We’ve seen how the Federal Arbitration Act authorizes confirmation and enforcement of various domestic and foreign arbitration awards falling within its scope. (Seehere, here, here, andhere.) 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.)
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.
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, andhere.) 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.
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.
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?
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.
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.
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.”
Our most recent post discussed time the limits applicable to an application to confirm a U.S.-made arbitration award. It explained how awards falling under Chapter One of the Federal Arbitration Act are subject to a one-year limitation period while awards falling under Chapter Two are subject to a three-year period.
Mindful of how many of us would, if possible, like to spend at least a few minutes thinking of something other than the currently raging coronavirus pandemic, we’ve prepared a checklist of things one needs to consider and address before serving and filing a motion to confirm a U.S.-made award falling under Chapter One or Chapter Two of the Federal Arbitration Act. But I’m afraid the respite will be brief indeed, for it is important to consider the effect of the COVID-19 pandemic on the preparation, service, and filing of an application to confirm. This post accordingly concludes with a brief discussion about how those considerations bear on confirmation strategy.
This checklist is not legal advice, a substitute for legal advice, or a “do-it-yourself” guide, and should not be relied upon as such. It simply provides a broad-perspective outline of what is involved in planning for, preparing, and serving and filing an application to confirm.
If you are going to file an application to confirm an award, then you should engage an attorney with arbitration-law experience to represent you or your business. That person should, for a reasonable fee, be able to prepare and file the application and otherwise represent your interests in the process.
Chapter One of the Federal Arbitration Act authorizes courts to confirm arbitration awards falling within the scope of the Act, if the parties implicitly or expressly agree that a judgment may be entered on the award.
To confirm an award is to reduce it to a judgment of the court, which can be enforced like any other judgment. For some detailed information on confirming arbitration awards, see here.
But how much time do you or your business have to confirm an arbitration award that is made in the United States? The answer depends on whether your arbitration award falls under Chapter One of the Federal Arbitration Act or also under Chapter Two of the Federal Arbitration Act, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”). Because some arbitration awards made in the United States are completely domestic, while others are not, and different limitation periods apply to applications to confirm them.
If the award falls under Chapter One of the Federal Arbitration Act, but not Chapter Two, then your application to confirm must be made within one-year of the date on which the “award was made.” 9 U.S.C. § 9. But if your domestic award falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, then your application to confirm must be made “[w]ithin three years after. . . [the]. . . award. . . is made.” 9 U.S.C. § 207.
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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.
