"clear and unmistakable"

Today’s post concerns a perennially hot topic: class actions.  In particular, do courts decide whether an arbitration agreement allows for class actions?  Or do arbitrators?  (Because, it turns out, there are actually some corporations who have not inserted class action waivers in their consumer contracts.)  To date, four circuit courts have held that class arbitrability is an issue that is presumably for courts (not arbitrators) to decide, even if the parties incorporate rules that generally delegate issues of arbitrability to an arbitrator (3rd, 4th, 6th, 8th).  In recent weeks, the Tenth Circuit and Eleventh Circuit disagreed.  Because the Second Circuit had also previously disagreed, there is now a 4-3 split among the circuits over whether the incorporation of AAA (or similar) rules is sufficient to authorize an arbitrator to decide whether arbitration can proceed on a class-wide basis.

In Spirit Airlines v. Maizes, 2018 WL 3866335 (11th Cir. Aug. 15, 2018), members of Spirit Airlines’ “$9 Fare Club” started a class arbitration with the AAA.  Spirit then brought an action to federal court, seeking a declaration that the arbitration clause did not authorize class arbitration.  (You may recall that the outcome of the Stolt-Nielsen and Sutter cases is that there can be no class arbitration unless the parties agreed to that process in their arbitration clause, but the language does not have to be explicit.)  The district court found that the arbitrator should determine the issue of whether a class action could proceed in arbitration.

On appeal, the Eleventh Circuit found that no special rules apply to class arbitration.  It assumed that class arbitration is a gateway issue of arbitrability, such that the court has presumptive authority to decide it.  Here, the Spirit agreement called for the AAA rules, which the court found included the Supplementary Rules for Class Arbitration, and those supplementary rules empower an arbitrator to decide whether claimants may proceed as a class action.  The court found that incorporation of AAA rules was clear and unmistakable evidence that the parties intended the arbitrator to decide the availability of a class action in arbitration.  It relied on earlier precedent finding that AAA rules are sufficient to delegate jurisdictional issues to arbitrators, and disagreed that SCOTUS rulings provide for any different outcome in the case of class arbitration.

In Dish Network v. Ray, 2018 WL 3978537 (10th Cir. Aug. 21, 2018), a former employee of Dish Network started a class and collective arbitration with the AAA.  The appointed arbitrator issued a Clause Construction Award, finding that he had authority to decide the issue and that the arbitration agreement permitted a collective action.  The arbitrator’s award included ten pages of analysis interpreting the text of the arbitration agreement to shed light on whether they agreed to allow class/collective actions in arbitration.  The district court denied Dish’s motion to vacate the Clause Construction Award, and the Tenth Circuit affirmed that decision.

On appeal, the court assumed without deciding that the availability of class arbitration is a gateway dispute for court to decide.  Even so, it found that the parties’ selection of AAA rules to govern the arbitration was sufficient to clearly and unmistakably delegate the issue of class arbitration to the arbitrator.  It acknowledged that four circuits had “require[d] more specific language delegating the question of class wide arbitrability,” but noted that the Second Circuit had disagreed with that holding earlier this year.  Following the lead of the Second Circuit, the court relied on precedent from Colorado and the Tenth Circuit finding that incorporation of AAA rules is sufficient to delegate arbitrability to the arbitrator.  Having concluded that the arbitrator had authority to determine whether the parties’ arbitration agreement allowed for class/collective actions, the court had little trouble finding that the arbitrator’s Clause Construction Award could not be vacated.  The court found that the arbitrator “interpreted the parties’ contract, which is all we are allowed to consider” and did not manifestly disregard the law.

The fact that this circuit split is heating up is interesting in light of one of the arbitration cases that SCOTUS will hear on October 29.  That case, Lamps Plus, presents the question of how specific the language of an arbitration agreement must be in order to authorize class arbitration.

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A class action postscript.

A putative class of plaintiffs sued Bluestem Brands in federal court in Minnesota for claims related to its credit programs.  In response to a motion to compel arbitration, the district court compelled arbitration of some claims, but denied others, finding they fell outside the scope of the credit agreement’s arbitration clause.  On appeal, the Eighth Circuit found all claims fell within the arbitration clause.  Parm v. Bluestem Brands, 2018 WL 3733424 (8th Cir. Aug. 7, 2018).  After finding the arbitration clause was “broad” (because it used the magic phrase “arise out of”), it found the factual allegations for all claims “touch[ed] matters covered by the arbitration agreement,” because all allegations related to the financing agreements.

And, in further fallout from Epic Systems, roughly 1600 employees of Kelly Services alleged violations of the Fair Labor Standards Act in federal court.  Gaffers v. Kelly Services, 2018 WL 3863422 (6th Cir. Aug. 15, 2018).  Kelly Services compelled individual arbitration with the employees who had arbitration agreements (about half).  As those employees’ only defense was that the Federal Arbitration Act should take a backseat to the FLSA or NLRA, the employees lost on appeal and will have to arbitrate.

Two different panels of the Second Circuit issued opinions about class arbitration on the same day last week.  One creates a circuit split over how specific parties must be to delegate the availability of class arbitration to arbitrators, and the second addresses when bankruptcy law can preempt the federal arbitration act.

In Wells Fargo Advisors, LLC v. Sappington, 2018 WL 1177230 (2d Cir. March 7, 2018), a putative class of former Wells Fargo employees brought suit for unpaid overtime (FLSA).  Wells Fargo moved to compel “bilateral” (individual) arbitration.  The district court denied the motion, finding that the arbitrator was authorized to decide whether class arbitration was available.   The Second Circuit affirmed.

As you may recall from this blog, at least four federal circuit courts have found that whether class arbitration is available is a gateway issue of arbitrability, meaning that it is presumptively for the courts to determine.  (The 8th, 6th, 4th, and 3d.)  And, while parties can delegate gateway issues to the arbitrator if they do so clearly and unmistakably, at least three of those circuits have held that a higher standard applies to the class arbitration issue.  (For example, the Eighth Circuit found that incorporating AAA rules was not sufficient to delegate class arbitrability, while it is sufficient to delegate other gateway issues.)

In the Wells Fargo matter, the Second Circuit “assume[d] without deciding” that the availability of class arbitration is a gateway question.  (Wimps.  Just decide.)  It then considered whether the delegation of that issue to an arbitrator was clear and unmistakable under Missouri law.  One set of plaintiffs had an agreement stating that “any controversy relating to your duty to arbitrate hereunder, or to the validity or enforceability of this arbitration clause, or to any defense to arbitration, shall also be arbitrated.”    The court found that was clear and unmistakable delegation of the class arbitration issue to an arbitrator.

More surprisingly, the court found that a second set of plaintiffs had also clearly and unmistakable delegated class arbitration to an arbitrator, even though their agreement only agreed to arbitrate “any dispute” and adopted either FINRA rules or alternatively 1993 Securities Arbitration Rules of the AAA.  In its analysis, the court noted that because some types of disputes were excluded from arbitration (unemployment), but class arbitration was not excluded, Missouri law would consider it included.  And the court found that more recent iterations of the AAA rules applied, which allow an arbitrator to determine whether a class can proceed.  This decision creates a circuit split on the issue of whether class arbitration is special enough to deserve its own rules for delegation.

As if creating a circuit split on class arbitrability wasn’t exciting enough, the Second Circuit also allowed another putative class action to go forward, despite an arbitration clause.  In In re Anderson, 2018 WL 1177227 (2d Cir. March 7, 2018), Mr. Anderson went through Chapter 7 bankruptcy and his debts were released.  One of those debts was to his credit card company.  However, Mr. Anderson alleged that the credit card company refused to update his credit reports after the bankruptcy.  So, he filed a putative class action.  The credit card moved to compel arbitration under the cardholder agreement, but the bankruptcy court found it was non-arbitrable because it “was a core bankruptcy proceeding that went to the heart of the ‘fresh start’ guaranteed to debtors.”  On appeal, the Second Circuit agreed.

What happens when state courts disagree with SCOTUS’s interpretation of the Federal Arbitration Act?  They resist, and they have a thousand different ways of doing so.  The Mississippi Supreme Court demonstrated one way to resist recently in Pedigo v. Robertson, Rent-A-Center, Inc., 2017 WL 4838243 (Miss. Oct. 26, 2017). (I neglected to mention the state appellate courts as important actors in last week’s post about what we may see now that the CFPB rule is dead.)

In Pedigo, the plaintiff entered into a Rental Purchase Agreement (RPA) from Rent-A-Center.  (Yes.  The same Rent-A-Center of delegation clause fame.)  Within about four months, he stopped making payments.  At that point, Rent-A-Center found out that plaintiff had sold the television to a pawn shop shortly after purchasing it.  Rent-A-Center then filed a complaint with the police, and the plaintiff was arrested and incarcerated.

After the plaintiff was released from jail, he filed a civil action against Rent-A-Center, alleging the police report was false.  Rent-A-Center moved to compel arbitration.  The trial court judge compelled arbitration.

On appeal, the high court found that plaintiff’s claims of malicious prosecution were outside the scope of the parties’ arbitration agreement.  The RPA itself prohibited the sale or pawning of the leased goods.  The arbitration agreement in the RPA stated that covered claims “shall be interpreted as broadly as the law allows and mean[] any dispute or controversy between you and RAC….based on any legal theory…”  The only claims not covered were those for injunctive or declaratory relief, or those seeking less than $5,000 in damages.  However, because “the agreement fails to contemplate that a lessor/signatory might pawn collateral and subsequently be indicted and jailed” the court did not require the plaintiff to arbitrate his claims.

Why do I call this “resistance”?  Because there are many cases saying that as part of the federal policy favoring arbitration, courts presume that claims are within the scope of a valid arbitration agreement.  The coin is weighted towards “heads.”  And here, the agreement explicitly prohibited pawning the TV, and the arbitration clause was about as broad as it could be.  Yet the court refused to compel arbitration.  The implication of this court ruling seems to be that if a specific claim is not enumerated in an arbitration clause in Mississippi (to show it was contemplated), the claim is not arbitrable.  And that just does not fit within the federal precedent.

You know what state is not currently resisting?  Missouri.  The Supreme Court of Missouri faithfully followed the instructions SCOTUS gave in Rent-A-Center, and enforced a delegation clause over the votes of two dissenting justices.  In Pinkerton v. Fahnestock, 2017 WL 4930289 (Mo. Oct. 31, 2017), the Missouri high court found that the parties’ incorporation of the AAA rules was a clear and unequivocal delegation clause.  It also found that the great majority of the plaintiff’s challenges were not specific to the delegation provision (they applied to the arbitration agreement as a whole) and so could not be considered; the only specific challenge was plaintiff’s argument that it is unconscionable to delegate arbitrability to “a person with a direct financial interest in the outcome.”  The court dismissed that out of hand, citing Rent-A-Center.  Because the plaintiff had made no successful challenge to the delegation clause, the Missouri high court enforced it, sending the issue of the arbitration agreement’s validity to the arbitrator.

Class action arbitration continues to be a hot topic among the federal appellate courts this summer.

The 8th Circuit followed the lead of other circuit courts, finding that courts, not arbitrators, presumptively decide whether the parties’ arbitration agreement allows for class arbitration. Catamaran Corporation v. Towncrest Pharmacy, 2017 WL 3197622 (July 28, 2017).   In support of its decision, the court raised concerns about class arbitration, including loss of confidentiality, due process concerns for absent parties, and a concern about the lack of appellate review.  [Interesting that it didn’t cite any of CFPB’s report on this, but just cited other case law… ] Therefore, unless the parties have “clearly and unmistakably delegated” the class arbitration issue to the arbitrator, a court will decide the issue.  Furthermore, the court said that incorporating the AAA rules is not a clear and unmistakable delegation of the class arbitration decision, even though citing the AAA rules is sufficiently clear in analogous issues in regular “bilateral arbitration.”  The court remanded to the district court to determine whether there was a contractual basis for class arbitration.

Halfway across the country, the 9th Circuit held that employees could bring their claims related to a data breach as a class action in arbitration.  Varela v. Lamps Plus, Inc., 2017 WL 3309944 (Aug. 3, 2017).  The employees had first brought their class claims to federal court, and the employer moved to compel individual arbitration.  The district court found the arbitration agreement was valid, but ambiguous about whether class actions were waived.  Construing that ambiguity against the employer who drafted the agreement, the district court ordered class arbitration.  On appeal, the 9th Circuit affirmed the finding of ambiguity, sending the class to arbitration as a group.  One judge issued a two sentence dissent, noting “we should not allow Varela to enlist us in this palpable evasion of Stolt-Nielsen

Lots of interesting arbitration law has been made already in 2016, so here is a roundup from the first four weeks of the year. As a teaser, courts have breathed life into the effective vindication doctrine, found arbitrators cannot determine the availability of class actions, and found state laws not preempted.  More surprisingly, state courts are following SCOTUS’s interpretations of the FAA.

Effective Vindication Lives On

Although I thought Italian Colors was an “effective elimination” of the effective vindication doctrine, the Tenth Circuit affirmed its use as a defense to a motion to compel arbitration this month in Nesbitt v. FCNH, Inc., 2016 WL 53816 (10th Cir. Jan. 5, 2016).  [Side note to WestLaw: can there really have been 53,816 cases by January 5th of the year??  Or do I misunderstand the numbering system?]  In that case, class action plaintiffs in a Fair Labor Standards Act case defeated a motion to compel individual arbitrations by asserting that under the AAA Commercial Rules, each plaintiff would have to pay between $2,300 and $12,500 in arbitrator fees and could not recover attorneys’ fees.  The appellate court affirmed.

Incorporation of AAA Rules Can “Unmistakably” Delegate Some Gateway Issues, But Maybe Not the Availability of Class Actions

The Third Circuit drew what seems to me a questionable distinction between parties’ ability to delegate some substantive issues of arbitrability from others. Despite acknowledging that federal courts of appeals have universally found that when parties agree to be bound by the AAA rules, they delegate substantive arbitrability to arbitrators, the Third Circuit found that does not extend to the availability of class arbitration. Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 2016 WL 53806 (3d Cir. Jan. 5, 2015).  Recall that in general, courts are presumed to have authority to determine whether an arbitration exists, whether it is valid, and whether it covers the scope of the parties’ dispute.  But, under First Options of Chicago, a SCOTUS opinion, parties can delegate even those issues to arbitrators as long as their intent to do so is “clear and unmistakable.”  In Chesapeake Appalachia, the court repeats its pronouncement from Opalinski that the “availability of classwide arbitration” is one of those substantive questions of arbitrability that courts presumptively decide, unless parties clearly and unmistakably state otherwise.  And then it further protects courts’ ability to make that determination by holding that the parties’ incorporation of AAA rules, which explicitly allow arbitrators to determine their own jurisdiction and contain supplementary rules about class arbitration, is not sufficient to delegate the availability of classwide arbitration to arbitrators.  Drawing on statements from Sutter, the court leaned on the “great” procedural differences between bilateral and class-action arbitration to support its distinction.

Waiver of the Right to Arbitrate is an Issue Presumptively for Courts

Maybe Bryan Garner can come up with a new term for “waiving” the right to arbitrate, so that it is not the same verb as waiving the substantive claim being arbitrated. If so, that would alleviate the problem that the Supreme Court of Nevada addressed in Principal Investments, Inc. v. Harrison, 2016 WL 166011 (Nev. Jan. 14, 2016).  That court wrestled with the issue of whether a court or an arbitrator should decide if a party has waived its right to arbitrate by participating in litigation.  In other words, is that type of waiver a substantive question of arbitrability (like whether there is a valid arbitration agreement) that is presumptively for courts, or a procedural question of arbitrability that is presumptively for arbitrators?  Adding to the confusion is language from Howsam and BG Group characterizing “waiver” as an issue presumptively for arbitrators.  After canvassing other courts and finding the majority have concluded that waiver-by-litigation is presumptively for courts, the Nevada Supreme Court followed the herd.

Missouri Enforces Prima Paint’s Severability Doctrine

As I have picked on Missouri for bucking federal arbitration law, I owe it to the Show-Me State to point out that it recently (but reluctantly) followed federal precedent on severability. In Ellis v. JF Enterprises, LLC, 2016 143281 (Mo. Jan. 12, 2016), the Supreme Court of Missouri recognized that under federal precedent, a plaintiff cannot avoid an arbitration agreement by asserting the contract as a whole is void, it must point to a deficiency with the arbitration clause specifically.  As a result, the court held that “no matter what logic or fairness” undergirded the plaintiff’s argument that her auto sale was invalid, she had to arbitrate that claim.

Kentucky’s Precedent on Wrongful Death Actions is not Preempted by FAA

In Richmond Health Facilities v. Nichols, 2016 WL 192004 (6th Cir. Jan. 15, 2016), the Sixth Circuit analyzed Kentucky’s state law rule, which holds that wrongful-death claims belong only to beneficiaries, and therefore any arbitration agreement signed by a decedent cannot bind a beneficiary bringing a wrongful death claim.  The Sixth Circuit found that state law rule does not stand as an obstacle to the FAA, because it does not categorically prohibit arbitration of wrongful death claims, so was not preempted.

Lots of Action on Attorneys’ Fees

The Supreme Court of Utah held that an arbitrator cannot award attorneys’ fees incurred in confirming the arbitration award, under the Uniform Arbitration Act. Westgate Resorts, Ltd. V. Adel, 2016 WL 67717 (Utah Jan. 5, 2016).

Massachusetts’ highest court also found an arbitrator is not authorized to award attorneys’ fees due to one party’s assertion of frivolous defenses (unless the parties specifically granted the arbitrator that authority). Beacon Towers Condominium Trust v. Alex, 2015 WL 9646024 (Mass. January 7, 2016).

Similarly, the Second Circuit held that a federal district court erred in awarding attorneys’ fees and costs to the party that successfully confirmed its arbitration award. Zurich Am. Ins. Co. v. Team Tankers (2d Cir. Jan. 28, 2016).  As part of its contractual analysis, the court repeated that parties may not contract around Section Ten of the FAA.  In other words, it would not read the parties’ contract as precluding an attempt to vacate the award.

PHEW. I have now alleviated the guilt that has been weighing on me for not blogging about these cases yet.  Hope February brings a more reasonable stream of opinions!

The Alabama Supreme Court has followed the Eighth Circuit’s lead, concluding that when the parties agree to arbitrate pursuant to the AAA Rules, they have clearly and unmistakably authorized the arbitrator to determine who is bound by that arbitration agreement.  Federal Ins. Co. v. Reedstrom, __ So. 3d __, 2015 WL 9264282 (Ala. Dec. 18, 2015).

The dispute in Reedstrom centered on whether an executive liability insurance policy covered a judgment against a former executive for misconduct.  The executive sued the insurance company for breach of contract, and the company moved to compel arbitration.  The trial court denied the motion without any rationale.

The Alabama Supreme Court reversed.  On appeal, two key issues were analyzed: whether the insurance company could compel arbitration with the executive, even though he did not sign the insurance policy (his former employer did); and whether the insurance company had waived its right to arbitrate.  The court noted that the default rule is that courts generally decide both those issues, unless the arbitration provision “clearly and unmistakably” delegates them to the arbitrator.  And in this case, the majority found the arbitration provision did exactly that by agreeing to arbitrate pursuant to the current AAA commercial rules, which allow the arbitrator to rule on his or her own jurisdiction.

Three justices dissented from the opinion, generally concluding that incorporating the AAA rules is not enough, by itself, to constitute clear and unmistakable evidence that parties intend to submit arbitrability to an arbitrator.

A recent report showed that less than half of arbitration agreements in the consumer financial arena include delegation clauses in their arbitration agreements.  Two recent decisions from state high courts suggest that is a wise decision because courts do not like to enforce delegation clauses. (Reminder: a delegation clause gives the arbitrator explicit authority to decide issues of substantive arbitrability that would otherwise be decided by a court, like the enforceability and scope of the arbitration clause.)

In Schumacher Homes of Circleville v. Spencer, __ S.E.2d.___, 2015 WL 1880234 (W.Va. 2015), the highest court in West Virginia refused to enforce the parties’ delegation clause.  The construction contract contained an arbitration agreement, which stated that “The arbitrator(s) shall determine all issues regarding the arbitrability of the dispute.” When the homeowners sued over construction defects, the builder moved to compel arbitration. The trial court denied the motion, finding the arbitration clause unconscionable. On appeal, the builder focused on the delegation clause, arguing that the trial court erred in not sending the unconscionability issue to the arbitrator.

The West Virginia Supreme Court of Appeals called the rule in Rent-A-Center, that delegation clauses must be enforced unless the plaintiff alleges the clause itself is unenforceable, “absurd” and an “ivory-tower interpretation of the FAA.”  Yet, it also recognized the rule is binding on state courts, so it found a different basis to object to the delegation clause. Noting that delegation clauses must be “clear and unmistakable,” the court found that “arbitrability” is an ambiguous term, so the delegation clause here did not clearly delegate the question of unconscionability to the arbitrator. (It did not help that the builder first raised the delegation clause orally after the issues were briefed in the trial court.) One justice dissented from the opinion, calling it “blatant ‘judicial hostility’ toward arbitration” and noting that the court “has been notoriously chastised by” SCOTUS for singling out arbitration agreements for hostile treatment.

[Editor’s note: The decision in Circleville reiterates the need for this blog to exist and continue educating people about arbitration law. The opinion starts by explaining that the SCOTUS decisions construing the FAA “create an eye-glazing conceptual framework” that is “a tad oversubtle for sensible application” and that “the rules derived from these decisions are difficult for lawyers and judges—and nearly impossible for people of ordinary knowledge—to comprehend.” That’s why I’m here, folks! To stop your eyes from glazing over and help lawyers and judges and “ordinary” people understand the FAA. Okay, back to our regular program.]

The Supreme Court of Kentucky did something similar in Dixon v. Daymar Colleges Group, LLC, __S.W.3d__, 2015 WL 1544450 (Ky. 2015). The single-page student enrollment agreement at issue in that case had an arbitration agreement on its back side, with a clause saying “all determinations as to the scope or enforceability of this arbitration provision shall be determined by the arbitrator, and not by the court.” After the students brought suit, the college moved to compel arbitration. The trial court denied the motion, finding the arbitration agreement was unconscionable. The Court of Appeals reversed, finding no unconscionability.

The state supreme court applied the FAA, but found a way out of Rent-a-Center by reframing the issue as not one over the enforceability of the delegation clause, but instead whether the parties formed an arbitration agreement at all. Because the students argued that their signature was only on the front side of the agreement, and they were fraudulently induced to sign the agreement, the court defined this as a formation dispute that belonged in the courts. Applying Kentucky’s Statute of Frauds, the court held that the signatures had to be at the end of the document and because they were not, the parties were not bound by the arbitration agreement that appeared after the students’ signature.

In drafting arbitration agreements, we must take it as a given that there will be state courts that are hostile to arbitration and eager to find ways not to enforce an arbitration agreement. That is likely exactly the sentiment that led drafters to invent delegation clauses in the first place – hoping that if the very validity of the arbitration agreement could be decided by the arbitrator, there was a higher chance of the arbitration agreement’s survival. However, if the delegation clause is not likely to be enforced anyway, it bears reconsidering its insertion. Reading these two opinions, it strikes me that the argument over enforcing the delegation clause, which involves arguing over Rent-A-Center, may instead remind some judges exactly why they dislike federal arbitration case law so much and give them extra incentive to throw out the arbitration agreement.

 

To date, courts have largely limited the impact of the Rent-A-Center decision to arbitration agreements with explicit delegation clauses. But, what if Rent-A-Center applied to every single arbitration agreement that mentioned the AAA rules?  That is a very real possibility, and one which would send almost all arbitrability disputes to arbitrators.

The ­Rent-A-Center decision used “delegation clause” to mean any aspect of an arbitration agreement that authorizes an arbitrator to decide questions about the validity of the arbitration agreement.  Rent-A-Center held that unless a party could allege a fatal flaw in the delegation clause itself, the arbitrator should decide the arbitrability question.  Courts have applied that ruling to explicit delegation clauses like this one: “Any issue concerning … the formation, applicability, interpretation or enforceability of [the arbitration agreement] . . . will be resolved by the arbitrators.”  Rai v. Ernst & Young, LLP, 2010 WL 3518056, at *1 (E.D.Mich. Sept. 8, 2010).  However, not many courts have yet had to struggle with what really constitutes a delegation clause?  Must it be so explicit?

In the 20 years before Rent-A-Center, many federal circuits reached a related decision: that an adoption of the AAA rules clearly and unmistakably demonstrates the intent of the parties to delegate the question of arbitrability to the arbitrator.  That is because the various AAA rules themselves state that the arbitrator has the power to rule on any questions of arbitrability ( the same rule should hold for any forum whose rules delegate that same power).  At least the First, Second, Eighth, Ninth, Eleventh, and Federal Circuits agree in that holding (with only the Third and Tenth Circuits disagreeing).  SCOTUS has never addressed whether adopting the AAA rules clearly and unmistakably delegates arbitrability to the arbitrator. (See case cites at end.)

The question is – how long will it take for these two lines of cases to meld into an airtight zipper that excludes 99% of arbitrability challenges from courts?   Here is how the argument would go: 1) the arbitration agreement at issue calls for application of AAA rules; 2)  federal courts have concluded that the adoption of AAA rules is an unmistakable delegation of arbitrability to the arbitrator; 3) therefore, the sentence mentioning the AAA rules is a “delegation clause”; and 4) Rent-A-Center applies, such that the anti-arbitration party must specifically challenge that delegation clause in order to have the court hear the challenge.

Of course, it may be just that sort of result  — a nearly wholesale denial of the court venue to litigants who challenge their larger arbitration agreement — that will create a five-Justice majority in favor of a less harsh severability doctrine.

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ENDNOTE

Cases holding that the parties’ agreement to arbitrate under AAA rules constitutes a clear and unmistakable delegation of arbitrability to the arbitrator:  Fadal Machining Centers, L.L.C. v. Compumachine, Inc., 2011 W.L. 6254979, *2 (9th Cir. 2011); Fallo v. High-Tech Institute, 559 F.3d 874, 878 (8th Cir. 2009); Terminix Intern. Co., L.P. v. Palmer Ranch Ltd. Partnership, 432 F.3d 1327, 1332 (11th Cir. 2005); Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1372-73 (Fed. Cir. 2001); Apollo Computer, Inc. v. Berg, 886 F.2d 469, 473 (1st Cir. 1989) (relating to ICC, not AAA rules).

Two Circuits have declined to follow the majority.   In Quilloin v. Tenet Health System Philadelphia, Inc., 673 F.3d 221, 225-26, 230 (3d Cir. 2012), the Third Circuit held that the parties “did not agree to arbitrate the issue of arbitrability,” despite agreeing to abide by the procedural arbitration rules of the AAA in their arbitration agreement.  Similarly, in Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775, 780 (10th Cir. 1998), the court held that, although the arbitration agreement in question required submitting to the rules of the AAA, the court could properly resolve the issue of arbitrability.