc., 957 F.2d 851, 855 (11th Cir. 1992) (holding that, where a “party is challenging the very existence of any agreement,” the court must determine whether a binding contract was formed before sending any grievance to arbitration); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991) (holding, after extensive analysis, that only courts can decide whether any arbitration agreement exists); Nat’l R.R. Passenger Corp. v. Boston & Me. Corp., 850 F.2d 756, 761 (D.C. Cir. 1988) (“[I]ssues of formation . . . must always be decided by the courts . . . .”); I.S. Joseph Co. v. Mich. Sugar Co., 803 F.2d 396, 399-400 & n.2 (8th Cir. 1986) (“If there is in fact a dispute as to whether an agreement to arbitrate exists, then that issue must first be determined by the court as a prerequisite to the arbitrator’s taking jurisdiction.”); see also Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 202 (5th Cir. 2016) (explaining that the court always performs a contract formation analysis even where a party “points to a purported delegation clause”).

These cases, of course, reflect the FAA’s textual command, as well as the policy that arbitration is strictly “a matter of consent, not coercion.” Volt, 489 U.S. at 479. Section 4 of the FAA requires that, before compelling arbitration, the court or jury (if demanded) must make a factual finding about the contract’s formation if “the making of the arbitration agreement” is at issue. 9 U.S.C. § 4. Thus, the plain language of the FAA dictates that “a party who contests the making of a contract containing an arbitration provision cannot be compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate.” Three Valleys, 925 F.2d at 1140-41. And, “as arbitration depends on a valid contract[,] an argument that the contract does not exist can’t logically be resolved by the arbitrator.” Sphere, 256 F.3d at 591. “A contrary rule would lead to untenable results. Party A could forge party B’s name to a contract and compel party B to arbitrate the question of the genuineness of its signature.” Three Valleys, 925 F.2d at 1140.