Readers are excruciatingly aware of the amount of time and energy we expend on what seems at first blush to be a relatively arcane area of the law: practice and procedure under the Federal Arbitration Act. It is a practice area that arises under a single federal statute that consists of three chapters and a handful of rather skeletal provisions. Why is this stuff so important?
If you hold yourself out to be a commercial litigator who handles arbitration proceedings arising under the Federal Arbitration Act, then you need to know arbitration law cold (or co-counsel with someone who does). If you do not, then you have no business representing clients in arbitration proceedings.
In one sense, arbitration law is to the lawyer handling an arbitration what civil procedure law is to the lawyer handling a litigation. No lawyer cognizant of his or her ethical obligations and professional responsibility would represent a client in a litigation without a good, working knowledge of the applicable procedural code and cases construing it. Doing so would be a recipe for professional disaster.
Yet commercial litigators with no experience or expertise in arbitration law sometimes believe their knowledge of court procedure qualifies them to represent parties in arbitration proceedings. Arbitration is more informal than litigation, so if you know how to litigate, you can certainly arbitrate, right? Wrong.
Arbitration law is what ensures that arbitration agreements will be enforced, whether that means confirming or vacating an award, compelling arbitration, staying litigation, or what have you. Without it, arbitration would be, for the most part, an empty gesture. Parties would have to commence cumbersome plenary actions to enforce awards and obtain specific performance of arbitration agreements, arbitrators would lack subpoena power and breakdowns in the arbitrator selection process could not be remedied (or would be very difficult to remedy). In short, arbitration would lose much of its appeal because it would be difficult and expensive to enforce, and some aspects of it might not be enforceable at all.
Perhaps in a perfect world arbitration law would be spelled out for us in great detail in a user-friendly and comprehensive statute or administrative code, which would contain all or most of the answers to the multitude of enforcement-related questions that arise at various stages of arbitration proceedings. But our world is far from perfect, and in many domestic cases our sole source of statutory guidance is contained in the first chapter of the Federal Arbitration Act, which contains only 16 provisions, 15 of which have been on the books without material revision since 1925. In “non-domestic domestic cases” — you have to love that informative moniker — which involve, for example, arbitrations taking place in the United States between domestic and international parties, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and its enabling provisions set forth in Chapter 2 of the Federal Arbitration Act, usually come into play, but the Convention and its enabling legislation does not directly answer that many questions.
So in our imperfect world, the answers must come from the courts. That would all be well and good if we lived in a country with a single court system, but we do not. We have a multi-circuit federal court system (over which the United States Supreme Court presides) and a multi-jurisdiction state court system (over which the Supreme Court has limited jurisdiction to hear certain types of appeals). And the substantive provisions of the Federal Arbitration Act are applicable in, and construed by, both state and federal courts.
Cases involving arbitration law are constantly being decided. There are currently three-arbitration-law-related cases pending before the United States Supreme Court, and the Court usually decides at least one or two each term. The federal district and circuit courts regularly churn out decisions on arbitration law, as do state trial, intermediate appellate and supreme courts.
If state and federal court decisions from various jurisdictions and circuits were fairly uniform on Federal Arbitration Act issues, then perhaps things would be simpler. But courts are split on a number of issues, and even in situations where different courts might reach the same result on a given set of facts, the rationale each court applies may be different, leading to different outcomes if the facts are changed slightly.
Apparently someone somewhere decided that things were not quite complicated enough. So it was necessary to interject some other variables: horizontal (state-versus-state) and vertical (state versus federal) choice of law issues. Not all arbitration proceedings are governed solely by the Federal Arbitration Act — it applies only to written arbitration agreements “in maritime transaction[s] or. . . contract[s] evidencing. . . transaction[s] involving commerce. . . .” 9 U.S.C. § 2. When the Federal Arbitration Act does not apply, then the arbitration law of some state will generally apply. Choice-of-law rules will determine which state’s law applies in a multi-jurisdictional case.
Even when the Federal Arbitration Act applies, the parties may have agreed that state arbitration law applies, or at least there may be a substantial question whether state arbitration law applies. Federal and state arbitration law may conflict, and it is necessary to determine which applies. And sometimes there is a question whether the Federal Arbitration Act pre-empts state arbitration, or substantive contract, law. In other cases there may be a question whether state arbitration law fills a gap in federal arbitration law.
Arbitration-law-related issues can and do arise at all stages of an arbitration proceeding, and arbitration practitioners must keep in mind that litigation under the Federal Arbitration Act may be necessary to enforce a client’s rights or that such litigation may be brought by the other party. In the beginning stages of an arbitration, for example, issues may arise as to what the arbitration was intended to cover. A party may demand arbitration on a few claims, but there may be other actual or potential disputes which, if submitted, would fall within the scope of the arbitration agreement. Depending on what those claims are, and other considerations, the party against whom arbitration is demanded will want to ensure that the arbitration does or does not encompass those claims. That requires the party to carefully tailor its own submissions and, if necessary, to object to the other party submitting additional issues once the proceedings are underway.
The party resisting an arbitration demand may have arguments that some or all of the issues that are the subject of the demand are outside the scope of the arbitration clause. Those arguments must be carefully preserved, and sometimes it is necessary to seek an order staying the arbitration in whole or in part.
The party seeking arbitration may need to compel arbitration if the other party is resisting arbitration. That requires court intervention and both parties must be prepared to brief the applicable law and facts. Or perhaps the arbitration clause is self-executing, allowing a party to appoint a defaulting party’s arbitrator and proceed ex parte. In that case, the non-defaulting party may be unable to compel arbitration, but must take special care to ensure that the resulting default award is enforceable.
Arbitrator selection is another area where arbitration-law issues arise. It might be necessary to compel a party to participate in arbitration selection or request that a court appoint an arbitrator. If, at some point in the proceedings, one of the arbitrators dies or resigns, a number of important issues must be addressed. The process of arbitrator disclosure is yet another area where arbitration law must guide strategy.
Confirming or vacating awards requires knowledge of arbitration law and careful attention to strategy long before an award is rendered. There may be grounds for vacating an award, but those grounds generally must be preserved during the proceedings. There are also important deadlines that must be met and those deadlines may be triggered with respect to certain interim final awards long before the arbitration proceeding itself is concluded.
Once an award is issued issues may arise as to whether it is ambiguous or whether it may be modified by the arbitrators. Or arbitrators may purport to retain jurisdiction when they are not entitled to do so. Dealing with these issues requires careful attention to arbitration law.
When Federal Arbitration Act litigation is necessary, counsel need to know how to address the various procedural issues that arise, including subject matter jurisdiction, service, personal jurisdiction, the necessity of treating the proceeding as a motion and a host of other matters. And counsel must know the extent to which procedural rules are supplied by the Federal Arbitration Act itself, state arbitration law, the Federal Rules of Procedure or state procedural rules.
This is just a broad overview: There are literally dozens of issues that may arise, including ones implicating state general contract law, the Federal Arbitration Act itself, state arbitration law, choice-of-law rules, and federal preemption doctrine. Handling arbitration-related litigation demands special expertise, just as handling the underlying arbitration demands such expertise. Practitioners and clients that fail to pay careful attention to this ever-evolving area of the law do so at their peril.
Tags: Arbitration Law, Federal Arbitration Act, Federal Law, Practice and Procedure, state law
This article should be circulated to every commercial litigator! Whilst not everyone is entranced by the intricacies of arbitration law like Phil and I, it is absolutely critical to understand it for the very reasons articulated.
As a lawyer who routinely sits “offstage” in arbitrations privately advising counsel of record on arbitrator selection (or veto), arbitral procedure and arbitration strategy, I am amazed at how often our opponents really do not understand the procedures that their clients agreed and they are now engaged in. Apart from the initial problems of not knowing which arbitrators to select or veto, a regular problem area rife with disasters is the making and preservation of objections. How often do we see it done incorrectly? I watched a firm of otherwise excellent lawyers fail to preserve several legitimate objections which could have resulted in an award being vacated. The federal court confirmed the multi-million dollar award against their client. Worse, the judge noted in open court that the lawyers had failed to preserve the very errors they were complaining of in the Motion to Vacate and then ordered them to pay our client’s attorneys fees. OUCH!
Other issues regularly arising that Phil did not address are the existence and extent of the “confidentiality” or “privacy” that is supposed to exist in arbitration and the availability of subpoenas for discovery. We all know the FRCP, FRAP and our state procedures. How many lawyers really know the JAMS, CPR Non-Administered, ICC, LCIA, UNCITRAL or AAA Rules? Or even know what the middle four items refer to? A greater problem is that many transactional lawyers or their clients have no idea what procedures they are agreeing to or the costs they are incurring when they insert “X” Rules into their contract. What about the more obscure Rules such as those of the Society of Maritime Arbitrators or the Grain Industry? If Rules are incorporated into the contract, then it is incumbent on counsel to know the 40 to 70 pages obscurely agreed to by reference and how to make those provisions work for their client.
Everyone has their areas of expertise. Perhaps it may now be time for the development of Arbitration Board Certification? ABCs, has a familiar ring to it.
Richard,
Thanks for your very kind comment!
I was hoping to convey the right message by this article, and was concerned that perhaps I was not making the case as strongly as I might have. But your comment shows that I was at least on the right track, and it makes the case even stronger by citing some real life examples and bringing up the ever-important issue of confidentiality.
Let me cite the real life example that inspired the article. I could recount plenty of others from day-to-day practice over the years, but this particular one came up in a listserve discussion that someone showed me. A lawyer had undertaken to represent a party in an employment arbitration against a nondiverse party and had commenced an action in federal court seeking to enforce the arbitration agreement, purporting to base federal subject matter jurisdiction on the Federal Arbitration Act. Fortunately for this lawyer the underlying claim happened to be based on a federal statute, providing the Court with federal question jurisdiction, but jurisdiction certainly was not properly pleaded and should have been. Worse yet, state versus federal law questions were beginning to arise, and the sense I had was that this person had no idea of what he was getting into on behalf of his client.
For all I know, this lawyer may have been a fine employment lawyer. Yet without a working knowledge of the Federal Arbitration Act, he was flirting with disaster, and his client probably did not even know it. Taking a step back from it all, it seemed to me that this type of scenario was probably a fairly common one based on what I have seen in practice. You have to feel sorry for the client.
So I decided to write this piece in an attempt to inform lawyers and others involved in arbitration of the necessity of knowing the Federal Arbitration Act or hiring co-counsel that does. Clients that hire you as their arbitration counsel are wise. The law firm handling the underlying arbitration gets to focus on the merits, subject to your firm alerting them of the need to take, or refrain from taking, certain steps along the way. And when the Federal Arbitration Act satellite litigation arises, clients can either have your firm handle the briefing or have it do so in conjunction with arbitration trial counsel.
This kind of arrangement is analogous to appellate lawyers assisting trial lawyers in avoiding costly mistakes that often cannot be remedied. Clients frequently balk at hiring co-counsel because of a fear of incurring duplicative costs, but that fear is entirely misplaced when the roles of the respective counsel are well defined and the process is managed well. The client may actually reduce its legal fees, because even if counsel are all charging the same rate, the expert can generally handle the arbitration aspects of a case much more quickly and efficiently (not to mention more competently) than a firm not having the same level of expertise.
I’m all for the certification proposal — we do not have attorney speciality certification in New York, but maybe it’s time for a change!
Phil
Phil,
I join Richard in complimenting you for an excellent post about this important subject. I have experienced too many times as the sole arbitrator how well-meaning commercial litigators do not know what they are doing when it comes to the procedural aspects of arbitration. In those cases I feel it is not up to me to recommend they hire co-counsel who can contribute the required expertise, although I have been tempted.
I have been retained by a firm as co-counsel only once, specifically om advising the litigator on his motion to compel. Surprisingly, the judge did not have much of a clue either. Maybe we ought to have certified counsel AND judges! By the way, nowadays this appears to include the US Supreme Court, if the Hall Street case is an example/ I have a feeling Roberts’ opinion was written by a clerk who did not have a lot of experience in arbitration law…
Eric
Eric,
Thanks for the kind words!
Your comments are particularly important in that they come from a person who frequently acts as an arbitrator, but who also understands arbitration law very well. There are a good number of arbitrators who do not, even though they may otherwise be good arbitrators. When arbitrators understand arbitration law, the whole process generally works a lot more efficiently and effectively.
I can see the dilemma that you have faced when the lawyers do not know arbitration law. As a neutral you did the right thing by remaining silent, but it must be very frustrating to watch counsel bumble about at the expense of his or her client when you know a competent arbitration practitioner would take a much different course.
I guess specialist judges would be ideal in a perfect world. For the most part the United States Supreme Court tends to reach the right results for the right reasons, but I agree Hall Steet was an exception. Before the case was decided my money was on the Court holding that parties could contract for a more intensive standard of review, as long as it did not exceed plenary review.
Chicago University of Law Professor Tom Ginsburg makes an excellent argument in favor of allowing parties to select the standard of review. (See our post here: http://loreelawfirm.com/blog/the-agency-model-of-arbitral-power-university-of-chicago-law-school-law-and-economics-professor-tom-ginsburg-explains-why-deferential-review-does-not-necessarily-make-arbitration-an-effective-substi.) I think his theory promotes the policy in favor of party autonomy inherent in the Federal Arbitration Act while also making the market for arbitrators more efficient and transparent.
Phil