assuming that it is executed by a corporate agent, does not negate the factual assertion that such signature was not intended to represent a contractual undertaking").
The foregoing demonstrates that this case belongs in that first category of arbitrability cases involving "disputes over the formation of an agreement to arbitrate -- i.e., whether the parties ever agreed to submit anything to arbitration in the first place." National R.R. Passenger Corp. v. Boston & Maine Corp., 271 U.S. App. D.C. 63, 850 F.2d 756, 761 (D.C.Cir. 1988) (emphasis added).
A court -- and not an arbitrator -- must resolve this threshold question of whether the parties ever entered into an arbitration agreement since there is no authority to require a party to submit to arbitration if there never was an agreement to arbitrate. Id. This result comports with both the language of the FAA, which protects the right to a jury trial of the party contesting the existence of an arbitration agreement, see 9 U.S.C. § 4, and with common sense because "before a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court, there should be an express, unequivocal agreement to that effect." Par-Knit Mills, 636 F.2d at 54; see also I.S. Joseph Co. v. Michigan Sugar Co., 803 F.2d 396, 398, 399 (8th Cir. 1986) (reversing district court's order compelling arbitration because "the underlying dispute here goes to the existence of a contract to arbitrate, and therefore is a question of substantive arbitrability to be decided by the courts" and noting that essence of a district court's inquiry under § 4 includes determination of "whether there is an agreement between the parties at all"); cf. N & D Fashions, Inc. v. DHJ Industries, Inc., 548 F.2d 722, 729 (8th Cir. 1976) (whether plaintiff's agent, who signed contract, was authorized to enter into arbitration agreement on plaintiff's behalf "is a question for decision by the courts, because it goes expressly to the making of the agreement to arbitrate"). Thus, before it may grant the defendants' motion to compel the plaintiffs to submit to arbitration, the Court must decide whether the "Agreement" is valid and legally binding.
In resisting this conclusion, the defendants make two kinds of arguments; one has no merit and the other is premature. First, the defendants' reliance on the "fraud in the inducement" rule of Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967), and its progeny is misplaced. It is well established that the dispute must be arbitrated when a party raises fraud in the inducement of the contract generally whereas when "the claim is fraud in the inducement of the arbitration clause itself -- an issue which goes to the 'making' of the agreement to arbitrate -- the federal court may proceed to adjudicate it." Id. at 403-04 (emphasis added); accord Manning v. Energy Conversion Devices, Inc., 833 F.2d 1096, 1103 (2d Cir. 1987); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868 (7th Cir. 1985); N & D Fashions, Inc., 548 F.2d at 728; Leone v. Advest, Inc., 624 F. Supp. 297, 301 (S.D.N.Y. 1985). The rationale behind this proposition is that under certain circumstances -- but not always -- an arbitration clause is severable from the rest of the contract and therefore is not "infected" by the dispute going to the contract's central purpose. Matterhorn, Inc., 763 F.2d at 868-69 ("An arbitration clause will often be 'severable' from the contract in which it is embedded, in the sense that it may be valid even if the rest of the contract is invalid." (emphasis added)); see Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348, 350 (7th Cir. 1983) (ordering arbitration of dispute over enforceability of contract because "the agreement to arbitrate and the agreement to buy and sell motors are separate" and because plaintiff's "promise to arbitrate was given in exchange for [defendant's] promise to arbitrate and each promise was sufficient consideration for the other"), cert. denied, 464 U.S. 1070, 104 S. Ct. 976, 79 L. Ed. 2d 214 (1984).
However, here the plaintiffs do not claim that they were fraudulently induced into signing a contract or that only the commission part of the "Agreement," and not the arbitration clause itself, is invalid. Rather the plaintiffs contend that, since nobody authorized to act on their behalf ever executed the "Agreement," every single part of the "Agreement" -- including the arbitration provision -- is null and void. In other words, this dispute must be resolved by the Court rather than an arbitrator because, unlike in Matterhorn, Inc. and Sauer-Getriebe KG where the parties did not dispute signing a contract, here the invalidity of the "Agreement" -- if proven -- may simultaneously invalidate the arbitration provision contained therein.
In making their second type of argument, that the "Agreement" is enforceable because of Al-Ghanem's implied or apparent authority or because the plaintiffs' subsequent actions affirmed the contract, the defendants skip the appetizer and begin gobbling up the main course. These arguments go to the merits of whether the "Agreement" binds the parties instead of addressing the preliminary question now before the Court of whether that substantive dispute requires judicial or arbitral resolution. Espousing no view on the merits of the defendants' premature contract arguments, today the Court decides only that it -- not an arbitrator -- must determine whether the plaintiffs are bound by the "Agreement," because cases construing the FAA state unequivocally that a court deciding the threshold question of arbitrability may not rule on the potential merits of the underlying claims, not even if they seem frivolous. AT & T Technologies, Inc., 475 U.S. at 650; see also Concourse Village, Inc. v. Local 32E, Serv. Employees Int'l Union, 822 F.2d 302, 304 (2d Cir. 1987); Municipal Energy Agency v. Big Rivers Elec. Corp., 804 F.2d 338, 342 (5th Cir. 1986); I.S. Joseph Co. v. Michigan Sugar Co., 803 F.2d 396, 399 (8th Cir. 1986).
In light of the foregoing, the Court will leave for another day, after further briefing by the parties (the plaintiffs correctly have not yet addressed the merits), the issue of whether the "Agreement" binds the plaintiffs. Therefore, the arbitration proceedings pending before the American Arbitration Association must be stayed and may continue only if the Court (or a jury), see 9 U.S.C. § 4, has determined that the plaintiffs are bound by the arbitration provision of the "Agreement." The Court will order the parties to confer for the purpose of agreeing upon a briefing schedule and drafting a proposed order for the Court to consider at the status call set for September 24, 1990.
The Court will issue of even date herewith an Order in accordance with the foregoing Memorandum Opinion.
ORDER - August 31, 1990, Filed
In accordance with the Court's Memorandum Opinion of even date herewith, it is, by the Court, this 30 day of August, 1990,
ORDERED that the plaintiffs' Motion to Stay Arbitration Proceedings shall be, and hereby is, GRANTED; and it is
FURTHER ORDERED that the arbitration proceedings pending before the American Arbitration Association under Complaint No. 16 T145 00163 90M shall be, and hereby are, STAYED until further Order of this Court; and it is
FURTHER ORDERED that the defendants' Motion to Compel Arbitration shall be, and hereby is, DENIED without prejudice; and it is
FURTHER ORDERED that the parties shall confer and agree upon a briefing schedule on the issue of whether a valid contract between the parties exists; and it is
FURTHER ORDERED that, at the status call set for 9:30 a.m. September 24, 1990, the parties shall present for the Court to consider a proposed order setting forth the above-ordered briefing schedule.