We recently described how organization rules, like those of the American Arbitration Association (AAA), can have a legal impact on whether a court or an arbitrator resolves a dispute. See our blog post of May 4, 2020, regarding a recent Third Circuit opinion involving those rules. Now the Sixth Circuit has reconfirmed it.
In Blanton v. Domino’s Pizza Franchising LLC, No. 19-2388 (6th Cir. June 17, 2020), the U.S. Court of Appeals for the Sixth Circuit decided that an arbitrator should hear the dispute involving an alleged non-solicitation agreement a national pizza restaurant chain required in its franchise agreements.
Derek Piersing and Domino’s Pizza disagreed over the recurring issue of whether a court or an arbitrator should decide their dispute. Piersing worked at a Domino’s franchise in Washington state in 2014 and later sought a second job at another Domino’s franchise in that area. He signed an arbitration agreement covering a wide range of employment-related issues when hired by the second franchise. In addition, the agreement took the impactful step of incorporating the AAA National Rules for the Resolution of Employment Disputes (AAA Rules).
After being terminated by the first franchise based on the franchise agreement’s presumed requirements, Piersing stayed at the second for a short time, until he left due to medical issues. Then he and another plaintiff filed a putative class action against Domino’s, claiming that its franchise agreement violated federal antitrust law as well as state law. Not surprisingly, Domino’s moved to compel under the Federal Arbitration Act. 9 U.S.C. §§ 1 et seq.
The plaintiffs contested the motion, asserting that Domino’s could not enforce an agreement that it had not signed – that just the franchisee had signed. The district court, however, disagreed and sent the dispute to arbitration, holding that the two plaintiffs had agreed to arbitrate both the merits and the gateway issues raised by the agreements.
In a panel opinion authored by Circuit Judge Amul Thapar, the court painstakingly unraveled the arguments made by Piersing and his cohort and affirmed the lower court ruling. The arbitration agreement in question stated “[t]he [AAA] will administer the arbitration and the arbitration will be conducted in accordance with then-current [AAA Rules].” Those rules state that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” So, the dispositive question for the panel was whether the language provided “clear and unmistakable” evidence that Piersing agreed to arbitrate “arbitrability.” See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 528-29 (2019), and Rent-A-Center W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). We covered the Henry Schein, Inc. opinion in our blog article of Jan. 15, 2019.
The panel found “there are good reasons to think it is.” First, the AAA Rules “clearly empower an arbitrator to decide issues of ‘arbitrability’ . . . .” And Piersing’s agreement “expressly incorporates the AAA Rules,” which is “pretty compelling evidence.”
Second, “[w]hat the text suggests, the case law confirms” (citing Henry Schein, 139 S. Ct. at 528, and Preston v. Ferrer, 552 U.S. 346, 361-63 (2008)). Indeed, Judge Thapar aptly noted that the Sixth Circuit’s own “precedent counsels – and perhaps compels” the same outcome, citing McGee v. Armstrong, 941 F.3d 859, 866 (6th Cir. 2019).
Finally, “eleven out of twelve” other circuits “have found that incorporation of the AAA Rules (or similarly worded arbitral rules) provides ‘clear and unmistakable’ evidence that the parties agreed to arbitrate ‘arbitrability’” (citing, among many, Richardson v. Coverall North America, Inc., 2020 WL 2028523 at *2-3 (3d Cir. 2020)). As mentioned above, Richardson was covered in our May 4 blog article.
Based upon this analytical platform, the panel dispensed with the parties’ remaining arguments. Judge Thapar found that federal rather than state law governs the question of “clear and unmistakable evidence.” He also discredited the argument that the AAA Rules don’t provide the required evidence, finding that the “assertion . . . runs into a solid wall of contrary authority,” citing Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 11-12 (1st Cir. 2009). In concluding its analysis, the panel emphasized that the decision was “about who should decide whether the parties have to arbitrate the merits,” not the merits themselves (emphasis in original), reminding readers that the parties do not sacrifice substantive rights when they elect to arbitrate an issue.
As we have cautioned before, arbitration rules do matter and must be carefully considered. Here, the appellate court followed well-established precedent regarding the impact of AAA or other arbitral rules on a case.
The Sixth Circuit now has held that reference to the AAA Rules can provide “clear and unmistakable evidence” that the parties agreed to delegate arbitrability questions to an arbitrator.