main image

Archive for the ‘Federal Arbitration Act Section 10’ Category

The Repeat Player, Arbitration Providers, Evident Partiality, and the Ninth Circuit

November 18th, 2019 Arbitration Practice and Procedure, Arbitration Providers, Award Vacated, Confirmation of Awards, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Repeat Players, United States Court of Appeals for the Ninth Circuit, Vacate Award | Evident Partiality, Vacatur No Comments »
Disclosure | Evident Partiality | Repeat Player

Federal Arbitration Act (“FAA”) Section 10 permits Courts to vacate awards “where there was evident partiality. . . in the arbitrators. . . .” 9 U.S.C. § 10(a)(2). If an arbitrator fails to disclose an ownership interest in an arbitration provider, which has a nontrivial, repeat player relationship with a party, should the award be vacated for evident partiality?

What constitutes evident partiality and under what circumstances is a controversial and sometimes elusive topic. We’ve written about it extensively over the years, including here, here, here, 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).

The most recent significant evident partiality development is the U.S. Court of Appeals for the Ninth Circuit’s 2-1 decision in Monster Energy Co. v. City Beverages, LLC, ___ F.3d ___, No. 17-55813, slip op. (9th Cir. Oct. 22, 2019), a case that involved an award made in favor of a repeat player party in an administered arbitration. Monster 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 nontrivial business relationship with the repeat player party.

The Repeat Player Problem

In administered arbitration the (inevitable) existence of repeat players raises important questions that bear on evident partiality. Repeat players are parties who use the services of an arbitration provider on a regular basis, and therefore are a source of repeat business for the provider.

Arbitrators who are part of an arbitration provider’s appointment pool have earned their appointments by satisfying certain criteria set by the arbitration provider, and may also be trained by the arbitration provider. Ordinarily they are not employees of the arbitration provider, and, at least ostensibly, are independent from the arbitration provider.

But the economic interests of these arbitrators are aligned with those of the arbitration provider. What’s good for the arbitration provider is generally good for the arbitration provider’s pool of arbitrators. Repeat business is good for arbitration providers, just as it is good for lawyers and others.

Let’s assume that an arbitrator appointed in an arbitration administered by provider X has never before served as an arbitrator for parties A and B. If the contract between A and B is a form contract used by Party A that appoints X to administer arbitrations, and the contract concerns a subject matter in which disputes are fairly common (e.g., a consumer, employment, or franchise matter), then the arbitrator knows or has reason to know that the customer is either a repeat player or is likely to be one in the not too distant future.

If party B is, for example, a consumer, employee, or franchisee, and is not a repeat player, then one might suggest that our hypothetical arbitrator has at least an indirect interest in the outcome of the arbitration, specifically, one that would be best served by an outcome favoring party A, the repeat player.

That creates a potential evident partiality problem, for to be neutral, arbitrators have to be not only independent, and unbiased, but also disinterested. To be disinterested, the arbitrator cannot have have “a personal or financial stake in the outcome of the arbitration.” Certain Underwriting Members, 892 F.3d at 510 (citations and quotations omitted).

Does the kind of indirect and general financial or personal interest in the outcome described above, without more, establish evident partiality? It should not, although arbitrators are well-advised to disclose the existence of such an indirect or general financial or personal interests.

We think an argument for evident partiality based solely on an arbitrator having reason to believe that one of the parties is a repeat player with respect to the arbitration provider’s services would prove too much. Carried to its logical conclusion it would destroy, or at least severely diminish, the utility of the arbitration-provider-administered arbitration model in a large number of cases.

But that doesn’t mean that administered-arbitration awards in favor of repeat players and against non-repeat-players are immune from evident partiality challenge in all circumstances. Monster Energy provides an example and may be a harbinger of closer scrutiny of repeat player evident partiality challenges. 

We discuss the majority opinion in Monster Energy below. In a future post or posts, we will discuss the dissenting opinion, what to make of the case, and how it might (or not) influence how other courts address repeat-player-related issues that may arise in future cases.

Monster Energy Repeat Player Case: Majority Opinion

Monster Energy was a dispute between a franchisor (the “Franchisor”) and a franchisee (the “Franchisee”), many of the details of which are not critical to our discussion. The dispute was submitted to arbitration under a form contract that contained an arbitration agreement that specified JAMS as the administrator.

The parties selected the arbitrator (the “Arbitrator”) from a slate of seven-candidates proposed by JAMS.

The Arbitrator was not only a member of the JAMS arbitrator pool, but also had an ownership interest in JAMS. He did not disclose that ownership interest but his pre-arbitration disclosure stated:

I practice in association with JAMS. Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future.

Slip op. at 6.

The Arbitrator also disclosed that he had served in a prior arbitration involving the Franchisor and had ruled against it in that matter, making an award against the Franchisor in the amount of nearly $400,000. The arbitrator did not disclose—and it is not clear from the opinion whether during the arbitration he knew—that JAMS had, over a five-year period, administered 97 arbitrations for the Franchisor, i.e., an average of more than one per month.

The Arbitrator made an award against the Franchisee, which included attorney fees;  the Franchisor moved to confirm the award; and the Franchisee cross-moved to vacate it on evident partiality grounds. The district court confirmed the award, finding that the Franchisee waived its evident partiality claim, and made an award of attorney fees against Franchisee for fees incurred post-award. (apparently pursuant to a fee sharing provision in the parties’ contract).

The Ninth Circuit reversed the district court’s judgement confirming the award and vacated the post-award attorney fee award.    

Monster Energy Repeat Player Case: The Franchisee did not Waive its Evident Partiality Claim

The district court determined, and the Franchisor argued on appeal, that the Franchisee waived its evident partiality claim “because it did not timely object when it first learned of potential ‘repeat player’ bias and the Arbitrator disclosed his economic interest in JAMS.” Slip op. at 9. It appears that knowledge of “potential ‘repeat player’ bias” may have been deemed imputed from: (a) the Franchisor’s use of a form contract appointing JAMS as arbitrator; and (b) the Arbitrator’s disclosure that “because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future.” It appears that the Franchisee did not learn until after the award was made that JAMS had administered 97 arbitrations for the Franchisor.

The Ninth Circuit held that the Franchisee did not waive its evident partiality claim. The question before it was whether the Franchisee had “constructive knowledge” of the arbitrator’s ownership interest in JAMS. “Unlike. . . prior cases[]” involving waiver of evident partiality, said the Court, “the situation here is more akin to a partial disclosure—the Arbitrator disclosed his ‘economic interest’ in JAMS prior to arbitration, but [the Franchisee] did not know it was an ownership interest.” Slip op. at 9-10. And while “the district court correctly noted that an ownership interest is ‘merely a type of economic interest,’ the key issue is whether [the Franchisee] had constructive notice of the Arbitrator’s potential non-neutrality.” Slip op. at 10.

The Ninth Circuit determined there was no waiver, slip op. at 10, for even though the Franchisee “knew that the Arbitrator had some sort of ‘economic interest’ in JAMS[,]” “the Arbitrator expressly likened his interest in JAMS to that of ‘each JAMS neutral,’ who has an interest in the ‘overall financial success of JAMS.’” Slip op. at 9. Further, the “Arbitrator. . . disclosed his previous arbitration activities that directly involved Monster, in which he ruled against the company.” Slip op. at 9. “In context,” the Court explained, “these disclosures implied only that the Arbitrator, like any other JAMS arbitrator or employee, had a general interest in JAMS’s reputation and economic wellbeing, and that his sole financial interest was in the arbitrations that he himself conducted.” Slip op. at 9.

In view of these disclosures, “even if the number of disputes that [Franchisor] sent to JAMS was publicly available, that information alone would not have revealed that this specific Arbitrator was potentially non-neutral based on the totality of JAMS’s [Franchisor]-related business.” Slip op. at 9.

The “crucial fact[]” “that triggered the specter of partiality[,]” said the Court, was “the Arbitrator’s ownership interest[,]” and [the Franchisee] did not have constructive notice” of that fact. Slip op. at 9 & 10. That “ownership interest[]” “was not unearthed through public sources, and it is not evident that [the Franchisee] could have discovered this information prior to arbitration.” Slip op. at 9. And after the arbitration, “JAMS repeatedly stymied [the Franchisee’s] efforts to obtain details about JAMS’ ownership structure and the Arbitrator’s interest. . . .” Slip op. at 9.

Noting that the Court has “repeatedly emphasized an arbitrator’s duty to investigate and disclose potential conflict[,]” the Court said that here, “the Arbitrator undoubtedly knew of his ownership interest in JAMS prior to arbitration yet failed to disclose it.” Slip op. at 10. A waiver finding “would put a premium on concealment in a context where the Supreme Court has long required full disclosure.” Slip op. at 10 (citations and quotations omitted). 

The District Court Should have Vacated the Award on Evident Partiality Grounds

Different circuits have interpreted the standard for evident partiality in different ways, and the standard articulated in the Ninth Circuit is that an award may be vacated for evident partiality where dealings or relationships between the arbitrator and a party create a “reasonable impression of partiality.” Slip op. at 11 (quotations and citations omitted). Following Associate Justice Byron R. White’s concurrence in Commonwealth Coatings v. Continental Cas. Co., 393. U.S. 145 (1968), the Court explained that an arbitrator must disclose a “‘substantial interest in a firm which has done more than trivial business with a party. . . .’” Slip op. at 10 (quoting 393 U.S. at 151-52 (White, J., concurring)).

Applying Justice White’s rationale to the facts of Monster, the Court explained that it had to undertake a two-pronged “inquiry”[:] we must determine (1) whether the Arbitrator’s ownership interest in JAMS was sufficiently substantial, and (2) whether JAMS and [the Franchisor] were engaged in nontrivial business dealings.” Slip op. at 12 (emphasis in original). “If[,]” said the Court, “the answer to both questions is affirmative, then the relationship require disclosure, and supports vacatur.” Slip op. at 12.

The Arbitrator’s Ownership Interest in JAMS was Substantial

The Court found that the Arbitrator’s interest in JAMS was substantial because the Arbitrator “has a right to a portion of profits from all of [JAMS’] arbitrations, not just those that he personally conducts.” Slip op. at 12. That interest “greatly exceeds the general economic interest that all JAMS neutrals naturally have in the organization. . . .” Slip op. at 12.

JAMS and the Franchisor were Engaged in Nontrivial Business Dealings

The Court found that JAMS and the Franchisor were in engaged in nontrivial business dealings because the Franchisor’s “form contracts contain an arbitration provision that designates JAMS Orange County as its arbitrator[,]” and accordingly, “over the past five years, JAMS has administered 97 arbitrations for [the Franchisor: an average rate of more than one arbitration per month.” That “rate of business dealing is hardly trivial, regardless of the exact profit-share that the Arbitrator obtained.” Slip op. at 12.

The Court concluded by holding “that before an arbitrator is officially engaged to perform an arbitration, to ensure that the parties’ acceptance of the arbitrator is informed, arbitrators must disclose their ownership interests, if any, in the arbitration organizations with whom they are affiliated in connection with the proposed arbitration, and those organizations’ nontrivial business dealings with the parties to the arbitration.” Slip op. at 17.

“Here,” held the Court, the Arbitrator’s failure to disclose his ownership interest in JAMS—given its nontrivial business relations with [the Franchisor]—creates a reasonable impression of bias and supports vacatur of the arbitration award.” Slip op. at 17.

More to Come….

In an upcoming post or posts we’ll discuss Circuit Judge Michelle Taryn Friedland’s dissent and what to make of Monster.

Photo Acknowledgment

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

Manifest Disregard of the Law | Manifest Disregard of the Agreement | Second Circuit Remands Award to Arbitrator for Do-Over

October 25th, 2019 Authority of Arbitrators, Award Vacated, Awards, Challenging Arbitration Awards, Contract Interpretation, Enforcing Arbitration Agreements, Exceeding Powers, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Manifest Disregard of the Agreement, Manifest Disregard of the Law, Uncategorized, United States Court of Appeals for the Second Circuit, Vacate Award | 10(a)(4), Vacate Award | Manifest Disregard of the Law, Vacatur No Comments »
Second Chance to Make Award not in Manifest Disregard of Law or Agreement

Arbitrators are human and occasionally they make awards that cannot be squared with logic and law, and courts may, in appropriate circumstances, vacate those awards as being in manifest the agreement, or in some circuits, in manifest disregard of the law. The U.S. Court of Appeals for the Second Circuit considered such an award in Weiss v. Sallie Mae, Inc., ___ F.3d ___, No. 18-2362, slip op. (Sept. 12, 2019), and solved the problem in a way that imposed minimal costs and delay on the parties and, at the same time, gave effect to the parties’ reasonable contractual expectations, including that the arbitrator would make an award with a colorable basis in the law or the parties’ agreement, not one in manifest disregard of the law or the agreement. It is therefore a good example of a case that promotes arbitration as an alternative to litigation.

Background

W is a student-loan borrower who in 2011 defaulted on a loan issued by S (N is the successor of S, but we shall refer to both as “S”). W gave S her phone number (“Phone Number 1”) when she obtained the loan and consented to S contacting her via an automatic telephone dialing system (“ATDS”). S made ATDS calls to her using Phone Number 1 prior to her default on the loan in 2011.

Also prior to her 2011 default W obtained a second telephone number (“Phone Number 2”) but did not give S consent to contact her on that number via an ATDS.

After W’s 2011 default, S contacted W seven or eight times a day at Phone Number 2 via an ATDS, attempting to collect the debt. S made 774 ATDS calls to Phone Number 2 during the period September 16, 2011 through July 1, 2013.

The Arbitration

A dispute arose between W and S about whether S’s ATDS calls had violated the Telephone Consumer Protection Act (“TCPA”) and W commenced an action in the U.S. District Court for the Western District of New York. The action was stayed after the parties stipulated to arbitration pursuant to an arbitration agreement in a student-loan promissory note.

The Award: Was it in Manifest Disregard of the Law or the Agreement?

Final Award 2 - yay-15399450

Following a hearing an arbitrator made an award granting W $108,000 in statutory damages under the TCPA. But the award held that W was a class member in a class action that S had settled. The class-action settlement (the “Arthur Settlement”) “included as a class member, ‘any person who received ATDS calls from [S] between October 27, 2005 and September 14, 2010.’” Slip op. at 5 (citation omitted).

W did not contend that the calls S made to Phone Number 1 violated the TCPA (W had consented to those calls), and W contended that, accordingly, she was not bound by the settlement, even though she had received ATDS on Phone Number 1 during the specified period. The arbitrator, however, found that argument “‘unpersuasive,’” and “ruled that Weiss was a class member and that ‘the proof was conclusive that [S] provided [W] with the required notice of the settlement and of her rights and obligations under the terms of the settlement.’” Slip op. at 5-6 (citation omitted).

The Arthur Settlement “notice offered class members the opportunity to file a ‘consent Revocation’ document by September 15, 2012; absent such a filing, ‘the ATDS calls would not stop and the borrower’s prior consent to give them [sic] would be deemed to have been given.’” Slip op. at 6 (citation omitted; bracketed text in original).  

While W contended that she was not aware of the Arthur Settlement, S testified that notice was successfully emailed to W.

The agreement implementing the Arthur Settlement featured a general release, “under which class members were ‘deemed to have fully released and forever discharged [S]’. . . from any and all claims and causes of action, inter alia, ‘that arise out of or are related in any way to the use of an [ATDS]. . . used by any of the Released Parties in connection with efforts to contact or attempt to contact Settlement Class Members including, but not limited to, claims under or for violations of the [TCPA].’” Slip op. at 6 (citations omitted; some bracketed text in original).

Even though the general release, to which the arbitrator determined W was bound, deemed W to have “waived ‘any and all’ TCPA claims effective the date of final judgment in the Arthur Settlement action[,]” the arbitrator’s award did not acknowledge the existence of that release. Slip op. at 6-7. “Instead,” said the Court, “the arbitrator interpreted [W]’s failure to submit a consent revocation pursuant to the Arthur class notice as precluding recovery for any calls placed to [Phone Number 2] after the September 15, 2012 deadline but also as permitting recovery for ATDS calls placed to [Phone Number 2] between September 6, 2011, and September 16, 2012.” Slip op. at 7.

The arbitrator awarded TCPA statutory damages in the amount of $108,500 ($500 per call for 217 calls during the applicable period). W moved to confirm the award and S cross-moved to vacate it.

The district court vacated the award, finding that “by neglecting to ‘apply—or even address—an explicit, unambiguous term of the settlement agreement,’ which “clearly and unambiguously bars recovery for claims until and including the date of the agreement,’ the arbitrator manifestly disregarded the law.” Slip op. at 7. W appealed.

The Second Circuit Decision: Remand to Arbitrator to Permit Him to Make an Award not in Manifest Disregard of the Law or the Agreement

Court Decisions | Manifest Disregard of the Law | Manifest Disregard of the Agreement

The Second Circuit agreed with much of the district court’s reasoning but disagreed on the remedy. Instead of vacating the award outright on the manifest disregard of the law or manifest disregard of the agreement grounds, the Second Circuit vacated the district court’s judgment and remanded the case to the district court with instructions to the district court to remand the matter to the arbitrator with instructions to clarify whether the class notice was or was not sufficient and, if determined to be sufficient, then to construe the general release provision in the first instance and to vacate or modify the arbitral award if necessary.” Slip op. at 14 (citation omitted). “The arbitrator,” said the Court, “shall be instructed either to interpret and apply the terms of the Arthur Settlement agreement’s general release provision or to explain why that provision does not bar [W’s] claims.” Slip op. at 15.

The Second Circuit also provided for streamlined district court, and if necessary, appellate, review of the arbitrator’s decision after remand, providing that “the district court shall thereafter rule on any subsequent objections to the arbitrator’s decision, which objections may be advanced by appropriate motion of either party.” Slip op. at 15. “Any appeal from the district court’s decision. . . ,” explained the Court, “may be advanced by letter notice to the Clerk of this Court without necessity of filing a new notice of appeal, and that appeal shall be assigned to this panel.”

The Second Circuit’s Rationale for its Decision: Arbitrator’s Failure to even Mention General Release Made it Impossible to Determine whether Award Colorably based in Contract or in Manifest Disregard of the Law/Manifest Disregard of the Agreement

The Court explained that “the arbitrator construed the Arthur class notice as establishing [W]’s consent to receive future ATDS calls, but he determined that such consent could not be applied retroactively to bar her recovery for calls placed prior to the revocation deadline.” Slip op. at 10. W made two arguments in an effort to justify the arbitrator’s decision: (a) the arbitrator interpreted the Arthur Settlement class notice and an arbitrator’s “misinterpretation of what amounts to a contractual provision does not provide sufficient grounds for vacatur under the FAA[]”; and (b) the class notice was not binding on her because it failed to “satisfy due process[,]” an argument that was essentially a “collateral attack on the sufficiency of” the notice. Slip op. at 11.

While the legal premise of W’s first argument was correct—”interpretation of the contract terms is within the province of the arbitrator and will not be overruled simply because [the Court] disagree[s] with that interpretation[,]” slip op. at 11 (citations and quotations omitted)—as the district court concluded, “‘this [was] not a case where the arbitrator’s interpretation of the contract was simply incorrect’ as ‘the arbitrator’s decision here ignored and contradicted an unambiguous term of the agreement[,]” that is, “the general release embodied in the Arthur Settlement.” Slip op. at 11.

For “even if the arbitrator believed that the class notice entitled [W] to recover for ATDS calls made prior to the consent revocation deadline, it is impossible to square that conclusion with the general release provision[,]” which “bar[s] [W]’s recovery for ‘any and all’ TCPA claims.” Slip op. at 11-12. The Court said that is “especially true given that the parties agreed in their arbitration agreement that ‘[t]he arbitrator shall follow applicable substantive law to the extent consistent with the FAA.” Slip op. at 12.

“Because,” concluded the Court, “the arbitrator did not even mention the release in his decision, we are unable to ascertain from the record whether the arbitrator in fact based his decision on the four corners of the Arthur Settlement agreement and its accompanying class notice, as [W] appears to contend, or whether he instead discarded the agreement in favor of his own policy preferences.’” Slip op. at 12. (quoting Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671-72 (2010).

As respects W’s argument (b), concerning class notice sufficiency, the “arbitrator expressly found that despite some of the ‘confusing’ terms of the Arthur Settlement agreement, ‘the proof was conclusive’ that [W] received ‘the required notice of the settlement and of her rights and obligations under the terms of the settlement.’” Slip op. at 12 (citation omitted). But the arbitrator “appeared to base his award on the fact that the class notice only apprised [W] of her consent to receive a subset of ATDS—those placed prospectively.”

“If. . . the arbitrator,” said the Court, “were of the view that the class notice did not satisfy due process, as [W] contends, then the arbitrator, in following applicable substantive law, would seemingly be obliged to hold that [W] could not be bound by any of the Arthur Settlement terms.” Slip op. at 12-13 (citation omitted).

The notice issue “is an all-or-nothing inquiry[,]” but “[i]nstead the arbitrator’s finding that the class notice ‘does not state that the recipient (i.e., [W]) will be deemed to have given prior consent to the making of calls by [S]’ appears to rest on a parsing of the applicable law grounded neither in a constitutional due process analysis nor in a faithful exercise in contract interpretation.” Slip op. at 13 (citation omitted). That would mean the award was both in manifest disregard of the law and in manifest disregard of the agreement.

The Court said its “concern [was] reinforced by” where in the arbitrator’s opinion the discussions of notice of settlement versus express and implied consent to ATDS calls appeared. Slip op. at 13. The discussion of settlement notice was “addressed up front as the first of the ‘issues considered’ by the arbitrator.” Slip op. at 13. The issues of express and implied consent to calls were discussed in subsequent “separate sections of the arbitrator’s opinion that address the merits of [S]’s defense to [W]’s TCPA claims.” Slip op. at 13.

But “[o]nce the arbitrator made the determination that ‘Weiss was adequately advised of the terms of the settlement and of the requirement that she revoke any consent given to [S] to place ATDS calls to [Phone Number 2],’ that conclusion would seem to obviate not only the arbitrator’s subsequent analysis concerning whether [S] had met its burden of proving Weiss’s consent but also any further determination as to the effect of the class notice.” Slip op. at 13-14. Put differently, “if the arbitrator intended to deem the class notice insufficient, he did not say so in his threshold analysis regarding the settlement’s applicability and strongly implied the opposite.” Slip op. at 14.  

Because of the award’s “incoherence,” and because the Court could not determine adequately whether the arbitrator based his decision on the class notice and Arthur Settlement agreement terms, the Court vacated the district court’s decision and remanded the case to the district court with directions to remand to the arbitrator “to construe the general release in the Arthur Settlement in the first instance and, if necessary, to vacate or modify the arbitral award.” Slip op. at 15.

Want to learn more about manifest disregard of the agreement and manifest disregard of the law? Read here, here, here, here, here, here, here, and here.

Photo Acknowledgments

The photos featured in this post are licensed from Yay Images and are subject to copyright protection under applicable law.  

Attorney Fees and Arbitrability Addressed by New York Appellate Court

July 30th, 2019 Applicability of Federal Arbitration Act, Arbitrability, Arbitrability | Existence of Arbitration Agreement, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Award Confirmed, Award Vacated, Awards, Choice-of-Law Provisions, Confirm Award | Attorney Fees, Confirm Award | Exceeding Powers, Confirm Award | Manifest Disregard of the Law, Confirmation of Awards, Contract Interpretation, Enforcing Arbitration Agreements, Exceeding Powers, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Manifest Disregard of the Law, New York Arbitration Law (CPLR Article 75), Practice and Procedure, Vacate Award | 10(a)(4), Vacate Award | Arbitrability, Vacate Award | Attorney Fees, Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacate Award | Existence of Arbitration Agreement, Vacate Award | Manifest Disregard of the Law, Vacatur Comments Off on Attorney Fees and Arbitrability Addressed by New York Appellate Court
Attorney Fees in Arbitration | TV

In Steyn v. CRTV, LLC (In re Steyn), ____ A.D. 3d ____, 2019 N.Y. Slip Op. 5341, at *1 (1st Dep’t July 2, 2019), New York’s Appellate Division, First Department decided a case falling under the Federal Arbitration Act (the “FAA”) that involved two challenges: one to an award of attorney fees on manifest disregard of the law grounds, and the other to an award that a nonsignatory obtained by joining the petitioner’s counterclaim.

The Court rejected the manifest-disregard challenge to the attorney fee award in favor of a signatory to the arbitration agreement, but held that the trial court should have vacated the award made in favor of a nonsignatory (which included both damages and attorney fees).

Background: Attorney Fee and Arbitrability Challenges

Terms and Conditions

The appeal arose out of a contract “dispute between Mark Steyn, a renowned author and television and radio personality, and CRTV, an online television network, currently known as BlazeTV, which features conservative commentators such as Glenn Beck and Phil Robertson.” 2019 N.Y. Slip Op. 5341, at *2. We’ll call Steyn the “Host” and CRTV the “Network.”

Continue Reading »

Look Through: Second Circuit Holds that District Courts Must “Look Through” a Section 9 Petition to Confirm to Ascertain Subject Matter Jurisdiction

May 13th, 2019 Amount in Controversy, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Diversity Jurisdiction, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Look Through, Petition to Modify Award, Petition to Vacate Award, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit Comments Off on Look Through: Second Circuit Holds that District Courts Must “Look Through” a Section 9 Petition to Confirm to Ascertain Subject Matter Jurisdiction
Look Through

In Landau v. Eisenberg, ___ F.3d ___, No. 17-3963, slip op. (May 1, 2019) (per curiam), the U.S. Court of Appeals for the Second Circuit recently held that district courts must “look through” a Section 9 petition to confirm an arbitration award to determine whether the court has subject matter jurisdiction to adjudicate the petition. District courts must therefore ascertain whether the district court would, absent an arbitration agreement, have had subject matter jurisdiction over the underlying controversy that resulted in the arbitration, and ultimately the award.

While the Second Circuit ruled in a per curiam decision, the issue it decided was of first impression. But it followed on the heels of, and heavily relied on, Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 379-89 (2d Cir. 2016), which held that district courts should look through a Section 10 or 11 petition to ascertain the existence of federal subject matter jurisdiction. Doscher instructed federal courts to focus not on whether the Section 10 and 11 FAA award review and enforcement process presented substantial federal questions, but on the same thing they would have focused on had they been asked to compel arbitration of the controversy: whether the underlying controversy, in keeping with the well-pleaded complaint rule, would have been within the Court’s subject matter jurisdiction had it not been submitted to arbitration. See Doscher, 882 F.3d at 379-89.  

While Eisenberg and Doscher concerned the question whether federal-question subject matter jurisdiction exists over FAA Sections 9, 10, and 11 petitions, the reasoning of those cases also applies to the question whether there is federal subject matter jurisdiction over such petitions based on the diversity jurisdiction.

The Problem Addressed by Eisenberg and Doscher

Problem | Issue

The Federal Arbitration Act is “something of an anomaly in the realm of federal legislation: It bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties’ dispute.” Vaden v. Discover Bank, 556 U.S. 49, 59 (2009).

Section 4 of the FAA, which governs motions to compel arbitration, provides that to determine the “independent jurisdictional basis” the court must ascertain whether “save for such agreement, [the district court] would have jurisdiction. . . of the subject matter of a suit arising out of the controversy [claimed to be arbitrable][:]”

[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.


9 U.S.C. § 4 (emphasis added).

The Supreme Court held in Vaden that “§ 4 of the FAA does not enlarge federal court jurisdiction,” 556 U.S. at 66, and district courts must “look through” the petition to the controversy between the parties to ascertain whether the court had subject matter jurisdiction over the controversy. 556 U.S. at 62. District courts must therefore “assume the absence of the arbitration agreement and determine whether it would have jurisdiction under title 28 without it.” Id. at 63.

But section 4 of the FAA expressly specifies the circumstances under which a federal district court will have jurisdiction over an application to compel arbitration, whereas Sections 9, 10, and 11 of the FAA—which address applications to confirm, vacate, and modify awards—say nothing about subject matter jurisdiction. The availability of relief under those portions of the FAA is not conditioned on either the existence of a lawsuit over which the Court already has subject matter jurisdiction (and which may have been stayed pending arbitration under Section 3 of the FAA) or on a party having previously invoked the court’s jurisdiction by filing a proceeding to compel arbitration under Section 4.

Sections 9, 10, and 11 of the FAA do not in and of themselves vest jurisdiction in a district court simply because they are part of a federal statute—the FAA requires an independent basis for federal subject matter jurisdiction. But what determines subject matter jurisdiction, the nature of the petition to confirm, vacate, or modify the award, or the nature of the underlying dispute that ultimately resulted in the arbitration award?   

Continue Reading »