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Evident Partiality | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part II

February 3rd, 2022 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Arbitrator Selection and Qualification Provisions, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Party-Appointed Arbitrators, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, Small Business B-2-B Arbitration, United States Court of Appeals for the Second Circuit, Vacate Award | 10(a)(2), Vacate Award | Evident Partiality, Vacatur Comments Off on Evident Partiality | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part II

Evident Partiality

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Evident partiality standards are designed to enforce the parties’ expectations  of neutrality without significantly undermining the finality of arbitration awards. This part II of our Businesspersons’ FAQ guide on evident partiality explains why that is so.  

Evident Partiality Standards and their Source

The subject of what constitutes neutrality for judicial decision makers has long been the subject case law and statutes. Unlike the standards for disqualifying judges, which are set forth for federal judges in 28 U.S.C. § 455, arbitrator neutrality standards in Federal Arbitration Act cases are not expressly set forth by statute—FAA Section 10(a)(2) merely authorizes a court to vacate an award if an arbitrator is “guilty” of “evident partiality.” 9 U.S.C. § 10(a)(2).

While the FAA Section 10(a)(2) deems “evident partiality” a ground for vacating an award, the FAA does not define the term or establish a baseline impartiality standard that must be met by every arbitrator.  This contrasts starkly with the English Arbitration Act 1996, which imposes on all arbitrators effectively the same standards of impartiality applicable to English judges. See, generally, Arbitration Act 1996 § 33(1).

What constitutes “evident partiality” under the FAA is a question that the federal courts have answered in various ways over the past several decades. In general, evident partiality is assessed according to a sliding scale of sorts, depending on the parties’ agreement and the surrounding circumstances. That should come as no surprise since the whole point of the FAA is to enforce the parties’ agreement to arbitrate according to its terms. See, e.g., Stolt-Nielsen S.A. v. Animalfeeds Int’l, 559 U.S. 662 (2010) (“[W]e have said on numerous occasions that the central or primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms.”) (citations and quotations omitted).

What is the Standard in the Second Circuit?

The U.S. Circuit Courts of Appeals have adopted various evident partiality standards, which are based principally on differing interpretations of the U.S. Supreme Court’s 1968 decision in Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (1968), a case that we will discuss in detail in an upcoming segment dealing with arbitrator disclosure. Rather than engage in a broad survey and parsing of the various evident partiality standards adopted by various federal courts, let’s focus on the so-called “reasonable person” evident partiality standard that has been adopted by the Second Circuit and a number of other courts.

Under Second Circuit authority an award may be vacated “if a reasonable person would have to conclude” that an arbitrator was biased against one party or partial in favor of another. See Morelite v. N.Y.C. Dist. Council Carpenters, 748 F.2d 79, 83-84 (2d Cir. 1984); National Football League Mgmt. Council v. National Football League Players Ass’n, 820 F.3d 527, 549 (2d Cir. 2016) (“NFL Council”); Scandinavian Reinsurance Co. v. Saint Paul Fire and Marine Ins. Co., 668 F.3d at 64; Applied Indus. Materials Corp. v. Ovalar, 492 F.3d 132, 137 (2d Cir. 2007).

The Second Circuit’s “reasonable person” standard has been construed and applied by many courts since the Second Circuit’s 1984 decision in Morelite, and has been adopted by the First, Third, Fourth, and Sixth Circuits.  See, e.g., UBS Fin. Servs. v. Asociación de Empleados del Estado Libre Asociado de P.R., 997 F.3d 15, 17-20 (1st Cir. 2021) (citing cases); Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 253-54 (3d Cir. 2013) (citing cases); ANR Coal Co. v. Cogentrix of North Carolina, Inc., 173 F.3d 493, 500-01 (4th Cir. 1999); Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1358 (6th Cir. 1989).

The standard does not require a showing that an arbitrator was actually biased against one party or partial toward another, only that a reasonable person would have to conclude that was so. A determination that a reasonable person would have to conclude that an arbitrator was financially or personally interested in the outcome, or not independent, would likewise satisfy the standard.

Absent disclosure and a waiver, an arbitrator should be free from any relationships with the parties that a reasonable person would have to conclude would materially compromise his or her ability to decide the case in an impartial manner. See Morelite, 748 F.2d at 84-85 (father-son relationship); Scandinavian Re, 668 F.3d at 72 (“Among the circumstances under which the evident-partiality standard is likely to be met are those in which an arbitrator fails to disclose a relationship or interest that is strongly suggestive of bias in favor of one of the parties”).

Evident Partiality Standards versus Judicial Impartiality Standards 

In the Second Circuit and elsewhere, the standard for disqualifying a judge for partiality or bias is less demanding than that required to vacate an award for evident partiality. Morelite, 748 F.2d at 83; Scandinavian Re, 668 F.3d at 72; see, e.g, Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 681 (7th Cir. 1983). While in the Second Circuit one must demonstrate that a “reasonable person would have to conclude” that an arbitrator is biased against or partial to a party, Morelite, 748 F.2d at 83; Scandinavian Re, 668 F.3d at 72, federal judges are disqualified for bias or partiality “in any proceeding in which [their] impartiality might reasonably be questioned.” See 28 U.S.C. § 455(a).

Though neither the judicial nor the arbitral standard requires a challenger to establish “actual bias,” see Morelite, 748 F.2d at 84, and even though demonstrating judicial partiality or bias is difficult to do, showing that a person “might reasonably” “question” a decisionmaker’s impartiality is a considerably less daunting task than showing that the same “reasonable” person “would have to conclude” that an arbitrator was partial or biased.

The Second Circuit also imposes a heightened evidentiary standard on evident partiality claims. Like fraud claims, they must be established by “clear and convincing evidence.” See NFL Council, 820 F.3d at 548; Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Tr., 729 F.3d 99, 106 (2d Cir. 2013).

The particularly demanding standard for establishing evident partiality of a neutral arbitrator certainly serves to make arbitration awards less susceptible to challenge, thereby increasing the odds that an arbitration award and its confirmation  will be the last step in the dispute resolution process, not a starting point for intensive post-award litigation and further arbitration.

It is at least ostensibly designed to reflect realistically what reasonable expectations of neutrality a party who agrees to arbitrate may have. “Parties agree to arbitrate precisely because they prefer a tribunal with expertise regarding the particular subject matter of their dispute,” said the late Circuit Judge Irving R. Kaufman, speaking for the Court in Morelite, and “[f]amiliarity with a discipline often comes at the expense of complete impartiality.” Morelite, 748 F.2d at 83:

Some commercial fields are quite narrow, and a given expert may be expected to have formed strong views on certain topics, published articles in the field and so forth. Moreover, specific areas tend to breed tightly knit professional communities. Key members are known to one another, and in fact may work with, or for, one another, from time to time. As this Court has noted, ‘[e]xpertise in an industry is accompanied by exposure, in ways large and small, to those engaged in it….’ .  .  .  .  [T]o disqualify any arbitrator who had professional dealings with one of the parties (to say nothing of a social acquaintanceship) would make it impossible, in some circumstances, to find a qualified arbitrator at all. Morelite, 748 F.2d at 83 (quoting Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 701 (2d Cir.1978); other citations omitted).

By not requiring neutrals to comply with judicial standards of partiality courts balance the parties’ expectations with the realities of the marketplace.  Particularly in industry arbitration, sought-after arbitrators often have many years of industry experience, which may inform their perspectives on issues important to the industry. Intra-industry issues can pit one segment of the industry against another, and a qualified neutral may have experience in one or both segments.  Some degree of institutional predisposition comes with the territory and does not necessarily disqualify the neutral.  And as industry insiders, arbitrators may know the lawyers and the parties socially and professionally, but those relationships generally do not disqualify the arbitrator from service. 

These practical realities demand what Judge Posner aptly termed a “tradeoff between impartiality and expertise” – the parties bargained for dispute resolution by an industry expert and the benefit of that expertise carries with it the burdens of greater entanglement with the parties, the industry and the issues.  Indeed, if courts required the industry arbitrators — or even commercial arbitrators without an industry-specific focus — to shed or be free from this proverbial baggage, then qualified umpire candidates would be hard to come by.  See Leatherby, 714 F.2d at 679 (“people who arbitrate do so because they prefer a tribunal knowledgeable about the subject matter of their dispute to a generalist court with its austere impartiality but limited knowledge of the subject matter.”)

Another reason the law does not hold neutral arbitrators to the same standards as judges is because arbitration is voluntarySee Leatherby, 714 F.2d at 679. “Courts are coercive, not voluntary, agencies,” and “fear of government oppression” has, over time, prompted the creation of “a judicial system in which impartiality is prized above expertise.” Leatherby, 714 F.2d at 679. Persons elect to submit their disputes to arbitration “because they prefer a tribunal knowledgeable about the subject matter of their dispute to a generalist court with its austere impartiality but limited knowledge of subject matter.” Leatherby, 714 F.2d at 679.

Evident Partiality Standards in Tripartite Arbitration 

An arbitration agreement providing for a single arbitrator is ordinarily presumed to provide for arbitration by a neutral arbitrator, whose neutrality is assessed under the prevailing evident partiality standard. But arbitration agreements often call not for single arbitrators, who are presumed to be neutral, but three-person (a/k/a “tripartite”) panels. 

In reinsurance, and certain other industry arbitrations, for example, the agreement typically requires each party to appoint an arbitrator and for the party-appointed arbitrators to attempt to agree on an umpire or select one by lot drawing, coin toss, Dow Jones pick or like tie-breaking procedure. Unless the arbitration agreement provides otherwise, courts generally presume that the parties intended their appointed arbitrators to act as advocates of a sort:

[I]n the main party-appointed arbitrators are supposed to be advocates. In labor arbitration a union may name as its arbitrator the business manager of the local union, and the employer its vice-president for labor relations.  Yet no one believes that the predictable loyalty of these designees spoils the award. (Emphasis in original; citations omitted). Sphere Drake Ins. Co. v. All American Life Ins. Co., 307 F.3d 617, 620 (7th Cir. 2002); Certain Underwriting Members of Lloyd’s of London v. Florida Dep’t of Fin. Servs., 892 F.3d 501, 508 (2d Cir. 2018): The principles and circumstances that counsel tolerance of certain undisclosed relationships between arbitrator and litigant are even more indulgent of party-appointed arbitrators, who are expected to serve as de facto advocates . . . The ethos of neutrality that informs the selection of a neutral arbitrator to a tripartite panel does not animate the selection and qualification of arbitrators appointed by the parties. Id. (citations and quotations omitted).

The tripartite panel structure is supposed to provide the best of two worlds: (a) two experienced and knowledgeable industry professionals, each acting as an advocate of sorts on behalf of his or her appointing party; and (b) an equally experienced and knowledgeable umpire, who either casts the tie-breaking vote or brokers a consensus. 

An industry’s general acceptance of an advocacy role for party-appointed arbitrators is sometimes evidenced by a practice of the parties authorizing ex parte contact between party-appointed arbitrators and their appointing parties (which may be subject to an agreed cut-off point, such as the submission of pre-hearing briefs).

In the Second Circuit and a number of other jurisdictions, evident partiality standards are generally designed to apply to neutral arbitrators, but not to party-appointed arbitrators, which the parties did not intend to be neutral. Certain Underwriting Members, 892 F.3d at 509-10. According to the Second Circuit, absent arbitrator qualification language to the contrary, “[e]xpecting of party-appointed arbitrators the same level of institutional impartiality applicable to neutrals would impair the process of self-governing dispute resolution.” 892 F.3d at 510.

The Second Circuit, however, does not hold that there are no relationships or other facts  that may establish evident partiality of a non-neutral party-appointed arbitrator. An appointed arbitrator’s violation of a contractual requirement concerning partiality or bias, such as a requirement of “disinterestedness,” may establish evident partiality. Certain Underwriting Members, 892 F.3d at 510. Thus, if an arbitration agreement requires a arbitrator to be “disinterested,” the qualification “would be breached[,]” and evident partiality established, “if the party-appointed arbitrator had a personal or financial stake in the outcome of the arbitration.” 892 F.3d at 510.

In addition, the Second Circuit may vacate an award for a party-appointed arbitrator’s evident partiality “if the party opposing the award can show that the party-appointed arbitrator’s partiality had a prejudicial effect on the award.” Certain Underwriting Members, 892 F.3d at 510-11 (citations and quotations omitted). In theory at least, such prejudice might, in an appropriate case, be established where the record shows that the neutral wanted and attempted to obtain information from a party-appointed arbitration concerning what to make of the party-appointed arbitrator’s arguments and the party-appointed arbitrator provided misleading or false information in response. Cf. Sphere Drake, 307 F.3d at 623 (“[W]e have not been given any reason to think that umpire Huggins wanted more information from Jacks in order to know what to make of Jacks’ arguments during the panel’s deliberations.”)

Other courts say that evident partiality is ordinarily not a ground for disqualifying a partisan arbitrator, evident partiality is available only if it prejudices the challenging party, or the parties’ diminished expectations of party-appointed arbitrator impartiality should be considered as part of the evident partiality calculus. See, generally, Sphere Drake, 307 F.3d at 620;  617, 620 (7th Cir. 2002) (“evident partiality” ground can be waived by consent); Winfrey v. Simmons Foods, Inc., 495 F.3d 549, 552 (8th Cir. 2007) (requiring a showing of prejudice); Nationwide Ins. Co. v. Home Ins. Co., 429 F.3d 640, 645-46 & 648-49 (6th Cir. 2005) (figuring into the mix the parties’ diminished expectations of impartiality and suggesting that undisclosed social or business relationship may establish evident partiality if it is related “to the subject matter of the” arbitration.)

Although courts will (absent contract language to the contrary) ordinarily assume that the parties intended party-appointed arbitrators to play an advocacy role, there may be disagreement within the industry or among particular parties concerning the degree of partiality permissible.  For example, there are some who believe that robust advocacy is appropriate, while others believe the party-appointed arbitrator should strive to give the appointing party the benefit of the doubt, but ultimately decide the matter according to the evidence and applicable law, custom and practice.  Others may have different views.

The upshot is that the line between the acceptable and unacceptable is both difficult to draw and blurry.  To at least some extent checks on rampant partisanship are imposed by economic considerations:  Party-appointed arbitrators that overstep what other panel members perceive to be proper ethical boundaries risk diminished credibility, influence, and effectiveness, which in turn, may result in fewer appointments. The use of partisan arbitrators, which continues in certain types of industry arbitration, has fallen out of favor in commercial arbitration in general. Rule 18 of the American Arbitration Association’s Commercial Arbitration Rules and Mediation Procedures (amended and effective October 1, 2013) (“AAA Commercial Rules”) reverses the presumption that party-appointed arbitrators should be non-neutral. Rule 18(a) says “Any arbitrator shall be impartial and independent and shall perform his or her duties with diligence and in good faith, and shall be subject to disqualification for:”

(i) partiality or lack of independence, (ii) inability or refusal to perform his or her duties with diligence and in good faith, and (iii) any grounds for disqualification provided by applicable law. AAA Commercial Rules R. 18(a).

Rule 18(b) further provides that “The parties may agree in writing.  .  .  that arbitrators directly appointed by a party pursuant to Section R-13 shall be nonneutral, in which case such arbitrators need not be impartial or independent and shall not be subject to disqualification for partiality or lack of independence.”  AAA Commercial Rules R. 18(b).

The AAA rules vest in the AAA the power to “determine whether the arbitrator should be disqualified under the grounds set out above, and shall inform the parties of its decision, which decision shall be conclusive.” AAA Commercial Rules R. 18(c).

Rule 7(c) of the JAMS Comprehensive Arbitration Rules and Procedures likewise reverses the presumption of non-neutrality: “Where the Parties have agreed that each Party is to name one Arbitrator, the Arbitrators so named shall be neutral and independent of the appointing Party, unless the Parties have agreed that they shall be non-neutral.” JAMS Comprehensive Arbitration Rules and Procedures Effective June 1, 2021 (the “JAMS Rules”) Rule 7(c).

Reversal of the presumption of party-appointed arbitrator non-neutrality are common in arbitration rules (including in international arbitration rules), and where parties incorporate by reference arbitration rules into their contract, those rules will ordinarily be deemed a part of the contract, requiring party-appointed arbitrators to be neutral. See Idea Nuova, Inc. v. GM Licensing Group, Inc., 617 F.3d 177, 180-82 (2d Cir. 2010) (“An agreement to submit commercial disputes to ‘AAA arbitration for resolution’ is properly construed to agree to arbitration pursuant to the AAA Commercial Arbitration Rules and to incorporate those rules into the Agreement.”)

Tripartite Arbitration: Umpires or Neutral Arbitrators 

Umpires and neutrals are held to higher standards of impartiality than partisan party-appointed arbitrators, and it is to them that ordinary standards of evident partiality apply, such as the Second Circuit’s “reasonable person” standard. Parties expect them to be fair, objective, open-minded in deliberations and not predisposed to rule in favor of either party before hearing the evidence.  They are supposed to be impartial, but, as previously discussed, they are nevertheless not held to the same rigorous, statutory standards of impartiality applicable to United States federal judges.  See Sphere Drake, 307 F.3d at 621; Morelite, 748 F.2d at 83; see, generally, 28 U.S.C. § 455 (disqualification standards for federal judges). The next instalment will discuss arbitrator disclosure procedures and requirements, which are designed to implement and enforce evident partiality standards; and examples of what does and does not constitute evident partiality.

Contacting the Author

What constitutes evident partiality and under what circumstances is a controversial and sometimes elusive topic. The author has written about it extensively over the years, including hereherehere, and here, as well as in other publications. The author has briefed, argued, or both, a number of U.S. Courts of Appeals and federal district court cases on the subject over the years, including, among others, Certain Underwriting Members of Lloyds of London v. State of Florida, Dep’t of Fin. Serv., 892 F.3d 501 (2018); and Nationwide Mutual Ins. Co. v. Home Ins. Co., 429 F.3d 640 (2005). Both of these important cases are cited in this article.  

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, or the services that the Loree Law Firm offers, then please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has more than 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. He is licensed to practice law in New York and before certain federal district and federal appellate courts.

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

Confirming Awards | Nonresident | Service by Marshal Required by MarshallFederal 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. 

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

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

July 23rd, 2020 Arbitration Law, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 2, Federal Arbitration Act Section 207, Federal Arbitration Act Section 9, Foreign Arbitration Awards, Inter-American Convention on International Commercial Arbitration, International Arbitration, New York Convention, Nuts & Bolts, Nuts & Bolts: Arbitration, Panama Convention, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 9, Small Business B-2-B Arbitration 1 Comment »
foreign awards

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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Chapter Two Domestic Awards | Post-Award Federal Arbitration Act Enforcement Litigation | Businessperson’s Federal Arbitration Act FAQ Guide

July 17th, 2020 Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Confirmation of Awards, Consent to Confirmation, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 207, Federal Arbitration Act Section 9, Inter-American Convention on International Commercial Arbitration, International Arbitration, New York Convention, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition or Application to Confirm Award, Practice and Procedure, Rights and Obligations of Nonsignatories, Section 9, Small Business B-2-B Arbitration 1 Comment »
confirm award chapter two

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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Monster Energy Case: CPR Interviews Loree and Faulkner on U.S. Supreme Court’s Denial of Certiorari

June 30th, 2020 Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Providers, Awards, Challenging Arbitration Awards, CPR Speaks Blog of the CPR Institute, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, International Institute for Conflict Prevention and Resolution (CPR), Loree & Loree, Loree and Faulkner Interviews, Small Business B-2-B Arbitration, United States Court of Appeals for the Ninth Circuit, United States Supreme Court, Vacate Award | Evident Partiality, Vacatur Comments Off on Monster Energy Case: CPR Interviews Loree and Faulkner on U.S. Supreme Court’s Denial of Certiorari
Monster Energy | Loree | Faulkner | Bleemer | CPR

On Monday, June 29, 2020 the International Institute of Conflict Protection and Resolution (“CPR”) interviewed Richard D. Faulkner, Esq. and Loree & Loree partner Philip J. Loree Jr. about the U.S. Supreme Court’s denial of certiorari in Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019). To watch and listen to the video-conference interview, CLICK HERE.

On November 18, 2019 we reported on Monster Energy here. The Ninth Circuit addressed the question whether an award should be vacated for evident partiality if: (a) an arbitrator fails to disclose an ownership interest in an arbitration provider; and (b) the arbitration provider has a nontrivial, repeat-player relationship with a party.

The Court, in a 2-1 decision, held that an arbitrator who failed to disclose his ownership interest in an arbitration provider was guilty of evident partiality because the arbitration provider had a nontrivial business relationship with the repeat player party. The business relationship between the provider and the award proponent was nontrivial because the proponent’s form contracts designated the provider as the arbitration administrator, and over a five-year period, the provider had administered 97 arbitrations for the proponent.

Our good friend Russ Bleemer, Editor of CPR’s newsletter, Alternatives to the High Cost of Litigation, did a fantastic job conducting the interview. Heather Cameron, a second-year student at Fordham Law School, and a CPR Institute 2020 Summer Intern, wrote for CPR Speaks an excellent post about Monster Energy and the Supreme Court’s denial of certiorari, which you can read here. The video of the interview is embedded into that post.

A shout-out also to CPR’s Tania Zamorsky, who, among other things, is the blog master of CPR Speaks, and who coordinated the effort to share copies of the video on CPR’s social media outlets.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

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

June 22nd, 2020 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Confirmation of Awards, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition or Application to Confirm Award, Section 9, Uncategorized 4 Comments »
Section 9 Confirm Award

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?

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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

June 19th, 2020 Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Confirmation of Awards, Consent to Confirmation, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, Nuts & Bolts, Nuts & Bolts: Arbitration, Personal Jurisdiction, Petition or Application to Confirm Award, Section 9, Small Business B-2-B Arbitration, Statute of Limitations 4 Comments »
Confirming Awards Procedure

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:

  1. The party seeking confirmation may apply for it “within one year after the award is made.  .  .”;
  2. Notice of application must be properly served;
  3. Venue must be proper; and
  4. 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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Confirming Awards Part I | Post-Award Federal Arbitration Act Enforcement Litigation | Section 9 of the Federal Arbitration Act | Businessperson’s Federal Arbitration Act FAQ Guide

June 12th, 2020 Arbitrability, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Consent to Confirmation, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 9, Judicial Review of Arbitration Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition or Application to Confirm Award, Small Business B-2-B Arbitration 5 Comments »
confirm awards

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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California Supreme Court Upholds Default Judgment Confirming $414,601,200 Default International Arbitration Award

April 20th, 2020 Arbitration Practice and Procedure, Award Confirmed, Awards, California Supreme Court, Confirmation of Awards, Default Award, FAA Chapter 1, FAA Chapter 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, International Arbitration, Personal Jurisdiction, Practice and Procedure, Service of Process Comments Off on California Supreme Court Upholds Default Judgment Confirming $414,601,200 Default International Arbitration Award
default judgment award confirm

On April 2, 2020 the California Supreme Court rejected a service-of-process challenge to a default judgment confirming a $414,601,200 international arbitration award. The parties agreed that notice could be given, and service of process made, by Federal Express (“FedEx”), and the Court held that the petitioner was not required to make service under the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, November 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638 (the “Hague Convention”).  

Facts and Procedural History

Party A, apparently headquartered in the U.S., and Party B, headquartered in China, entered into a memorandum of understanding (“MOU”), which contemplated the two companies forming another. But that didn’t happen and Party A demanded arbitration against Party B under the arbitration agreement in the MOU.

Party A served the arbitration agreement by FedEx, as agreed. Party B did not appear in the arbitration and the arbitrator, after hearing evidence, entered a default arbitration award. Service of the arbitration demand was made by FedEx, and Party B was given notice of each of the proceedings that comprised the arbitration.

The Arbitrator made a default award against B in the amount of $414,601,200. Party A commenced confirmation proceedings in a California state court, serving B by FedEx, as expressly agreed in the parties’ agreement.

But Party B did not appear at the confirmation proceedings, and the Court entered a default judgment confirming the award.

Party B then challenged the default judgment, contending that the Court lacked personal jurisdiction over it because service was made by FedEx, and not through the procedures prescribed by the Hague Convention.

The trial court rejected the challenge, the intermediate appellate court reversed, and the California Supreme Court, in a unanimous decision, reversed the intermediate appellate court.

The California Supreme Court’s Decision to Uphold the Default Judgment

The question before the California Supreme Court was whether the Hague Convention preempted the parties’ right to serve by their agreed method of service, FedEx. California’s highest court said the answer was “no.”

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