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Archive for the ‘Practice and Procedure’ Category

Waiver of Arbitration: Will the U.S. Supreme Court Resolve the Circuit Split Concerning Prejudice?

September 28th, 2021 Application to Compel Arbitration, Application to Stay Litigation, Arbitration Law, Arbitration Practice and Procedure, Equal Footing Principle, Estoppel, FAA Chapter 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, Gateway Disputes, Gateway Questions, Laches, Nuts & Bolts: Arbitration, Practice and Procedure, Prejudice, Section 3 Stay of Litigation, Small Business B-2-B Arbitration, Stay of Litigation, Stay of Litigation Pending Arbitration, United States Supreme Court, Waiver of Arbitration No Comments »

Waiver of Arbitration based on Litigation-Related Conduct

Waiver | Prejudice | Supreme Court | Cert Granted

United States Supreme Court

Whether an arbitration challenger must show prejudice to establish waiver of arbitration based on litigation-related conduct is an issue that might be the subject of a United States Supreme Court opinion in the not too distant future.

Federal Arbitration Act (“FAA”) Section 3 authorizes a stay of litigation in favor of arbitration “providing the applicant for the stay is not in default in proceeding with . . . arbitration.” 9 U.S.C. § 3 (emphasis added). The most common application of the “not in default” language occurs when a defendant in a lawsuit delays seeking a Section 3 stay and litigates on the merits. See, generally, Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217-19 (3d Cir. 2007); Doctor’s Associates, Inc. v. Distajo, 66 F.3d 438, 454-56 (2d Cir. 1995).

Defending the suit on the merits—rather than seeking a stay of litigation and moving to compel arbitration—is inconsistent with arbitration and at some point constitutes at least an implied rejection or abandonment of the right to arbitrate. Section 3’s “not in default” condition authorizes a plaintiff resisting a stay to assert that the defendant has waived its right to arbitrate. 9 U.S.C. § 3; see 482 F.3d at 218; 66 F.3d at 454-56.

We discussed waiver of arbitration based on litigation-related conduct in a prior post, here. Under general principles of contract law, waiver is the “intentional relinquishment of a known right.” See, e.g., Professional Staff Congress-City University v. New York State Public Employment Relations Board, 7 N.Y.3d 458, 465 (2006) (“A waiver is the intentional relinquishment of a known right with both knowledge of its existence and an intention to relinquish it. . . . Such a waiver must be clear, unmistakable and without ambiguity”) (citations and quotations omitted).

Waiver may be established by demonstrating that a party renounced or abandoned contract rights, whether by its representations or other conduct inconsistent with an intent to assert those rights. See, e.g., Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt, L.P., 7 N.Y.3d 96, 104 (2006).

It focuses solely on the conduct of the party charged with waiver—it does not require any showing that the other party detrimentally relied on the conduct or otherwise suffered any prejudice. See, e.g., United Commodities-Greece v. Fidelity Int’l Bank, 64 N.Y.2d 449, 456-57 (1985); Fundamental Portfolio Advisors, 7 N.Y.3d at 104, 106-07; Albert J. Schiff Assoc. v. Flack, 51 N.Y.2d 692, 698-99 (1980).

The concept that another’s untimely assertion of a right has prejudiced a person is central to the equitable doctrine of laches, not waiver. See Capruso v. Village of Kings Point, 23 N.Y. 3d 631, 641 (2014) (“Laches is defined as such neglect or omission to assert a right as, taken in conjunction with the lapse of time, more or less great, and other circumstances causing prejudice to an adverse party, operates as a bar in a court of equity. The essential element of this equitable defense is delay prejudicial to the opposing party.”) (citations and quotations omitted).

Prejudice is also an element required to establish estoppel, which is an equitable bar to enforcement of a contract right. See, e.g., Schiff Assoc., 51 N.Y.2d at 699 (“Distinguished from waiver, of course, is the intervention of principles of equitable estoppel, in an appropriate case, such as where an insurer, though in fact not obligated to provide coverage, without asserting policy defenses or reserving the privilege to do so, undertakes the defense of the case, in reliance on which the insured suffers the detriment of losing the right to control its own defense.”)

Waiver: The Circuit Split on Prejudice

There is a split in the circuits concerning whether a party opposing a stay must not only demonstrate litigation-related conduct inconsistent with arbitration to establish waiver but must also establish prejudice.

Most circuit courts of appeals have determined that prejudice is required to establish waiver of arbitration based on litigation-related conduct. See Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968); Gavlik Constr. Co. v. H. F. Campbell Co., 526 F.2d 777, 783-84 (3d Cir. 1975), overruled on other grounds by Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271 (1988); Carolina Throwing Co. v. S & E Novelty Corp., 442 F.2d 329, 331 (4th Cir. 1971); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986); O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003); Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th Cir. 1991); ATSA of Cal., Inc. v. Cont’l Ins. Co., 702 F.2d 172, 175 (9th Cir. 1983); S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990); see also Joca-Roca Real Estate, LLC v. Brennan, 772 F.3d 945, 949 (1st Cir. 2014) (prejudice requirement is “tame at best”).

Courts frequently cite the FAA’s federal policy favoring arbitration as justifying a prejudice requirement for waiver. See, e.g., Stifel, Nicolaus & Co., 924 F.2d at 158 (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Other circuit courts do not require prejudice. See St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 590 (7th Cir. 1992); Nat’l Found. for Cancer Rsch. v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C. Cir. 1987).

State supreme courts are also split.  Compare, e.g., St. Agnes Med. Ctr. v. PacifiCare of Cal., 82 P.3d 727, 738 (Cal. 2003) (prejudice required under state arbitration law); Advest, Inc. v. Wachtel, 668 A.2d 367, 372 (Conn. 1995) (prejudice required; following Second Circuit authority) with Hudson v. Citibank (S.D.) NA, 387 P.3d 42, 47-49 (Alaska 2016) (prejudice not required under federal law); Raymond James Fin. Servs., Inc. v. Saldukas, 896 So.2d 707, 711 (Fla. 2005) (prejudice not required under federal law);  Cain v. Midland Funding, LLC, 156 A.3d 807, 819 (Md. 2017) (prejudice not required under state law).

The Morgan SCOTUS Petition: Waiver, Prejudice, and the “Equal Footing” Principle

This raises an important question concerning FAA Section 2’s “equal footing principle,” which has been presented to the Supreme Court in a recent petition for certiorari: “Does the arbitration specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’” Morgan v. Sundance, Inc., No. 21-328, Petition for a Writ of Certiorari (the “Petition”), Question Presented (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). (See SCOTUS Docket here for more information and copies of papers.) Opposition papers are due on October 1, 2021, which means that the Court may grant or deny the petition before the end of 2021.

The question is a substantial one since the purpose of “savings clause” of FAA Section 2 “was to make arbitration agreements as enforceable as other contracts, but not more so.” See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967). FAA Section 2’s “savings clause” provides that arbitration agreements falling under the FAA “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

Courts that require prejudice to establish waiver are arguably making arbitration agreements more enforceable than ordinary contracts. And that may violate the “equal footing” principle.

Back in 2011 the Supreme Court granted a petition for certiorari seeking review of essentially the same question, but the parties settled the case before it was fully submitted and SCOTUS dismissed it as moot without reaching the merits. Citibank, N.A. v. Stok & Assocs., P.A., 387 F. App’x 921 (11th Cir. 2010), cert. granted, 562 U.S. 1215 (2011), cert. dismissed, 563 U.S. 1029 (2011) (See SCOTUS Docket here.)

Morgan v. Sundance, Inc., presents another opportunity for the Court to resolve the circuit and state supreme court conflicts on litigation-conduct-related waiver. As set forth in the comprehensive and well-written petition, Morgan presents a good vehicle for SCOTUS to resolve a long-standing (and deep) circuit/state-supreme-court conflict, which continues to be worthy of review.

If the Supreme Court grants certiorari; reverses the U.S. Court of Appeals for the Eighth Circuit’s decision, which required the plaintiff to show prejudice; and holds that prejudice is not required to establish waiver, then parties who wish to demand arbitration after being named a defendant in a litigation will need to move promptly to stay litigation and compel arbitration or risk losing the right to do so. While that might create some enforcement risks for parties who wish to arbitrate, it may also reduce, or at least streamline, FAA enforcement proceedings concerning litigation-related-conduct-based waiver.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, or this article, or if you wish to discuss possibly retaining the Loree Law Firm to provide legal advice or other legal representation, 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.

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.

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

September 20th, 2021 Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Enforcing Arbitration Agreements, Ethics, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, Nuts & Bolts: Arbitration, Party-Appointed Arbitrators, Practice and Procedure, Section 10, United States Court of Appeals for the Second Circuit, United States Supreme Court, Vacate Award | 10(a)(2), Vacate Award | Corruption, Vacate Award | Evident Partiality, Vacatur No Comments »

neutral neutrality evident partialitySection 10(a)(2) of the Federal Arbitration Act (the “FAA”) authorizes courts to vacate awards “where there was evident partiality or corruption in the arbitrators, or either of them. . . .” 9 U.S.C. 10(a)(2). The next few instalments will focus on arbitrator neutrality and evident partiality, a later one on corruption. 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 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).

Evident partiality has been the subject of numerous judicial decisions setting forth various standards and applying them to a wide range of fact patterns.  The decisions are not easy to reconcile (some may be irreconcilable) and the standards are often of limited utility. Matters are complicated by judicially created rules concerning disclosure of potential conflicts of interest and the consequences that may or may not flow from those rules.

But “evident partiality” may be easier to grasp if we focus not on abstract standards or ethical constructs, but on the parties’ reasonable expectations of neutrality. Surprisingly, many courts address the subject of “evident partiality” without expressly discussing this important consideration, even when it appears to have been a significant but unstated part of the decision-making calculus. Others have expressly used the parties’ agreement and attendant expectations of neutrality as a guidepost.

Understanding the parties’ reasonable expectations of partiality is only half the battle. One must also understand how those expectations are enforced through judicially created rules governing disclosure and waiver of conflicts of interest, and the relevance of those rules to a motion to vacate an award under FAA Act Section 10(a)(2).

In this instalment of the FAQ Guide our focus is on the parties’ reasonable expectations of arbitrator neutrality; evident partiality standards and how they are supposed to enforce reasonable expectations of neutrality without undermining arbitral finality; differences between evident partiality standards and judicial impartiality standards; and the differing expectations of arbitral neutrality that may attend tripartite arbitration. One or more subsequent instalments will discuss arbitrator disclosure procedures and requirements, which are designed to implement and enforce evident partiality standards; examples of what does and does not constitute evident partiality; and procedural issues pertinent to evident partiality challenges. Continue Reading »

Corruption, Fraud or Undue Means | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide

September 16th, 2020 Bad Faith, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Corruption or Undue Means, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Fraud, Fraud or Undue Means, Grounds for Vacatur, Judicial Review of Arbitration Awards, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Small Business B-2-B Arbitration, Vacatur Comments Off on Corruption, Fraud or Undue Means | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide

corruption, fraud and undue meansSection 10(a)(1) of the Federal Arbitration Act authorizes courts to vacate awards where “the award was procured by corruption, fraud, or undue means. . . .” 9 U.S.C. § 10(a)(1). Cases vacating awards on Section 10(a)(1) grounds are rare, presumably because the circumstances that would trigger relief are relatively rare.

Section 10(a)(1) is an excellent example of how Section 10 is designed to provide relief in situations where putting a court’s imprimatur on an award would deprive one of the parties of the benefit of its freely-bargained-for arbitration agreement. It says that corruption, fraud, or undue means in the procurement of an award, whether perpetrated by the arbitrators or a party, spoils the award (assuming the aggrieved party timely moves to vacate). See 9 U.S.C. § 10(a)(1).    

There is nothing particularly controversial about that. Persons who agree to arbitrate do not implicitly consent to awards procured through chicanery. And who would want to agree to arbitrate if they would have no recourse against such an award? (See here.) 

“Fraud” and “corruption” describe dishonest, illegal, and deceptive conduct, whereas “undue means” arguably broader in scope. But “[t]he term ‘undue means’ must be read in conjunction with the words ‘fraud’ and ‘corruption’ that precede in the statute.” PaineWebber Group, Inc. v. Zinsmeyer Trusts P’ship, 187 F.3d 988, 991 (8th Cir. 1999) (citing Drayer v. Krasner, 572 F.2d 348, 352 (2d Cir. 1978)). To establish “undue means” courts therefore require “proof of intentional misconduct” or “bad faith,” interpreting “undue means” as “connoti[ing] behavior that is immoral if not illegal.” PaineWebber, 187 F.3d at 991 (quotations and citations omitted).

The burden for obtaining relief under Section 10(a)(1) is heavy. It must be “abundantly clear that [the award] was obtained through ‘corruption, fraud, or undue means.’” Karppinen v. Karl Kiefer Machine Co., 187 F.2d 32, 34 (2d Cir. 1951); accord Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 106-07 (2d Cir. 2013). That “abundantly clear” requirement is often described as one of “clear and convincing evidence of fraud or undue means. . . .” International Bhd. of Teamsters, Local 519 v. United Parcel Serv., Inc., 335 F.3d 497, 503 (6th Cir. 2003); accord Renard v. Ameriprise Fin. Servs., Inc., 778 F.3d 563, 569 (7th Cir. 2015); MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849, 858 (4th Cir. 2010); A.G. Edwards Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 (9th Cir. 1992); Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir. 1988).

In addition to establishing “corruption, fraud or undue means” by clear and convincing evidence, a Section 10(a)(1) claimant must demonstrate: (a) “that that the fraud [, corruption or undue means] materially relates to an issue involved in the arbitration[;] and [b] that due diligence would not have prompted the discovery of the fraud [corruption or undue means] during or prior to the arbitration.” United Parcel Serv., 335 F.3d at 503; Renard, 778 F.3d at 569; MCI Constructors, 610 F.3d at 858; A.G. Edwards, 967 F.2d at 1404; Bonar, 835 F.2d at 1383; see Karppinen, 187 F.2d at 35.

A party will ordinarily be deemed to waive the right to vacate the award under Section 10(a)(1) if it failed to exercise due diligence in discovering the corruption, fraud or undue means during the arbitration; if it discovered the improper conduct during the arbitration but did not seek relief from the arbitrators; if it unsuccessfully sought relief and failed to object to the arbitrator’s pre-final-award denial of relief; or if the denial of relief was first made in the final award, to preserve its objection by informing the arbitrators that a failure to grant relief would constitute grounds for vacating the award. 

As respects the materiality requirement, Section 10(a)(1) says that the “award” must be “procured” by “corruption, fraud or undue means,” which arguably suggests a causal nexus between the proscribed conduct and the award. While the conduct must “materially relate to an issue in the arbitration,” must it also be outcome determinative? In other words, must the party seeking relief show that the award would have been different but for alleged fraud, corruption or undue means, or is it enough to show that it tainted the proceedings simply because it related materially to an issue at stake?

The circuits are split on this point. Some courts require the challenger to show that the corruption, fraud or undue means “caused the award to be given.” See PaineWebber, 187 F.3d at 994 (“there must be some causal relation between the undue means and the arbitration award”); A.G. Edwards & Sons, Inc., 967 F.2d at 1403 (“the statute requires a showing that the undue means caused the award to be given”). Others say that the challenger is required to show a “nexus” between the conduct and the award—that is, materiality—but need not “establish that the result of the proceedings would have been different had the fraud[, corruption, or undue means] not occurred.” See, e.g., Odeon Capital Grp. LLC v. Ackerman, 864 F.3d 191, 196  (2d Cir. 2017) (citing cases); Bonar, 835 F.2d at 1383.

Section 10(a)(1) is probably the least commonly invoked ground for vacating an arbitration award. That said, it provides an important safety valve to address rare, but extremely important cases where an award is the product of corruption, perjured testimony or other egregious, dishonest misconduct, and where the challenger was unable to address the problem adequately before the arbitrators.

The next instalment of this series shall address a more commonly invoked ground for vacatur: evident partiality.

Please note. . .

This guide, including prior instalments, and instalments that will follow in later posts, does not purport to be a comprehensive recitation of the rules and principles of arbitration law pertinent or potentially pertinent to the issues discussed. It is designed to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face in arbitration-related litigation and how engaging a skilled and experienced arbitration attorney can help them confront those challenges more effectively.

This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they elect voluntarily to do so.

If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should request legal advice from an experienced and skilled attorney or law firm with a solid background in arbitration law.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other legal-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.

Continue Reading »

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.

Continue Reading »

GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC | International Institute for Conflict Prevention and Resolution Interviews by Video Conference Philip J. Loree Jr. and Richard D. Faulkner

June 2nd, 2020 ADR Social Media, Arbitrability, Arbitrability - Equitable Estoppel, Arbitrability - Nonsignatories, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, CPR Speaks Blog of the CPR Institute, Enforcing Arbitration Agreements, Federal Arbitration Act Section 2, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, International Arbitration, International Institute for Conflict Prevention and Resolution (CPR), Loree & Loree, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Questions of Arbitrability, Rights and Obligations of Nonsignatories, United States Supreme Court Comments Off on GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC | International Institute for Conflict Prevention and Resolution Interviews by Video Conference Philip J. Loree Jr. and Richard D. Faulkner
GE Energy Power

On June 1, 2020 the United States Supreme Court issued its 9-0 decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC. In an opinion authored by Associate Justice Clarence Thomas the Court held that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards did not conflict with domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by nonsignatories. Associate Justice Sonia M. Sotomayor wrote a concurring opinion.

On the same day the Court decided GE Power, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (“CPR”), interviewed our friend and colleague Richard D. Faulkner and Philip J. Loree Jr. about the case and what it means for practitioners.

You can watch the video-conference interview HERE.

Also on June 1, 2020 Russ also wrote an excellent post about GE Energy for CPR’s blog, CPR Speaks, which explains in detail the background of the case and the rationale for the Court’s opinion, as well as Justice Sotomayor’s concurring opinion. You can read that post HERE.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He 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.

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel or legal adviser to other domestic, and international, law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

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.

MCA Group, Video Conference Hearings, and COVID-19 | Federal Arbitration Act Section 7 Part III | Businessperson’s Federal Arbitration Act FAQ Guide

May 19th, 2020 Arbitral Subpoenas, Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Businessperson's FAQ Guide to the Federal Arbitration Act, COVID-19 Considerations, FAA Chapter 1, Federal Arbitration Act Section 7, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 7, Subpoenas, United States Court of Appeals for the Eleventh Circuit, Video Conference Hearings Comments Off on MCA Group, Video Conference Hearings, and COVID-19 | Federal Arbitration Act Section 7 Part III | Businessperson’s Federal Arbitration Act FAQ Guide
MCA Group | Arbitral Subpoenas

The last instalment of the Businessperson’s Federal Arbitration Act FAQ Guide discussed whether under Section 7 of the Federal Arbitration Act arbitrators can issue an enforceable subpoena that purports to allow a witness to appear at a hearing via video conference or teleconference. It explained that the answer, at least according to the U.S. Court of Appeals for the Eleventh Circuit in Managed Care Advisory Grp. v. CIGNA Healthcare, 939 F.3d 1145, 1158-61 (11th Cir. 2019) (“MCA Group”), is “no.”

In light of COVID-19 restrictions, in-person hearings are unlawful in certain jurisdictions, or at least contrary to government-issued medical guidance. As a practical matter that means the rule espoused by MCA Group would render unenforceable under Section 7 any arbitral subpoena seeking documents or testimony from a third party. Parties and non-parties may agree to comply with subpoenas authorizing video conference appearances, but those subpoenas cannot, under the reasoning of MCA Group, be enforced by courts under Federal Arbitration Act Section 7.

This instalment addresses the question whether other courts are likely to follow MCA Group, particularly in light of the COVID-19 pandemic.

Will Courts follow the 11th Circuit MCA Group Decision in Light of the COVID-19 Crisis?

Continue Reading »

Arbitral Subpoenas | Section 7 of the Federal Arbitration Act | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice

May 14th, 2020 Arbitral Subpoenas, Arbitration Law, Arbitration Practice and Procedure, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 7, Federal Rules of Civil Procedure, Nuts & Bolts, Nuts & Bolts: Arbitration, Personal Jurisdiction, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 7, Subpoenas 4 Comments »
arbitral subpoenas Section 7

This segment of the Businessperson’s Federal Arbitration Act FAQ Guide concerns the enforcement of arbitral subpoenas under Section 7 of the FAA.

Arbitrators can require the parties before them to produce documents, appear for depositions, and testify at hearings. That power is not self-executing but is derived from Federal Arbitration Act-authorized judicial enforcement of arbitration agreements and awards. If, for example, parties do not comply, the arbitrators may, absent contract language to the contrary, impose sanctions, including attorney fee awards or adverse inferences on merits issues.

But resolving disputes often requires testimony and documentary evidence from persons who are not parties to the dispute. Courts have subpoena power and can compel third-party witnesses within their jurisdiction to testify, produce documents, or both. They can enforce that power through contempt sanctions.

Arbitrators have no such inherent power over third parties and FAA-authorized judicial power to confirm (i.e., reduce to judgment) arbitration awards does nothing to impose legally enforceable obligations on persons not lawfully parties to, or otherwise bound by, those arbitration awards.

Section 7: Arbitral Subpoenas

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Appointing Arbitrators | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice

April 29th, 2020 Application to Appoint Arbitrator, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Businessperson's FAQ Guide to the Federal Arbitration Act, FAA Chapter 1, Federal Arbitration Act Section 5, First Principle - Consent not Coercion, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Section 5, Small Business B-2-B Arbitration 1 Comment »
Appointing Arbitrators

Chapter One of the Federal Arbitration Act enforces arbitration agreements during the pre-award stage by authorizing orders: (a) staying litigation of arbitrable claims; (b) compelling arbitration; (c) appointing one or more arbitrators; and (d) enforcing arbitral hearing subpoenas. We’ve discussed the basics of the first two of these remedies in prior installments of this post. This and one or more other future installments will address he third: an order appointing arbitrators.

This instalment addresses the following FAQs concerning the judicial appointment of arbitrators under 9 U.S.C. § 5:

  1. Under what Circumstances can a Court Appoint Arbitrators under Section 5 of the Federal Arbitration Act?
  2. What Papers Comprise an Application to Appoint an Arbitrator under Section 5?

The next installment will address the FAQs:

  1. “How does Section 5 Work in Practice?”
  2. “Does Section 5 of the Federal Arbitration Act authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator Dies Prior to the Making of an Award?”    

Under what Circumstances can a Court Appoint Arbitrators under Section 5 of the Federal Arbitration Act?

Section 5 of the Federal Arbitration Act provides that “[i]f 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. . . .” 9 U.S.C. § 5. This provision of Section 5 reflects “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, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted). It also ensures enforcement of what Circuit Court Judge Richard A. Posner once dubbed the “cornerstone of the arbitral process”: “Selection of the decision maker by or with the consent of the parties. . . . Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.); see, e.g., 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).

In addition to directing that arbitrator selection and qualification provisions be enforced according to their terms, Section 5 authorizes court intervention for appointing arbitrators in three situations:  

  1. “if no method be provided therein. . . [;]”
  2. “if a method be provided and any party thereto shall fail to avail himself of such method[;] or”
  3. “if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy. . . .”  

9 U.S.C. § 5.

In any of those situations Section 5 authorizes “either party” to make an “application” to the court for an order “designat[ing]” and “appoint[ing] “an arbitrator or arbitrators or umpire,” “who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein. . . .” 9 U.S.C. § 5. Section 5 also states that “unless otherwise provided in the agreement arbitration shall be by a single arbitrator.”  9 U.S.C. § 5.

Appointing Arbitrators: What Papers Comprise an Application to Appoint an Arbitrator under Section 5?

Like applications under Section 4 of the Federal Arbitration Act, and all other applications for relief under the Federal Arbitration Act, an application to appoint arbitrators under Section 5, when brought as an independent legal proceeding in federal district court, is a summary or expedited proceeding, not a regular lawsuit. The application, like all other Federal Arbitration Act applications, is governed by Section 6 of the Act, which provides that “[a]ny 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 Federal Arbitration Act].” 9 U.S.C. § 6.

In cases where the application to appoint an arbitrator commences an independent proceeding in a federal district court, the papers in support of the application will ordinarily consist of: (a) a notice of application; (b) a summons; (c) the application itself; (d) a memorandum of law in support; and (e) any supporting affidavits or declarations, principally (but not necessarily exclusively) for putting before the court pertinent documents. Sometimes the application is referred to as a “petition,” rather than an “application,” but the variation in nomenclature does not change the substance or legal effect of the paper.

Documents that should be submitted to the Court ordinarily include copies of: (a) the contract containing the arbitration agreement; (b) the arbitration demand and any related correspondence, including with the arbitrator provider; (c) any documents evidencing efforts to appoint an arbitrator or arbitration panel; (d) any documents evidencing the presence of one or more of the three grounds under which Section 5 authorizes a court to appoint an arbitrator; and (e) a list of arbitrators the court should consider appointing, along with their qualifications.

The application should show that: (a) the court has subject matter jurisdiction, personal jurisdiction, and venue; (b) the parties entered into a written arbitration agreement falling under the Federal Arbitration Act, or that the applicant is entitled to claim against the respondent under a written arbitration agreement; (c) at least one of the three grounds for Section 5 relief is present; (d) appointing an arbitrator from the applicant’s list is warranted in the circumstances, including under the parties’ agreement.

Please note. . .

This guide, including the installments that will follow in later posts, and prior installments, does not purport to be a comprehensive recitation of the rules and principles of arbitration law pertinent or potentially pertinent to the issues discussed. It is designed simply to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face and how engaging a skilled, trustworthy, and experienced arbitration attorney can help them confront those challenges more effectively.

This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they voluntarily elect to do so.

If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should request legal advice from an experienced and skilled attorney or law firm with a solid background in arbitration law.

About the Author

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has nearly 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 a former partner of the litigation departments of the New York City firms of Cadwalader, Wickersham & Taft LLP and Rosenman & Colin LLP (now known as Katten Munchin Rosenman LLP).

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel or legal adviser to other domestic and international law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other legal-related matter, you can contact Phil Loree Jr. at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

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