Contract Formation Issues Are For Court Not Arbitrator, Federal Appeals Court Holds

The US Seventh Circuit Court of Appeals has held in a new decision that the question whether a contract containing an arbitration clause ever existed should be decided by a federal district court when it is asked to compel arbitration, and not by the arbitrator in the first instance, unless the arbitration clause indicates that the parties delegated that specific issue of contract formation to the arbitrator. (Janiga v. Questar Capital Corp., 2010 U.S. App. LEXIS 15983 (7th Cir. Aug. 2, 2010)). The Court observed that any doubt on this question appears to have been resolved recently by the Supreme Court of the United States in Granite Rock Co. v. International Brotherhood of Teamsters, 130 S.Ct. 2847 (2010), where the Supreme Court said “[i]t is similarly well settled that where the dispute at issue concerns contract formation, the dispute is generally for the courts to decide.” Whether the issue concerns contract formation, for a court to decide, or rather concerns contract validity, for the arbitrator to decide, of course depends on what grounds are asserted, by the party opposing arbitration, for saying that no contract exists. In Janiga, that party had admittedly signed the agreement, but asserted that he lacked sufficient fluency in English to have appreciated the legal significance of the document he signed. This was, in the Seventh Circuit’s view, a queston of contract formation that was properly within the province of the district court judge.