Sixth Circuit Reverses District Court for Exceeding Its Authority by Ruling on Arbitrability in the Presence of an Unchallenged Delegation Clause

The plaintiff alleged that she was a victim of an illegal predatory loan orchestrated by the defendant’s company. The loan allegedly charged excessive interest but was shielded from U.S. law by tribal sovereign immunity.

The plaintiff filed suit, alleging that the loan was illegal and that the defendant had committed RICO and other consumer protection violations. The loan contract, however, included an arbitration provision, providing that “any dispute ... related to this agreement will be resolved through binding arbitration” under tribal law, subject to review in tribal court. The defendant moved to compel arbitration, contending that the plaintiff agreed to a delegation clause to arbitrate issues “concerning the validity, enforceability, or scope” of the arbitration agreement, but the district court denied the defendant’s motion. The court found that the enforceability of the arbitration agreement “has already been litigated, and decided against [the defendant], in a similar case commenced in Vermont.”

The Sixth Circuit reversed, finding that the district court exceeded its authority by resolving the issue of arbitrability and finding that the arbitration agreement was enforceable. The provision delegating the question of arbitrability to an arbitrator was invoked by the defendant but was never specifically challenged by the plaintiff or addressed by the district court. “Only a specific challenge to a delegation clause brings arbitrability issues back within the court’s province.” Accordingly, the “district court should have enforced [the delegation clause] and referred the case to arbitration.”

The Sixth Circuit was not persuaded by the plaintiff’s argument that the issue of arbitrability related to the defendant’s standing, and therefore could be adjudicated in court. In response, the Sixth Circuit noted that a “logical conundrum” exists because courts still must determine the existence of the contract even when a delegation clause exists in the underlying arbitration agreement. The court, however, relied on its prior decision in another case that “signaled” that a “nonsignatory’s ability to enforce an arbitration agreement concerned a question of arbitrability.” The court determined that it would “follow suit and find that whether [the defendant] can enforce the arbitration agreement against [the plaintiff] presents a question of arbitrability that [the] arbitration agreement delegated to an arbitrator.”

 Swiger v. Rosette, No. 19-2470 (6th Cir. Mar. 4, 2021).