4th Circuit: Arbitrator will resolve dispute over arbitration agreement’s scope

Where the parties’ contract delegates the arbitrability question to an arbitrator, a court possesses no power to decide the arbitrability issue, even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.

Background

In 2018, the Berkeley County School District sued several defendants, including HUB International Ltd. and HUB International Midwest Ltd., alleging claims arising from insurance policies and related services that defendants provided to Berkeley Schools. HUB moved to compel arbitration pursuant to brokerage service agreements, or BSAs, dated in 2002, 2003, 2005, 2006, 2009 and 2011. The district court denied that motion. This court reversed, holding that the district court overlooked material factual disputes regarding the making of any agreement, and remanded for the district court to conduct a trial under the Federal Arbitration Act.

On remand, the district court conducted a bench trial, after which it again denied HUB’s motion to compel arbitration. The court found no meeting of the minds between Berkeley Schools and HUB concerning the 2006, 2009 and 2011 BSAs. HUB disclaimed any further reliance on the arbitration agreement in the 2005 BSA. As for the 2002 and 2003 BSAs, the district court concluded that this court’s prior decision precluded it from considering whether those agreements required the parties to arbitrate.

HUB appealed only the court’s ruling on the 2002 and 2003 BSAs. This court vacated the judgment regarding those BSAs, explaining that new evidence produced at trial liberated the district court from the portion of this court’s prior decision addressing the 2002 and 2003 BSAs.

On second remand, the district court found that Berkeley Schools had conceded the 2002 and 2003 BSAs were valid and enforceable contracts. It concluded that the BSAs assign to the arbitrator, not the court, questions of arbitrability. The district court nevertheless concluded that “the conduct at issue . . . did not arise from” the 2002 and 2003 BSAs, and so denied HUB’s motion to compel arbitration of any claims pursuant to those agreements.

Enforceable contracts

“Before referring a dispute to an arbitrator, . . . the court determines whether a valid arbitration agreement exists.” The district court found that Berkeley Schools and HUB both now “accept[]” that the 2002 and 2003 BSAs “are valid and therefore enforceable.” On appeal, Berkeley Schools does not contest this conclusion or mount any further challenge to the formation or validity of the BSAs. Accordingly, the court accepts the parties’ consensus that the 2002 and 2003 BSAs—and the arbitration agreements therein—are enforceable contracts.

Delegation

The next question is whether the arbitration agreements in fact delegate arbitrability questions to an arbitrator. The district court concluded that the arbitration provisions of the 2002 and 2003 BSAs clearly and unmistakably delegated “the question of arbitrability . . . to the arbitrator.”

Although this court has never decided the question, other circuits have held that an arbitration provision’s incorporation of the AAA commercial rules is a clear and unmistakable expression of the parties’ intent to reserve the question of arbitrability for the arbitrator and not the court. Finding those decisions persuasive, the district court concluded that, by incorporating the AAA commercial rules into the arbitration provisions of the BSAs, Berkeley Schools and HUB agreed to arbitrate arbitrability. Neither party challenges this holding on appeal.

Merits

The district court erred, therefore, when it proceeded to decide for itself whether the arbitration provisions of the 2002 or 2003 BSAs apply to any claims in this case. “When the parties’ contract delegates the arbitrability question to an arbitrator,” a court “possesses no power to decide the arbitrability issue,” “even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” In an attempt to overcome this conclusion, Berkeley Schools advances five main arguments. None is persuasive.

Reversed and remanded.

Berkeley County School District v. HUB International Ltd., Case No. 24-1328, March 7, 2025. 4th Cir. (Rushing), from DSC at Charleston (Norton). Michael Gregory Pattillo Jr. for Appellants. Phillip Donald Barber for Appellee. 14 pp.