A recent Fourth Circuit decision, SIMPLY WIRELESS, INC, v. T-MOBILE US, INC, (No. 16-1123, December 13, 2017) is the third circuit decision holding that, as between sophisticated commercial parties, the designation of JAMS or AAA Commercial Arbitration Rules constitutes an enforceable delegation to the arbitrator of challenges to arbitrability.
In this case, Simply Wireless brought an action in federal district court seeking relief in connection with certain trademarks, claiming infringement, dilution and unfair competition by virtue of T-Mobile’s use of a similar mark. T-Mobile moved to dismiss and to compel arbitration, noting (among other points) that the parties’ adoption of JAMS arbitration rules constituted an agreement that an arbitrator, not a court, would determine whether Simply Wireless’ claims are arbitrable.
The District Court ruled on the motion, finding that the claim fell within the scope of the arbitration agreement and dismissing the court action. Simply Wireless appealed.
JAMS Rule 11(b) provides: “Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought ? shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.” This language is similar to AAA Rule R-7, which provides in part: “(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including
any objections with respect to the existence, scope, or validity of the arbitration
agreement or to the arbitrability of any claim or counterclaim. (b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract.”
The Fourth Circuit not having previously ruled on the sufficiency of these two rules as a delegation clause under Rent-a-Center, the court looked to holdings of the 5th and 10th circuits with respect to the incorporation of JAMS rules, and of the 8th, 9th and 11th circuits with respect to AAA rules, and held that the arbitrator’s jurisdictional authority as set forth in the rules constitutes an enforceable delegation of authority that courts must respect.
We agree with our sister circuits and therefore hold that, in the context of a commercial contract between sophisticated parties, the explicit incorporation of JAMS Rules serves as “clear and unmistakable” evidence of the parties’ intent to arbitrate arbitrability. Because the JAMS Rules expressly delegate arbitrability questions to the arbitrator, the district court erred in deciding whether Simply Wireless’s claims fall within the scope of the parties’ arbitration agreement.
This principle seems so broadly recognized by this time, that drafters should be aware that the mere designation of an arbitral institution may well have the consequence of rendering moot the principles of First Options v Kaplan, and delegating threshold authority to the arbitrator.