On September 14, 2020, the United States Court of Appeals for the Third Circuit unanimously ruled in MZM Construction Co. Inc. v. New Jersey Building Laborers' Statewide Benefit Funds, Nos. 18-3791 & 19-3102, (3d Cir. Sept. 8, 2020) that judges – not arbitrators – decide the gateway question of arbitrability if one party disputes having ever entered into the agreement containing the relevant arbitration clause, even where that clause contains language purporting to delegate questions of arbitrability to the arbitrator. It found that “unless the parties clearly and unmistakably agreed to arbitrate questions of contract formation in a contract whose formation is not at issue,” courts retain jurisdiction to decide that gateway question.[i]
Background
In 2001, MZM Construction Company (MZM) hired workers from a local labor union to work on a construction project at Newark Liberty International Airport. The following year, MZM’s president and sole shareholder signed a one-page short form agreement with the local labor union. That agreement referenced related two “collective bargaining agreements or CBAs,” but did not include “any other substantive terms.”[ii] One of those two CBAs – the 2002 CBA – was not signed. Under the 2002 CBA, employers are required to make contributions to the New Jersey Building Laborers’ Statewide Benefits Funds (the Funds) in accordance with “the applicable trust agreement” and grants the Funds the right to audit the books of contracting employers to ensure that all required contributions have been made.[iii]
From 2001 until 2018, MZM remitted more than US$ 500,000 in contributions to the Funds for work related to Newark Liberty International Airport. In 2018, the Funds requested to audit MZM’s contributions, and MZM consented to the audit. At the conclusion of the audit, the Funds alleged that MZM was contractually obligated to pay US$ 230,000 in contributions for the relevant time period.
When MZM questioned the basis for the alleged liability, the Funds produced the contract signed by MZM’s president, along with an unsigned copy of the 2002 CBA, which stated both that “questions or grievances involving the interpretation and application of this Agreement” shall be submitted to arbitration and that “[t]he Arbitrator shall have the authority to decide whether an Agreement exists, where that is in dispute.”[iv] On that basis, the Funds unilaterally scheduled an arbitration to begin in November 2018.[v] In response, MZM filed a complaint against the Funds in the District of New Jersey (the New Jersey District Court) seeking to enjoin the arbitration on the basis that MZM was not a signatory to the 2002 CBA, had no obligation to arbitrate under the 2002 CBA, and was not liable to the Funds under the 2002 CBA.[vi] MZM further alleged that there was no agreement to arbitrate because MZM did not intend to sign onto a state-wide bargaining agreement (which the 2002 CBA was), had never seen the 2002 CBA, and alleged that the Funds committed a fraud in the execution of the short form agreement between the parties by incorporating such an agreement.[vii]
The New Jersey District Court was therefore asked to determine “whether this [dispute] stays here or goes to the arbitrator.”[viii] The New Jersey District Court emphasized the “presumption that issues of ‘arbitrability’ are for the court to decide,” and that to “overcome this presumption, an arbitration clause must contain clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”[ix] It granted MZM’s request to enjoin the arbitration, holding that although the 2002 CBA included an arbitration provision which “empower[ed] the arbitrator to decide whether an agreement exists,” this was not “‘sufficient to send the matter to an arbitrator where a party legitimately disputes whether it ever saw, heard about, or agreed to [the contract (here the 2002 CBA)] at all, and where it even disputes the scope of the [umbrella contract (here the short form agreement)] that supposedly incorporated the [contract with the arbitration clause (here the 2002 CBA)].”[x] The Funds appealed.
The Decision
On September 14, 2020, the Third Circuit affirmed the New Jersey District Court’s ruling that determining whether an arbitration agreement exists between the parties is a question for the court, and not one for the arbitrator. It explained, “[t]he critical question in this appeal [was] who decides MZM’s contract defense, i.e., its claim that it never intended to execute a [contract] incorporating statewide CBAs with an arbitration provision but rather intended to execute a single-project agreement with no mention of arbitration.”[xi]
The Third Circuit’s analysis focused on the relationship between two lines of precedent. First, the Court recognized the precedent set in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406 (1967) where the Supreme Court held that absent a specific challenge to the...
