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What Standards Apply to Lance Armstrong’s Putative Challenge to the $10,000,000.00 Arbitration Award?

March 1st, 2015 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Choice-of-Law Provisions, Contract Interpretation, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Preemption of State Law, Judicial Review of Arbitration Awards, New York Convention, Practice and Procedure, State Courts, Texas Supreme Court, United States Supreme Court Comments Off on What Standards Apply to Lance Armstrong’s Putative Challenge to the $10,000,000.00 Arbitration Award? By Philip J. Loree Jr.

SCA v. Armstrong:

Anatomy of an Arbitration Award—Part II

What Standards Apply to Lance Armstrong’s Putative Challenge to the Arbitrators’ $10,000,000.00 Sanctions Award?

 

yay-10447276-digitalAs discussed in Part I, if Lance Armstrong (“Armstrong”) and Tailwind Sports Corp. (“Tailwind”) (collectively, the “Armstrong Parties”) challenge the Armstrong Arbitration Award, that challenge will be based on the Panel allegedly exceeding its powers. To meaningfully assess whether the Panel exceeded its powers we need to consider what law applies.

 

yay-1533387-digital-e1425189203440As an initial matter, Chapter 1 of the Federal Arbitration Act (a/k/a the  “FAA”) appears to apply because the transactions to which the arbitration proceedings related involved commerce. Section 2 of the Federal Arbitration Act makes enforceable a written arbitration provision in a “contract evidencing a transaction involving commerce.” 9 U.S.C. § 2 (2013). Section 2 has been interpreted 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”). (For a discussion of Federal Arbitration Act basics, see the Federal Arbitration Act page of our Federal Arbitration Act Litigation Procedure Website.)

Among other things, the dispute between the parties concerned Armstrong’s right to a bonus in the event he won the Tour de France, which, of course, is held in France. The Contingent Price Contract contemplated Armstrong traveling from the U.S. to France to participate in the Tour de France and the contingency that was the subject of that contract turned on whether Armstrong won that race.

 

yay-7242204-digitalNewChapterChapter 2 of the Federal Arbitration Act—which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” or the “Convention”) might also apply. Chapter 2 of the Federal Arbitration Act governs agreements and awards falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a/k/a the “New York Convention”) and consists of Sections 201 through 208 of Title 9. An award may fall under the New York Convention if it is made in the country of a signatory to the New York Convention (and there are many) or if it is made in the U.S. but is the product of an arbitration involving one or more foreign parties who are citizens of signatory states. See, e.g., 9 U.S.C. § 202. Even if, as here, the arbitration award arises out of a “relationship which is entirely between citizens of the United States[,]” it may nevertheless fall under the Convention if “that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” Id.

Unlike, Chapter 1, Chapter 2 of the Federal Arbitration Act vests in the U.S. federal courts original subject matter jurisdiction over “[a]n action or proceeding falling under the Convention.  .  .  .” irrespective of the amount in controversy or citizenship of the parties. See 9 U.S.C. § 203. It also confers a fairly broad right of removal “[w]here the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the [New York] Convention.  .  .  .” 9 U.S.C. § 205.

Agreements and awards that fall under Chapter 2 may also fall under Chapter 1. See 9 U.S.C. §§ 1, 202. In addition, “Chapter 1 applies to actions and proceedings brought under [Chapter  2] to the extent [Chapter 1] is not in conflict with.  .  . [C]hapter [2] or the  [New  York] Convention as ratified by the United States.” 9 U.S.C. § 208.

 

yay-1174237-digitalWe think the New York Convention issue is an interesting one but at least for the time being we will take a pass on explaining why it might apply. Our main focus  is the standards that will or may govern the Armstrong Parties’ putative motion to vacate, and as we’ll explain later, even if the Federal Arbitration Act Chapter 2 and the New York Convention apply, it shouldn’t  materially change the rules and principles pertinent to our analysis. Whether there might be a basis on which to remove the dispute to federal court based on federal question jurisdiction is an issue the Armstrong Parties’ attorneys will probably consider, but presumably only if they conclude that removal to a federal court is something that is likely to advance their clients’ interests.

Both Chapters 1 and 2 of the Federal Arbitration Act apply in state court to the extent that they set forth substantive arbitration requiring the enforcement of arbitration agreements and awards. State law ordinarily governs procedure in state court proceedings, unless application of state procedural law would undermine the purposes and objectives of the Federal Arbitration Act. See Volt Information Sciences, Inc. v. Board of Trustees, Leland Stanford Junior Univ., 489 U. S. 468, 474-78 (1989); Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 99-100 (Tex. 2011); see also Howlett v. Rose, 496 U.S. 356, 369-73 (1990); Herb. v. Pitcairn, 324 U.S. 117, 119-24 (1945).

 

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But the question whether a law is procedural or substantive in whole or in part is an elusive one, the answer to which may vary depending on what prompted the question in the first place. See, e.g.,  Sun Oil Co. v. Wortman, 486 U.S. 717, 723-27  (1988) (“Except at the extremes, the terms “substance” and “procedure” precisely describe very little except a dichotomy, and what they mean in a particular context is largely determined by the purposes for which the dichotomy is drawn.”). And here there is a Texas choice-of-law clause, which raises at least the possibility that the parties intended Texas substantive arbitration law to govern any arbitration enforcement litigation that might be brought in state or federal court: “This SETTLEMENT AGREEMENT shall be governed by, construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Texas, without regard to conflict of law principles thereof.”

The purpose of the Federal Arbitration Act is to enforce the parties’ agreement to arbitrate, which includes the choice-of-law provision. See, e.g., Hall Street Assoc. LLC v. Mattel, Inc., 552 U.S. 576, 586 (2008). The Federal Arbitration Act permits party to consent to arbitrate under a different set of procedural rules or under a different body of arbitration law, provided that enforcing that agreement is consistent with the purposes and objectives of the FAA. But at least as respects issues concerning the allocation of power among courts and arbitrators, any ambiguities in the interpretation of a choice of law clause are generally resolved in favor of arbitration.  See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 58-64 (1995); Volt, 489 U. S. at 474-78; Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp., 4 N.Y.3d 247, 252-53 (2005).

 

yay-4004981-digitalFortunately, for the state trial court, the Texas General Arbitration Act (the “TAA”) and the FAA appear to be substantially identical as respects the Armstrong Parties’ putative challenge to the Award. Thus, there should be no need to determine definitively whether Texas State law or the Federal Arbitration Act supply the standards to be applied to the Armstrong Entities’ putative challenge, or the extent to which, if at all, those standards are substantive or procedural.

 

yay-10958492-digitalconflictWere a conflict to arise between the TAA and FAA, however, we think that it would likely be resolved in favor of the FAA. The choice-of-law clause in this case doesn’t unambiguously provide that Texas arbitration law applies. Nor does it say that Texas law applies to the “enforcement” of the contract. See Diamond, 4 N.Y.3d at 252-53. It could be reasonably interpreted as evidencing the parties consent to Texas arbitration law but it could also be reasonably interpreted as evidencing the parties’ agreement to have the Federal Arbitration Act govern the allocation of power between courts and arbitrators. The “laws of the State of Texas,” like the laws of any other state, may reasonably be interpreted to include applicable federal law, including the Federal Arbitration Act. See Mastrobuono, 514 U.S. at 59.

Part III will address the FAA and TAA standards for vacating an award for excess of powers and proceed to apply those standards to each of the four issues identified by the Panel.

         

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