main image

Archive for the ‘Drafting Arbitration Agreements’ Category

Newer Entries »

Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

August 5th, 2014 American Arbitration Association, Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, Party-Appointed Arbitrators, Practice and Procedure, State Courts, Texas Supreme Court Comments Off on Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

Introduction  

Anyone versed in arbitration-law basics knows that “arbitration is a matter of consent, not coercion.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted). That is the “first principle” of arbitration law (the “First Principle”) set forth in the Steelworkers’ Trilogy.[1] See, e.g., Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 295 & n.7, 294 n.6 (2010); AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 648 (1986).

The First Principle is integrally intertwined with “the central or primary purpose of the [Federal Arbitration Act (“FAA”)][,]” which is “to ensure that  private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen, 559 U.S. at 679 (citations and quotations omitted). To “enforce” an arbitration agreement “courts and arbitrators must give effect to the contractual rights and expectations of the parties.” Id. When courts do not give effect to the parties’ contractual rights and expectations, they violate the First Principle.

Courts and arbitrators are supposed to apply the First Principle faithfully and rigorously whenever  they interpret or apply material arbitration-agreement-terms, and in “doing so [they] must  not lose sight of the purpose of the exercise: to give effect to the intent of the parties.” See Stolt-Nielsen, 559 U.S. at 679-81. And if that admonition applies with special force in any particular context, it would be in the interpretation and enforcement of arbitrator selection and qualification provisions.

Arbitrator selection provisions are what Circuit Court Judge Richard A. Posner once dubbed the “cornerstone” of the parties’ agreement: “Selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.” Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.); see, e.g., 9 U.S.C. § 5 (“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed.  .  .  .”); Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V(1)(d), June 10, 1958, 21 U.S.T. 2519, T.I.A.S. No. 6997 (a/k/a the “New York Convention”) (implemented by 9 U.S.C. §§ 201, et. seq.) (award subject to challenge where “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”); Stolt-Nielsen, 559 U.S. at 668, 670 (one of the FAA’s “rules of fundamental importance” is parties “may choose who will resolve specific disputes”) (emphasis added; citations omitted); Encyclopaedia Universalis S.A. v. Encyclopaedia Brittanica, Inc., 403 F.3d 85, 91-92 (2d Cir. 2005) (vacating award by panel not convened in accordance with parties’ agreement); Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223, 226 (4th Cir. 1994) (same); Avis Rent A Car Sys., Inc. v. Garage Employees Union, 791 F.2d 22, 25 (2d Cir. 1986) (same).

Americo Life, Inc. v. Myer

On June 20, 2014, a divided Texas Supreme Court in Americo Life, Inc. v. Myer, ___ S.W.3d __, No. 12-0739, slip op. (Tex. June 20, 2014), adhered to and correctly applied the First Principle by holding that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement.  Five Justices of the nine-member Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the American Arbitration Association (the “AAA”) had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See Slip op. at 10. Continue Reading »

Arbitration and Mediation FAQs: Can I Appeal an Arbitration Award in Court?

May 21st, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Drafting Arbitration Agreements, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure Comments Off on Arbitration and Mediation FAQs: Can I Appeal an Arbitration Award in Court?

Introduction

When a party is on the wrong end of an arbitration award that he, she or it thinks is fundamentally unfair, tainted by impropriety, or disconnected from the agreement the arbitrator was supposed to interpret and apply, the first question that comes to mind is whether there might be some form of recourse available. In court,  the usual avenue of relief from an adverse judgment or order is an appeal.

Can a losing party to an arbitration award governed by the Federal Arbitration Act (the “FAA”) appeal it in court? Since private arbitration is an alternative to public, government-sponsored court litigation, since the court system plays an important role in enforcing arbitration agreements, since both arbitration and court litigation share at least some of the same attributes and since in the U.S. procedural due process and the primacy of the rule of law are as dear to us as baseball and apple pie, it is natural to assume that one should be able to appeal an adverse arbitration award.

But one cannot—in any meaningful sense of the word—“appeal” an arbitration award to a court. In court litigation an appeal involves judicial review by an appellate court under which a panel of judges reviews trial-court rulings on questions of law independently—that is, as if the appellate court were deciding the question for itself in the first instance. The appellate court reviews the trial court’s findings of fact on a “clearly erroneous” or “clear error” standard of review, that is, paying a certain degree of deference to the finder of fact (the jury or trial judge). While appellate review thus does not involve a retrial on the merits, it is broad and searching, particularly where outcomes turn solely on questions of law.

The FAA does not authorize courts to review arbitration awards under an appellate standard of review, even if the parties consent to a court applying such a standard. Parties can agree before or after a dispute arises to an arbitration procedure that empowers another arbitrator or panel of arbitrators to review an award under an appellate or some other standard of review, but arbitration awards are subject to very limited and deferential review by courts and then only on a few narrow grounds.

The FAA Award-Enforcement Process

The FAA award enforcement process permits either party to make an application to vacate, modify or correct an award, or an application to “confirm” it, that is, enter judgment on it. Since the deadline for applying to vacate, modify or correct an award is considerably shorter than that for confirming an award, in many cases, parties who are seeking relief from the award make the initial application. If a putative challenging party does not timely seek relief, and the other party seeks confirmation after the expiration of the deadline for making an application to vacate, modify or correct the award, then the challenging party is time-barred from asserting grounds for vacatur or modification, even simply as affirmative defenses to confirmation. (See, e.g., L. Reins. & Arb. Law Forum post here.)

Let’s assume a party makes a timely motion to vacate an award. What will likely then happen is the other party will cross-move to confirm the award. The burden on the party seeking confirmation is pretty modest. Generally the party moving to confirm will need to show that the parties: (a) agreed to arbitrate; (b) consented to entry of judgment on the award; (c) appointed an arbitrator or panel of arbitrators; and (d) submitted the dispute to the arbitrators, who issued the award. The award is presumed valid and the court does not review its outcome or substance.

Once the modest prerequisites for confirmation have been established by a properly supported petition or motion to confirm an award, then the court “must grant” confirmation “unless the award is vacated, modified or corrected” under FAA Sections 10 or 11. 9 U.S.C. § 9. Thus, apart from those relatively rare cases where a party can show that the parties never agreed to arbitrate at all (and that the challenging party did not waive that defense), or perhaps never even impliedly consented to entry of judgment on the award, the only grounds on which the losing party can oppose confirmation are those set forth in Section 10 and 11.

The only exception might be if the award interprets the contract in a way that causes it to violate a well-defined and explicit public policy, or if the remedy the arbitrator awards violates the criminal law or requires one of the parties to do so. For example, one would not expect a court to enter judgment on an award that purported to authorize the prevailing party to inflict bodily harm on the losing party or vice-versa. That principle is simply an application of the contract-law rule that courts will not enforce contracts that violate public policy. See, generally, W. R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983); United Food & Commercial Workers Int’l Union v. King Soopers, 743 F.3d 1310, 1315 (10th Cir. 2014).

Continue Reading »

Arbitration and Mediation FAQs: Should I Agree to Mediate Future Disputes Arising out of a Business Contract or Transaction?

March 22nd, 2014 Arbitration and Mediation FAQs, Drafting Arbitration Agreements, Drafting Mediation Agreements, Mediation, Mediation Agreements, Negotiation, Small Business B-2-B Arbitration, Small Business B-2-B Mediation Comments Off on Arbitration and Mediation FAQs: Should I Agree to Mediate Future Disputes Arising out of a Business Contract or Transaction?

Suppose you are a business entity or an individual negotiating a contract that contemplates an ongoing business relationship with another person or entity. You need to consider many things, not the least of which is what kinds of provisions, if any, you might want to include in your contract that deal with the contingency of one or more disputes arising in the future. You might decide, for example, to agree to arbitrate disputes. You might decide that arbitration is too risky in the circumstances and that you would rather have a court resolve your dispute, but that you nevertheless want to include provisions in your contract dealing with choice of law, choice of forum, permissible remedies and the like. These are all important decisions that need to made carefully and often with the help of an attorney having skill and experience in such matters.

But they are not the only things that you might consider or be asked by your counterpart to consider. Whether or not you agree to arbitrate, or to litigate but only in a particular forum under the law of a particular state, there is something else you might want or be asked to consider: an agreement to mediate future disputes arising out of or relating to the contract and the business relationship it creates.

Should you give such an agreement some serious thought? There is no single correct answer to that question because, like most other things, the devil is in the details. But, depending on the circumstances, an agreement to mediate as a precondition to judicial or arbitral dispute resolution might be a very good idea. Continue Reading »

Small Business B-2-B Arbitration Part II.B.2(A): Other Structural Aspects of Pre-Dispute Arbitration Agreements—What am I Agreeing to Arbitrate?

January 2nd, 2014 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Drafting Arbitration Agreements, Making Decisions about Arbitration, Small Business B-2-B Arbitration Comments Off on Small Business B-2-B Arbitration Part II.B.2(A): Other Structural Aspects of Pre-Dispute Arbitration Agreements—What am I Agreeing to Arbitrate?

In the last installment of our B-2-B Arbitration series we focused on one of the most important structural aspects of pre-dispute arbitration agreements: the mutual promise to submit disputes to arbitration, what it means and how its performance by the parties through their post-dispute submission defines and delimits the scope of authority parties actually delegate—as opposed to promise to delegate—to arbitrators to resolve particular disputes.

But there are other important structural aspects of arbitration agreements about which business people should be mindful if they wish to make informed decisions about arbitration. While a comprehensive discussion of them would be far beyond the scope of this post, let’s focus briefly on arbitration-agreement terms that bear on the following questions: Continue Reading »

Small Business B-2-B Arbitration Part II.B: How Arbitration Agreements Work

October 17th, 2013 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Drafting Arbitration Agreements, Making Decisions about Arbitration, Practice and Procedure, Small Business B-2-B Arbitration Comments Off on Small Business B-2-B Arbitration Part II.B: How Arbitration Agreements Work

Part II.B.1: Delegating Authority

The Arbitration Agreement and the Submission

If you’ve followed this series from inception you already know that the decision to agree to arbitrate disputes arising out of a transaction, and if so, under what terms, can be as important as any other decision a business must make about price and performance terms. Armed with sufficient knowledge about how arbitration and arbitration-law works, business people and their lawyers can make better-informed choices about arbitration, including whether seeking advice from an attorney with arbitration and arbitration-law experience is warranted in the circumstances. All else equal, a business that makes informed choices about transaction terms—including dispute resolution terms—increases the odds that the transaction will work as the parties intended.

Knowledge of how arbitration agreements are structured and how they work is essential to appreciate the risks and benefits associated with arbitration. Part II.B of the series is designed to introduce the basics of pre-dispute-arbitration-agreement structure and function. This Part II.B.1 focuses on the nature of the pre-dispute promise to arbitrate, how that promise is implemented by the post-dispute submission and the nature and extent of the power parties delegate to an arbitrator by way of their submission. Continue Reading »

David J. Abeshouse Guest Post: Don’t Be Penny-Wise and Pound-Foolish With Contract Law

April 20th, 2011 Drafting Arbitration Agreements, Guest Posts Comments Off on David J. Abeshouse Guest Post: Don’t Be Penny-Wise and Pound-Foolish With Contract Law

By David J. Abeshouse

Perhaps I shouldn’t be telling you this (you’ll see why in a moment), but I think you ought to know. 

Many start-ups, professional practices, and other small businesses lack line-items in their budgets for legal representation.  But they place themselves (and their owners) in considerable peril when they forego having solid written business agreements.  Owners of businesses and professional practices often assume that they have workable understandings with their vendors, associates, and partners.   These assumptions often are misguided, because even the process of negotiating an agreement reveals possible future pitfalls and misconceptions that should be addressed now, before they become mortal issues.  Lack of a written agreement often means there hasn’t been a true meeting of the minds. 

Absent a well-written agreement, all too often something goes very wrong, and then there’s hell to pay in terms of cost, disruption, risk, and other adverse consequences (such as court litigation) of failing to have solid written agreements in place.  Having the right business agreements in place is not an absolute guarantee that you’ll be able to avoid misunderstandings, but it helps protect you and your business or professional practice.

Here’s part of the problem: When faced with legal issues, many try the DIY (do-it-yourself) route, figuring that they’re smart, experienced business people, and therefore should be able to modify old contract forms, and/or find sample contractual provisions online, and cobble them together into a workable agreement.  Some of the pitfalls with this approach, however, include that many aspects of the law aren’t intuitive, many words have legal meanings different from their common meanings, various contractual provisions interact differently in different circumstances, and the education and experience of lawyers trained in the area of drafting contracts should not be lightly ignored.  DIY-ers usually find themselves in a situation akin to steering a rudderless ship, or trying to fix electric wiring or plumbing without the right knowledge or tools.  The results (misdirection, shock, and flood) are the same, and the hapless business owner ultimately pays a far greater price down the road in terms of liability, disruption, business risk, and yes, eventual expenditure of legal fees. 

I can speak neutrally (and I hope informatively and compellingly) on this because I’m not the lawyer who drafts the agreements for the professional practices and other businesses, so I have no self-interest here.  Instead, I’m either the lawyer who represents one side or the other in litigation or arbitration, after something goes wrong and there’s a disagreement that’s not governed by a customized written contract (employment agreement, shareholders agreement, LLC operating agreement, vendor-vendee agreement, services agreement, etc.); or I’m the one who serves as impartial neutral arbitrator or mediator of the dispute. 

I all-too-often litigate the results of the parties’ failure to have well-conceived and well-drafted business contracts.  So, to help avoid having to consult with me, hire the lawyers who can help craft a solid written business agreement for you.  It’s good preventive legal medicine. 

The author is a Business Litigator, Arbitrator, and Mediator in Uniondale, Long Island, NY. He can be reached through his website here or at 516-229-2360. 

© 2011 David J. Abeshouse

[Editor’s Note:  This post was originally published in the Basso on Business Blog and is reproduced with permission here.  For more information about the author, read “Introducing Guest Blogger David J. Abeshouse,” here.]  

Introducing Guest Blogger David J. Abeshouse

April 20th, 2011 Drafting Arbitration Agreements, Guest Posts Comments Off on Introducing Guest Blogger David J. Abeshouse

Today’s guest blogger, David J. Abeshouse, is a Long Island based B-2-B litigator, American Arbitration Association (“AAA”) arbitrator, and mediator.  David and I are good friends and members of the Attorney Roundtable, a networking group that features some leading Long Island based practitioners in a number of different practice areas, all of whom practice solo or in small, boutique firms.  David is one of the founding members of the group.  He’s also an accomplished clarinet player and a former professional musician. 

David’s legal and alternative dispute resolution (“ADR”) practice focuses on litigations, arbitrations and mediations involving small and medium-sized businesses and professional practices.  Because he serves not only as an advocate, but also as a neutral decision maker and settlement facilitator, he has a broad-based, well-rounded perspective on — and unique insights about —  commercial disputes.  You can read more about David’s practice and background here.

David and I share many of the same views on key issues pertinent to B-2-B ADR and litigation.  We both believe that the parties are architects of their own dispute resolution destiny, and, if they wish to take advantage of the many benefits that B-2-B arbitration and mediation can offer, then it is incumbent upon them to take a proactive role in structuring the process in a manner that advances their business interests.  That is true whether the party is a large global insurer or reinsurer, a medium-sized financial service company or retail concern, or a small closely-held company or professional practice doing mostly local business.  Most large companies, and many medium-sized ones, know this and their sophisticated, in-house legal departments often devote substantial time and money into educating themselves about ADR and ensuring that their business contracts, including their ADR-related ones, are as carefully designed and well drafted. 

Smaller companies do not always have in-house the resources to prepare for and deal with disputes, even though disputes are one of the unfortunate realities of doing business.  And while the frequency and number of disputes small companies must handle is generally low, their severity can be quite high — even fatal. 

Dispute resolution and prevention is thus at least as important to smaller businesses as it is to large, multi-national companies.  Yet many smaller business devote few or no resources to dispute management.  

Sometimes this disparity in resource and risk allocation is a simple fact of economic life, including the law of large (and small) numbers.  In others it may evidence a conscious or unconscious decision to assume more risk than necessary or appropriate.  

Both David and I are experienced litigators who have seen firsthand the negative consequences that large, medium and small businesses can suffer as a result of poorly drafted contracts, including ADR-related contracts.  With the benefit of 20-20 hindsight we frequently wonder how it came to be that two business have found themselves in costly litigation or arbitration proceedings concerning a problem which might have been avoided had the parties more carefully drafted the contract or structured the transaction differently.  

This theme underscores David’s guest post, “Don’t Be Penny Wise and Pound Foolish with Contract Law,” which he originally published in the Basso on Business Blog.  Consider it recommended reading for those who own or work for small businesses. 

David has written two other, related articles that we will feature in the not-too-distant future, so stay tuned.

How to Make Arbitration Work for Your Business

September 2nd, 2010 Arbitration Agreements, Arbitration Practice and Procedure, Drafting Arbitration Agreements, Nuts & Bolts: Arbitration Comments Off on How to Make Arbitration Work for Your Business

On September 1, 2010 Gina Passarella of the Philadelphia Legal Intelligencer published an excellent article entitled, “Litigators Losing Love of Arbitration Argue for Trials.”  She quotes prominent, Philadelphia-based litigators, all of whom were critical of arbitration as a supposedly speedy and less expensive alternative to adjudication.  On the same day Ms. Passarella’s article was quoted and elaborated upon in Ashby Jones’ article in the Wall Street Journal Law Blog entitled, “Has Arbitration Become More Burdensome than Litigation?”  Both articles were tweeted and retweeted about on Twitter, and posted in certain LinkedIn groups.

The criticism of arbitration expressed in these articles is not new.  For years people (including I) have said that arbitration can be as expensive or more so than litigation.  People have repeatedly complained about how arbitration has become more like “arbigation,” and how Federal Arbitration Act satellite litigation has proliferated.  Or they criticize arbitrators for substituting rough justice for reasoned, legal analysis.  And so on. 

If you are a business person, or someone at a business whose responsibilities include drafting or approving contracts, you might throw up your hands and declare that your business will never, ever even think about agreeing to arbitrate.  But we think that you would be far better off giving more thought to what it is you desire from a system of dispute resolution, and how best to achieve your goals. 

The criticism expressed in the articles, and in the past, is generally valid, albeit misdirected.  It is directed at “arbitration,” as if arbitration was an institution unto itself, imposed on us by the legal system or perhaps by divine order.   

But, at least in B-2-B contracts negotiated at arms’-length, “arbitration” is not something imposed on the parties; it is something the parties impose on themselves.  We, the parties, are the architects of our own dispute resolution system.  If it turns out we designed or agreed to something reminiscent of Charles Dickens’  Bleak House, we should not blame the non-existent institution “arbitration.”  We should blame ourselves, or, more accurately, whomever drafted or approved the Dickensian arbitration agreement. 

The problems we sometimes associate with arbitration could be avoided if parties would give more thought to the type of dispute resolution they desire, and how any particular arbitration agreement — or agreement to administered arbitration under a set of arbitration provider rules — will likely be interpreted, and by whom.  Perhaps the best thing about arbitration is that parties have a lot of leeway not only to select the decisionmakers for their dispute, but also to design and structure the arbitration so that it suits their needs, and proceeds with as much or as little pre-hearing fanfare as the parties desire.  Within some basic limits, parties can structure their agreement as they see fit, and that can be something from which businesses can reap benefits. 

But many parties apparently are not aware of the extent to which arbitration can be tailored to fit particular situations, or simply do not consider the prospect of a future arbitration to be important enough to invest some modest time and effort into considering what is likely to transpire in the event of a dispute.  The problem is compounded by contract drafters, including attorneys, that simply do not have the requisite arbitration, litigation and arbitration-law experience to make informed judgments about whether the agreement they have drafted is likely to suit the parties’ dispute resolution needs.  I have been involved in a number of arbitrations that would have proceeded more expeditiously, efficiently and effectively had they been conducted pursuant to a well-drafted arbitration agreement, instead of one that was apparently selected without a lot of thought given to the type of proceeding the agreement authorized, and whether it was what the parties wanted.  We have all heard horror stories about arbitrations that would not have been so horrifying had the parties placed some limits on how the proceedings were to be conducted.  

The solution to the problem is relatively easy and not very costly.  Hire an arbitration lawyer with litigation, arbitration and arbitration-law experience to help you draft an effective arbitration agreeement that suits your needs and goals.  Depending on the scope of the project, only a few hours of the lawyer’s time may be needed.  And the return on the modest investment could be substantial in the event a dispute ever arises under the contract.

Your arbitration lawyer should initially focus on finding out from you what you desire from your dispute resolution system, and what it is about court adjudication you wish to avoid.  Depending on what your goals are, he or she may recommend that you opt for court adjudication and perhaps add choice-of-forum and choice-of-law clauses to your contract.  Or he or she may conclude that arbitration can further your goals, and help you draft an arbitration agreement designed to achieve them. 

So if you or your employer or business negotiates contracts with others, and you want more out of dispute resolution than ordinary court adjudication is likely to provide, hire an arbitration lawyer with litigation, arbitration and arbitration-law experience to help guide you along.  You probably won’t incur much in the way of legal fees, and you will be able to take better control of your own dispute-resolution destiny.

Newer Entries »