When An Arbitration Clause Sounds Permissive But Is Not
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Is an arbitration clause mandatory or permissive when it provides that either party to the contract may elect to submit a dispute to binding arbitration? What if the contract also provides that the right to arbitrate is not exclusive of any other rights that a party has to pursue legal action in an appropriate forum? Such an arbitration clause certainly sounds permissive. But courts have invested a lot of ink addressing the question, and (spoiler alert!) they have more or less consistently come to the conclusion that such a clause makes arbitration mandatory if any party chooses it.
At its core, a mandatory arbitration clause makes arbitration the exclusive dispute resolution method available to either party by contract, while a permissive clause requires arbitration only if a party elects it and no other party objects to it. This leads many litigants and their attorneys to assume that the use of the word “may” and/or a non-exclusivity statement in an arbitration clause makes it permissive, not mandatory.
Most American courts interpreting such language in the Federal Arbitration Act context, however, hold differently. By way of illustration, in Benihana of Tokyo, LLC v. Benihana, Inc., 2014 U.S. Dist. LEXIS 99933, at *22 (S.D.N.Y. July 22, 2014), Judge Engelmayer of the USDC for the Southern District of New York opined that when an agreement specifies that a party may submit a dispute to binding arbitration, it is merely providing that neither party is in fact required to initiate arbitration, but if any party prefers arbitration, that method of dispute resolution will be enforced. Thus, the initiating party may choose to litigate in court, mediate, or commence some other form of dispute resolution. However, if another party prefers to arbitrate, that choice should be enforced. Conversely, if the initiating party chooses to arbitrate in the first instance, the respondent may not move the dispute to a different forum. Thus, despite its permissive-sounding language, such an arbitration clause is in effect mandatory.
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