Arbitrator Authority to Decide Jurisdiction

Poweragent, Inc. vs. Electronic Data Systems Corp.

Objections to jurisdiction may be generally decided by the courts, but once the arbitrators rule, the authority cannot be challenged.

POWERAGENT, INC. v. ELECTRONIC DATA SYSTEMS CORP., No. 02-17022 (9th Cir., 2/25/04).

Objections to arbitral jurisdiction, i.e., arbitrability issues, may be generally decided by the courts, but when a party asks the Arbitrators to rule on the question, it cannot later challenge the Arbitrators’ decision on the question.

Courts have stepped in, both before arbitration and even post-arbitration, to rule that, where appropriate, that the parties are not obliged to arbitrate. The U.S. Supreme Court did so in First Options v. Kaplan, 115 S.Ct. 1920, a 1995 decision in which the Court determined that a Philadelphia Stock Exchange Panel should not have exercised jurisdiction over a portion of an arbitrated dispute and vacated the Award with respect to that matter. However, the Kaplans objected to jurisdiction throughout the proceeding, whereas PowerAgent, when ordered to arbitration by a federal court, specifically asked the AAA Arbitrators to decline jurisdiction. The arguments were briefed and the Panel ruled in favor of arbitral jurisdiction as to all claims.

Having asked the Arbitrators to rule, the Ninth Circuit holds, “PowerAgent is now bound by the arbitrators’ decision that this entire dispute … is arbitrable.” Where a party objects, the assumption of jurisdiction by the arbitrators is not due any deference, but, where parties “agree to arbitrate the issue of arbitrability, courts give the arbitrators’ conclusion regarding arbitrability the same respect otherwise accorded arbitrators’ decisions.” PowerAgent argues that the Kaplans objected before the arbitrators to jurisdiction, just as they did; they just put it in the form of a motion. The Court disagrees. “PowerAgent clearly requested that the arbitration panel independently address the issue of arbitrability and maintained that it had the authority to do so.” Once it did, its decision on jurisdiction became cloaked with the same deferential protections that cloak other arbitral decisions. “Nothing about [the Panel’s] analysis is completely irrational or manifestly disregards the law. We therefore affirm the district court’s order confirming the arbitration award.” (SAC Ref. No. 04-10-04)

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Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

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