AAA’s rules for arbitrating wills and trusts specifically authorize arbitrators to decide the validity of the will or trust at issue in a given dispute. Since an arbitrator’s jurisdictional authority in that kind of case is a product of the document’s validity, in essence the arbitrator’s deciding his own jurisdictional authority. Here’s an excerpt from section 7 of the AAA rules:
The arbitrator shall have the power to determine the existence or validity of a trust or will in which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrator that the contract is null and void shall not for that reason alone render invalid the arbitration clause.
By contrast, F.S. 731.401, Florida’s enabling legislation for arbitration clauses in wills and trusts, carves validity issues out of the statute’s scope of operation:
A provision in a will or trust requiring the arbitration of disputes, other than disputes of the validity of all or a part of a will or trust, between or among the beneficiaries and a fiduciary under the will or trust, or any combination of such persons or entities, is enforceable.
The sharp contrast between the AAA rules and Florida’s enabling statute highlights an issue the commercial arbitration world’s been grappling with for decades: does an arbitrator have jurisdictional authority to determine his own jurisdictional authority? In the commercial world the doctrine developed to answer this question has a cool German name: kompetenz/kompetenz.
Prof. Rutledge of the University of Georgia School of Law recently published an interesting article entitled The Testamentary Foundations of Commercial Arbitration, which does a great job of comparing and contrasting arbitration in the estate context vs. the commercial context. One of the points of differentiation is the kompetenz/kompetenz doctrine, which he describes as follows:
Stripped to its essence, the doctrine of kompetenz/kompetenz provides that an arbitrator has jurisdiction to determine her own jurisdiction. Though seemingly tautological, the doctrine is essential to the proper functioning of any arbitral system. The arbitrator draws her authority from the contractual agreement of the parties. Despite the source of this authority, cases regularly arise that challenge the enforceability of the arbitration clause . . . In these cases, the arbitrator will sometimes conclude that the defense is valid and, thus, the arbitration clause is unenforceable. This conclusion presents a logical conundrum: if the arbitrator derives her power from the arbitration clause, but then concludes that the arbitration clause is unenforceable, how can her award (so concluding) have any force? The doctrine of kompetenz/kompentenz solves this conundrum by providing that the arbitrator has the power to rule on challenges to her own jurisdiction.
In the United States, the [Federal Arbitration Act (“FAA”)] does not contain a specific provision addressing this issue. Instead, the rule emerged through an amalgam of case law and contractual practice. The seminal decision is typically seen to be the Supreme Court’s 1995 decision in [First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995)]. There, the Court held that courts, rather than arbitrators, presumptively have the power to rule on challenges to the arbitration clauses. However, if the agreement contains clear and unmistakable evidence that the parties intended for the arbitrators to rule on such matters, then courts must defer to that contractual allocation of authority. As a matter of practice, most sets of arbitral rules attempt to allocate decisions of this sort to arbitrators, and United States courts, relying on FirstOptions, generally have found these allocations sufficient.
So if the FAA doesn’t bar arbitrators from deciding validity issues, and the U.S. Supreme Court’s decision in First Options also allows parties to arbitrate validity issues, and the AAA rules allow parties to arbitrate validity issues, why does F.S. 731.401 take such a different tack?
Prof. Rutledge points to a California Supreme Court decision from over a hundred years ago for a possible explanation. In Carpenter v. Bailey, 60 P. 162 (Cal. 1900), a dispute among heirs involving the validity of a will was decided by arbitration. When the winning side asked the court to enforce its arbitration award, the court refused, declaring that:
[T]he matter of the contest cannot be submitted to arbitration. The matter of the probate of a will is a proceeding in rem, binding on the whole world. A few individuals, claiming to be the heirs, cannot by stipulation determine such controversy.
So maybe it’s the in rem nature of a will or trust contest that sets these cases apart. If it is, I don’t find that logic very convincing. I think a more likely reason for why the Carpenter case was decided the way it was is that it reflects a general bias against arbitration that was prevalent a century ago. Times have changed. As noted by Prof. Rutledge, “[m]ore recently, a spate of Supreme Court decisions have facilitated the expansion of arbitration into previously verboten areas, including employment disputes, consumer disputes, and most disputes involving statutory claims under federal and state law.” I believe there’s a good chance a Florida court operating in today’s pro-arbitration world wouldn’t have any problem upholding an arbitrator’s ruling on validity. Time will tell.