The Power or Jurisdiction of Arbitrators Is Limited by the Written Consent or Agreement of the Parties as to the Scope of the Arbitration

It is elementary that arbitration is a matter of contract, and if the parties have not agreed to arbitrate a particular matter, it may not be submitted to binding arbitration.

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists . . . .” (Emphasis added)

Code Civil Proc. § 1281.2; See also 9. U.S.C. §§ 2 & 3.

The scope of the arbitration, or the matters which may be decided by the arbitrators, is also determined by the specific language in the written agreement of the parties.

“It is well established that a court will not grant a petition to compel arbitration filed pursuant to Code of Civil Procedure section 1281.2 if the subject matter to be arbitrated is not within the scope of the arbitration agreement. (See Service Employees Internat. Union v. City of Los Angeles (1994) 24 Cal.App.4th 136, 143–144 [29 Cal. Rptr. 2d 357].) Generally, a court will look to the arbitration agreement itself to determine its scope. . . . .”(Emphasis added)

United Teachers of L.A. v. L.A. Unified Sch. Dist.(2012) 54 Cal. 4th 504, 516.

If the arbitrators decide an issue or questions which are not made arbitrable by the Agreement between the parties to the arbitration, their award may be vacated by the Court on the grounds that the arbitrators “exceeded their powers”. Code Civil Proc. § 1286.2(4).

“Under this provision, the trial court is authorized to vacate an arbitrator’s determination that he or she has the jurisdiction to resolve an issue when this issue is outside the scope of an arbitration agreement, or the statutes permitting or requiring arbitration. ( National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal. App. 3d 1718, 1725 [1 Cal. Rptr. 2d 570] (Stites). . . .”

Glassman v. McNab (2003) 112 Cal. App. 4th 1593, 1598.

The Law, under Federal and State arbitration statutes, is that the Court must determine whether or not a particular dispute is arbitrable, and whether that dispute should be ordered to arbitration.

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, . . . .” (All emphasis added)

Code Civil Proc. Code § 1281.2; 9 U.S.C. § 2.

“As we have stated (see p. 1093, ante), unless an arbitration agreement expressly provides otherwise, a dispute regarding the arbitrability of a particular dispute is subject to judicial resolution. In performing its duty to determine whether a party has a contractual duty to arbitrate a particular dispute, a court is required “to examine and, to a limited extent, construe the underlying agreement.” (Freeman v. State Farm Mut. Auto Ins. Co., supra, 14 Cal.3d 473, 480.) . . . .” (Emphasis added)

City of L.A. v. Superior Court (2013) 56 Cal. 4th 1086, 1096.

“Although threshold questions of arbitrability are ordinarily for courts to decide in the first instance under the FAA (Ajamian, supra, 203 Cal.App.4th at pp. 781–782), the “[p]arties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241 [171 Cal. Rptr. 3d 621] (Tiri).)”

“For a delegation clause to be effective, two prerequisites must be satisfied. First, the language of the clause must be clear and unmistakable. (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 69, fn. 1 [177 L. Ed. 2d 403, 130 S. Ct. 2772] (Rent-A-Center ; Tiri, supra, 226 Cal.App.4th at p. 242.) The required clear and unmistakable expression is a “heightened standard” (Rent-A-Center, supra, 561 U.S. at p. 69, fn. 1), “pertain[ing] to the parties' manifestation of intent, not the agreement's validity. … [I]t is an ‘interpretive rule,’ based on an assumption about the parties' expectations. In ‘circumstance[s] where contracting parties would likely have expected a court to have decided the gateway matter [of arbitrability],’ [citation], we assume that is what they agreed to. Thus, ‘[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.’” (Ibid., italics omitted, quoting AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 649 [89 L. Ed. 2d 648, 106 S. Ct. 1415].)” (Emphasis added)

Pinela v. Neiman Marcus Grp., Inc. (2015) 238 Cal. App. 4th 227, 239-240; Malone v. Superior Court (2014) 226 Cal. App. 4th 1551, 1560; Murphy v. Check 'N Go of Cal., Inc. (1st Dist. 2007) 156 Cal. App. 4th 138, 144.

“And, given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, one can understand why courts might hesitate to interpret silence or ambiguity on the "who should decide arbitrability" point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide. Ibid. See generally Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-220, 84 L. Ed. 2d 158, 105 S. Ct. 1238 (1985) (Arbitration Act's basic purpose is to "ensure judicial enforcement of privately made agreements to arbitrate").”

“On the record before us, First Options cannot show that the Kaplans clearly agreed to have the arbitrators decide (i. e., to arbitrate) the question of arbitrability. First Options relies on the Kaplans' filing with the arbitrators a written memorandum objecting to the arbitrators' jurisdiction. But merely arguing the arbitrability issue to an arbitrator does not indicate a clear willingness to arbitrate that issue, i. e., a willingness to be effectively bound by the arbitrator's decision on that point. To the contrary, insofar as the Kaplans were forcefully objecting to the arbitrators deciding their dispute with First Options, one naturally would think that they did not want the arbitrators to have binding authority over them. . . .” (Emphasis added)

First Options of Chi., Inc. v. Kaplan (1995) 514 U.S. 938, 944-46, 115 S. Ct. 1920, 1924-25.

“Establishing the “clear and unmistakable rule” is easy. The hard part is applying it. Just how “clear and unmistakable” must the parties be if they choose to have an arbitrator decide his or her own jurisdiction? An easy case is obviously when there is explicit language in the actual signed document to that effect. For example: “We want the arbitrators selected pursuant to this contract to have the power to decide whether what is put before them is actually arbitrable under this contract.” But life is rarely that easy. When lawyers have the prescience to write clauses like that, their contracts usually don't get to appellate courts. Cases that do get to the appellate courts often turn on the problem of whether an agreement to be bound by a certain body of rules e.g., American Arbitration Association or National Association of Securities Dealers rules, is itself sufficient to show that the parties “clearly and unmistakably agreed” that arbitrators would decide their own jurisdiction.”

. . . .

“Incorporating the possibility of a future rule by reference simply doesn't even meet the basic requirements for a valid incorporation by reference under simple state contract law.”

“Most basically, what is being incorporated must actually exist at the time of the incorporation, so the parties can know exactly what they are incorporating. (See Estate of Plumel (1907) 151 Cal. 77, 80 [90 P. 192] [“in order to make out a case for the application of the doctrine of incorporation by reference, the paper referred to must not only be in existence at the time of the execution of the attested or properly executed paper, but that it must be referred to in the latter as an existent paper, so as to be capable of identification”].)

“Put another way, to have a valid incorporation by reference, the terms of the document being incorporated must be “‘“known or easily available”’” to the contracting parties. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1331 [90 Cal. Rptr. 3d 589] [“‘“For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.”’”].)

“Prediction,” said Niels Bohr, “is very difficult, especially about the future.” A rule that does not exist at the time of incorporation by reference fails the elementary test of being known or easily available at the time of incorporation. To allude to that old medieval con game from which we get the expression “pig in a poke”—where an unsuspecting buyer would buy what he or she thought was a pig in a bag only to later discover that it was an inedible cat or rat—in both Dream Theater and Rodriquez there was at least something in the bag that the parties could look at. Here, by contrast, the bag was empty at the time of the transaction and might or might not, be later filled with a pig. Or a cat or rat or, for that matter, nothing.” (Emphasis added)

Gilbert St. Developers, LLC v. La Quinta Homes (2009) LLC, 174 Cal. App. 4th 1185, 1192-94.

“Even under simple contract law, incorporating the possibility of a future rule by reference did not meet the basic requirements for a valid incorporation by reference because the new rule was not known or easily available at the time of incorporation. The court further held that the options available under the buyout agreement were discretionary and not arbitrable.”(Emphasis added)

Gilbert St. Developers, LLC v. La Quinta Homes, LLC, supra, 174 Cal. App. 4th at 1186; Baker v. Osborne Dev. Corp. (2008) 159 Cal. App. 4th 884, 895-96..

“"Courts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clear and unmistakable' evidence that they did so." Id. at 944; accord Gilbert Street Developers, [*1012] LLC v. La Quinta Homes, LLC, 174 Cal. App. 4th 1185, 1190, 94 Cal. Rptr. 3d 918 (2009). Incorporation of the AAA rules by reference constitutes "clear and unmistakable" evidence that the parties intended to submit the question of arbitrability to the arbitrator, so long as what is being incorporated actually exists at the time of incorporation such that "the parties can know exactly what they are incorporating." Gilbert Street Developers, 174 Cal. App. 4th at 1194; see also Rodriguez v. Am. Technologies, Inc., 136 Cal. App. 4th 1110, 39 Cal. Rptr. 3d 437 (2006); Dream Theater, Inc. v. Dream Theater, 124 Cal. App. 4th 547, 21 Cal. Rptr. 3d 322 (2004).” (Emphasis added)

Yahoo! Inc. v. Iversen (N.D. Cal. 2011) 836 F. Supp. 2d 1007, 1011-12; Roling v. E*Trade Sec. (N.D. Cal. 2012) LLC, 860 F. Supp. 2d 1035, 1042.

“Under settled principles of California law, “‘the parties may incorporate by reference into their contract the terms of some other document. … For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.’” (Williams Constr. Co. v. Standard-Pacific Corp. (1967) 254 Cal.App.2d 442, 454 [61 Cal. Rptr. 912], citations omitted; see Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 66 [159 Cal. Rptr. 3d 444].) This rule has long been applied in cases where a document referenced by an agreement provides for arbitration. (See, e.g., Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 639 [223 Cal. Rptr. 838] [“an agreement need not expressly provide for arbitration, but may do so in a secondary document which is incorporated by reference …”], quoted with approval on this point by Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 895 [71 Cal. Rptr. 3d 854].) For example, in King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349 [175 Cal. Rptr. 226], an application for membership in a local board of realtors provided that the applicants agreed to abide by the bylaws, which incorporated the California Association of Realtors, California Code of Ethics and Arbitration Manual, and the court held that such reference was a part of the agreement the applicants signed, therefore they could be compelled into arbitration. (Id. at pp. 353–357.) “A secondary document becomes part of a contract as though recited verbatim when it is incorporated into the contract by reference provided that the terms of the incorporated document are readily available to the other party.” (Id. at p. 357.)” (Emphasis added)

Universal Prot. Serv., LP v. Superior Court (2015) 239 Cal. App. 4th 697, 702-03.

“As we have stated (see p. 1093, ante), unless an arbitration agreement expressly provides otherwise, a dispute regarding the arbitrability of a particular dispute is subject to judicial resolution. In performing its duty to determine whether a party has a contractual duty to arbitrate a particular dispute, a court is required “to examine and, to a limited extent, construe the underlying agreement.” . . . .” (Emphasis added)

City of L.A. v. Superior Court (2013) 56 Cal. 4th 1086, 1096.

“Although threshold questions of arbitrability are ordinarily for courts to decide in the first instance under the FAA (Ajamian, supra, 203 Cal.App.4th at pp. 781–782), the “[p]arties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241 [171 Cal. Rptr. 3d 621] (Tiri).)”

“For [such] a delegation clause to be effective, two prerequisites must be satisfied. First, the language of the clause must be clear and unmistakable. (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 69, fn. 1 [177 L. Ed. 2d 403, 130 S. Ct. 2772] (Rent-A-Center ; Tiri, supra, 226 Cal.App.4th at p. 242.) The required clear and unmistakable expression is a “heightened standard” . . . In ‘circumstance[s] where contracting parties would likely have expected a court to have decided the gateway matter [of arbitrability],’ [citation], we assume that is what they agreed to. Thus, ‘[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.’” . . . .” (Emphasis added)

Pinela v. Neiman Marcus Grp., Inc. (2015) 238 Cal. App. 4th 227, 239-240; Malone v. Superior Court (2014) 226 Cal. App. 4th 1551, 1560; Murphy v. Check 'N Go of Cal., Inc. (1st Dist. 2007) 156 Cal. App. 4th 138, 144; First Options of Chi., Inc. v. Kaplan (1995) 514 U.S. 938, 944-46, 115 S. Ct. 1920, 1924-25.

Thus, the parties may delegate to the arbitrators the power for the arbitrators - rather than the Court - to determine their own power or “jurisdiction” by using contract terms expressly giving the arbitrators such power, or by “incorporating by reference” into their arbitration agreement association arbitration rules which expressly give the arbitrators this power, if they do this “clearly” and so that their intent is “unmistakable”.

“Establishing the “clear and unmistakable rule” is easy. The hard part is applying it. Just how “clear and unmistakable” must the parties be if they choose to have an arbitrator decide his or her own jurisdiction? . . . Cases that do get to the appellate courts often turn on the problem of whether an agreement to be bound by a certain body of rules e.g., American Arbitration Association or National Association of Securities Dealers rules, is itself sufficient to show that the parties “clearly and unmistakably agreed” that arbitrators would decide their own jurisdiction.”

. . . .

“Incorporating the possibility of a future rule by reference simply doesn't even meet the basic requirements for a valid incorporation by reference under simple state contract law.”

“Most basically, what is being incorporated must actually exist at the time of the incorporation, so the parties can know exactly what they are incorporating. (See Estate of Plumel (1907) 151 Cal. 77, 80 [90 P. 192] [“in order to make out a case for the application of the doctrine of incorporation by reference, the paper referred to must not only be in existence at the time of the execution of the attested or properly executed paper, but that it must be referred to in the latter as an existent paper, so as to be capable of identification”].)

“Put another way, to have a valid incorporation by reference, the terms of the document being incorporated must be “‘“known or easily available”’” to the contracting parties. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1331 [90 Cal. Rptr. 3d 589] [“‘“For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.”’”].)

“Prediction,” said Niels Bohr, “is very difficult, especially about the future.” A rule that does not exist at the time of incorporation by reference fails the elementary test of being known or easily available at the time of incorporation. . . . .” (Emphasis added)

Gilbert St. Developers, LLC v. La Quinta Homes LLC (2009) 174 Cal. App. 4th 1185, 1192-94.

“Even under simple contract law, incorporating the possibility of a future rule by reference did not meet the basic requirements for a valid incorporation by reference because the new rule was not known or easily available at the time of incorporation. The court further held that the options available under the buyout agreement were discretionary and not arbitrable.”(Emphasis added)

Gilbert St. Developers, LLC v. La Quinta Homes, LLC, supra, 174 Cal. App. 4th at 1186; Baker v. Osborne Dev. Corp. (2008) 159 Cal. App. 4th 884, 895-96; Universal Prot. Serv., LP v. Superior Court (2015) 239 Cal. App. 4th 697, 702-703; Yahoo! Inc. v. Iversen (N.D. Cal. 2011) 836 F. Supp. 2d 1007, 1011-12; Roling v. E*Trade Sec. (N.D. Cal. 2012) LLC, 860 F. Supp. 2d 1035, 1042.

Such documents and such contract terms incorporated by reference into an arbitration contract or agreement must be known or easily available to the parties at the time of the alleged incorporation by reference.

“Establishing the “clear and unmistakable rule” is easy. The hard part is applying it. Just how “clear and unmistakable” must the parties be if they choose to have an arbitrator decide his or her own jurisdiction? An easy case is obviously when there is explicit language in the actual signed document to that effect. For example: “We want the arbitrators selected pursuant to this contract to have the power to decide whether what is put before them is actually arbitrable under this contract.” But life is rarely that easy. When lawyers have the prescience to write clauses like that, their contracts usually don't get to appellate courts. Cases that do get to the appellate courts often turn on the problem of whether an agreement to be bound by a certain body of rules e.g., American Arbitration Association or National Association of Securities Dealers rules, is itself sufficient to show that the parties “clearly and unmistakably agreed” that arbitrators would decide their own jurisdiction.”

. . . .

“Incorporating the possibility of a future rule by reference simply doesn't even meet the basic requirements for a valid incorporation by reference under simple state contract law.”

"Most basically, what is being incorporated must actually exist at the time of the incorporation, so the parties can know exactly what they are incorporating. (See Estate of Plumel (1907) 151 Cal. 77, 80 [90 P. 192] [“in order to make out a case for the application of the doctrine of incorporation by reference, the paper referred to must not only be in existence at the time of the execution of the attested or properly executed paper, but that it must be referred to in the latter as an existent paper, so as to be capable of identification”].)

“Put another way, to have a valid incorporation by reference, the terms of the document being incorporated must be “‘“known or easily available”’” to the contracting parties. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1331 [90 Cal. Rptr. 3d 589] [“‘“For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.”’”].)

“Prediction,” said Niels Bohr, “is very difficult, especially about the future.” A rule that does not exist at the time of incorporation by reference fails the elementary test of being known or easily available at the time of incorporation. To allude to that old medieval con game from which we get the expression “pig in a poke”—where an unsuspecting buyer would buy what he or she thought was a pig in a bag only to later discover that it was an inedible cat or rat—in both Dream Theater and Rodriquez there was at least something in the bag that the parties could look at. Here, by contrast, the bag was empty at the time of the transaction and might or might not, be later filled with a pig. Or a cat or rat or, for that matter, nothing.” (Emphasis added)

Gilbert St. Developers, LLC v. La Quinta Homes (2009) LLC, 174 Cal. App. 4th 1185, 1192-94.

“Even under simple contract law, incorporating the possibility of a future rule by reference did not meet the basic requirements for a valid incorporation by reference because the new rule was not known or easily available at the time of incorporation. The court further held that the options available under the buyout agreement were discretionary and not arbitrable.”(Emphasis added)

Gilbert St. Developers, LLC v. La Quinta Homes, LLC, supra, 174 Cal. App. 4th at 1186; Baker v. Osborne Dev. Corp. (2008) 159 Cal. App. 4th 884, 895-96..

“"Courts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clear and unmistakable' evidence that they did so." Id. at 944; accord Gilbert Street Developers, [*1012] LLC v. La Quinta Homes, LLC, 174 Cal. App. 4th 1185, 1190, 94 Cal. Rptr. 3d 918 (2009). Incorporation of the AAA rules by reference constitutes "clear and unmistakable" evidence that the parties intended to submit the question of arbitrability to the arbitrator, so long as what is being incorporated actually exists at the time of incorporation such that "the parties can know exactly what they are incorporating." Gilbert Street Developers, 174 Cal. App. 4th at 1194; see also Rodriguez v. Am. Technologies, Inc., 136 Cal. App. 4th 1110, 39 Cal. Rptr. 3d 437 (2006); Dream Theater, Inc. v. Dream Theater, 124 Cal. App. 4th 547, 21 Cal. Rptr. 3d 322 (2004).” (Emphasis added)

Yahoo! Inc. v. Iversen (N.D. Cal. 2011) 836 F. Supp. 2d 1007, 1011-12; Roling v. E*Trade Sec. (N.D. Cal. 2012) LLC, 860 F. Supp. 2d 1035, 1042.

“Under settled principles of California law, “‘the parties may incorporate by reference into their contract the terms of some other document. … For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.’” (Williams Constr. Co. v. Standard-Pacific Corp. (1967) 254 Cal.App.2d 442, 454 [61 Cal. Rptr. 912], citations omitted; see Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 66 [159 Cal. Rptr. 3d 444].) This rule has long been applied in cases where a document referenced by an agreement provides for arbitration. (See, e.g., Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 639 [223 Cal. Rptr. 838] [“an agreement need not expressly provide for arbitration, but may do so in a secondary document which is incorporated by reference …”], quoted with approval on this point by Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 895 [71 Cal. Rptr. 3d 854].) For example, in King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349 [175 Cal. Rptr. 226], an application for membership in a local board of realtors provided that the applicants agreed to abide by the bylaws, which incorporated the California Association of Realtors, California Code of Ethics and Arbitration Manual, and the court held that such reference was a part of the agreement the applicants signed, therefore they could be compelled into arbitration. (Id. at pp. 353–357.) “A secondary document becomes part of a contract as though recited verbatim when it is incorporated into the contract by reference provided that the terms of the incorporated document are readily available to the other party.” (Id. at p. 357.)” (Emphasis added)

Universal Prot. Serv., LP v. Superior Court (2015) 239 Cal. App. 4th 697, 702-03.

Finally, even if the arbitrators are given power to determine their own jurisdiction initially, the Court may review their exercise of such power after an award is entered, on a timely or immediate Petition to Correct or Vacate an arbitration award, where the Court can decide whether the arbitrators exceeded their powers under the arbitration agreement or issued an award in excess of the scope of their powers under that arbitration agreement. Code Civil Proc. 1286.2(a)(4); 9 U.S.C. § 10(a)(4).

“Under this provision, the trial court is authorized to vacate an arbitrator’s determination that he or she has the jurisdiction to resolve an issue when this issue is outside the scope of an arbitration agreement, or the statutes permitting or requiring arbitration. ( National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal. App. 3d 1718, 1725 [1 Cal. Rptr. 2d 570] (Stites). . . .”

Glassman v. McNab (2003) 112 Cal. App. 4th 1593, 1598.