Federal Circuit Outlines FAA § 3 Arbitrability Analysis for District Courts
The Federal Circuit ruled on Oct. 20, 2006, that in order to be "satisfied" within the meaning of § 3 of the Federal Arbitration Act that an issue is covered by the parties' arbitration agreement, district courts must first determine whether the parties intended the issues in dispute to be decided by an arbitrator, and if such intent exists, courts must then determine whether the assertion of arbitrability is "wholly groundless" before compelling arbitration.
Qualcomm Inc. v. Nokia Corp. (No. 2006-1317, 2006 WL 2988322 Oct. 20, 2006) was heard by the Federal Circuit because it involved a patent dispute. Qualcomm sued Nokia, which responded with a motion to compel arbitration under the arbitration clause in the parties' agreement. This agreement incorporated by reference the arbitration rules of the American Arbitration Association (AAA). These rules authorize arbitrators to rule on their own jurisdiction, including the scope and validity of an arbitration agreement.
The district court found that Qualcomm's claims were not covered by the parties' arbitration agreement. Nokia appealed, arguing that the arbitrability of the claims should be determined by the arbitrator, not the court.
The Federal Circuit said "this case raises the question of how to reconcile an agreement to delegate arbitrability decisions to an arbitrator in accordance with the language of section 3 of the FAA, which specifies that the district court be 'satisfied' as to the arbitrability of an issue before ordering a stay." It went on to say, "Thus, we must necessarily determine what inquiry the district court should perform in order to be 'satisfied' under section 3."
The Federal Circuit said a district court's "satisfied" analysis should begin by determining the parties' intent with regard to the decision maker of arbitrability questions. …