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Archive for the ‘Section 5’ Category

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 No Comments »

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 »

Replacement Arbitrator | Does Section 5 Authorize Replacement of Deceased Arbitrator? | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice

May 5th, 2020 Application to Appoint Arbitrator, Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Vacancy, Death of Arbitrator, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 5, Marine Products Rule, Nuts & Bolts, Nuts & Bolts: Arbitration, Party-Appointed Arbitrators, Pre-Award Federal Arbitration Act Litigation, Section 5, Small Business B-2-B Arbitration, United States Court of Appeals for the Eighth Circuit, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit 2 Comments »
Section 5 Death of Arbitrator

The last instalment of this post discussed how arbitrator selection and arbitrator appointment works in practice. This segment addresses the FAQ “Does Section 5 of the Federal Arbitration Act Authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator on a Three-Person Panel Dies Prior to the Panel Making an Award?”  

Does Section 5 of the Federal Arbitration Act Authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator on a Three-Person Panel Dies Prior to the Panel Making an Award?

Under Second Circuit authority courts are not permitted to appoint a replacement arbitrator on a three-person panel if an arbitrator dies prior to the panel making a final award. The arbitration must start anew before a new panel.

If an arbitrator dies prior to the panel making a partial final award, then the original award stands, but the parties are required to constitute a new panel to arbitrate the issues that the partial final award did not resolve.

It is unlikely that Courts in the Seventh and Eighth Circuit will adopt this rule, and whether any others will adopt remains to be seen.   

Section 5 and Death of an Arbitrator

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How Section 5 Arbitrator Appointment Works in Practice | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice

May 4th, 2020 Application to Appoint Arbitrator, Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Arbitrator Vacancy, Businessperson's FAQ Guide to the Federal Arbitration Act, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 5, Nuts & Bolts, Nuts & Bolts: Arbitration, Pre-Award Federal Arbitration Act Litigation, Section 5, Small Business B-2-B Arbitration, United States Court of Appeals for the Second Circuit 1 Comment »
contract | Section 5 | Appoint Arbitrator

The last instalment of this post discussed Section 5, the circumstances under which Courts can appoint arbitrators under Section 5, what papers are filed on a Section 5 application, and what the application should show.

This segment addresses the FAQ “How does Section 5 Work in Practice?” Next we’ll address the FAQ “Does Section 5 of the Federal Arbitration Act Authorize a Court to Appoint a Replacement Arbitrator if an Arbitrator on a Three-Person Panel Dies Prior to the Panel Making an Award?”    

The Arbitrator Selection Process

Once arbitration is demanded, the arbitrator selection process begins.

Arbitration agreements address arbitrator selection in different ways. Sometimes parties simply agree that the process set forth in arbitrator provider rules applies. Sometimes parties specify their own method of selection, and sometimes by their agreement they modify an otherwise agreed provider-rule-governed selection procedure.

The qualifications of the arbitrators, the number of arbitrators to serve, and the procedures (if any) to apply if the parties reach an impasse, are key components of the selection process.

For illustration purposes only let’s consider how, for example, arbitrator selection may work under what we sometimes refer to as the traditional, industry tripartite arbitrator selection model. While that model may vary according to the parties’ agreement, typically it requires the party demanding arbitration to appoint a party appointed arbitrator, and for the other party to appoint its own party appointed arbitrator within X days.

The two appointed arbitrators then select an umpire. Sometimes the parties agree that the appointed arbitrators select three umpire candidates each, strike two from the other’s list, and resolve the tie by coin flip, Dow Jones pick (last digit odd or even), or a like tie-breaking procedure.   

If the other party fails to appoint timely its arbitrator, then the party demanding arbitration gets to appoint that arbitrator, and the arbitration may proceed even if the other party refuses to participate.

In administered arbitration, single arbitrators are often appointed by the arbitration provider generating a list of an odd number of arbitrator candidates and allowing the parties to strike an even number of candidates, with the remaining candidate being appointed as an umpire. Sometimes provision is made for the arbitration provider to submit an additional list if one or both parties request it.  

These are simply examples of how arbitrator selection may proceed. If you’ve agreed to administered arbitration, be sure to check provider rules, for they typically specify the number of arbitrators to serve, their qualifications, how they are to be selected, in situations where the parties do not otherwise agree.  

How does Section 5 Work in Practice?

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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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