Tuesday, October 24, 2006

Court Defines Procedure for Determining Arbitrability [US]

In Qualcomm Incorporated, et al. v. Nokia Corporation, et al. (October 20, 2006), the Federal Circuit considered what inquiry the district court should perform in order to be "satisfied" under section 3 of the Federal Arbitration Act as to the arbitrability of an issue before ordering a stay.

Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
The Federal Circuit concluded that, in order to be "satisfied" of the arbitrability of an issue pursuant to section 3 of the FAA, the district court should first inquire as to who has the primary power to decide arbitrability under the parties’ agreement.

If the court concludes that the parties clearly and unmistakably intended to delegate the power to an arbitrator, then the court should also inquire as to whether the party’s assertion of arbitrability is "wholly groundless." If, however, the court concludes that the parties did not clearly and unmistakably intend to delegate arbitrability decisions to an arbitrator, the general rule that the "question of arbitrability . . . is . . . for judicial determination" applies and the court itself should then undertake a full arbitrability inquiry in order to be "satisfied" that the issue involved is referable to arbitration.

In this case, the parties clearly and unmistakably intended to delegate arbitrability questions to an arbitrator as evidenced by their incorporation of the AAA Rules into the 2001 Agreement. The remaining question is whether Nokia’s assertions that its estoppel and license defenses "aris[e] out of or relat[e] to" the 2001 Agreement are "wholly groundless." On remand, the court should not undertake to determine whether Nokia’s assertions are in fact arbitrable, but rather should merely determine whether Nokia’s assertions of arbitrability under the 2001 Agreement are "wholly groundless" and, if not, stay the trial of the action to permit an arbitrator to rule on the arbitrability of those issues.

Accordingly, we vacate the district court’s March 14, 2006 Order with respect to its denial of Nokia’s motion to stay and remand to the district court.

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