Alert

Threshold Arbitrability Questions: SCOTUS Rules that Courts, Not Arbitrators, Must Decide Which Contract Governs

May 29, 2024

On May 23, 2024, the Supreme Court unanimously ruled that when parties have agreed to more than one contract – one that contains a clause sending threshold arbitrability questions to an arbitrator and one that sends those disputes to a court – a court must decide which contract governs.

Case Background

Suski involved a conflict between two contracts executed between the parties. The first (and earlier) contract contained a delegation clause, which delegated threshold questions of arbitrability to an arbitrator to decide. The second (and later) contract made clear that courts, not arbitrators, must decide these threshold arbitrability questions. After a dispute arose between the parties, the petitioner moved to compel arbitration. The district court denied the motion, finding the second (and later) contract governed. The Ninth Circuit Court of Appeals affirmed. The Supreme Court then accepted the petitioner’s certiorari petition and found that when contracts conflict on who decides threshold arbitrability questions, courts, not arbitrators, are empowered to hear those disputes.         

SCOTUS Decision: Courts Decide Which Contract Governs

Justice Jackson, writing for the Court, first noted that under the Federal Arbitration Act (FAA), arbitration is a matter of contract and consent. And in a dispute such as this – to wit, – “[w]hat happens if par­ties have multiple agreements that evidence a conflict over the answer to the third-order question of who decides arbitrability;” she succinctly answered: “[t]hat question can be answered as to these parties only by determining which contract applies.”

As Justice Jackson explained, parties can form multiple levels of agreements regarding arbitration. For instance, parties can agree to only send the merits of a dispute to arbitration. Still, others agree to also delegate threshold arbitrability questions to an arbitrator, and not a court, to decide. These different arbitration agreements mean parties can also have different kinds of disputes. In Suski, the Court broke these different types of disputes into multiple layers: “(1) merits, (2) arbitrability, and (3) who de­cides arbitrability.” As Justice Jackson noted, “[t]his case involves a fourth: What hap­pens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability?” In that scenario, the Court found that a court must answer the question.

The Bottom Line

In so ruling, the Court also rejected the various contract and policy arguments raised by the petitioner, including the argument that such a ruling could invite chaos. As the Court noted:

In cases where parties have agreed to only one contract, and that contract contains an arbitration clause with a delegation provision, then, absent a successful challenge to the delegation provi­sion, courts must send all arbitrability disputes to arbitra­tion. But, where, as here, parties have agreed to two con­tracts—one sending arbitrability disputes to arbitration, and the other either explicitly or implicitly sending arbitra­bility disputes to the courts—a court must decide which contract governs. To hold otherwise would be to impermis­sibly ‘elevate [a delegation provision] over other forms of contract.’