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A federal court in Pennsylvania, applying California law, held that the parties had demonstrated intent for an arbitrator to decide arbitrability of disputes by incorporating the American Arbitration Association (AAA) rules into their agreement.
In Way Services, Inc. v. Adecco North America, LLC, 2007 WL 1775393, (E.D. Pa. Jun. 18, 2007), Way Services and Adecco were parties to a franchise agreement that invoked California law. Adecco notified Way Services of its intention to terminate the agreement due to Way Services' alleged breach of the agreement.
Way Services filed a complaint in response and then applied for a preliminary injunction. Prior to the hearing on the injunction, Way Services moved to compel arbitration, based on the arbitration agreement within the franchise agreement. The arbitration agreement applied AAA rules. The lower court stayed the litigation and granted the motion to compel arbitration. The parties then filed briefs to determine the scope of the arbitrator's authority to hear the dispute.
Upon considering briefs on the scope of the arbitration agreement, submitted by both parties, the AAA panel decided that the agreement granted them authority to decide whether they had jurisdiction. The panel found that all of the claims were within the agreement's scope.
Way Services filed a motion to stay arbitration in response, arguing that the court had jurisdiction over the arbitrability of the claims. The Court rejected Way Service's contention. Although arbitrability generally is decided by a court, parties may contract for an arbitrator to decide arbitrability. See First Options of Chicago, Inc. v. Kaplan, 131 L.Ed.2d 985 (1995).
Here, the parties agreed to the application of AAA rules, which grant the arbitrator the authority to determine arbitrability questions. Citing numerous California and federal court decisions, this Court held that the parties' "incorporation of the AAA rules evidences a clear and unmistakable intent to have the arbitrator determine any arbitrability questions." See Rodriguez v. Am. Techs., Inc., 39 Cal. Rptr.3d 437, 446 (Cal. Ct. App. 2006); Contec Corp. v. Remote Solution Co., 398 F.3d 205 (2d Cir. 2005); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. 2006); Terminix International Co., LP v. Palmer Ranch Limited Partnership, 432 F.3d 1327 (11th Cir. 2005). "[T]he Court [was] convinced that California law has adopted this rule."
The Court further held that vacatur of the panel's findings would not be appropriate in this case. No grounds for vacatur, as outlined by the Federal Arbitration Act, were demonstrated. See 9 U.S.C. § 10. Accordingly, the Court denied Way Services' motion to stay arbitration.
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