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Posts Tagged ‘Ambiguous’

Overturning Arbitration Awards Based on Clear Mistakes of Historical Fact or Conceded Nonfacts: Some Further Thoughts (Part I)

October 18th, 2024 Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Award Fails to Draw Essence from the Agreement, Awards, Challenging Arbitration Awards, FAA Chapter 1, FAA Section 10, Federal Arbitration Act Section 10, Grounds for Vacatur, Imperfectly Executed Award or Powers, Judicial Review of Arbitration Awards, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, United States Court of Appeals for the Seventh Circuit, United States District Court for the Northern District of Illinois, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacatur, Vacatur for Conceded Nonfact or Clear Mistake of Historical Fact 1 Comment »

Historical factIn our October 7, 2024, post, “Can a Court under Section 10(a)(4) Overturn an Award Because it was Based on a Clear Mistake of Historical Fact or a Conceded Nonfact?”, we promised  some further analysis of UpHealth Holdings, Inc. v. Glocal Healthcare Sys. PVT, No. 24-cv-3778, slip op. (N.D. Ill. Sept. 24, 2024), the principal case discussed in that post, which held warranted  partial vacatur of an award because the award was based in part on a “nonfact.”  In this and at least one other post, let’s take a closer, analytical look at UpHealth’s  “clear mistake of historical fact or conceded nonfact” vacatur standard, consider whether UpHealth comports with the Federal Arbitration Act (“FAA”), and take an informed guess about how the U.S. Court of Appeals for the Seventh Circuit might decide the case if there is an appeal.

We’ll focus on the following questions and our answers will presume familiarity with the October 7, 2024, UpHealth post, here:

  1. What is the difference, if any, between a “clear mistake of historical fact” and a “conceded nonfact?”
  2. What is or should be required to establish a “clear mistake of historical fact” or a “conceded nonfact?”
  3. Assuming Section 10(a)(4) authorizes courts to vacate awards based on a “clear mistake of historical fact” or a “conceded nonfact,” did the UpHealth district court err by holding that the award against Damodaran was based on a nonfact?
  4. Assuming that the district correctly applied the “conceded nonfact” standard, does it comport with the FAA?
  5. If there is a Seventh Circuit appeal of the UpHealth decision, is it likely the decision will be overturned on appeal, and if so, on what grounds?

This Part I addresses questions 1 and 2. One or more subsequent posts will address questions 3 through 5.

Discussion

 

What is the Difference, if any, between a “Clear Mistake of Historical Fact” and a “Conceded Nonfact?”

 The standard adopted in UpHealth—which was derived from Electronics Corp. of Am. v. International Union of Elec., Radio and Mach. Workers, 492 F.2d 1255 (1st Cir. 1974); National Post Office, Mailhandlers, Watchmen, Messengers & Grp. Leaders Div, Laborers Int’l Union of N. Am., AFL-CIO v. United States Postal Serv., 751 F.2d 834, 843 (6th Cir. 1985) (Stewart, Associate Justice (ret.), sitting by designation), and Mollison-Turner v. Lynch Auto Grp., No. 01 6340, 2002 WL 1046704, at *3 (N.D. Ill. May 23, 2002)—authorizes vacatur of awards based on: (a) a “clear mistake of historical fact” or (b) a “conceded nonfact.” Both of these bases for vacating an award may, at least to some, suggest a fairly broad authorization to vacate awards that is not already encompassed within the manifest disregard of the agreement (a/k/a “essence of the agreement”) standard. That is especially so of vacatur based on a “clear mistake of historical fact.” Continue Reading »

Presumption of Arbitrability: Second Circuit Clarifies the Law

May 30th, 2023 Applicability of Federal Arbitration Act, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Enforcing Arbitration Agreements, FAA Chapter 1, Federal Policy in Favor of Arbitration, First Principle - Consent not Coercion, Labor Arbitration, Motion to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Presumption of Arbitrability, Questions of Arbitrability, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on Presumption of Arbitrability: Second Circuit Clarifies the Law

Introduction: Presumption of Arbitrability

Presumption of Arbitrability

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The presumption of arbitrability—grounded in the federal policy in favor of arbitration—is an important but sometimes misunderstood rule of Labor-Management-Relations-Act (“LMRA”)- and Federal-Arbitration-Act (“FAA”) arbitration law.

According to the presumption, “where. . . parties concede that they have agreed to arbitrate some matters pursuant to an arbitration clause, the law’s permissive policies in respect to arbitration counsel that any doubts concerning the scope of arbitral issues should be resolved in favor of arbitration.” Granite Rock Co. v. Teamsters, 561 U.S. 287, 298-99 (2010) (citations and quotations omitted).

There is an understandable tendency among decision makers and commentators to interpret the presumption broadly, sometimes more broadly than the United States Supreme Court (“SCOTUS”)’s pronouncements warrant. But the presumption is not an overarching command that courts decide arbitration-law disputes in a way that yields arbitration-friendly outcomes. The presumption is, as SCOTUS explained in Granite Rock—and more recently, in Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022)—simply a limited-use tool to assist Courts in resolving ambiguities in arbitration agreements.

The presumption is, SCOTUS has said, “merely an acknowledgment of the FAA’s commitment to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts.”  Morgan, 142 S. Ct. at 1713 (quoting Granite Rock, 561 U.S. at 302). “The [federal] policy [in favor of arbitration[,]” SCOTUS said, “is to make ‘arbitration agreements as enforceable as other contracts, but not more so.’” Morgan, 142 S. Ct. at 1713 (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n. 12 (1967)).

The policy—and the presumption implementing it— merely requires courts to “hold a party to its arbitration contract just as the court would to any other kind.” Morgan, 142 S. Ct. at 1713. Courts, Morgan said, cannot “devise novel rules to favor arbitration over litigation.” Morgan, 142 S. Ct. at 1713 (quotation omitted). For “[t]he federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” Morgan, 142 S. Ct. at 1713-14 (citation omitted).

Granite Rock and Morgan express SCOTUS’s intention to narrowly limit the application of the presumption of arbitrability and to prohibit its use as an extracontractual basis for justifying enforcement of arbitration agreements more vigorously or expansively than ordinary contracts. (See here (Arbitration Law Forum, 2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb? (July 18, 2022)).) Rather SCOTUS precedent treats it as a default rule of last resort for resolving scope ambiguities in arbitration agreements. See Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1418-19 (2019) (Not applying contra proferentem rule to resolve arbitration-agreement-scope ambiguities  “is consistent with a long line of cases holding that the FAA provides the default rule for resolving. . . [such] ambiguities. . . .”) (citations omitted).

A recent, per curiam decision of the U.S. Court of Appeals for Second Circuit decision evidences the Second Circuit’s clear intention to follow SCOTUS’s presumption-of-arbitrability guidance and shows how it applies to the question before the Second Circuit in that case: At what point in the interpretative framework for determining arbitrability questions does the presumption of arbitrability come into play? See Local Union 97, Int’l Bhd. Of Elec. Workers, AFL-CIO v. Niagara Mohawk Power Corp., ___ F.4d ___, No. 21-2443-cv, slip op. (2d Cir. May 3, 2023) (per curiam).

Niagara Mohawk explains, among other things, that the presumption of arbitrability is a rule of last resort. Courts have no business resolving in favor of arbitration any doubts about the scope of arbitrable issue unless and until the Court has determined that the parties’ arbitration agreement is ambiguous as to whether the dispute is arbitrable. And even if there is an ambiguity, and the presumption applies, the presumption may be rebutted. Continue Reading »

The Businessperson’s Federal Arbitration Act FAQ Guide III: Pre-Award Litigation under Chapter 1 of the Federal Arbitration Act—Gateway Disputes about Whether Arbitration Should Proceed (Part II)

February 4th, 2020 Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Businessperson's FAQ Guide to the Federal Arbitration Act, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Preemption of State Law, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, McCarran-Ferguson Act, Moses Cone Principle, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Presumption of Arbitrability, Procedural Arbitrability, Questions of Arbitrability, Small Business B-2-B Arbitration, Stay of Litigation, Substantive Arbitrability 2 Comments »
gateway disputes

Gateway disputes, which concern whether parties are required to arbitrate a dispute on the merits, are the principal subject of pre-award Federal Arbitration Act litigation. In the last segment of this series, Gateway Disputes about Whether Arbitration Should Proceed (Part I), we answered a number of FAQs concerning gateway disputes, including who gets to decide those disputes:  

  1. What is the Difference between Pre-Award and Post-Award Litigation under the Federal Arbitration Act?
  2. What are Gateway Questions?
  3. Who Decides Gateway Questions?
  4. How do Parties Clearly and Unmistakably Agree to Submit Questions of Arbitrability to Arbitrators?
  5. Are there any Arbitrability Disputes that Courts Decide when the Contract at Issue Clearly and Unmistakably Provides for the Arbitrator to Decide Questions of Arbitrability?

Today we’ll answer some more FAQs about how gateway disputes are decided (or at least are supposed to be decided) by courts and arbitrators:

  1. What is the Presumption of Arbitrability?
  2. Does the Presumption of Arbitrability Apply to all Questions of Arbitrability?
  3. What Law Applies to Determine Gateway Disputes about Arbitrability to which the Presumption of Arbitrability does not Apply?
  4. How is Presumption of Arbitrability Applied to Resolve Gateway Questions about the Scope of an Arbitration Agreement?
  5. What Defenses, if any, Can Parties Assert against Enforcement of an Arbitration Agreement, and what Law Governs these Defenses?

The answers to these questions, along with the answers provided in Part I, will provide you with a solid foundation for understanding how pre-award Federal Arbitration Act litigation works and what to expect if your business is or becomes embroiled in it. The next segment will answer FAQs about the nuts and bolts of pre-award Federal Arbitration Act practice and procedure under Sections 2, 3, and 4 of the Act.

What is the Presumption of Arbitrability?

Back in 1983 the U.S. Supreme Court, in the landmark decision Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983), famously declared that “[t]he [Federal] Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” 

Continue Reading »

Arbitration and Mediation FAQs: Do Arbitrators Necessarily Exceed their Powers by Making an Award that Conflicts with the Unambiguous Terms of the Parties’ Agreement?

November 11th, 2014 Appellate Practice, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, United States Supreme Court Comments Off on Arbitration and Mediation FAQs: Do Arbitrators Necessarily Exceed their Powers by Making an Award that Conflicts with the Unambiguous Terms of the Parties’ Agreement?

We’ve addressed on many occasions the Enterprise WheelStolt-Nielsen/Oxford contract-based outcome review standard, which permits courts to vacate awards when they do not “draw their essence” from the parties’ agreement. Under that standard the “sole question is whether the arbitrators (even arguably) interpreted the parties’ contract, not whether [they] got its meaning right or wrong.” See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (parenthetical in original). (See, e.g.,  Loree Reins. & Arb. L. F. posts here, here, here, here, here & here.)

While exceedingly deferential, the standard is not toothless. Arbitration awards that disregard or contravene the clear and unmistakable terms of a contract are subject to vacatur under it. See Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 676 (panel had “no occasion to ascertain the parties’ intention in the present case because the parties were in complete agreement regarding their intent.”) (quotation omitted); United Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987) (“The arbitrator may not ignore the plain language of the contract. . . .”). That’s because an arbitrator who makes an award that lacks “any contractual basis” has not even arguably interpreted the contract, and therefore has strayed from his or her task. See Oxford, 133 S. Ct. at 2069 (distinguishing Stolt-Nielsen); Stolt-Nielsen, 559 U.S. at 668-69, 672; Misco, 484 U.S. at 38.

An arbitrator whose award contradicts the unambiguous provisions of the parties’ contract may—but will not necessarily—exceed her powers. The answer depends on what the agreement says, what the award says and whether the award is at least arguably grounded in the agreement.

Whether or not a contract or contract term is “ambiguous” depends on whether it is reasonably susceptible to more than one meaning. See, e.g., White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007); Greenfield v. Philles Records, 98 N.Y.2d 562, 570-71 (2002). When a contract is unambiguous, a court can interpret it as a matter of law; if it is ambiguous, its meaning is a question of fact for trial.

Can the Interpretation of the Arbitrators be “Unreasonable,” yet still Colorable or Plausible?

The legal standard for lack of ambiguity is that there be only one “reasonable” interpretation of the contract terms, not that there are no other at least barely plausible or barely colorable interpretations of what the contract might mean. In probably the majority of contract interpretation cases concerning alleged contract ambiguity, each litigant supports its position with good-faith, reasonable arguments for why the disputed contract terms are allegedly susceptible to one or more than one meaning. Whenever courts determine that a contract is unambiguous, that conclusion necessarily means that the losing party’s interpretation of the contract is unreasonable as a matter of law. Continue Reading »