Sixth Circuit Affirms: AAA Rules Require Disputes Over Arbitrability Be Decided in Arbitration
Parties that have agreed to arbitrate certain disputes often disagree about whether a particular claim falls within their agreement to arbitrate, and also about who should make that threshold determination: a court or an arbitrator. The well-established rule is that a court should decide such gateway questions of whether a claim falls within an agreement to arbitrate, absent “clear and unmistakable evidence” that the parties agreed that an arbitrator should do so. E.g., Coinbase, Inc. v. Suski, 602 U.S. 143, 149 (2024). Given that demanding standard, one could be forgiven for assuming that such questions would typically be resolved in court. But that is frequently not the case, as illustrated by the Sixth Circuit’s recent decision in New Heights Farm I, LLC v. Great Am. Ins. Co., No. 24-1087, — F.4th —- (6th Cir. Oct. 15, 2024).
New Heights Farm arose out of a dispute over crop insurance. The plaintiffs-insureds alleged that the insurer had thwarted their insurance claim by over-reporting the amount of crops in storage and falsely accusing them of crop-insurance fraud. The arbitration provision at issue provided:
If you and we fail to agree on any determination made by us … the disagreement may be resolved through mediation …. If resolution cannot be reached through mediation, or you and we do not agree to mediation, the disagreement must be resolved through arbitration in accordance with the rules of the American Arbitration Association (AAA) …
Facially, this arbitration provision lacks a clause expressly empowering an arbitrator to resolve questions of arbitrability. Indeed, as the district court explained, “[a]t first glance, this appears to leave open the question of arbitrability.” New Heights Farm I, LLC v. Great Am. Ins. Co., No. 1:23-CV-663, 2024 WL 123644, at *6 (W.D. Mich. Jan. 11, 2024) (emphasis added).
Nonetheless, both the district court and the Sixth Circuit found “clear and unmistakable” evidence that the parties intended to resolve threshold arbitrability questions in arbitration. These courts reached this conclusion because, like many arbitration agreements, the arbitration provision at issue incorporated the AAA’s rules, which empower the arbitrator “to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.”
Given that many arbitration provisions incorporate the rules of a major arbitration provider such as AAA or JAMS, New Heights serves as an apt reminder that the parties to those agreements will be required to litigate any disputes about the scope of their arbitration agreements, at least in the first instance, in arbitration and without judicial involvement. This is true even when a party makes a “wholly groundless” argument that the dispute falls within an agreement to arbitrate. E.g., Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 68, (2019).
TAKEAWAY: Parties should be aware that, if they incorporate default arbitration rules into their agreement, disputes about the scope of their arbitration agreement will likely have to be decided by an arbitrator, even if the claim appears “wholly groundless.”