The Court rules that where a party alleges both a contract and its arbitration clause were obtained by fraud, the question of the arbitration clause’s enforceability is for a court to decide.

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Moseley v. Electronic & Missile Facilities., 374 U.S. 167 (1963)
 

Relevant Facts: A plumbing and heating contractor subcontracted with a primary contractor under a contract with the U.S. Department of Defense. The subcontract included an arbitration clause which provided for arbitration in New York. The plaintiff-subcontractor initiated a statutory claim under the Miller Act in Georgia, where the work under the subcontract was performed, alleging fraud in the inducement of both the contract and the arbitration agreement.

 

Question Before The Court: Whether a court or an arbitrator should determine the enforceability of an arbitration clause.

 

The Opinion: The Court found that where the petitioner alleged both the contract and the arbitration agreement were obtained by fraud, “[u]nder either the Miller Act or the [Federal Arbitration Act] (FAA), it seems clear that the issue of fraud should first be adjudicated [in a judicial forum] before the rights of the parties under the subcontract can be determined. . .. Only after that issue is resolved can the Court “decide the question of arbitrability of disputes under [a federal law].” The Court sent the case back to the district court, where the arbitration clause would be held unenforceable if that court found fraud.

 

The concurring opinion emphasized that the question of fraud in the procurement of an arbitration agreement is a judicial one: “To allow this question to be decided by arbitrators would be to that extent to enforce the arbitration agreement even though steeped in the grossest kind of fraud.”

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