April 13, 2018 Practice Points

Arbitrator Decides Own Jurisdiction under JAMS Rules

By Henry Caldwell

In Simply Wireless, Inc. v. T-Mobile U.S., Inc., 877 F.3d 522 (4th Cir. 2017), the Fourth Circuit held that, by incorporating the JAMS arbitration rules into their arbitration clause, the parties "clearly and unmistakably" provided that the arbitrators would decide what issues were subject to arbitration.

Simply Wireless involved a co-marketing and distribution agreement pursuant to which T-Mobile permitted Simply Wireless to use T-Mobile's trademarks to promote and sell T-Mobile services and equipment. The agreement read, in pertinent part, that Simply Wireless "shall not infringe or violate, and shall use its best efforts to preserve and protect T-Mobile's . . . interest in . . . all such Marks and Intellectual Property Rights." The agreement also included an arbitration clause directing that all "arbitration shall be administered pursuant to the JAMS Comprehensive Rules and Procedures [(JAMS Rules)] . . . ."

The dispute at issue arose from a trademark application filed by T-Mobile to register the phrase "SIMPLY PREPAID," a mark previously registered by Simply Wireless. Not long after filing a notice of opposition with the U.S. Patent and Trademark Office, Simply Wireless brought an action in federal court alleging Lanham Act violations and a variety of state trademark infringement claims. In response, T-Mobile moved to dismiss and to compel arbitration. The district court granted the motion without reaching the question of arbitrability by holding that Simply Wireless's claims fell within the scope of the agreement's arbitration clause.

On appeal, the Fourth Circuit applied the first of the two-step inquiry set forth in Peabody Holding Co. v. United Mine Workers of Am., Int'l Union, 665 F.3d 96 (4th Cir. 2012) (the second step applies only when the court is the proper forum to adjudicate arbitrability). Essentially, the court inquired whether there was "clear and unmistakable" evidence that the parties elected to present questions of arbitrability to the arbitrators. T-Mobile argued that the arbitration clause in the agreement, taken by itself, satisfied the clear and unmistakable standard. The Fourth Circuit rejected this argument, relying on previous caselaw that: "if contracting parties wish to let an arbitrator determine the scope of his own jurisdiction, they must indicate that intent in a clear and specific manner . . . ." Carson v. Giant Food, Inc., 175 F.3d 325, 330 (4th Cir. 1999). In the alternative, T-Mobile argued that the incorporation of the JAMS Rules in the agreement satisfied the clear and unmistakable standard.

Because the issue was a matter of first impression in the Fourth Circuit, the court looked to two other circuits—the Fifth and Tenth—to inform its decision. See, e.g., Belnap v. Iasis Healthcare, 844 F.3d 1272, 1284 (10th Cir. 2017) (Incorporating the JAMS Rules indicates the parties' clear and unmistakable agreement to submit arbitrability questions to an arbitrator). Ultimately, the court was persuaded by the holdings in those cases that Rule 11(b) of the JAMS Rules delegates power to the arbitrators to determine threshold questions of arbitrability. It held that, for contracts between sophisticated parties, the incorporation of the JAMS Rules served as "'clear and unmistakable' evidence of the parties' intent to arbitrate arbitrability." Thus, although it disagreed with the district court's reasoning, the Fourth Circuit affirmed the district court's decision to compel arbitration.

The dissent pointed out that the parties' arbitration clause also stated that the Federal Arbitration Act of 1925 (FAA)—which contemplates judicial resolution of arbitrability—rather than state law, would govern any disagreements about arbitrability. The dissent argued that "the insertion of the FAA clause muddies the waters of [the majority's] analysis" and casts doubt on whether, in this particular factual situation, the incorporation of the JAMS Rules alone satisfies the clear and unmistakable standard.

Practice Pointer
Simply Wireless is yet another case holding that arbitrators generally will have the authority to decide what claims are arbitrable in situations where the parties' arbitration agreement incorporates arbitration rules that grant the arbitrators that authority. When the parties also wish to include language providing that the FAA, and not state law, will govern the parties' arbitration agreement, however, the clause should be carefully drafted to avoid any interpretation that might undermine the parties' intent to let the arbitrator decide what claims the parties are required to arbitrate.

Henry Caldwell is a third-year law student at the DePaul University College of Law in Chicago, Illinois.

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