Do you remember the moment when you first encountered the concept of arbitrating arbitrability? Just the phrase is mind-bending! It took me a while to wrap my head around the idea that parties could separately agree to arbitrate the question of whether they really had to arbitrate. Well, here’s a similar mind-bender: how does state law regarding severability clauses intersect with the federal doctrine of severability? This is an issue that courts (like the Florida courts in the previous post) are increasingly having to address. (I am using “severability clause” to refer to a contractual provision stating that if any clause(s) are found invalid, the invalid clauses should be severed and the remainder of the agreement enforced.)
Forty four years ago, the Court declared that arbitration provisions are severable from contracts that contain them and the enforceability of the arbitration agreement must be considered separately. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-03 (1967); see also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006) (“[A]as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.”) What none of the Supreme Court cases has yet had to address is what happens if there is a severability clause in the very arbitration agreement itself and one of the parties argues that an aspect of the arbitration agreement is unenforceable.
Like the Shotts and Gessa cases from the Florida Supreme Court, most courts will consider state law arguments that an invalid clause or provision within a larger arbitration agreement may be severed if there is a severability clause within the arbitration agreement. See Jackson v. Cintas Corp., 425 F.3d 1313, 1317 (11th Cir. 2005) (using a severability clause within the arbitration agreement to sever the illegal provision within the arbitration agreement); Anders v. Hometown Mortgage Services, Inc., 346 F.3d 1024, 1032 (11th Cir.2003)(finding objectionable provisions of arbitration agreement severable based on severability language within arbitration agreement); Brady v. Williams Capital Group, 64 A.D.3d 127, 137-38 (N.Y. App. Div. 2009)(excising the unconscionable fee language from the parties’ arbitration agreement based on severability clause in arbitration agreement).
This is an important drafting point. If the drafting party wants an ironclad arbitration agreement, it may want to insert a severability clause that is specific to that arbitration agreement (or specific to the paragraphs of the contract that form the arbitration agreement).