The U.S. Court of Appeals for the Ninth Circuit recently ruled that arbitrators have jurisdiction over determining whether or not a mandatory arbitration clause is enforceable.
In Brennan v. Opus Bank, the plaintiff was a former executive of defendant Opus Bank. His employment agreement with the bank included a mandatory arbitration provision. Plaintiff argued that only a court had jurisdiction over whether or not the mandatory arbitration clause was enforceable and that the arbitrator only had the authority to hear the parties’ claims.
Plaintiff Carey Brennan, an attorney and experienced business executive, signed an employment agreement with Opus that provided in relevant part:
“Except with respect to any claim for equitable relief . . . any controversy or claim arising out of this [Employment] Agreement or [Brennan’s] employment with the Bank or the termination thereof . . . shall be settled by binding arbitration in accordance with the Rules of the American Arbitration Association.”
Defendant Opus contended that according to Rule 6(a) of the American Arbitration Association, which provides that “the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the . . . validity of the arbitration agreement,” the arbitrator had the authority to make a determination on the enforceability of the mandatory arbitration clause.
In its decision, the Ninth Circuit sided with defendant Opus, saying that both parties agreed to place the decision on whether the mandatory arbitration agreement was enforceable in the hands of the arbitrator. The court agreed with the district court’s dismissal of plaintiff claims for lack of jurisdiction.
In addition, the Ninth Circuit noted that its ruling “should not be interpreted to require that the contracting parties be sophisticated or that the contract be ‘commercial’ before a court may conclude that incorporation of the AAA rules constitutes ‘clear and unmistakable’ evidence of the parties’ intent. Thus, our holding does not foreclose the possibility that this rule could also apply to unsophisticated parties or to consumer contracts.”
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