main image

Archive for the ‘Section 11’ Category

Ineffective Objections and Untimely Filings Lead to FAA Forfeiture: Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024)

September 4th, 2024 Applicability of Federal Arbitration Act, Application to Confirm, Application to Vacate, Arbitrability, Arbitrability - Nonsignatories, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Award Confirmed, Challenging Arbitration Awards, Clear and Unmistakable Rule, Confirm Award | Exceeding Powers, Confirmation of Awards, Delegation Agreements, Enforcing Arbitration Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 10, FAA Section 11, FAA Section 9, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 9, First Department, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Formation of Arbitration Agreement, Grounds for Vacatur, Modify or Correct Award, New York Arbitration Law (CPLR Article 75), Petition or Application to Confirm Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Procedural Arbitrability, Questions of Arbitrability, Rights and Obligations of Nonsignatories, Second Department, Section 10, Section 11, Section 9, Service of Process, State Arbitration Law, Time Limit for Vacating, Modifying, or Correcting Award, Vacate Award | 10(a)(4), Vacate Award | Arbitrability, Vacate Award | Excess of Powers, Vacate Award | Existence of Arbitration Agreement Comments Off on Ineffective Objections and Untimely Filings Lead to FAA Forfeiture: Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024)

Objections Must be Timely and Effective in Federal Arbitration Act Litigation, Including Litigation Relating to Consulting AgreementsA good chunk of FAA practice and procedure —including FAA practice and procedure in state court—involves knowing when, how, and why to make timely and effective objections and filings in arbitration enforcement litigation.  Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024), which New York’s Appellate Division, Second Department, decided on August 28, 2024, illustrates this point well.

Appellants were not signatories to the arbitration agreement, did not agree to arbitrate any matters, and did not clearly and unmistakably agree to arbitrate questions of arbitrability. But the Court found that they participated in the arbitration without lodging adequate objections to the arbitrator’s jurisdiction and did not timely file in the confirmation litigation their petition to vacate the awards at issue. Accordingly, the Appellants were—by their participation in the arbitration without effective objections to the arbitrator’s jurisdiction—deemed to have impliedly consented to arbitrate all issues before the arbitrator, including whether they were bound by the contract and arbitration agreement as successors-in-interest. Not a happy place to be.

Background

The transactions pertinent to Sivanesan began in 2008 when YBF, LLC (“YBF”) sold to Cosmetics Specialties, East LLC (“CSE”) an exclusive license to Continue Reading »

Attorney Fees: Seventh Circuit to Consider Whether Exceeding Powers Challenge to Arbitrators’ Attorney’s Fees Award Warrants FRAP 38 Sanctions

June 19th, 2024 Appellate Practice, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Attorney Fee Shifting, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Bad Faith, Challenging Arbitration Awards, Confirmation of Awards, Exceeding Powers, FAA Chapter 1, FAA Section 10, FAA Section 11, FAA Section 9, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 9, Insurance Contracts, Judicial Review of Arbitration Awards, Petition or Application to Confirm Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Retrospectively-Rated Premium Contracts, Section 10, Section 11, Section 9, Uncategorized, United States Court of Appeals for the Seventh Circuit, Vacate, Vacate Award | 10(a)(4), Vacate Award | Attorney Fees, Vacate Award | Attorney's Fees, Vacatur 1 Comment »

Introduction

Attorney's Fees | Contract InterpretationMost challenges to arbitration awards—including attorney fees awards— fail because the standards of review are so demanding. The bar is exceedingly high by design. Otherwise—the reasoning goes—courts would “open[] the door to the full-bore legal and evidentiary appeals that can rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process and bring arbitration theory to grief in post-arbitration process.” Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 588 (2008) (citations and quotations omitted; some parenthetical material in original).

But the narrow margin for success is not a free pass for challengers to advance arguments that do not, in a court’s view, have a legitimate, good faith basis in the facts and the law, or in a reasonable argument for reversal or modification of the law.

A recent case in point is Circuit Judge Easterbrook’s decision in American Zurich Ins. Co. v. Sun Holdings, Inc., No. 23-3134, slip op. at 1 (7th Cir. June 3, 2024) (Easterbrook, J.). The award challenger claimed the arbitrators exceeded their power by imposing as a sanction an award of $175,000.00 in attorney fees because the contract allegedly barred such an attorney fees award. The problem was that the arbitrators at least arguably interpreted the language in question and concluded that it did not bar the award of attorney fees in question. Moreover,  the attorney fees  award comported with New York law and the American Arbitration Association Commercial Rules, both of which the parties made part of their agreement.

The Seventh Circuit has signaled that it believes there was no good faith basis for the challenge and that the challenger has offered none, apart from its insistence that its interpretation was the only one even barely plausible. The challenger appears to have further undermined its litigation position by engaging in what the Seventh Circuit believes was recalcitrant behavior in the arbitration proceedings, and, according to the Court, not acknowledging the existence of controlling Seventh Circuit and U.S. Supreme Court authority controverting its position. The challenger compounded that by asserting—contrary to FAA Sections 10 and 11— additional award challenges that the Court concluded were simply attempts to second guess various determinations made by the arbitrators.

That this strategy backfired should come as no surprise. It resulted in the Court issuing an order to show cause providing the challenger 14 days “to show cause why sanctions, including but not limited to an award of attorneys’ fees, should not be imposed for this frivolous appeal.” Zurich, slip op. at 5 (citing Fed. R. App. P. 38). At the time of this writing no decision has been made by the Court concerning whether it will, in fact, impose sanctions.

Background: The Award of Attorney Fees

Petitioner Sun Holdings, Inc. (“Sun” or the “Award Challenger”) is a Texas- Continue Reading »

SmartSky: Fourth Circuit Says No Jurisdictional Anchor Post Badgerow

March 23rd, 2024 Application to Compel Arbitration, Application to Confirm, Application to Stay Litigation, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Award Confirmed, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Diversity Jurisdiction, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Chapter 2, FAA Section 10, FAA Section 11, FAA Section 3, FAA Section 4, FAA Section 9, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 207, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Motion to Compel Arbitration, New York Convention, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Section 10, Section 11, Section 6, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Fourth Circuit 4 Comments »

SmartSky

 

Introduction

This post discusses the U.S. Court of Appeals for the Fourth Circuit’s recent decision in SmartSky Networks, LLC v. DAG Wireless, Ltd., ___ F.4th ___, No. 22-1253, slip op. (4th Cir. Feb. 13, 2024). SmartSky held that, under Badgerow v. Walters, 596 U.S. 1, 142 S. Ct. 1310 (2022), if a party makes a motion to confirm, vacate, or modify an award in an action over which the Court has federal-question subject matter jurisdiction, then it must nevertheless demonstrate that the Court would have had subject matter jurisdiction had the motion been brought as a standalone petition to confirm, vacate, or modify. That is so even if the Court has under Federal Arbitration Act (“FAA”) Section 3 stayed the action pending arbitration.

Suppose:

  1. A and B, both New York citizens, entered a contract containing an arbitration agreement;
  2. A and B become embroiled in a dispute that is governed by a federal statute;
  3. A sues B in federal court, properly invoking the federal court’s federal- question jurisdiction, 28 U.S.C. § 1331;
  4. B demands arbitration, and moves to compel arbitration under Section 4 and for a stay of litigation pending arbitration under Section 3;
  5. A unsuccessfully opposes the motion, the Court compels arbitration and grants a Section 3 stay of litigation pending arbitration.
  6. B ultimately obtains a $100,000 (exclusive of costs and interest) award in its favor and moves in the stayed action to confirm the award.
  7. A opposes the motion on the ground the court has no subject matter jurisdiction to confirm the award.

SmartSky would require the Court to dismiss A’s motion for lack of subject matter jurisdiction, even though A made the motion in an action over which the Court had subject matter jurisdiction, the Court had compelled the arbitration that resulted in the award, and the Court had stayed the action pending arbitration under Section 3.  There is no federal-question jurisdiction, and because both A and B are citizens of New York, no diversity jurisdiction.

According to SmartSky, the dismissal of the motion to confirm would be required by Badgerow.

Badgerow 

In Badgerow the Supreme Court of the United States (“SCOTUS”) held that a basis for subject-matter jurisdiction—independent from the FAA itself—must appear on the face of a standalone, petition to confirm or vacate an arbitration award and that independent basis cannot be established by “looking through” to the underlying arbitration proceeding that resulted in the award. See Badgerow, 142 S. Ct. at 1314, 1320.

Simply petitioning a court for relief under Sections 9, 10, 0r 11 of the Federal Arbitration Act (“FAA”) raises no federal question and does not confer on a court federal-question subject-matter jurisdiction, as strange as that might sound to the uninitiated. In the absence of a federal question appearing on the face of the freestanding petition—such as a claim for relief falling under Chapter Two of the FAA, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), see 9 U.S.C. §§ 202, 203; 28 U.S.C. § 1331, or one falling under Chapter Three, which implements or Inter-American Convention on International Commercial Arbitration (the “Inter-American Convention”), see 9 U.S.C. §§ 301, et seq.; 28 U.S.C. § 1331—the only possible basis for federal subject-matter jurisdiction over such a standalone petition is diversity of citizenship. See 28 U.S.C. § 1332(a).

If there is no diversity jurisdiction, and if the action does not concern an award falling under the New York or Inter-American Conventions, then the substantive provisions of Chapter One still apply but enforcement must be sought in state court. See Vaden v. Discover Bank, 556 U.S. 49, 59 (2009) (“Given the substantive supremacy of the FAA, but the Act’s nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to arbitrate”).

A “Jurisdictional Anchor” Post-Badgerow?

The author explained in a recent Arbitration Law Forum post—Philip J. Loree Jr., Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards, Arbitration Law Forum (Nov. 13, 2023) (the “Jurisdictional Anchor Post”)— that Badgerow leaves unanswered an important question. It arises when—in a preexisting action over which the Court already has federal-question subject matter jurisdiction—a Court grants a motion made under Sections 4 and 3 of the FAA to compel arbitration and stay litigation, and a party subsequently moves in the same, stayed action to confirm, vacate, or modify an award resulting from the compelled arbitration. Does the Court in the stayed action have continuing subject matter jurisdiction to hear the parties’ motions to confirm or vacate the award, even though there is no independent basis for federal question or diversity jurisdiction? Can the existing but stayed federal-question lawsuit provide a “jurisdictional anchor” for the motions to confirm or vacate even though the Court would not, under Badgerow, have subject matter jurisdiction over those motions if either were brought as an independent, freestanding petition to confirm or vacate an award?

SmartSky, as we’ve seen, says the answer to those questions is no: the parties moving to confirm or vacate must establish an independent basis for subject matter jurisdiction even when the motion is brought in a pre-existing but stayed lawsuit over which the Court undisputedly had federal question  jurisdiction.

SmartSky has flatly rejected the “jurisdictional anchor” theory (a/k/a “anchor jurisdiction”), under which the answer would be yes: the parties do not have to establish an independent basis for subject matter jurisdiction because they are filing their motions in a preexisting  stayed action over which the Court has subject matter jurisdiction.

SmartSky Caused a Circuit Split Concerning the Viability of Anchor Jurisdiction 

SmartSky‘s conclusion directly conflicts with the only other post-Badgerow U.S. Circuit Court of Appeals decision to address anchor jurisdiction, Kinsella v. Baker Hughes Oilfield Operations, LLC, 66 F.4th 1099 (7th Cir. 2023). If we count pre-Badgerow cases, SmartSky also conflict with the pro-anchor-jurisdiction holdings of the Second, Fifth, Eighth, Ninth, Tenth, and Eleventh Circuits. Dodson Int’l Parts v. Williams Int’l Co., 12 F.4th 1212, 1227-28 (10th Cir. 2021) (citing cases).

SmartSky’s Petition for Rehearing and Rehearing En Banc

Arbitration proponent SmartSky has added to its legal team SCOTUS ace Daniel L. Geyser, Esq., Chair of Haynes and Boone, LLP‘s U.S. Supreme Court Practice,  and, with Mr. Geyser’s assistance, prepared and submitted a very well-written and persuasive Petition for Rehearing and Rehearing En Banc, which among other things, pointed out the Circuit conflicts which SmartSky has created with both pre- and post-Badgerow decisions and explained why SmartSky believes the Fourth Circuit misconstrued Badgerow and failed to adhere to settled subject-matter-jurisdiction principles. SmartSky, No. 22-1253, Dk. 77.

The Petition also pointed out that, even if SmartSky correctly construed Badgerow, there is an independent basis for jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) because two of the parties are foreign citizens, DAG Wireless LTD (“Wireless”) and David D. Gross.

Both of these persons are, according to SmartSky, identified on the face of the petition as Israeli citizens (Wireless was identified as an Israeli company and D. Gross as an Israeli resident).  Smartksy points out that the award therefore falls under the Convention and its enforcement raises a federal question. See 9 U.S.C. §§ 202, 203, & 207; 28 U.S.C. § 1331; 22-1253, Dk. 77 at 13-16.

On March 13, 2024, the Fourth Circuit denied the petition. 22-1253, Dk. 80. That raises the possibility that SmartSky might petition SCOTUS for certiorari, something that wouldn’t surprise the author given that Mr. Geyser has joined its team.  If SmartSky petitions for certiorari, SCOTUS will presumably have to consider whether the current split in the circuits warrants certiorari or whether it should wait until more circuits have ruled on the issue post-Badgerow.  

The author plans to submit to an ADR trade publication an article analyzing and critiquing  SmartSky in some detail. For now, we briefly summarize what transpired in SmartSky and the reasons the Court gave for its ruling. Continue Reading »

Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

November 13th, 2023 Amount in Controversy, Appellate Jurisdiction, Appellate Practice, Application to Compel Arbitration, Application to Confirm, Application to Enforce Arbitral Summons, Application to Stay Litigation, Arbitral Subpoenas, Arbitration Law, Arbitration Practice and Procedure, Confirmation of Awards, FAA Chapter 1, FAA Chapter 2, FAA Section 16, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Modify or Correct Award, Motion to Compel Arbitration, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Enforce Arbitral Summons, Petition to Modify Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 10, Section 11, Section 3 Stay of Litigation, Section 4, Section 5, Section 7, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit Comments Off on Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

Jurisdictional Anchor | Subject Matter JurisdictionThe U.S. Supreme Court decision, Badgerow v. Walters, 142 S. Ct. 1310 (2022) (discussed here), requires that an independent basis for subject matter jurisdiction (usually diversity) must appear on the face of petitions to confirm, vacate, or modify arbitration awards, and, by extension, petitions to enforce arbitral subpoenas or appoint arbitrators. See Badgerow, 142 S. Ct. at 1314, 1320. That independent basis for subject matter jurisdiction cannot be established by “looking through” to the underlying arbitration proceeding. In other words, the federal court cannot base subject matter jurisdiction on whether the court would have had subject matter jurisdiction over the merits of the controversy had they been submitted it to court rather than to arbitration.  See Badgerow, 142 S. Ct. at 1314, 1320.

Badgerow does not change the rule that federal question jurisdiction over a Section 4 petition to compel arbitration can be established by “looking through” to the underlying dispute that is or is claimed to be subject to arbitration. 142 S. Ct. at 1314; see  Vaden v. Discover Bank, 556 U.S. 49, 53 (2009); Hermès of Paris, Inc. v. Swain, 867 F.3d 321, 324-26 (2d Cir. 2017) (diversity of citizenship not determined by “look through”).

Section 4 of the Federal Arbitration Act expressly authorizes a Court to exercise subject-matter jurisdiction on that basis: “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; see Badgerow, 142 S. Ct. at 1317.

Unlike Section 4, Sections 5 (appointment of arbitrators), 7 (arbitral subpoena enforcement), 9 (confirmation of awards), 10 (vacatur of awards), and 11 (modification of awards), do not expressly authorize the exercise of subject matter jurisdiction on a “look through” basis.  See 142 S. Ct. at 1317-18; 9 U.S.C. §§ 4, 5, 7, 9, 10, & 11.

Badgerow, in the specific context of an action commenced by petition to vacate an award under FAA Section 10—which, in turn, prompted a cross-petition to confirm under FAA Section 9—held that the absence in Sections 9 and 10 of Section 4’s express language authorizing subject matter jurisdiction based on “look through” meant that Congress did not authorize “look through” subject matter jurisdiction for Section 9 and 10 claims (and presumably for claims seeking relief under Sections 5, 7, or 11). See 142 S. Ct. at 1319.

An independent basis for subject matter jurisdiction is required, and in the absence of a federal question appearing on the face of the petition (such as a claim for relief under Chapter Two of the FAA, see 9 U.S.C. § 203; 28 U.S.C. § 1331), the only possible basis for subject matter jurisdiction is diversity of citizenship. See 28 U.S.C. § 1332(a). And there could be no diversity jurisdiction in Badgerow because the parties to the petitions were citizens of the same state. See 142 S. Ct. at 1316.

Badgerow’s reasoning certainly applies to independent, summary proceedings in which the only relief sought is under the FAA. But does it apply with equal force where litigation on the merits of an arbitrable or allegedly arbitrable dispute has commenced, and the motion to compel arbitration is made by motion in the pending action, which is stayed pending arbitration? Can the stayed merits litigation act as what former Associate Justice Stephen G. Breyer, in his Badgerow dissent, referred to as a “jurisdictional anchor” for not only the motion to compel arbitration, but also other subsequent applications for pre- or post-award FAA relief relating to the arbitration?  See Badgerow, 142 S. Ct. at 1326 (Breyer, J., dissenting).

That is an open question in the Second Circuit after Badgerow, although pre-Badgerow the answer was yes. Let’s look at it more closely and try to get a sense of how the Second Circuit might rule on it considering Badgerow. Continue Reading »

Subject Matter Jurisdiction in FAA Proceedings: Eighth Circuit Demonstrates It’s a Trap for the Unwary

August 23rd, 2023 Amount in Controversy, Application to Compel Arbitration, Arbitration Law, Arbitration Practice and Procedure, Award Vacated, Awards, Challenging Arbitration Awards, Confirmation of Awards, FAA Chapter 1, 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 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Look Through, or Modify Award, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Enforce Arbitral Summons, Petition to Modify Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 10, Section 11, Section 4, Section 5, Section 7, Section 9, United States Court of Appeals for the Eighth Circuit Comments Off on Subject Matter Jurisdiction in FAA Proceedings: Eighth Circuit Demonstrates It’s a Trap for the Unwary

Introduction

Subject Matter Jurisdiction | Petition to Confirm | Petition to Vacate The U.S. Court of Appeals for the Eighth Circuit recently decided a case that provides a good—and simple—example of how subject matter jurisdiction can be a trap for the unwary, especially for parties seeking to confirm or vacate arbitration awards under the Federal Arbitration Act (the “FAA”). In Prospect Funding Holdings (N.Y.) v. Ronald J. Palagi, P.C., No. 22-1871, slip op. (8th Cir. Aug. 7, 2023), the Eighth Circuit vacated a district court’s judgment vacating two arbitration awards because the petitioner failed to plead the citizenship of the parties and therefore could not establish the requisite independent basis for subject matter jurisdiction. But there was more to it than that. Continue Reading »

2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb?

July 18th, 2022 Amount in Controversy, Applicability of Federal Arbitration Act, Application to Appoint Arbitrator, Application to Compel Arbitration, Application to Stay Litigation, Arbitrability, Arbitral Subpoenas, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Challenging Arbitration Agreements, Challenging Arbitration Awards, Equal Footing Principle, FAA Chapter 1, FAA Transportation Worker Exemption, Federal Arbitration Act Section 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Policy in Favor of Arbitration, Federal Question, Federal Subject Matter Jurisdiction, International Arbitration, International Judicial Assistance, Judicial Review of Arbitration Awards, Look Through, Modify or Correct Award, Moses Cone Principle, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Policy, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Presumption of Arbitrability, Richard D. Faulkner, Section 10, Section 11, Section 1782, Section 3 Stay of Litigation, Section 5, Section 6, Section 7, Section 9, Small Business B-2-B Arbitration, State Arbitration Law, Statutory Interpretation and Construction, Subject Matter Jurisdiction, Substantive Arbitrability, Textualism, United States Supreme Court, Vacatur, Waiver of Arbitration Comments Off on 2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb?

Introduction: This Term’s SCOTUS Arbitration Cases 

SCOTUS FAA CasesThe 2021 Term was a busy and controversial one for the United States Supreme Court (“SCOTUS”) regarding abortion, First Amendment rights, Second Amendment rights, and administrative agency power.  However, many may not know SCOTUS decided four Federal Arbitration Act cases during the 2021 Term (the “FAA Cases”), as well as a pair of cases consolidated into one concerning whether U.S. Courts may provide under 28 U.S.C. § 1782 judicial assistance to international arbitration panels sited abroad. See Viking River Cruises, Inc. v. Moriana, 596 U. S. ____, No. 20–1573, slip op. (June 15, 2022) (construing FAA); ZF Automotive US, Inc., et al. v. Luxshare, Ltd., 596 U.S. ___, No. 21–401, slip op. (June 13, 2022) (construing 28 U.S.C. § 1782); Southwest Airlines Co. v. Saxon, 596 U.S. ___, No. 21-309, slip op. (June 6, 2022) (construing FAA); Morgan v. Sundance, Inc., 596 U.S. ___, No. 21-328, slip op. (May 23, 2022) (construing FAA); Badgerow v. Walters, 596 U.S. ___, No. 20-1143, slip op. (March 31, 2022) (construing FAA).  

Three of the SCOTUS FAA Cases, Badgerow, Morgan, and Southwest Airlines signal SCOTUS’s apparent intention to construe strictly the Federal Arbitration Act’s text without indulging in any pro-arbitration presumptions or applying arbitration-specific rules intentionally encouraging arbitration-friendly outcomes. ZF Automotive, the 28 U.S.C. § 1782 judicial-assistance case also  employed a strict, textualist approach to interpreting 28 U.S.C. § 1782, used the FAA to help support its conclusion, and held that 28 U.S.C. § 1782 did not authorize U.S. district courts to provide judicial assistance to private arbitration panels sited abroad—an outcome not particularly solicitous of international arbitration. It is therefore at least indirectly supportive of the more textually oriented and arbitration-neutral approach SCOTUS appears to have endorsed with special force during the 2021 Term.  

The SCOTUS 2021 Term FAA Cases are not the first ones in which the Court applied textualist interpretations to the FAA. There are others. See, e.g., New Prime Inc. v. Oliveira, ___ U.S. ___, 139 S. Ct. 532 (2019) (discussed here and here). But common themes in three of those FAA Cases—echoed in ZF Automotive —suggest a marked trend by the Court to interpret the FAA in a less expansive manner that is not presumptively arbitration friendly. The expression of these common themes in four cases decided in a single term is particularly significant because Morgan, Southwest Airlines, and ZF Automotive were decided unanimously by all participating Justices and Badgerow was decided 8-1, with now retired Associate Justice Stephen G. Breyer dissenting.  

Many previous FAA SCOTUS decisions of the last three or four decades have been very indulgent of arbitration. The Court encouraged arbitration proliferation far beyond B-2-B commercial and industry arbitration between sophisticated and resource-laden entities of roughly equal bargaining power.  Arbitration was introduced into consumer and employment disputes and other disputes involving persons (including businesses) of vastly disparate resources and sophistication. SCOTUS made arbitration agreements readily enforceable, interpreted them expansively in favor of arbitration, limited defenses to arbitration agreements and awards, and promoted arbitration to make it, at least in the eyes of some, an attractive alternative to litigation. Critics challenged that view and assailed arbitration as “do it yourself court reform.”  The SCOTUS arbitration decisions developed and implemented an expansive federal policy in favor of arbitration and a presumption of arbitrability and championed a very pro-arbitration approach to arbitration law in general.  

That SCOTUS, the lower federal courts, and eventually even the skeptical state courts that are bound by its FAA decisions, have been solicitous and supportive of arbitration is unsurprising. The assumed (but not necessarily realized) benefits of arbitration have long been touted by academics and promoted by business and industry representatives.  Of course, courts have for many years recognized that arbitration helps reduce docket congestion, which was exacerbated by COVID and remains a problem today, even with the help of proliferated arbitration proceedings. Arbitral dispute resolution is also a very impressive business sector in and of itself, generating billions in revenues for law firms, arbitrators, and arbitration providers. It therefore has many proponents.  

But Badgerow, Morgan, Southwest Airlines, and ZF Automotive suggest that SCOTUS is rethinking its prior expansive, and highly-arbitration-friendly approach to the FAA and might be more willing to entertain seriously arguments for interpreting: (a) arbitration agreements less expansively, and more like ordinary contracts; and (b) Sections 10 and 11 of the FAA strictly according to their text and not in an exceedingly narrow manner designed to encourage, arbitration-award-favoring outcomes. These cases may also embolden lower courts, especially the state courts, to do the same. Continue Reading »