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The Eighth Circuit Court of Appeals has held that when parties agree to have an arbitrator decide questions of arbitrability, the arbitrator should in fact decide this threshold question, even when one party later objects to the bargain they struck.
In Sadler v. Green Tree Servicing, LLC, No. 05-3850, 2006 WL 2946726 (8th Cir. Oct 17, 2006), the Sadlers bought a mobile home on a Retail Installment Contract and Security Agreement (the Agreement), which contained an arbitration clause. A few years later, in accordance with the Agreement, Green Tree exercised a foreclosure remedy without first going to arbitration.
The Sadlers, who allegedly never missed a payment, sued Green Tree for its handling of the foreclosure. Green Tree filed a motion to compel arbitration. The district court denied the motion, finding that it would be unconscionable to require Sadler to arbitrate claims arising from a “self-help” remedy that Green Tree could exercise without going to arbitration. Green Tree appealed.
On appeal, the Court addressed whether the district court should have decided questions of arbitrability in the first place. In addressing that question, the Court cited First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) for the rule that “disputes about arbitrability are for the court to resolve unless there is clear and unmistakable evidence that the parties agreed to have the arbitrator determine arbitrability.”
Sadler and Green Tree clearly agreed to have the arbitrator decide questions of arbitrability because the Agreement provided that “[a]ny controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s).”
Nevertheless, Sadler argued that the foreclosure provision in the Agreement carved out an exception to the arbitration requirement. The Court soundly rejected this argument because the Agreement provided that exercise of the foreclosure remedy “shall [not] serve as a waiver of the right” to demand arbitration. Since the parties agreed to have the arbitrator decide questions of arbitrability, the Court remanded the case with instructions to order arbitration.
One feature of arbitration is the parties’ ability to control the scope of an arbitrator’s authority. By agreeing to have an arbitrator decide questions of arbitrability, the parties agree to expand the arbitrator’s subject matter jurisdiction. This is a common expansion of arbitrator authority that increases both the consistency and efficiency of the dispute resolution process.
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