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In ordering arbitration of a debt collection dispute, a federal court in Kansas found that the parties clearly and unmistakably agreed to submit questions of arbitrability to the arbitrator by incorporating the National Arbitration Forum (FORUM) Code of Procedure into their arbitration agreement.
In Nazar v. Wolpoff & Abramson, LLP, No. 07-2025-JWL, 2007 WL 528753 (D. Kan. Feb. 15, 2007), Nazar and two other bankruptcy trustees sued Wolpoff & Abramson (W&A), a law firm, alleging that W&A engaged in unlawful practices while attempting to collect unpaid balances on the debtors' MBNA credit cards.
W&A filed a motion to compel arbitration pursuant to an arbitration clause in the credit agreement. The arbitration clause applied to all disputes between (1) the cardholder and (2) MBNA or its "agents."
In opposing the motion, Nazar and the other trustees argued that W&A could not invoke the arbitration agreement because it applied to disputes between a cardholder and debt collector only if the debt collector and MBNA were named as co-defendants. W&A countered by arguing that its capacity to invoke the arbitration agreement presented a question of arbitrability for the arbitrator.
Under Supreme Court precedent, questions of arbitrability are decided by the court unless the parties have clearly and unmistakably agreed otherwise. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). The Court applied this standard in concluding that the cardholders and MBNA clearly and unmistakably agreed that the arbitrator would decide questions of arbitrability, including the question of W&A's capacity to invoke the arbitration agreement.
The Court relied on both the arbitration agreement and the applicable rules of arbitration in finding clear and unmistakable evidence of the parties' intent to submit questions of arbitrability to the arbitrator. The arbitration agreement demonstrated this intent because it required arbitration of all claims and defined claims to include the applicability of the agreement.
The arbitration agreement also demonstrated this intent by providing for arbitration in accordance with the FORUM Code of Procedure, which includes Rule 20F authorizing arbitrators to rule on the scope of an arbitration agreement. In discussing the significance of the FORUM Code of Procedure, the Court cited Contec v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005) for the principle that where parties "explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator."
Other courts have also relied on the rules of arbitration in finding clear and unmistakable intent to submit questions of arbitrability to the arbitrator. See, e.g., Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. Ct. 2006).
In Qualcomm, the court wrestled with the issue of how to reconcile an agreement to arbitrate questions of arbitrability with the requirement that a court be "satisfied" an issue is arbitrable before ordering a stay under the Federal Arbitration Act. The court settled upon a "wholly groundless" standard whereby courts may order arbitration of questions of arbitrability unless the allegation of arbitrability is wholly groundless.
This case did not address the issue raised in Qualcomm, but the "wholly groundless" standard was satisfied because, as the Court noted, "[t]his is not a case in which some random, unrelated non-signatory is seeking to enforce the agreement."
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