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SmartSky: Fourth Circuit Says No Jurisdictional Anchor Post Badgerow

Introduction

This post discusses the U.S. Court of Appeals for the Fourth Circuit’s recent decision in SmartSky Networks, LLC v. DAG Wireless, Ltd., ___ F.4^th ___, No. 22-1253, slip op. (4^th Cir. Feb. 13, 2024). SmartSky held that, under Badgerow v. Walters, 596 U.S. 1, 142 S. Ct. 1310 (2022), if a party makes a motion to confirm, vacate, or modify an award in an action over which the Court has federal-question subject matter jurisdiction, then it must nevertheless demonstrate that the Court would have had subject matter jurisdiction had the motion been brought as a standalone petition to confirm, vacate, or modify. That is so even if the Court has under Federal Arbitration Act (“FAA”) Section 3 stayed the action pending arbitration.

Suppose:

A and B, both New York citizens, entered a contract containing an arbitration agreement;
A and B become embroiled in a dispute that is governed by a federal statute;
A sues B in federal court, properly invoking the federal court’s federal- question jurisdiction, 28 U.S.C. § 1331;
B demands arbitration, and moves to compel arbitration under Section 4 and for a stay of litigation pending arbitration under Section 3;
A unsuccessfully opposes the motion, the Court compels arbitration and grants a Section 3 stay of litigation pending arbitration.
B ultimately obtains a $100,000 (exclusive of costs and interest) award in its favor and moves in the stayed action to confirm the award.
A opposes the motion on the ground the court has no subject matter jurisdiction to confirm the award.

SmartSky would require the Court to dismiss A’s motion for lack of subject matter jurisdiction, even though A made the motion in an action over which the Court had subject matter jurisdiction, the Court had compelled the arbitration that resulted in the award, and the Court had stayed the action pending arbitration under Section 3. There is no federal-question jurisdiction, and because both A and B are citizens of New York, no diversity jurisdiction.

According to SmartSky, the dismissal of the motion to confirm would be required by Badgerow.

Badgerow

In Badgerow the Supreme Court of the United States (“SCOTUS”) held that a basis for subject-matter jurisdiction—independent from the FAA itself—must appear on the face of a standalone, petition to confirm or vacate an arbitration award and that independent basis cannot be established by “looking through” to the underlying arbitration proceeding that resulted in the award. See Badgerow, 142 S. Ct. at 1314, 1320.

Simply petitioning a court for relief under Sections 9, 10, 0r 11 of the Federal Arbitration Act (“FAA”) raises no federal question and does not confer on a court federal-question subject-matter jurisdiction, as strange as that might sound to the uninitiated. In the absence of a federal question appearing on the face of the freestanding petition—such as a claim for relief falling under Chapter Two of the FAA, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), see 9 U.S.C. §§ 202, 203; 28 U.S.C. § 1331, or one falling under Chapter Three, which implements or Inter-American Convention on International Commercial Arbitration (the “Inter-American Convention”), see 9 U.S.C. §§ 301, et seq.; 28 U.S.C. § 1331—the only possible basis for federal subject-matter jurisdiction over such a standalone petition is diversity of citizenship. See 28 U.S.C. § 1332(a).

If there is no diversity jurisdiction, and if the action does not concern an award falling under the New York or Inter-American Conventions, then the substantive provisions of Chapter One still apply but enforcement must be sought in state court. See Vaden v. Discover Bank, 556 U.S. 49, 59 (2009) (“Given the substantive supremacy of the FAA, but the Act’s nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to arbitrate”).

A “Jurisdictional Anchor” Post-Badgerow?

The author explained in a recent Arbitration Law Forum post—Philip J. Loree Jr., Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards, Arbitration Law Forum (Nov. 13, 2023) (the “Jurisdictional Anchor Post”)— that Badgerow leaves unanswered an important question. It arises when—in a preexisting action over which the Court already has federal-question subject matter jurisdiction—a Court grants a motion made under Sections 4 and 3 of the FAA to compel arbitration and stay litigation, and a party subsequently moves in the same, stayed action to confirm, vacate, or modify an award resulting from the compelled arbitration. Does the Court in the stayed action have continuing subject matter jurisdiction to hear the parties’ motions to confirm or vacate the award, even though there is no independent basis for federal question or diversity jurisdiction? Can the existing but stayed federal-question lawsuit provide a “jurisdictional anchor” for the motions to confirm or vacate even though the Court would not, under Badgerow, have subject matter jurisdiction over those motions if either were brought as an independent, freestanding petition to confirm or vacate an award?

SmartSky, as we’ve seen, says the answer to those questions is no: the parties moving to confirm or vacate must establish an independent basis for subject matter jurisdiction even when the motion is brought in a pre-existing but stayed lawsuit over which the Court undisputedly had federal question jurisdiction.

SmartSky has flatly rejected the “jurisdictional anchor” theory (a/k/a “anchor jurisdiction”), under which the answer would be yes: the parties do not have to establish an independent basis for subject matter jurisdiction because they are filing their motions in a preexisting stayed action over which the Court has subject matter jurisdiction.

SmartSky Caused a Circuit Split Concerning the Viability of Anchor Jurisdiction

SmartSky‘s conclusion directly conflicts with the only other post-Badgerow U.S. Circuit Court of Appeals decision to address anchor jurisdiction, Kinsella v. Baker Hughes Oilfield Operations, LLC, 66 F.4^th 1099 (7^th Cir. 2023). If we count pre-Badgerow cases, SmartSky also conflict with the pro-anchor-jurisdiction holdings of the Second, Fifth, Eighth, Ninth, Tenth, and Eleventh Circuits. Dodson Int’l Parts v. Williams Int’l Co., 12 F.4th 1212, 1227-28 (10th Cir. 2021) (citing cases).

SmartSky’s Petition for Rehearing and Rehearing En Banc

Arbitration proponent SmartSky has added to its legal team SCOTUS ace Daniel L. Geyser, Esq., Chair of Haynes and Boone, LLP‘s U.S. Supreme Court Practice, and, with Mr. Geyser’s assistance, prepared and submitted a very well-written and persuasive Petition for Rehearing and Rehearing En Banc, which among other things, pointed out the Circuit conflicts which SmartSky has created with both pre- and post-Badgerow decisions and explained why SmartSky believes the Fourth Circuit misconstrued Badgerow and failed to adhere to settled subject-matter-jurisdiction principles. SmartSky, No. 22-1253, Dk. 77.

The Petition also pointed out that, even if SmartSky correctly construed Badgerow, there is an independent basis for jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) because two of the parties are foreign citizens, DAG Wireless LTD (“Wireless”) and David D. Gross.

Both of these persons are, according to SmartSky, identified on the face of the petition as Israeli citizens (Wireless was identified as an Israeli company and D. Gross as an Israeli resident). Smartksy points out that the award therefore falls under the Convention and its enforcement raises a federal question. See 9 U.S.C. §§ 202, 203, & 207; 28 U.S.C. § 1331; 22-1253, Dk. 77 at 13-16.

On March 13, 2024, the Fourth Circuit denied the petition. 22-1253, Dk. 80. That raises the possibility that SmartSky might petition SCOTUS for certiorari, something that wouldn’t surprise the author given that Mr. Geyser has joined its team. If SmartSky petitions for certiorari, SCOTUS will presumably have to consider whether the current split in the circuits warrants certiorari or whether it should wait until more circuits have ruled on the issue post-Badgerow.

The author plans to submit to an ADR trade publication an article analyzing and critiquing SmartSky in some detail. For now, we briefly summarize what transpired in SmartSky and the reasons the Court gave for its ruling. Continue Reading »

Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

Jurisdictional Anchor | Subject Matter Jurisdiction The U.S. Supreme Court decision, Badgerow v. Walters, 142 S. Ct. 1310 (2022) (discussed here), requires that an independent basis for subject matter jurisdiction (usually diversity) must appear on the face of petitions to confirm, vacate, or modify arbitration awards, and, by extension, petitions to enforce arbitral subpoenas or appoint arbitrators. See Badgerow, 142 S. Ct. at 1314, 1320. That independent basis for subject matter jurisdiction cannot be established by “looking through” to the underlying arbitration proceeding. In other words, the federal court cannot base subject matter jurisdiction on whether the court would have had subject matter jurisdiction over the merits of the controversy had they been submitted it to court rather than to arbitration. See Badgerow, 142 S. Ct. at 1314, 1320.

Badgerow does not change the rule that federal question jurisdiction over a Section 4 petition to compel arbitration can be established by “looking through” to the underlying dispute that is or is claimed to be subject to arbitration. 142 S. Ct. at 1314; see Vaden v. Discover Bank, 556 U.S. 49, 53 (2009); Hermès of Paris, Inc. v. Swain, 867 F.3d 321, 324-26 (2d Cir. 2017) (diversity of citizenship not determined by “look through”).

Section 4 of the Federal Arbitration Act expressly authorizes a Court to exercise subject-matter jurisdiction on that basis: “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4; see Badgerow, 142 S. Ct. at 1317.

Unlike Section 4, Sections 5 (appointment of arbitrators), 7 (arbitral subpoena enforcement), 9 (confirmation of awards), 10 (vacatur of awards), and 11 (modification of awards), do not expressly authorize the exercise of subject matter jurisdiction on a “look through” basis. See 142 S. Ct. at 1317-18; 9 U.S.C. §§ 4, 5, 7, 9, 10, & 11.

Badgerow, in the specific context of an action commenced by petition to vacate an award under FAA Section 10—which, in turn, prompted a cross-petition to confirm under FAA Section 9—held that the absence in Sections 9 and 10 of Section 4’s express language authorizing subject matter jurisdiction based on “look through” meant that Congress did not authorize “look through” subject matter jurisdiction for Section 9 and 10 claims (and presumably for claims seeking relief under Sections 5, 7, or 11). See 142 S. Ct. at 1319.

An independent basis for subject matter jurisdiction is required, and in the absence of a federal question appearing on the face of the petition (such as a claim for relief under Chapter Two of the FAA, see 9 U.S.C. § 203; 28 U.S.C. § 1331), the only possible basis for subject matter jurisdiction is diversity of citizenship. See 28 U.S.C. § 1332(a). And there could be no diversity jurisdiction in Badgerow because the parties to the petitions were citizens of the same state. See 142 S. Ct. at 1316.

Badgerow’s reasoning certainly applies to independent, summary proceedings in which the only relief sought is under the FAA. But does it apply with equal force where litigation on the merits of an arbitrable or allegedly arbitrable dispute has commenced, and the motion to compel arbitration is made by motion in the pending action, which is stayed pending arbitration? Can the stayed merits litigation act as what former Associate Justice Stephen G. Breyer, in his Badgerow dissent, referred to as a “jurisdictional anchor” for not only the motion to compel arbitration, but also other subsequent applications for pre- or post-award FAA relief relating to the arbitration? See Badgerow, 142 S. Ct. at 1326 (Breyer, J., dissenting).

That is an open question in the Second Circuit after Badgerow, although pre-Badgerow the answer was yes. Let’s look at it more closely and try to get a sense of how the Second Circuit might rule on it considering Badgerow. Continue Reading »

2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb?

Introduction: This Term’s SCOTUS Arbitration Cases

The 2021 Term was a busy and controversial one for the United States Supreme Court (“SCOTUS”) regarding abortion, First Amendment rights, Second Amendment rights, and administrative agency power. However, many may not know SCOTUS decided four Federal Arbitration Act cases during the 2021 Term (the “FAA Cases”), as well as a pair of cases consolidated into one concerning whether U.S. Courts may provide under 28 U.S.C. § 1782 judicial assistance to international arbitration panels sited abroad. See Viking River Cruises, Inc. v. Moriana, 596 U. S. ____, No. 20–1573, slip op. (June 15, 2022) (construing FAA); ZF Automotive US, Inc., et al. v. Luxshare, Ltd., 596 U.S. ___, No. 21–401, slip op. (June 13, 2022) (construing 28 U.S.C. § 1782); Southwest Airlines Co. v. Saxon, 596 U.S. ___, No. 21-309, slip op. (June 6, 2022) (construing FAA); Morgan v. Sundance, Inc., 596 U.S. ___, No. 21-328, slip op. (May 23, 2022) (construing FAA); Badgerow v. Walters, 596 U.S. ___, No. 20-1143, slip op. (March 31, 2022) (construing FAA).

Three of the SCOTUS FAA Cases, Badgerow, Morgan, and Southwest Airlines signal SCOTUS’s apparent intention to construe strictly the Federal Arbitration Act’s text without indulging in any pro-arbitration presumptions or applying arbitration-specific rules intentionally encouraging arbitration-friendly outcomes. ZF Automotive, the 28 U.S.C. § 1782 judicial-assistance case also employed a strict, textualist approach to interpreting 28 U.S.C. § 1782, used the FAA to help support its conclusion, and held that 28 U.S.C. § 1782 did not authorize U.S. district courts to provide judicial assistance to private arbitration panels sited abroad—an outcome not particularly solicitous of international arbitration. It is therefore at least indirectly supportive of the more textually oriented and arbitration-neutral approach SCOTUS appears to have endorsed with special force during the 2021 Term.

The SCOTUS 2021 Term FAA Cases are not the first ones in which the Court applied textualist interpretations to the FAA. There are others. See, e.g., New Prime Inc. v. Oliveira, ___ U.S. ___, 139 S. Ct. 532 (2019) (discussed here and here). But common themes in three of those FAA Cases—echoed in ZF Automotive —suggest a marked trend by the Court to interpret the FAA in a less expansive manner that is not presumptively arbitration friendly. The expression of these common themes in four cases decided in a single term is particularly significant because Morgan, Southwest Airlines, and ZF Automotive were decided unanimously by all participating Justices and Badgerow was decided 8-1, with now retired Associate Justice Stephen G. Breyer dissenting.

Many previous FAA SCOTUS decisions of the last three or four decades have been very indulgent of arbitration. The Court encouraged arbitration proliferation far beyond B-2-B commercial and industry arbitration between sophisticated and resource-laden entities of roughly equal bargaining power. Arbitration was introduced into consumer and employment disputes and other disputes involving persons (including businesses) of vastly disparate resources and sophistication. SCOTUS made arbitration agreements readily enforceable, interpreted them expansively in favor of arbitration, limited defenses to arbitration agreements and awards, and promoted arbitration to make it, at least in the eyes of some, an attractive alternative to litigation. Critics challenged that view and assailed arbitration as “do it yourself court reform.” The SCOTUS arbitration decisions developed and implemented an expansive federal policy in favor of arbitration and a presumption of arbitrability and championed a very pro-arbitration approach to arbitration law in general.

That SCOTUS, the lower federal courts, and eventually even the skeptical state courts that are bound by its FAA decisions, have been solicitous and supportive of arbitration is unsurprising. The assumed (but not necessarily realized) benefits of arbitration have long been touted by academics and promoted by business and industry representatives. Of course, courts have for many years recognized that arbitration helps reduce docket congestion, which was exacerbated by COVID and remains a problem today, even with the help of proliferated arbitration proceedings. Arbitral dispute resolution is also a very impressive business sector in and of itself, generating billions in revenues for law firms, arbitrators, and arbitration providers. It therefore has many proponents.

But Badgerow, Morgan, Southwest Airlines, and ZF Automotive suggest that SCOTUS is rethinking its prior expansive, and highly-arbitration-friendly approach to the FAA and might be more willing to entertain seriously arguments for interpreting: (a) arbitration agreements less expansively, and more like ordinary contracts; and (b) Sections 10 and 11 of the FAA strictly according to their text and not in an exceedingly narrow manner designed to encourage, arbitration-award-favoring outcomes. These cases may also embolden lower courts, especially the state courts, to do the same. Continue Reading »

Eastern District of Pennsylvania Federal District Court Judge Rules that Petition to Confirm Arbitration Award Must be Served by U.S. Marshal

August 19th, 2021 Awards, Confirmation of Awards, Default Award, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 12, Federal Arbitration Act Section 9, Federal Courts, Federal Rules of Civil Procedure, Personal Jurisdiction, Petition or Application to Confirm Award, Petition to Modify Award, Petition to Vacate Award, Section 12, Section 9, United States Court of Appeals for the Second Circuit, United States District Court for the Eastern District of Pennsylvania Comments Off

Federal Arbitration Act (“FAA”) Section 9, governing confirmation of awards, says that “[i]f the adverse party shall be a nonresident[]” of the district in which a party commences a proceeding to confirm an arbitration award, “then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.” 9 U.S.C. § 9. Federal Arbitration Act Section 12, which governs the service of motions to vacate, modify, or correct awards, says the same thing. 9 U.S.C. § 12. Absent party consent to another mode of service, must a party commencing against a nonresident of the district a proceeding to confirm, vacate, modify, or correct an award arrange to have a U.S. Marshal serve the papers? In Red Spark, LP v. Saut Media, Inc., No. 2:21-cv-00171-JDW (E.D. Pa. Mar. 19, 2021), United States District Judge Joshua D. Wolson, who sits in the United States District Court for the Eastern District of Pennsylvania, applied a textualist analysis to Federal Arbitration Act Section 9 and said the answer is “yes.”

Background: The Service Issue in Red Spark

In Red Spark the claimant filed on January 14, 2021, in federal district court a petition to confirm an arbitration award made in an arbitration administered by the American Arbitration Association (the “AAA”). The petition’s certificate of service said the petition had been served by mail on the respondent, which was a corporate resident of California, and not of the Eastern District of Pennsylvania. The respondent did not appear, and the Court ordered the claimant to serve the respondent as required by Section 9 of the FAA. Following the Court’s instructions, the claimant requested that the U.S. Marshal Service (the “USMS”) serve process and was told that a court order authorizing the service was required. Consequently, the claimant petitioned the Court for an order directing the USMS to serve the respondent in California. The Court issued an opinion in response to the petition and made an order directing the USMS to serve the papers on respondent in California. “The passage of time, and evolving approaches to the law, can render some statutes out-of-date[,]” said the Court. Slip op. at 1. “But courts must enforce the laws as they are written, even when doing so requires an outdated approach.” Id. Section 9 of the FAA “predates changes to the Federal Rules of Civil Procedure, which shift the burden of service of process from USMS to private parties.” Id. “The approach in the Rules might make more sense than the approach in the FAA[,]” “[b]ut the Court does not get to choose which statutes to enforce.” Id. “Though,” said the Court, it “would prefer to excuse USMS from serving process here, the FAA compels the Court to grant Petitioner’s motion and order USMS to serve the petition in this case.” Id. As a backdrop for its textualist analysis, the Court briefly summarized the history of the service of process by U.S. Marshals. Prior to February 26, 1983, explained the Court, “USMS was responsible for service of process in federal court cases[,]” and that was therefore the case in 1925, when the FAA was first enacted as the U.S. Arbitration Act. See Slip op. at 2. But from February 26, 1983 forward, “Congress amended Federal Rule of Civil Procedure 4 to relieve USMS of the burdens of serving as process-server in all civil actions[,]” and “[s]ince then, USMS has been out of the summons-serving business, aside from a few unique circumstances.” Slip op. at 2 (citation omitted).

The Court’s Interpretation of Section 9’s Service by Marshal Requirement

Turning to Section 9, the Court found “scant” case law interpreting the service by marshal requirement, necessitating interpretation of the statute’s text. Slip op. at 2 (citation and quotation omitted). As far as service of district nonresidents is concerned, Section 9 says “notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.” 9 U.S.C. § 9. The Court concluded that Section 9 unambiguously required service on a nonresident to be made by U.S. Marshal. “By using the word ‘shall,’” said the Court, “Congress intended that service by USMS would be mandatory in post-arbitration proceedings involving nonresident respondents.” Slip op. at 3 (citations omitted). Further, explained the Court, “the statute specifies only one method of service: ‘by the marshal.’” Slip op. at 3. The statutory text “in like manner as other process of the court” does not provide for “an alternative method of service.” Slip at 3. That text “modifies the phrase ‘served by the marshal.’” In 1925, when the FAA was enacted, the term “‘manner’ meant ‘a mode of procedure; the mode or method in which something is done or in which anything happens[.]” Slip op. at 3-4 (quoting Webster’s New International Dictionary of the English Language 1497 (2d ed. 1937)). “‘[L]ike manner,’” reasoned the Court, therefore “means how process gets served, not who serves it.” Slip op. at 4. Had “Congress intended for the phrase ‘like manner as other process of the court’ to provide an alternative route to service by the marshal, it would have used the conjunction ‘or’ to permit service by the marshal or in like manner as other process of the court.” Slip op. at 4. Construing “the phrase to permit an alternate method of service” would “essentially render[] meaningless the reference to the marshal[,]” and the Court “must interpret Section 9 in a way that gives effect to all of its words.” Slip op. at 4 (citation and quotation omitted). The Court also could not “rewrite the statute to conform to modern expectations.” Slip op. at 4 (citing Bostock v. Clayton City, Georgia, 140 S. Ct. 1731, 1738 (2020) (“If judges could add to, remodel, update, or detract from old statutory terms inspired only by extratextual sources and our own imaginations, we would risk amending statutes outside the legislative process reserved for the people’s representatives.”)).

The Court’s Response to the Second Circuit and Certain Other Courts

The Court explained that the U.S. Court of Appeals for the Second Circuit in Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1277 (2d Cir. 1971), “held that the phrase “like manner as other process of the court” refers to Rule 4.” Slip op. at 4 (also citing Puerto Rico Tel. Co. v. U.S. Phone Mfg. Corp., 427 F.3d 21, 25 n.2 (1st Cir. 2005), abrogated on other grounds, Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008)). And the Court noted that “some district courts have permitted parties to make service under Federal Rule of Civil Procedure 4 rather than enlist USMS,” and that these courts “reason[ed] that Section 9’s requirement of service by marshal is an anachronism under the current Federal Rules of Civil Procedure.” Slip op. at 4 (quotations and citation omitted). “But,” said the Court, even though “requiring USMS to serve a petition might be anachronistic, courts may not ‘favor contemporaneous or later practices instead of the laws Congress passed.’” Slip op. at 4-5 (quoting McGirt v. Oklahoma, 140 S. Ct. 2452, 2568 (2020) (emphasis in original)).

Interplay between Section 9 and Rule 4

The Court said Section 9 trumped Rule 4 because “‘when two statutes cover the same situation, the more specific statute takes precedence over the more general one.’” Slip op. at 5 (quoting Coady v. Vaughn, 251 F.3d 480, 484 (3d Cir. 2001) (citations omitted)). For “Section 9 specifically governs service of petitions to confirm an arbitration award, whereas Rule 4 deals with service of process generally.” Slip op. at 5. And, in any event, under Fed. R. Civ. P. 81, the Federal “Rules yield to the ‘other procedures’ set forth in the FAA.” Slip op. at 5 (quoting Fed. R. Civ. P. 81(a)(6)(B)). The Court wrapped up by holding that Rule 4 did not repeal by implication Section 9’s service by marshal requirement. The Court concluded that “[a]lthough there is some tension between. . . [Section 9 and Rule 4],” it could “harmonize” the two provisions. Slip op. at 5. “Rule 4,” said the Court, authorizes a court to order USMS to serve process[,]” slip op. at 5 (citing Fed. R. Civ. P. 4(c)(3)), and “Rule 4.1(a) authorizes USMS to serve process other than a summons or a subpoena ‘anywhere within the territorial limits of the state where the district court is located and, if authorized by a federal statute, beyond those limits.’” Slip op. at 5 (citing Fed. R. Civ. P. 4.1(a) (emphasis added by Court). Section 9, the Court explained, was “consistent with” these Federal Rules of Civil Procedure provisions, because Section 9 authorizes “marshals to serve a nonresident adversary in any district where that adverse party may be found. . . .” Slip op. at 5. Finally, the Court found that Congress did not by implication repeal Section 9 because it was able to reconcile Section 9 and Rule 4. Such repeals are, said the Court, “not favored,” Slip op. at 6 (citation and quotation omitted), “and the Court has not discerned any affirmative intention by Congress” to effect such a repeal. Slip op. at 6. Congress had amended Fed. R. Civ. P. 81 (concerning the applicability of the Federal Rules of Civil Procedure in general and in removed actions) several “times since the passage of Section 9. . . and has not elevated the Federal Rules to something more than a gap-filler for purposes of arbitration proceedings governed by the FAA.” Slip op. at 6; see Fed. R. Civ. P. 81(a)(6)(B) (“These rules, to the extent applicable, govern proceedings under the following laws, except as these laws provide other procedures: . . . 9 U.S.C., relating to arbitration. . . .”) That means “Congress has not repealed Section 9’s special procedures for service.” Slip op. at 6.

Elephant in the Room: Did the Parties Consent to Service by Mail?

Section 9 requires U.S. marshal service on nonresidents of the district, but that does not mean parties cannot consent in advance to an alternative form of service. That may have happened here, although it is unclear: (a) whether the parties disputed the existence of arbitration agreement; and (b) assuming there was no such dispute, whether the point about consent to mail service was argued. The arbitration was apparently administered by the AAA, which ordinarily means that the parties have expressly consented to application of AAA arbitration rules (or are deemed to have so consented). Agreements to accept service of process by a mode other than formal service, or to waive service altogether, are valid and enforceable, and excuse compliance with statutory service rules. Gilbert v. Burnstine, 255 N.Y. 348 (1931); see National Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315-16 (1964). Assuming the parties agreed to AAA’s Commercial Arbitration Rules and Mediation Procedures, Rule 43(a) provides that parties consent to service by mail of a petition to confirm an arbitration award:

(a) Any papers, notices, or process necessary or proper for the initiation or continuation of an arbitration under these rules, for any court action in connection therewith, or for the entry of judgment on any award made under these rules may be served on a party by mail addressed to the party or its representative at the last known address or by personal service, in or outside the state where the arbitration is to be held, provided that reasonable opportunity to be heard with regard to the dispute is or has been granted to the party.

AAA Commercial Arbitration Rules and Mediation Procedures R. 43(a) (2013).

Other versions of AAA arbitration rules may contain similar provisions, although we have not, for purposes of this article, reviewed other AAA Rules to confirm that point. The Petitioner’s service of the petition by regular mail may therefore have been sufficient service.

It is also possible that there was a dispute between the parties as to whether they agreed to arbitrate at all, let alone under the AAA Rules. In any event, according to the PACER case docket, it appears that on May 7, 2021, the Petitioner voluntarily dismissed the Petition without prejudice, so our query about the validity of service-by-mail in this case may well be moot, albeit one to keep in mind for future cases.

Want to learn more about confirming arbitration awards? See here, here, & here.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other dispute-resolution-related matter, please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

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Vacating, Modifying, and Correcting Awards | Introduction | Businessperson’s Federal Arbitration Act FAQ Guide

August 3rd, 2020 Arbitration Law, Arbitration Practice and Procedure, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, FAA Chapter 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 9, Grounds for Modifying or Correcting Award, Grounds for Vacatur, Imperfectly Executed Award or Powers, Modify or Correct Award, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Section 9, Small Business B-2-B Arbitration, Time Limit for Vacating, Modifying, or Correcting Award, Vacate Award | 10(a)(4), Vacate Award | Arbitrability, Vacate Award | Attorney Fees, Vacate Award | Evident Partiality, Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacate Award | Existence of Arbitration Agreement, Vacate Award | Manifest Disregard of the Law, Vacatur 2 Comments »

Introduction

We’ve seen how the Federal Arbitration Act authorizes confirmation and enforcement of various domestic and foreign arbitration awards falling within its scope. (See here, here, here, and here.) Let’s look at what the Federal Arbitration Act has to say about vacating, modifying, or correcting awards.

The Federal Arbitration Act also 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. These remedies are orders: (a) modifying or correcting the award under Section 11 of the Federal Arbitration Act; or (b) vacating the award in whole or in part under Section 10 of the Federal Arbitration Act.

Vacating an Award under Section 10 of the Federal Arbitration Act

An arbitration award is effectively a contract resulting from the performance of one or more other contracts, including the pre-dispute agreement to arbitrate and the post-dispute submission to arbitration. Two parties agree to appoint arbitrators, submit their dispute to arbitration and abide by the award. The parties ordinarily consent to entry of judgment on the award, and it can be confirmed under Sections 9 or 207 of the Federal Arbitration Act (or a state law equivalent when the Federal Arbitration Act doesn’t apply). Alternatively, it may be enforced through the plenary and summary procedures that apply to ordinary contracts (subject to any special rules governing arbitration awards).

So what happens when things go awry—or at least seem to have gone awry—and the arbitration award is or appears to be fundamentally unfair, divorced from the contract or the result of fraud, bias, or some form of prejudicial misconduct on the part of the arbitrators? Section 10 of the Federal Arbitration Act provides a modest safety net in the form of a motion or petition to vacate the award. (State arbitration statutes and law applicable in actions to enforce arbitration awards generally provide similar recourse, but our focus here is on the Federal Arbitration Act.)

Foreign Awards | Post-Award Federal Arbitration Act Enforcement Litigation | Businessperson’s Federal Arbitration Act FAQ Guide

In previous segments (here, here, here, and here) we discussed the confirmation of Chapter One Domestic Awards and Chapter Two Domestic Awards. This segment addresses foreign awards.

There are two types of foreign awards that are or may be governed by the Federal Arbitration Act: (a) awards made in the territory of a country that is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” or “Convention”), the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”), or both, which we refer to as Chapter Two Foreign Awards; and (b) awards that are made outside the United States in a country that is not a signatory to the New York or Panama Conventions, which we refer to as Chapter One Foreign Awards.

What are Chapter Two Foreign Awards?

Chapter Two Foreign Awards are awards that are made in the territory of a foreign state that is a signatory to the New York or Panama Conventions, and which otherwise falls under one or both of those Conventions.

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The last three segments of the Businessperson’s Federal Arbitration Act FAQ Guide discussed the substantive and procedural requirements for confirming a Chapter One Domestic Award, and answered additional FAQs concerning the confirmation of such awards. (See here, here, and here.) This segment focuses on how confirming Chapter Two Domestic Awards—i.e., domestic awards that fall under the Convention on the Recognition of Foreign Arbitral Awards (the “Convention”)—differs from confirming Chapter One Domestic Awards—i.e., domestic awards that fall under Chapter One of the Federal Arbitration Act only and not under Chapters Two or Three.

This FAQ guide distinguishes between “Chapter One Domestic Awards” and “Chapter Two Domestic Awards.” For our purposes, an award is “domestic” when it is made in the United States, that is, by an arbitrator or panel of arbitrators sitting in the territorial jurisdiction of the United States.

An award made in the United is a “Chapter One Domestic Award” when it falls under Chapter One of the Federal Arbitration Act, but not under Chapters Two or Three, which implement the Convention and the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”).

What is a Chapter Two Domestic Award?

An award is a “Chapter Two Domestic Award” when it is made in the United States, but, for purposes of Section 202 of the Federal Arbitration Act, and Art. I(1) of the Convention, is “not considered” to be a “domestic award.” See Convention, Art. I(1). Such awards ordinarily fall under both the Convention and Section 2 of the Federal Arbitration Award, and thus under Chapters One and Two of the Federal Arbitration Act.

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In the last two segments of the Businessperson’s Federal Arbitration Act FAQ Guide, we discussed the substantive and procedural requirements for confirming under Section 9 Chapter One Domestic Awards, that is, domestic awards that fall under Chapter One of the Federal Arbitration Act, but not under Chapter Two, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (See here and here.) Now we address additional, FAQs concerning the confirmation under Section 9 of Chapter One Domestic Awards.

Does an Application to Confirm under Section 9 a Chapter One Domestic Award Require One to File a Full-Blown Law Suit to Confirm an Award?

Fortunately, the answer is no. Like all other applications for relief under the FAA, an application to confirm an award under Section 9 is a summary or expedited proceeding, not a regular lawsuit. Rule 81(a)(6)(B) of the Federal Rules of Civil Procedure provides that the Federal Rules “to the extent applicable, govern proceedings under the following laws, except as these laws provide for other procedures. . . (B) 9 U.S.C., relating to arbitration. . . .” Fed. R. Civ. P. 81(a)(6)(B).

Section 6 of the FAA “provide[s] for. . . procedures” other than those applicable to ordinary civil actions because it requires applications for relief under the FAA to be made and heard as motions:

Any application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise . . . expressly provided [in the FAA].
9 U.S.C. § 6.

A Section 9 action to confirm an award is, of course, “[a]n application to the court” under the FAA, and thus, unless the FAA otherwise provides, must be “made and heard in the manner provided by law for the making and hearing of motions. . . .”

Confirming Arbitration Awards under Section 9: What Papers does a Party File to Apply for Confirmation of an Award?

Confirming Awards Part II | Post-Award Federal Arbitration Act Enforcement Litigation | Section 9 of the Federal Arbitration Act | Businessperson’s Federal Arbitration Act FAQ Guide

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In the last segment of this Businessperson’s Federal Arbitration Act FAQ Guide, we discussed the substantive requirements for confirming a Chapter One Domestic Award. Now we turn to the procedural requirements.

What are the Procedural Requirements for Confirming a Chapter One Domestic Award?

The key procedural requirements for confirming arbitration awards are:

The party seeking confirmation may apply for it “within one year after the award is made. . .”;
Notice of application must be properly served;
Venue must be proper; and
The “court must grant” confirmation “unless the award is vacated, modified or corrected” under Section 10 or 11 of the FAA.

9 U.S.C. § 9.

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Favorable arbitration awards are wonderful things, but they do not enforce themselves. Sometimes the other side voluntarily complies, but if not, there is little 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.

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).

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 foreign arbitration awards falling under the Convention (i.e., awards made in territory of a country that is a signatory to the Convention).

Our focus here is on the Federal Arbitration Act’s requirements for confirming arbitration awards made in the U.S., including awards that fall under Chapter 2 of the Federal Arbitration Act. These awards fall into two categories: (a) awards that fall under Chapter One of the Federal Arbitration Act only (“Chapter One Domestic Awards”); and (b) awards made in the U.S. that fall under the Convention, and thus under both Chapter One and Chapter Two of the Federal Arbitration Act (“Chapter Two Domestic Awards”).

This segment addresses FAQs concerning the confirmation of Chapter One Domestic Awards and focuses on the substantive requirements for confirming Chapter One Domestic Awards under the Federal Arbitration Act. The next segment will discuss the procedural requirements for confirming such Awards. Future posts will answer some additional FAQs concerning the confirmation of such Awards, and another future segment will review special requirements applicable to the confirmation of Chapter Two Domestic Awards.

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