Litigation

Eighth Circuit Holds That Arbitrability Must be Determined by the Court Unless Contract States Otherwise

By H. William Allen et al.

The Eighth Circuit affirmed a denial of a motion to dismiss pending arbitration in Express Scripts, Inc. v. Aegon Direct Marketing Services, Inc., No. 07-1971 (2/13/08). This is a long post, but this case has two important points for the validity of arbitration clauses in the Eighth Circuit.

Aegon and Express Scripts (ESI) entered into a contract in 1995 that contained a broad arbitration provision. The provision adopted the rules of the American Arbitration Association (AAA). The parties proposed an amended contract in 2000 that eliminated the provision, but they never signed the contract. After a billing dispute, Aegon demanded repayment of $5 million from ESI. Aegon felt the 1995 agreement was in effect and filed an arbitration proceeding. ESI claimed the parties adopted the 2000 agreement through performance and filed a declaratory action in the Eastern District of Missouri.

The main issue was whether the claim was arbitrable and who should make this determination. Aegon claimed the arbitrator should make this determination; ESI argued the court should. One of the AAA rules in force, which the parties adopted, was that the arbitrator has the power to determine his/her jurisdiction, i.e. the issue of arbitrability. Aegon never raised this argument to the district court. The district court determined: (1) the 1995 arbitration provision did not govern a later dispute of whether a subsequent contract amended the 1995 contract; and (2) it was for the court to determine arbitrability. The court then denied the motion to dismiss pending arbitration.

In its appellate brief, Aegon failed to raise its argument that AAA rules grant the arbitrator the right to determine arbitrability. It raised this argument for the first time at oral argument. The Eighth Circuit declined to address this issue. The Eighth Circuit affirmed the district court's decision, stating that courts determine arbitrability unless the contract specifically states otherwise.

To sum up, if you want the arbitrator to determine arbitrability, and if you want the arbitration clause to apply to any future argument about whether a superseding contract exists, the clause needs to specifically state that it governs these issues.

Full post as published by Arkansas Business Litigation Blog on February 20, 2008 (boomark / email).