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Archive for the ‘Arbitration and Mediation FAQs’ Category

Arbitration Nuts and Bolts: Federal Appellate Jurisdiction over Orders Compelling Arbitration and Staying Litigation

March 21st, 2019 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, FAA Section 16, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Stay of Arbitration, Stay of Litigation, United States Court of Appeals for the Second Circuit No Comments »

Introduction

Appellate Jurisdiction 1

Sections 3 and 4 of the Federal Arbitration Act (the “FAA”) provide remedies for a party who is aggrieved by another party’s failure or refusal to arbitrate under the terms of an FAA-governed agreement. FAA Section 3, which governs stays of litigation pending arbitration, requires courts, “upon application of one of the parties,” to stay litigation of issues that are “referable to arbitration” “until arbitration has been had in accordance with the terms of the parties’ arbitration agreement, providing [the party applying for a stay] is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. Faced with a properly supported application for a stay of litigation of an arbitrable controversy, a federal district court must grant the stay. 9 U.S.C. § 3.

Section 4 of the FAA authorizes courts to make orders “directing arbitration [to] proceed in the manner provided for in [the [parties’ written arbitration] agreement[,]” and sets forth certain procedures for adjudicating petitions or motions to compel arbitration. 9 U.S.C. § 4. It provides that when a court determines “an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.” 9 U.S.C. § 4 (emphasis added). Just as courts must grant properly supported applications for relief under Section 3, so too must they grant properly supported applications for relief under Section 4. See 9 U.S.C. §§ 3 & 4.

There is much to be said about the many issues that may arise out of applications to stay litigation, compel arbitration, or both, but our focus here is on the appellate jurisdiction of the U.S. Circuit Courts of Appeals over appeals from the grant or denial of such applications. Before a U.S. Circuit Court of Appeals can hear an appeal on the merits of a federal district court’s order and judgment, it must be satisfied that: (a) the federal district court had original subject matter jurisdiction (e.g., diversity jurisdiction or federal question jurisdiction); (b) there is still a “case or controversy” within the meaning of Article III of the U.S. Constitution (e.g., the controversy has not become moot by settlement or otherwise); and (c) the order or judgment appealed from is one over which it has appellate jurisdiction.

Appellate Jurisdiction and the FAA

Appellate Jurisdiction 2

Appellate jurisdiction refers to a Circuit Court of Appeals’ power to review, amend, vacate, affirm, or reverse the orders and judgments of the district courts within the judicial circuit over which the Court of Appeals presides. Generally, and outside the context of injunctions and the certification procedure of 28 U.S.C. § 1292(b), U.S. Courts of Appeal have jurisdiction to review only “final decisions” of district courts. See 28 U.S.C. §§ 1291, 1292. A “final decision” “is a decision that ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.” Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 86 (2000) (citations and quotations omitted).

But Federal Arbitration Act litigation is quite different from ordinary litigation from both a substantive and procedural prospective, and so it comes as no surprise that the FAA features its own set of appellate jurisdiction rules.

Continue Reading »

Arbitration Law FAQ: Chapter 1 of the Federal Arbitration Act

February 27th, 2019 Applicability of Federal Arbitration Act, Arbitration Agreements, Arbitration and Mediation FAQs, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Nuts & Bolts: Arbitration No Comments »
Chapter 1 Federal Arbitration Act 1

This Arbitration Law FAQ guide briefly explains what the Federal Arbitration Act is, and then answers some frequently asked questions about Chapter 1 of the Act. It is not legal advice, nor a substitute for legal advice, and should not be relied upon as such.

If you desire or require legal advice or representation in a matter concerning commercial, labor, or any other arbitration-law matter, then do not hesitate to contact a skilled and experienced arbitration-law attorney. This guide provides some general information that may be able to assist you in your search for legal representation, or in simply obtaining a better understanding of some arbitration-law basics.

Arbitration Law FAQS: What is the Federal Arbitration Act?

Wholly Groundless Exception 3 - Chapter 1 Federal Arbitration Act 2

The Federal Arbitration Act is a federal statute enacted in 1925 that makes certain (but not all) arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It was originally, and for many years, known as the “United States Arbitration Act,” but for simplicity’s sake we’ll refer to it as the “Federal Arbitration Act,” the “FAA,” or the “Act.”

It was passed at a time when courts were, for the most part, unwilling to enforce agreements to arbitrate because they thought that such agreements “divested” their “jurisdiction” over disputes that would ordinarily be decided by courts. In other words, many courts thought it wrong for courts to lend their assistance to the enforcement of contracts under which parties would agree to submit their disputes to private decision makers.

Even by the time the FAA was passed, arbitration was not new. For example, it can be traced back at least as far as medieval times, when various guilds used it as a way of resolving disputes according to what became known as the “law merchant,” an informal body of rules and principles that merchants believed should be applied to their disputes, but which common law courts did not, at the time, apply. The first arbitration agreement was reportedly included in a reinsurance contract in the late 18th century, and George Washington apparently included an arbitration clause in his will.  

The FAA, as originally enacted, consisted of 14 provisions. In 1970 Congress designated those first 14 provisions as “Chapter 1” of the FAA, and added a “Chapter 2,” which consists of various provisions implementing and enabling the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a/k/a the “New York Convention”). In 1988 Congress added two additional provisions to Chapter 1 of the FAA, Sections 15 and 16. In 1990 Congress added to the FAA a Chapter 3, which consists of provisions implementing and enabling the Inter-American Convention on International Commercial Arbitration (a/k/a the “Panama Convention”).

The remainder of this FAQ guide focuses on Chapter 1 of the FAA.

Arbitration Law FAQs: What does Chapter 1 of the FAA do apart from declaring certain arbitration agreements to be valid, irrevocable, and enforceable?

Section 2 of the Federal Arbitration Act is sometimes referred to as the Act’s “enforcement command.” It is the provision that declares certain (but not all) arbitration agreements to be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

Under Section 2, “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Schein v. Archer & White Sales, Inc., 586 U.S. ____, slip op. at *4 (Jan. 8, 2019) (citation and quotation omitted). Section 2 also “requires courts to place arbitration agreements on an equal footing with all other contracts.” Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017) (quotations and  citations omitted).    

implement

Section 1 of the FAA provides some definitions and exempts from the FAA a fairly limited universe of agreements that would otherwise fall within the scope of the Act. See 9 U.S.C. § 1. The other provisions of Chapter 1 implement the enforcement command by lending judicial support to the enforcement of arbitration agreements and awards. These are briefly summarized below:

Section 3 – Requires courts to stay litigation in favor of arbitration. 9 U.S.C. § 3.

Section 4 – Provides for courts to compel arbitration.

Section 5 – Provides for courts to appoint arbitrators when there has been a default in the arbitrator selection process.

Section 6 – Provides that motion practice rules apply to applications made under the FAA, thereby expediting the judicial disposition of such applications. 

Section 7 – Provides for the judicial enforcement of certain arbitration subpoenas.

Section 8 – Provides that where the basis for federal subject matter jurisdiction is admiralty, then “the party claiming to be aggrieved may begin his proceeding [under the FAA]…by libel and seizure of the vessel or other property….” 9 U.S.C. § 8.

Section 9 – Provides for courts to confirm arbitration awards, that is, enter judgment upon them.

Section 10 – Authorizes courts to vacate arbitration awards in certain limited circumstances.

Section 11 – Authorizes courts to modify or correct arbitration awards in certain limited circumstances.

Section 12 – Provides rules concerning the service of a motion to vacate, modify, or correct an award, including a three-month time limit.

Section 13 – Specifies papers that must be filed with the clerk on motions to confirm, vacate, modify, or correct awards and provides that judgment entered on orders on such motions has the same force and effect of any other judgment entered by the court.

Section 14 – Specifies that agreements made as of the FAA’s 1925 effective date are subject to the FAA.

Section 15 – Provides that “Enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders confirming such awards shall not be refused on the basis of the Act of State doctrine.”

Section 16 – Specifies when appeals may be taken from orders made under the FAA, and authorizing appeals from final decisions with respect to arbitration.

Arbitration Law FAQs: How can I tell if an arbitration agreement or award is governed by Chapter 1 of the Federal Arbitration Act?

Commerce

Whether an arbitration agreement falls under the FAA depends on whether: (a) the arbitration agreement is in writing; and (b) is part of a “maritime transaction” or of a contract that affects interstate commerce.

The starting point is, as before, Federal Arbitration Act Section 2’s enforcement command, which provides, with bracketed text added:

[A] A written provision [B] in any maritime transaction or [C] a contract evidencing a transaction involving commerce [D] to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or [E] an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, [F] shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2.

Section 2’s requirement that an arbitration agreement be “written” (Part [A]) seems simple enough, and, for the most part, it is. But remember, just because a contract is required to be “written” doesn’t mean the arbitration agreement must be signed.

As respects whether a “contract” “evidenc[es] a transaction involving commerce” (Part [C]), the U.S. Supreme Court has interpreted Section 2 broadly to mean the Federal Arbitration Act applies to arbitration agreements in contracts or transactions that affect commerce, that is, to any contract or transaction that Congress could regulate in the full exercise of its Commerce Clause powers. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 268, 281-82 (1995); U.S. Const. Art. I, § 8, Cl. 3 (giving Congress power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes”).

Whether a contract “affects” commerce depends on the facts concerning, among other things, the parties, the contract’s subject matter, and the actual or contemplated transactions constituting the contract’s performance or contemplated performance. See Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56-57 (2003). A party does not have to demonstrate that the contract has a “specific” or “substantial” “effect upon interstate commerce if in the aggregate the economic activity in question would represent a general practice subject to federal control.” Id. (citations and quotations omitted). The question is whether the “aggregate economic activity in question” “bear[s] on interstate commerce in a substantial way.” Id. at 57.

Parts [A] through [D]] of Section 2 make the Federal Arbitration Act applicable to written, pre-dispute arbitration “provision[s]” in “maritime transactions” or in “contract[s] evidencing transactions involving commerce….” These arbitration provisions are “pre-dispute” arbitration agreements because they are defined by Part [D] as “provision[s]” “to settle a controversy thereafter arising out of such contract or transaction, or [out of] the refusal to perform the whole or any part” of such contract or transaction….”  9 U.S.C. § 2 (emphasis added). In other words, agreements to submit future disputes to arbitration.

Parts [A] through [E] of Section 2 make the FAA applicable also to written, post-dispute arbitration agreements, that is, agreements to arbitrate existing disputes arising out of “maritime transactions” or “contract[s] evidencing transactions involving commerce….”  To that end Part [E] makes Section  2 applicable to “agreement[s] in writing to submit to arbitration an existing controversy arising out of”  “maritime transaction,” (Part [B]) “contract evidencing a transaction involving commerce” (Part [C]), or “refusal to perform the whole or any part” of such a contract or transaction. (Part[D]). 9 U.S.C. § 2 (emphasis added).

Arbitration Law FAQs: Are there any Arbitration Agreements Falling Under FAA Section 2 that are Exempt from Chapter 1 of the FAA?

Contracts of Employment 1 Federal Arbitration Act Section 1
Federal Arbitration Act Section 1

Yes. Section 1 of the FAA provides that “nothing [in the FAA] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” According to the United States Supreme Court, this exemption applies “only” to “contracts of employment of transportation workers.” Circuit City Stores, Inc. v. Adams, 532 U. S. 105, 119 (2001). But those “contracts of employment” include not only contracts establishing an employer-employee relationship, but also contracts establishing independent contractor relationships. New Prime Inc. v. Oliveira, 586 U.S. ___, slip op.at 6, 7, & 15 (Jan. 15, 2019).

Arbitration Law FAQs: If the Chapter 1 of the Federal Arbitration Act applies, does that mean all FAA litigation falling under Chapter 1 can be brought in federal court?

No. Chapter 1 of the Federal Arbitration Act does not confer an independent basis for federal court subject matter jurisdiction over applications for the relief authorized by Chapter 1. Put differently making an application under the FAA does not raise a “federal question” over which a federal court could, under 28 U.S.C. § 1331, base subject matter jurisdiction.

But that doesn’t mean that federal courts cannot have subject matter jurisdiction over Chapter 1 Federal Arbitration Act proceedings. If the requirements for diversity jurisdiction are met, including complete diversity of citizenship between the parties, and an amount in controversy that exceeds $75,000.00, excluding interest and costs, then a federal court will have subject matter jurisdiction under the diversity jurisdiction. See 28 U.S.C. § 1332. 

Arbitration Law FAQs: Does Chapter 1 of the Federal Arbitration Act apply in state court?

Federalism

Yes. State courts are required to enforce arbitration agreements under Section 2 of the FAA. Basically, they must enforce arbitration agreements falling under the FAA, putting them on the same footing as other contracts. See Kindred Nursing Centers, 137 S. Ct. at 1424.     

Most or all states have their own arbitration statutes. New York’s arbitration statute, for example, is codified in Article 75 of the New York Civil Practice Law and Rules (“CPLR”). Depending on applicable state law, state courts may carry out Section 2’s enforcement command using their own arbitration statute’s provisions, even if they are different than those provided by Chapter 1 of the FAA. But if enforcement of the FAA through the provisions of the state’s arbitration code would undermine the purposes and objectives of the FAA, then the offending state arbitration code provisions would be preempted (i.e., superseded) by the FAA to the extent that they conflict with the FAA.

If you are interested in learning more about the Federal Arbitration Act, see here, here, and here.

Photo Acknowledgments:

The photos featured in this post were licensed from Yay Images and are subject to copyright protection under applicable law. L&L added text to the first three photos from the top.

Arbitration Law FAQs: Confirming Arbitration Awards under the Federal Arbitration Act

September 18th, 2018 Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Awards, Federal Arbitration Act Enforcement Litigation Procedure, Final Awards, Judicial Review of Arbitration Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Small Business B-2-B Arbitration Comments Off on Arbitration Law FAQs: Confirming Arbitration Awards under the Federal Arbitration Act

Introduction

Confirming Arbitration Awards 1

Confirming Arbitration Awards 1

Favorable arbitration awards are wonderful things, but they are not self-enforcing. Sometimes the other side voluntarily complies, but if not, there is really not much of anything the arbitrator can do to help.

Arbitrators are not judges and do not have the authority to garnish wages, seize property,  foreclose on encumbered property, freeze bank accounts, impose contempt sanctions, and so forth. Parties can delegate to arbitrators broad adjudicatory and remedial authority, but that is relevant only to the nature and scope of their awards, and does not confer power on the arbitrators to enforce their awards coercively.

Apart from its potential preclusive effect in subsequent litigation or arbitration, an arbitration award stands on the same footing as any other privately prepared legal document, and for all intents and purposes it is a contract made for the parties by their joint agent of sorts—the arbitrator or arbitration panel. It may be intended by the arbitrator or panel, and at least one of the parties, to have legal effect, but it is up to a court to say what legal effect it has, and, if necessary, to implement that legal effect through coercive enforcement.

A judgment, by contrast, is an official decree by a governmental body (the court) that not only can be coercively enforced through subsequent summary proceedings in the same or other courts (including courts in other states and federal judicial districts), but is, to some extent, self-enforcing. A judgment, for example, can ordinarily be filed as a statutory lien on real property, and applicable state or federal law may, for example, authorize attorneys to avail their clients of certain judgment-enforcement-related remedies without prior judicial authorization.

Confirming Arbitration Awards 2

Confirming Arbitration Awards 2

The Federal Arbitration Act, and most or all state arbitration statutes, provide for enforcement of arbitration awards through a procedure by which a party may request a court to enter judgment on the award, that is to “confirm” it. Once an award has been reduced to judgment, it can be enforced to the same extent as any other judgment. See, e.g., 9 U.S.C. § 13 (Under Federal Arbitration Act, judgment on award “shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered”); Fla. Stat. § 682.15(1)( “The judgment may be recorded, docketed, and enforced as any other judgment in a civil action.”); N.Y. Civ. Prac. L. & R. § 7514(a) (“A judgment shall be entered upon the confirmation of an award.”).

Chapter One of The Federal Arbitration Act (the “FAA”), and most or all state arbitration statutes, authorize courts to confirm domestic awards in summary proceedings. State arbitration-law rules, procedures, limitation periods, and the like vary from state to state and frequently from the FAA, and state courts may apply them to FAA-governed awards (provided doing so does not frustrate the purposes and objectives of the FAA). And Chapter 2 of the FAA provides some different rules that apply to the confirmation of domestic arbitration awards that fall under the Convention on the Recognition of Foreign Arbitral Awards (the “Convention”), and the enforcement of non-domestic arbitration awards falling under the Convention (i.e., awards made in territory of a country that is a signatory to the Convention.

But let’s keep things simple, and take a brief look at the FAA’s requirements for confirming arbitration awards, as applicable in federal court for domestic awards not falling under Chapter Two of the Federal Arbitration Act in situations where there is no prior pending action related to the arbitration, and  there are no issues concerning federal subject-matter jurisdiction, personal jurisdiction, sufficiency or service of process, venue (i.e., whether the suit should have been brought in a different federal judicial district), or the applicability of Chapter One of the FAA (9 U.S.C. §§ 1-16).  We’ll also discuss how applications to confirm are supposed to be summary proceedings, why timing of an application is important, and how courts decide them.

What are the Requirements for Confirming Arbitration Awards under the Federal Arbitration Act?

Confirming Arbitration Awards 3

Confirming Arbitration Awards 3

Like most other issues arising under the FAA, whether a court should confirm an award depends on what the parties agreed. Section 9 of the FAA, which governs confirmation of awards, says—with bracketed lettering added, and in pertinent part: “[A] If the parties in their agreement have [B] agreed that a judgment of the court shall be entered upon [C] the award made pursuant to the arbitration, and [D] shall specify the court, then [E] at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and [F] thereupon the court must grant such an order unless [G] the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” 9 U.S.C. § 9. Items [A] through [D] above each concern party consent as evidenced by the parties’ arbitration agreement.

The key substantive requirements for confirming arbitration awards are thus: Continue Reading »

Arbitration Law FAQ Guide: Challenging Arbitration Awards under the Federal Arbitration Act — Part II

September 12th, 2018 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Challenging Arbitration Awards, Federal Arbitration Act Enforcement Litigation Procedure, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Outcome Risk, Small and Medium-Sized Business Arbitration Risk, Small Business B-2-B Arbitration 2 Comments »

Awards Under the Federal Arbitration Act 1

Awards Under the Federal Arbitration Act 1

This is Part II of this two-part Arbitration Law FAQ Guide, which is designed to provide individuals and businesses with a brief and broad overview of challenging awards under the Federal Arbitration Act. Part I (here) addressed eight FAQs concerning this topic. This Part II addresses six more.

These FAQs, like the first eight, assume that a party is seeking to challenge a Federal-Arbitration-Act-governed arbitration award in a federal court having subject matter jurisdiction, personal jurisdiction, and proper venue.

This guide is not legal advice or a substitute for legal advice. An individual or business contemplating a challenge of an award under the Federal Arbitration Act  should consult with an attorney or firm that has experience and expertise in arbitration law matters.

  1. What does a person have to prove to convince a Court to grant it vacatur, modification, or correction of an award?

Awards Under the Federal Arbitration Act 2

Awards Under the Federal Arbitration Act 2

An arbitration award is presumed valid and an award challenger has a heavy burden of proof to show otherwise. Some courts require clear and convincing evidence of certain grounds, such as evident partiality or corruption in the arbitrators. And even if a challenger can meet its burden, challenging an award under the Federal Arbitration Act must ordinarily be done in a summary proceeding, which is heard and determined in the same manner as a motion.

Generally, the challenger must establish that the only legitimate inference that can be drawn from the law and undisputed facts is that vacatur, modification, or correction of the award is warranted. Even where there are factual disputes, courts ordinarily will not order discovery or evidentiary hearings absent “clear evidence of impropriety.”  See, generally, Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 701, 702 (2d Cir. 1978).

  1. What proceedings does a Court usually hold to determine applications to vacate, modify, or correct awards under the Federal Arbitration Act?

These applications are summary proceedings that are made and decided like motions. See 9 U.S.C. § 6. If there is not already pending an action between the parties in which a motion may be made, then a challenger can start a proceeding by filing and serving, among other things, a petition or application, a notice of petition or application, supporting affidavits, and a memorandum of law in support. The responding party serves and files a memorandum in opposition, along with any affidavits in support.

Since the matter is a summary proceeding, and since the ordinary pleading rules do not apply, courts generally require the challenger to make all of its arguments at the time its response is due, including arguments that might be made by pre-answer motion in an ordinary law suit, such as lack of subject-matter or personal jurisdiction. The responding party will also typically file a cross-motion to confirm the award, that is, a request that the Court enter judgment upon the award. See 9 U.S.C. § 9. Continue Reading »

Arbitration Law FAQ Guide: Challenging Arbitration Awards under the Federal Arbitration Act

September 9th, 2018 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Challenging Arbitration Awards, Grounds for Vacatur, Judicial Review of Arbitration Awards, Nuts & Bolts, Nuts & Bolts: Arbitration 3 Comments »

Introduction

This two-part Arbitration Law FAQ guide is designed to provide individuals and businesses with a basic overview of what the Federal Arbitration Act has to say about challenging arbitration awards in court. This is Part I and Part II is here.

It assumes that the award is governed by the Federal Arbitration Act; the challenge is made in a federal district court having subject matter and personal jurisdiction; and venue is proper.

This guide is not legal advice or a substitute for legal advice. If you are an individual or business which wants or has to challenge or defend an arbitration award, or make an application to confirm the award, then you should consult with an attorney or firm that has experience and expertise in arbitration law matters.

  1. I just received an arbitration award against me, which I believe is governed by the Federal Arbitration Act (the “FAA”). Does the FAA allow me to appeal the award to a court?

Challenging Arbitration Awards 1

Challenging Arbitration Awards 1

You cannot—at least in any meaningful sense of the word—“appeal” an FAA-governed arbitration award to a court. An appeal involves judicial review by an appellate court under which a panel of judges reviews trial-court rulings on questions of law independently—that is, as if the appellate court were deciding the question for itself in the first instance. The appellate court generally reviews the trial court’s findings of fact on a “clearly erroneous” or “clear error” standard of review, that is, paying a certain degree of deference to the finder of fact (the jury or, in a bench trial, the judge). Appellate review of a court decision is thus fairly broad and searching, particularly where outcomes turn solely on questions of law.

When a person agrees to arbitrate it gives up the right to appellate review, which focuses on issues relating to the merits of the case the court decided or on important litigation-procedure rulings.

  1. Does the FAA permit a party to challenge an arbitration award?

Challenging Arbitration Awards 2

Challenging Arbitration Awards 2

The Federal Arbitration Act provides some limited remedies for challenging arbitration awards where a party can show certain kinds of unusual and material violations of an arbitration agreement by an arbitrator or an opposing party, or an obvious mathematical, typographical, or technical error that appears on the face of the award. The remedies are orders: (a) modifying or correcting the award; or (b) vacating the award in whole or in part.

To vacate an award means to annul it, that is, to declare it null and void. When an award is vacated, then the parties generally must (absent a settlement) go back and re-arbitrate the matters that were the subject of the award.  When an award is modified or corrected, the correction or modification may be made by the court, or the court may remand the matter back to the arbitrators for that purpose. Continue Reading »

Federal Arbitration Act Litigation Procedure Blog Posts on Final Arbitration Awards

December 30th, 2014 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Functus Officio, Grounds for Vacatur, Judicial Review of Arbitration Awards, Loree & Loree Arbitration-Law Blogs, Nuts & Bolts, Nuts & Bolts: Arbitration, United States Supreme Court Comments Off on Federal Arbitration Act Litigation Procedure Blog Posts on Final Arbitration Awards

Back when we began posting in 2009 we published a “Nuts & Bolts”  series post about final arbitration awards, which you can read here. Interestingly, enough, that post, according to Google Analytics statistics, is one of the (if not the) most popular post we’ve ever published.

That may seem a bit strange, but it’s really not. Whether or not an arbitration award is a final arbitration award bears on a number of important issues, including whether the award can be confirmed, vacated, modified or corrected, and whether it is a decision that the arbitrators have the authority to revisit. And whether or not an arbitration award can be confirmed, vacated, modified or corrected before the conclusion of an ongoing arbitration proceeding has obvious time-bar consequences in light of the short limitation periods for confirming, vacating, modifying and correcting awards: to avoid forfeiture, it may be necessary to commence post-award Federal Arbitration Act enforcement proceedings before the arbitration proceeding has concluded. (See Loree Reins. & Arb. L. Forum posts here & here.)

Given the recent launch of  the Federal Arbitration Act Litigation Procedure Blog, and the need to start posting what we hope will be interesting and useful material, we decided to kick-off with the finality topic. Earlier today we published the first  segment of the series Federal Arbitration Act Finality: Is this Arbitration Decision a Final Award, An Interim Final Award, a Partial Award, a Partial Final Award or. . . What??, which you can read here.

That post outlines the topic and describes a hypothetical arbitration that gives rise to five types of awards and rulings, four of which are issued prior to the award that concludes the arbitration. Future posts  will discuss whether or not each type of award is, or may in some circumstances be, a final arbitration award for  purposes of Chapter 1 of the Federal Arbitration Act.

Another thing we’ll discuss will be the affect, if any, of Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) on the final award issue. Of all the many issues discussed in the Stolt-Nielsen case the one we hear relatively little commentary about is the Supreme Court’s rejection of the dissent’s argument that the class-arbitration consent award was not ripe for judicial review.  See 559 U.S. at 667 n.2. As part of the Federal Arbitration Act Litigation Procedure Blog final-award series, we’ll consider that aspect of the Supreme Court’s ruling and its relevance to the question whether a partial award can be a partial final award if the parties consent.

And unless we  somehow feel compelled  to publish yet another post this year, we’d like to take this opportunity to wish everyone a happy and prosperous New Year!

Philip J. Loree Jr.

 

New Arbitration Award Practice Blog Posts on Arbitrators Exceeding their Powers under the Federal Arbitration Act

December 27th, 2014 Arbitrability, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Grounds for Vacatur, Loree & Loree Arbitration-Law Blogs, Small Business B-2-B Arbitration Comments Off on New Arbitration Award Practice Blog Posts on Arbitrators Exceeding their Powers under the Federal Arbitration Act

We’ve posted in the Arbitration Award Practice Blog the first two posts of a series concerning arbitrators exceeding their powers under  the Federal Arbitration Act in circumstances where they make awards against persons who are not parties to the pre-dispute arbitration agreement that precipitated the arbitration:

  1. Do Arbitrators Exceed their Powers by Imposing Liability on Corporate Officers who were not Parties to the Arbitration Agreement?
  2. Do Arbitrators Exceed their Powers by Imposing Liability on Corporate Officers who were not Parties to the Arbitration Agreement?—Part II

These posts are designed to illustrate to persons learning about arbitration law basics a point that more experienced practitioners know all-too-well: arbitration law can be counterintutive, and even its relatively straightforward general rules or principles do not apply to all factual scenarios.

For example, under the Federal Arbitration Act the answer to question posed by the articles: “it depends.” If a corporate officer participated in the arbitration solely as a party representative; nobody demanded, requested, argued or suggested that the corporate officer should have been deemed a party; and the corporate officer did not request in his individual capacity relief from the arbitration panel, then the arbitrators would be exceeding their powers were they to make an award against the corporate officer.

But as a general rule, arbitrators do not, on their own motion, award relief to or impose liability on persons who are not parties to the arbitration agreement. But see NCR Corp. v. Sac-Co., Inc., 43 F. 3d 1076,  1080 (6th Cir. 1995) (arbitrator ordered punitive damages to non-parties even though neither party requested such relief). While arbitrators occasionally do render awards granting relief to or against arbitration agreement nonsignatories, usually that occurs only when someone has requested such relief.

That’s what happened, for example, in Stone v. Theatrical Investment Corp., No. 14 Civ. 6494 (PAE), slip op. at 1, 8-9 (S.D.N.Y. Dec. 2, 2014). Stone was a contract dispute between two parties A, a trust, represented by its trustee, and B, a corporation. A demanded arbitration against B under the contract’s pre-dispute arbitration agreement, but also demanded arbitration against B’s CEO, asserting that the arbitrator should pierce the corporate veil and hold the CEO jointly and severally liable for the corporation’s alleged breach of contract. The CEO participated in the arbitration as a party representative for B, but never informed the arbitrator that it objected to her jurisdiction to award relief to him. In addition, the CEO requested the arbitrator to grant him relief in his individual capacity.

Not surprisingly, the general rule did not apply in Stone, a point we discuss briefly in the second of the two Arbitration Award Practice Blog posts. In fact it seems odd that the CEO moved to  vacate the award against it on the ground that he did not agree to arbitrate the dispute. It suggests (but certainly does not establish) that perhaps the CEO thought he could make the argument he did despite the arbitration strategy he chose to purse. We do not know whether that is so, however, and there might be other reasons why the CEO opted to pursue that strategy.

Assuming that the CEO did not wish to arbitrate the veil-piercing claim there was much he could have done to ensure a judicial determination of that matter. And that’s something we’ll address in a future post in the Arbitration Award Practice Blog.

 

Small Business B-2-B Arbitration Part III.A: Arbitration RIsks—Outcome Risk  

November 26th, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Arbitration Risks, Authority of Arbitrators, Awards, Bad Faith, Confirmation of Awards, Contract Interpretation, Dispute Risk - Frequency and Severity, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, Making Decisions about Arbitration, Managing Dispute Risks, Nuts & Bolts, Nuts & Bolts: Arbitration, Outcome Risk, Practice and Procedure, Small and Medium-Sized Business Arbitration Risk Comments Off on Small Business B-2-B Arbitration Part III.A: Arbitration RIsks—Outcome Risk  

Arbitration Risks—Outcome Risk

Introduction

Our last segment of our B-2-B arbitration series (here) wrapped up discussion of the structural characteristics of arbitration agreements. Now that we’ve covered  the nature and purpose of arbitration, and the structure of arbitration agreements, let’s consider some of the risks an agreement to arbitration can pose to a small or medium-sized business.

For simplicity’s sake we’ll focus on five types of risk associated with agreeing to arbitrate disputes:

  1. “Outcome risk;”
  2. “Fail-Safe risk;”
  3. “Bleak House risk;”
  4. “Counterparty risk;” and
  5. “Integrity risk.”

These are not necessarily the only types of risk one assumes in arbitration, but they are among the more significant ones. There are ways to help hedge against these risks and perhaps even lessen the frequency and severity of their manifestation, but for present purposes, let’s briefly discuss each, starting with outcome risk. Continue Reading »

Small Business B-2-B Arbitration Part II.B.2(C): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Who will the Arbitrators be?  

November 13th, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Drafting Arbitration Agreements, Making Decisions about Arbitration, Nuts & Bolts, Nuts & Bolts: Arbitration, Small Business B-2-B Arbitration, United States Supreme Court Comments Off on Small Business B-2-B Arbitration Part II.B.2(C): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Who will the Arbitrators be?  

In Part II.B.2(A) we identified three key structural aspects of pre-dispute B-2-B arbitration, and discussed the first two in that and a subsequent post. This Part II.B.2(C) wraps up our discussion of arbitration-agreement structure by briefly examining a topic that is at least as important as the scope of the agreement: who the decision makers will be and how they will be selected.

As one renowned jurist put it, “selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.”[1] Arbitration allows the parties considerable input into the selection of who the decision makers will be, something that can make it a very attractive alternative to litigation for one or both of the parties. Parties who do not opt out of the court system are left with the luck of draw.

Savvy users of arbitration—and for that matter, most persons with dispute resolution experience in judicial or arbitral forums or both—know that decision makers, whether randomly assigned or selected, are not fungible commodities. Were they fungible, let alone commodities, there would likely be little or no controversy surrounding appointments to the United States Supreme Court.

But differences in judicial philosophy do not have to be based on so-called “liberal,” “moderate” or “conservative” views to be important, and perhaps even outcome-determinative. For example, the composition of a three-judge appellate panel can in many cases significantly influence the outcome of an appeal in many civil cases involving any number of legal and policy issues that are not the subject of discussion, let alone controversy, in the mainstream media.

Presumably many lawyers who argue appeals before three-judge panels (including the author) would scream “halleluiah!” had they the opportunity to select even one member of a three-judge appeals panel—or even if each party got to select one, leaving those two to select a third.

But time and time again, we see situations where parties who could have that opportunity—in the arbitration context, that is— had they negotiated it, or who could have at least participated meaningfully in the selection of one or more arbitrators had they exercised their contract rights with due diligence, end up having little if any meaningful input into the selection process. That type of lost opportunity usually redounds to their detriment, especially when their counterparts not only negotiate arbitrator selection provisions that suit their purposes, but also fully and wisely exercise their arbitrator selection rights. Continue Reading »

Arbitration and Mediation FAQs: Do Arbitrators Necessarily Exceed their Powers by Making an Award that Conflicts with the Unambiguous Terms of the Parties’ Agreement?

November 11th, 2014 Appellate Practice, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, United States Supreme Court Comments Off on Arbitration and Mediation FAQs: Do Arbitrators Necessarily Exceed their Powers by Making an Award that Conflicts with the Unambiguous Terms of the Parties’ Agreement?

We’ve addressed on many occasions the Enterprise WheelStolt-Nielsen/Oxford contract-based outcome review standard, which permits courts to vacate awards when they do not “draw their essence” from the parties’ agreement. Under that standard the “sole question is whether the arbitrators (even arguably) interpreted the parties’ contract, not whether [they] got its meaning right or wrong.” See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (parenthetical in original). (See, e.g.,  Loree Reins. & Arb. L. F. posts here, here, here, here, here & here.)

While exceedingly deferential, the standard is not toothless. Arbitration awards that disregard or contravene the clear and unmistakable terms of a contract are subject to vacatur under it. See Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 676 (panel had “no occasion to ascertain the parties’ intention in the present case because the parties were in complete agreement regarding their intent.”) (quotation omitted); United Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987) (“The arbitrator may not ignore the plain language of the contract. . . .”). That’s because an arbitrator who makes an award that lacks “any contractual basis” has not even arguably interpreted the contract, and therefore has strayed from his or her task. See Oxford, 133 S. Ct. at 2069 (distinguishing Stolt-Nielsen); Stolt-Nielsen, 559 U.S. at 668-69, 672; Misco, 484 U.S. at 38.

An arbitrator whose award contradicts the unambiguous provisions of the parties’ contract may—but will not necessarily—exceed her powers. The answer depends on what the agreement says, what the award says and whether the award is at least arguably grounded in the agreement.

Whether or not a contract or contract term is “ambiguous” depends on whether it is reasonably susceptible to more than one meaning. See, e.g., White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007); Greenfield v. Philles Records, 98 N.Y.2d 562, 570-71 (2002). When a contract is unambiguous, a court can interpret it as a matter of law; if it is ambiguous, its meaning is a question of fact for trial.

Can the Interpretation of the Arbitrators be “Unreasonable,” yet still Colorable or Plausible?

The legal standard for lack of ambiguity is that there be only one “reasonable” interpretation of the contract terms, not that there are no other at least barely plausible or barely colorable interpretations of what the contract might mean. In probably the majority of contract interpretation cases concerning alleged contract ambiguity, each litigant supports its position with good-faith, reasonable arguments for why the disputed contract terms are allegedly susceptible to one or more than one meaning. Whenever courts determine that a contract is unambiguous, that conclusion necessarily means that the losing party’s interpretation of the contract is unreasonable as a matter of law. Continue Reading »