Arbitral Rules Incorporated Into An Arbitration Agreement May Empower An Arbitrator To Rule On His Or Her Own Jurisdiction
Commercial contracts often include an agreement that the contracting parties will arbitrate disputes that may arise between them in the course of their business dealings. And it is quite common for the arbitration agreement provision to specify which arbitral rules will apply if an arbitration is commenced by either party. For example, the arbitration provision contained in a contract between a business and one if its vendors may specify that the American Arbitration Association’s Commercial Arbitration Rules will apply.
When entering into a contract with language specifying that certain arbitral rules will apply, it is important for the parties (or their legal counsel) to carefully review and understand the rules themselves. This is because incorporation by reference of the arbitral rules into a contract may bestow more power upon the arbitrator than a contracting party appreciates or intends. This may include empowering the arbitrator to rule on his or her own jurisdiction. Airbnb, Inc. v. Doe, 336 So. 3d 698 (Fla. 2022) is illustrative.
In that case, plaintiffs had rented a condominium unit for a brief stay through Airbnb’s website. In doing so, plaintiffs agreed to Airbnb’s Terms of Service. The Terms of Service provided that any dispute between the parties (except for those involving intellectual property rights) would be resolved by an arbitration “administered by the American Arbitration Association (‘AAA’) in accordance with the Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes (the ‘AAA Rules’) then in effect . . . .” Id. at 700-701. When a dispute arose between the parties, plaintiffs contended that the question of whether the dispute was subject to arbitration was one to be decided by a court, and not by an arbitrator. However, the AAA Rules (which had been referenced in the Terms of Service) provided that the arbitrator was empowered to rule on his or her own jurisdiction, including the arbitrability of any claim or counterclaim. Id. Based on this language, the Florida Supreme Court found that the combination of the contract language—which incorporated by reference the AAA Rules—and the AAA Rules themselves constituted “clear and unmistakable” evidence of the parties’ intent to empower an arbitrator, rather than a court, to resolve questions of arbitrability.
Notably, in reaching its conclusion, the Florida Supreme Court surveyed the landscape of federal cases and found that “[a]ll of the federal circuit courts of appeal to consider the issue have consistently agreed that incorporation by reference of arbitral rules into an agreement that expressly empowers an arbitrator to resolve questions of arbitrability clearly and unmistakably evidences the parties’ intent to resolve questions of arbitrability.” Id. at 703-704 (collecting and citing federal court of appeal cases). Consequently, while Airbnb, Inc. v. Doe was decided by the Florida Supreme Court, there is reason to believe that the highest court in most other states would reach the same conclusion. Obviously, legal research should be performed before reaching any conclusions or rendering legal advice. But the key takeaway point is that a party who agrees to arbitral rules specified in an arbitration agreement should understand the full scope of such arbitral rules, as these rules may empower an arbitrator more than a contracting party intends to do so.
Christian Dodd is a civil litigation attorney whose practice is focused on complex commercial and business litigation, business and consumer torts, intellectual property matters, and electronic discovery and information governance issues. He is the Legal Operations Partner for Hickey Smith Dodd LLP, a process and data-driven law firm that is designed to deliver legal services with more value.