Univ. of Iowa Bd. of Regents v. Am. Arbitration Ass’n, No. 17-0949, 2019 BL 7069 (Iowa Ct. App. Jan. 09, 2019)

Modern Piping, Inc. (“Modern Piping”) and the University of Iowa, Board of Regents, and State of Iowa (“University”) entered into two construction contracts, both containing arbitration provisions.  Disputes arose related to each contract and Modern Piping filed a demand for arbitration with the American Arbitration Association (AAA).  The University filed an action against AAA, seeking to enjoin it from arbitrating the disputes.  AAA filed a motion for summary judgment on the grounds that arbitral immunity doctrine applied.  The district court granted AAA’s motion and the University appealed.

The doctrine of arbitral immunity provides that arbitrators are immune from liability for acts performed in their arbitral capacity and generally shields all functions which are integrally related to the arbitral process.  The doctrine applies to a claim against an arbitrator where the claim effectively seeks to challenge the decisional act of an arbitrator or arbitration panel.  The immunity extends to associations administering arbitration procedures.

On appeal, the University argued that the arbitral immunity doctrine did not apply to the AAA because the AAA lacked jurisdiction to arbitrate the dispute with Modern Piping.  While no Iowa case has addressed this issue, other courts have found that arbitral immunity applies unless there is a clear absence of jurisdiction.  These courts have reasoned that requiring arbitrators to resolve threshold legal issues prior to any hearing is burdensome, forcing the arbitrator to preliminarily decide complex legal issues and interfering the arbitrator’s neutrality.  Thus, the question of arbitrability is to be decided by the court, not the arbitrator.

The University argued that the lack of a court order determining that the AAA had jurisdiction was indicative of a clear absence of the AAA’s jurisdiction.  The Court of Appeals rejected this argument, finding that the determination is whether Modern Piping’s arbitration demand was facially invalid so that the AAA’s jurisdiction was clearly lacking, not whether there was a court order deciding AAA’s jurisdiction.  Here, the Court of Appeals found that Modern Piping’s arbitration demand was not facially invalid, noting that the University issued a nine-page memorandum and the district court issued a full opinion dealing with the legal issues involved.  As such, the Court of Appeals held that the district court properly granted summary judgment in AAA’s favor because the University failed to show a clear absence of jurisdiction required to divest the AAA of its arbitral immunity.

The Court of Appeals noted that the University was not without a remedy to enjoin the AAA from arbitrating the dispute because the University could seek injunctive relief against Modern Piping.

To view the full text of the court’s decision, courtesy of Bloomberg, click here.