Abstract
The U.S. Supreme Court has intoned its recognition of the separability presumption in arbitration (separation of arbitration agreements from their container contracts) under Sections 2 and 4 of the FAA. The Court’s interpretation of the Act has sparked confusion as to the extent of separability’s adoption – whether limited or absolute – in lower courts, and rigorous scholarly debate. Separability of the arbitration clause from its container has two effects or functions in American law. The primary effect is that the legal status of the container has no impact on the arbitration clause. And the secondary effect is the “jurisdiction-allocating” function, by which the arbitrator has authority to determine her own jurisdiction, which indeed is possible only if there is no challenge to the validity or existence of the arbitration agreement.
Although the two functions are interrelated, the focus of this Article is the primary function of separability in American law. The primary function of separability mandates that when parties have made no challenge to the arbitration clause and one party has filed the case with a court, the court must refer the parties to arbitration to decide challenges to the container and basically have the arbitrators decide the merits of the dispute, including challenges to the container. There are disagreements over how to respond and analyze complex situations under the separability rubric. Some have applied separability only to circumstances where the defense only makes the container contract unenforceable. Others have applied separability to its full extent, where the defense would make the container contract void ab initio.
This Article argues that arbitration agreements are inherently separate and independent agreements from their containers and separability should be applied to its full extent or absolute, unless parties contract otherwise. To support this contention, this Article provides a comparative understanding of separability, and establishes that adoption of a true separate and independent arbitration clause is made in other legal systems. This Article further argues that separability in American law under the FAA and the three cases of Prima Paint, Buckeye, and Rent-A-Center, indicate adoption of an absolute separability. Finally, this Article makes three illustrations which further support adoption of a true and independent separate arbitration agreement: a. arbitration agreements have historically been treated as independent agreements from their underlying contracts; b. that such treatment is not only based on arbitration’s efficacy concerns and policy, but is rooted in contract law severability rules; and c. that unique characteristics of arbitration agreements profoundly support adoption of separability to its full extent.