As readers may remember on May 29, 2024, 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) (“CPR Alternatives”), interviewed our friends and colleagues—Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, former judge, and overall arbitration guru, Richard D. Faulkner (“Rick Faulkner”); and yours truly, Loree Law Firm principal, Philip J. Loree Jr.— about the three arbitration cases the United States Supreme Court (“SCOTUS”) heard and decided this 2023 Term: (a) Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024); (b) Smith v. Spizzirri, 601 U.S. 472 (2024); and (c) Coinbase, Inc. v. Suski, 602 U.S. ___ (2024). (See here and here.) That interview was one of several that we have given to CPR concerning arbitration law developments. (See, e.g., here, here, and here.) All of them are posted on CPR’s YouTube channel, @CPRInstituteOnline.
On September 10, 2024, Rick Faulkner, whom regular readers should know well by now; highly-skilled and successful trial lawyer (and former pro basketball player), Charles Bennett (“Chuck Bennett”); and the author, Philip J. Loree Jr., participated in a Federalist Society webinar entitled “Recent Supreme Court Decisions: Implications for the Business World.” (See here.) The webinar was sponsored by the Federalist Society’s Litigation Practice Group, and hosted by Caroline Bryant, Associate Director, Practice Groups, The Federalist Society, who introduced the panel’s members and otherwise ensured that things ran smoothly. Chuck Bennett’s, Rick Faulkner’s, and my own Federalist Society bios are here, here, and here.
As the Federalist Society aptly put it, “[t]he U.S. Supreme Court continues to shape arbitration law through a strict interpretation of the Federal Arbitration Act (FAA), with each term introducing new nuances.” (See here.) The webinar was designed to “explore Supreme Court decisions from the latest term and examine recent interpretations by federal appeals courts, focusing on their impact on arbitration practice.” (See here.) It sought to “offer practical insights into the evolving landscape of arbitration law, updates for attorneys to ensure compliance with the latest legal developments, and strategies to optimize arbitration for clients currently using or considering arbitration.” (See here.)
Rick Faulkner, Chuck Bennett, and I discussed in detail the Bissonnette, Spizzirri, and Coinbase decisions, as well as “infinite arbitration clauses,” subject matter jurisdiction, and a recent highly publicized (but now voluntarily resolved) arbitration dispute concerning the Walt Disney Company. Chuck provided the unique perspective of a trial lawyer thoroughly versed in arbitration matters.
You can view the webinar here. That link also allows you to download it, or listen to it on Apple, Google, Spotify, or Amazon podcast platforms.
Chuck, Rick Faulkner, and I express our sincere gratitude to Caroline, the Federalist Society’s Litigation Group, and the Federalist Society itself, for sponsoring the program and giving us an opportunity to share with others some of our thoughts on arbitration-law matters, including the arbitration-law cases SCOTUS decided this year.
Please note that, as set forth in its website, “the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.” (See here.)
Contacting the Author
If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has nearly 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance or reinsurance-related and other matters.
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.
Introduction: LA Stat. Ann. § 22.868 and its Application to Surplus Lines Policies
Louisiana has a statute, LA Stat. Ann. § 22.868, that courts have construed to make unenforceable arbitration provisions in insurance contracts, including surplus lines policies. The statute has an exception or savings provision that removes from the statute’s scope “a forum or venue selection clause in a policy form that is not subject to approval by the Department of Insurance[,]” LA Stat. Ann. § 22.868(D), for example, a venue- or forum-selection provision in a surplus lines policy.
The question before the U.S. Court of Appeals for the Fifth Circuit in S.K.A.V. v. Independent Specialty Ins. Co., ___ F.4th ___, No. 23-30293, slip op. (5th Cir. June 5, 2024), was whether the statute invalidates arbitration provisions contained in surplus lines insurance policies, that is, whether arbitration provisions in such contracts fall within the subsection (D) exception. Predicting how it thinks the Louisiana Supreme Court would rule if faced with the question, the Court held that the subsection (D) exemption did not apply, and accordingly, the statute rendered unenforceable arbitration agreements in surplus lines contracts. The Court accordingly affirmed the judgment of the district court, which denied the arbitration proponent’s motion to compel arbitration.
Pushing the Elephant Out of the Room. . .
Before taking a closer look at how the Court arrived at its conclusion, let’s deal with the “elephant in the room.” Why is the Court in a case governed by the Federal Arbitration Act (“FAA”) even considering enforcing a state statute that would (or could) render unenforceable an FAA-governed arbitration agreement? Doesn’t the FAA preempt state law that puts arbitration agreements on a different footing than other contracts?
The answer is “undoubtedly”, but, as insurance and reinsurance practitioners know, under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011, et seq., “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. . . .” 15 U.S.C. § 1012(b).
LA Stat. Ann. § 22.868 has been construed to be one that “regulat[es] the business insurance[,]” and the FAA is not an “Act [that] specifically relates to the business of insurance. . . .” Section 22.868 thus “reverse preempts” the FAA under McCarran-Ferguson. See slip op. at 2. (See, e.g., here.)
The Court’s Interpretation of Section 22.868, Including its Surplus Lines Policy Exemption
In case you haven’t already noticed, the Loree Reinsurance and Arbitration Law Forum is now the Arbitration Law Forum. The Loree Reinsurance and Arbitration Law Forum began publishing articles about arbitration, arbitration-law, reinsurance, and insurance issues when it was launched by Loree & Loree in March 2009. Our first post is here.
The blog’s principal focus was arbitration- and arbitration-law-related matters, though it published from time-to-time articles about reinsurance- or insurance-related matters unrelated to arbitration. To date, and not including this post, the blog has published 310 posts. But Loree & Loree, which was formed in August 2008 by Philip J. Loree (“Loree Sr.”) and Philip J. Loree Jr. (“Loree Jr.”), recently became The Loree Law Firm. Loree Sr. recently retired from the practice of law after 61 years of practice, and Loree Jr. is continuing the practice as The Loree Law Firm. The change of firm name necessarily required changes to the firm’s website, and so Loree Jr. took that opportunity to rename the blog “The Arbitration Law Forum.” The main focus of The Arbitration Law Forum will continue to be arbitration, arbitration-law, and arbitration litigation, but it may, on occasion, also publish articles on reinsurance, insurance, and other commercial and business contract issues unrelated to arbitration. We hope the Arbitration Law Forum’s new name will widen its audience by emphasizing its focus on arbitration and arbitration law while de-emphasizing—but not forsaking—its occasional coverage of reinsurance and insurance issues. The next post will continue our Businessperson’s Federal Arbitration Act FAQ Guide series and focus on vacating arbitration awards on the ground of fraud or undue means.
Contacting the Author
If you have any questions about this article, or about arbitration, arbitration-law, or arbitration-related litigation, 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.
This is the first in a series of posts that will pose and answer several important questions about the Federal Arbitration Act (the “Federal Arbitration Act” or “FAA”), and FAA practice and procedure. The Federal Arbitration Act is the federal statute that governs arbitration agreements that “affect commerce,” making them irrevocable, valid and enforceable to the same extent as contracts generally. It provides for the expedited enforcement (including the challenge) of arbitration awards, empowers arbitrators to issue hearing subpoenas that are enforceable in court against third parties, and authorizes Courts in appropriate circumstances to compel arbitration, stay litigation, and appoint arbitrators.
Chapter One of the Federal Arbitration Act, and the many court decisions construing it, constitute the main body of arbitration law governing arbitration agreements in contracts “affecting commerce.” That body of arbitration law also includes state law governing contracts generally as well as state arbitration law, where applicable. More on that another day.
Before addressing specific FAQs, we review why arbitration law is important and what small businesses can do to help protect themselves in today’s challenging arbitration environment. We next provide an overview of Chapter One of the Federal Arbitration Act, summarizing its provisions.
This guide, including the instalments that will follow in later posts, is not designed to be a comprehensive recitation of the rules and principles of arbitration law. It is designed simply to give clients, prospective clients, and other readers general information that will 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.
Why is Federal Arbitration Act Arbitration Law Important and How can Small Businesses Protect Themselves in Today’s Challenging Arbitration Environment?
Arbitration can be a very effective way of resolving a wide range of disputes arising out of many legal and commercial relationships. It can benefit the parties if they make informed decisions about agreeing to it, craft their agreement accordingly, invest ample time and resources into the dispute-resolution process, proactively manage it, and make reasonable strategic and tactical decisions aimed at maximizing the odds of a beneficial outcome. It can benefit the courts and the general public by shifting to the private sector dispute-resolution costs that the public-sector (funded by tax payers) would otherwise bear.
Arbitration is not a perfect form of dispute resolution (and none is, including court litigation). That is so even when: (a) parties carefully draft their arbitration agreements and arbitrate in good faith; and (b) arbitrators, arbitration service providers and courts do their best to ensure the integrity, reliability, and cost-efficiency of the process and otherwise strive to protect the legitimate contractual expectations of the parties.
But at least over the last few decades or so, arbitration has, in the eyes of many, become a less attractive alternative to court litigation than it was intended to be, could be, and once was. One reason for the decline is because courts and arbitrators do not always enforce arbitration agreements in a way most likely to promote arbitration, even though they may believe in good faith that their decisions make arbitration a more attractive alternative to litigation.
The Arbitration Cottage Industry: Repeat Players versus Outsiders
Yet another reason is that arbitration has evolved into a cottage industry consisting of arbitration providers; and professional arbitrators (whether affiliated or not with one or more arbitration providers or arbitration societies). This industry serves (or is supposed to serve) relatively large businesses as well as smaller businesses, individuals, and consumers.
But it is a business that frequently pits repeat players—businesses which frequently use an arbitration provider’s services, usually because they regularly appoint in their arbitration agreements the arbitration provider as administrator—against outsiders—businesses or individuals who find themselves in an arbitrations administered by an arbitration provider before which they do not find themselves on a regular basis, usually because they either do not regularly appoint the arbitration provider as administrator in their arbitration agreements, or because they do not ordinarily agree to arbitrate in the first place.
Repeat players generate more revenue for arbitration providers and their stable of arbitrators over time than do outsiders. In theory that shouldn’t matter, for at least ostensibly, providers and arbitrators offer the market neutral dispute resolution services that are not supposed to favor repeat players, outsiders, or anyone else.
But economic realities can make that ostensible goal difficult to achieve in practice, even for exceedingly-well-intentioned providers and arbitrators. Those economic realities suggest an actual or potential conflict of interest—that is, a conflict between the provider’s and arbitrator’s interest in neutrality and their interest in an arbitration outcome that will not dissuade the repeat player from continuing regularly to use the provider’s services.
Businesses, particularly smaller business that are not arbitration provider repeat players, thus may find themselves in a challenging environment, one in which they probably did not anticipate being when they agreed to arbitrate. They are outsiders in an arbitration system that may be administered by an organization, and presided over by one or more arbitrators, who may consciously or unconsciously habor, or at least labor under, institutional predispositions that could tip the scales in favor of the repeat player and against the outsider.
The potential for such free-floating institutional bias or predisposition ordinarily will not, without more, support an argument that the arbitrator has a material conflict of interest. The reasons that is so are, for present purposes, beyond the scope of this post, but irrespective of whether arbitration law provides or should provide any relief from such a conflict, the economic realities described pose risks for outsiders, whose odds of success on the merits might not be what they would otherwise be if the tables were turned, and they, not their adversaries, were the repeat players.
Outsiders who find themselves in arbitration disputes with repeat players need all the help they can get.
Arbitration Law: Limited Relief, Arcane Rules, and Traps for the Unwary
The nature of arbitration law itself poses other challenges with which businesses (including repeat players) must grapple. Arbitration law authorizes courts to provide only very limited relief to parties who claim to be the victims of arbitration-agreement violations, whether committed by arbitrators or by an adverse party.
To make matters worse it is not unusual for certain judges to interpret and apply arbitration law in a way that makes it all the more difficult to obtain relief, even when granting that relief would, in all likelihood, promote arbitration as an attractive alternative to litigation, which is the main objective of arbitration law.
For example, courts will sometimes confirm arbitration awards that should have been vacated even though the facts reveal that the arbitrators egregiously violated the parties’ arbitration agreement by exceeding their powers, being guilty of fraud, corruption, or evident partiality, or committing prejudicial procedural misconduct. Courts seem conciously or unconsciously to go out of their way to avoid recognizing such grave improprieties, perhaps because the public might perceive the outcome – a vacated arbitration award and an arbitration do over – as disfavoring arbitration. And that is so even though vacatur would, in all likelihood, promote arbitration by enforcing the parties’ arbitration agreement and protecting reasonable expectations of fundamental fairness.
The same kind of scenario may play out in the context of a pre-arbitration dispute about compelling arbitration and staying litigation pending arbitration. Believing in good faith that they are promoting arbitration, and perhaps desiring an outcome that appears to favor arbitration—such as one that compels arbitration and stays litigation pending arbitration—Courts sometimes determine persons have consented to arbitration in circumstances where a comprehensive examination of the facts and applicable law may indicate otherwise.
Arbitration law doctrines, rules, and procedures remain somewhat arcane even though arbitration disputes and arbitration-related litigation are fairly common. Consequently, outcomes and rationales are often counterintuitive, unless the lawyer has thorough knowledge of and experience with arbitration law. We’ll discuss some examples in later posts.
Even apart from that, arbitation law’s procedural rules are fraught with traps for the wary, which are, among other things, designed to encourage early forfeiture of defenses that might otherwise be raised in FAA litigation. Most, if not all, of these rules nevertheless serve purposes which at least arguably promote arbitration as a viable alternative to litigation. If your attorney doesn’t know the rules well or doesn’t follow them, then your interests may be in jeopordy.
Protecting your Interests in Arbitration and Arbitration-Related Litigation
How can you best protect your interests in the seemingly informal, but sometimes covertly hostile, arbitration environment? First, you must make sure that you are represented by an attorney who has abundent knowledge of and experience in arbitration law and in representing parties in arbitrations and in FAA litigation.
This can make a huge difference – the author has, over the years, encountered situations where another lawyer did not, for example, detect or adequately preserve for judicial review issues that may otherwise have provided a basis for vacating an adverse award. As a consequence, these parties lost the race before it even started, and ended up being saddled with arbitration awards that, in a more perfect world, they may have been able to vacate. Needless to say, situations like this are far less likely to occur if experienced arbitration counsel been involved from the start.
If you are already represented by an attorney in your arbitration, but find yourself facing challenging FAA enforcement litigation, or the prospect of such litigation, then your interests are best suited by hiring skilled and experienced counsel who regularly handle such litigation. Depending on the circumstances, your own needs, and other considerations, you may wish to retain a new lawyer to handle the FAA litigation, while continuing to retain your current lawyer for purposes of handling the merits of the underlying arbitration (but making sure the FAA litigation lawyer is consulted at each step along the way to help preserve and enhance the record for future FAA litigation).
Second, you should work closely with that attorney, advising him or her of all matters pertinent to your claims and defenses, including matters that may be peculiar to your particular business or industry, including customs, practice, and usage. Always be an active part of your case and work only with attorneys who allow and encourage you to do that.
Third, you should keep yourself informed about arbitration-law related matters, as well as the legal rules and principles that bear on the merits of your case. This series of posts addresses numerous basic questions concerning the Federal Arbitration Act, and thus should be a useful educational aid for that purpose.
An Overview of the Federal Arbitration Act and its Provisions
The judicial and arbitral enforcement of arbitration agreements that affect interstate commerce is governed by the Federal Arbitration Act (the “FAA”), a statute first enacted in 1925 as the “United States Arbitration Act.” As originally enacted, the FAA consisted of 15 provisions, section 14 of which Congress repealed in 1947, renumbering as Section 14 former Section 15.
In 1970 Congress designated those remaining 14 provisions as “Chapter 1” of the FAA, and added a “Chapter 2,” which consists of various provisions implementing and enabling the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a/k/a the “New York Convention”).
In 1988 Congress added two additional provisions to Chapter 1 of the FAA, Sections 15 and 16. In 1990 Congress added to the FAA a Chapter 3, which consists of provisions implementing and enabling the Inter-American Convention on International Commercial Arbitration (a/k/a the “Panama Convention”).
The majority of U.S. domestic arbitration disputes are decided under Chapter One of the FAA, 9 U.S.C. §§ 1-16. Of these 16 relatively sparse statutory provisions, Sections 1 through 14 have been on the statute books in largely the same form for about 95 years.
The provisions of Chapter One have not only been on the books for nearly 100 years, but they are fairly sparse, and certainly do not even come close to addressing expressly and comprehensively all of the many issues that may arise concerning the enforcement of arbitration agreements and awards.
Out of necessity, a robust body of judicial interpretations and applications of the provisions has arisen to attempt to address these problems. These interpretations and applications of the FAA often vary from one circuit court of appeals to the next, and the U.S. Supreme Court has, on many occasions over the last four decades (and even before) stepped in to resolve such circuit splits and attempt to make FAA law more uniform by developing and implementing various FAA rules and principals, a number of which were first created in cases arising out of Labor Management and Relations Act (“LMRA”)-governed labor arbitration cases.
But before delving into any of the gory details, let’s look at the domestic, commercial arbitration-law outline that Chapter One of the FAA provides. Our starting point is Section 2, which is sometimes referred to as the FAA’s “enforcement command.”
The Federal Arbitration Act’s Enforcement Command: Section 2
Section 2 of the FAA is the provision that declares that arbitration agreements falling within its scope are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of of any contract.” 9 U.S.C. § 2.
It also tells us what arbitration agreements fall within the scope of Section 2 and the other provisions of FAA Chapter One: (a) “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof [;] or [(b)] an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal. . . .” 9 U.S.C. § 2.
Section 2’s scope provision therefore, and as interpreted by the U.S. Supreme Court, applies to written pre-dispute arbitration agreements in: (a) “maritime contract[s]” (“Maritime Contracts”); or (b) “contract[s] evidencing a transaction involving commerce. . . .” (“Contracts Affecting Commerce”). It also applies to written post-dispute arbitration agreements “to settle by arbitration a controversy thereafter arising out of such [Maritime Contracts or Contracts Affecting Commerce], or the refusal to perform the whole or any part thereof. . . .” 9 U.S.C. § 2; see Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-282 (1995); Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 55-58 (2003). As interpreted by the U.S. Supreme Court, Section 2’s use of the “word ‘involving,’ like ‘affecting,’ signals an intent to exercise Congress’ commerce power to the full.” Allied-Bruce, 513 U.S. at 277. More on that another day.
Under Section 2, “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Schein v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019). Section 2 also “requires courts to place arbitration agreements on an equal footing with all other contracts.” Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017) (quotations and citations omitted).
Section 1 of the FAA : Definitions and an Exemption
Section 1 of the FAA provides some definitions and exempts from the FAA a fairly limited universe of agreements that would otherwise fall within the scope of the Act. See 9 U.S.C. § 1. As respects the exemption, Section 1 provides that “nothing [in the FAA] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.
According to the United States Supreme Court, the exemption applies “only” to “contracts of employment of transportation workers.” Circuit City Stores, Inc. v. Adams, 532 U. S. 105, 119 (2001). But those “contracts of employment” include not only contracts establishing an employer-employee relationship, but also contracts establishing independent contractor relationships. New Prime Inc. v. Oliveira, 139 S. Ct. 532, 539-41, 544 (2019).
The Rest of the FAA
The other provisions of Chapter 1 implement the enforcement command by lending judicial support to the enforcement of arbitration agreements and awards. These are briefly summarized below:
Section 3 – Requires courts to stay litigation in favor of arbitration.
Section 4 – Provides for courts to compel arbitration.
Section 5 – Provides for courts to appoint arbitrators when there has been a default in the arbitrator selection process.
Section 6 – Provides that motion practice rules apply to applications made under the FAA, thereby expediting the judicial disposition of such applications.
Section 7 – Provides for the judicial enforcement of certain arbitration subpoenas.
Section 8 – Provides that where the basis for federal subject matter jurisdiction is admiralty, then “the party claiming to be aggrieved may begin his proceeding [under the FAA]…by libel and seizure of the vessel or other property….” 9 U.S.C. § 8.
Section 9 – Provides for courts to confirm arbitration awards, that is, enter judgment upon them.
Section 10 – Authorizes courts to vacate arbitration awards in certain limited circumstances.
Section 11 – Authorizes courts to modify or correct arbitration awards in certain limited circumstances.
Section 12 – Provides rules concerning the service of a motion to vacate, modify, or correct an award, including a three-month time limit.
Section 13 – Specifies papers that must be filed with the clerk on motions to confirm, vacate, modify, or correct awards and provides that judgment entered on orders on such motions has the same force and effect of any other judgment entered by the court.
Section 14 – Specifies that agreements made as of the FAA’s 1925 effective date are subject to the FAA.
Section 15 – Provides that “Enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders confirming such awards shall not be refused on the basis of the Act of State doctrine.”
Section 16 – Specifies when appeals may be taken from orders made under the FAA, and authorizing appeals from final decisions with respect to arbitration.
More to follow in future posts. . . .
You might also be interested in the following posts here, here, here, here, and here.
Photo Acknowledgment
The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law. L&L has added text to the photo.
Favorable arbitration awards are wonderful things, but they are not self-enforcing. Sometimes the other side voluntarily complies, but if not, there is really not much of anything the arbitrator can do to help.
Arbitrators are not judges and do not have the authority to garnish wages, seize property, foreclose on encumbered property, freeze bank accounts, impose contempt sanctions, and so forth. Parties can delegate to arbitrators broad adjudicatory and remedial authority, but that is relevant only to the nature and scope of their awards, and does not confer power on the arbitrators to enforce their awards coercively.
Apart from its potential preclusive effect in subsequent litigation or arbitration, an arbitration award stands on the same footing as any other privately prepared legal document, and for all intents and purposes it is a contract made for the parties by their joint agent of sorts—the arbitrator or arbitration panel. It may be intended by the arbitrator or panel, and at least one of the parties, to have legal effect, but it is up to a court to say what legal effect it has, and, if necessary, to implement that legal effect through coercive enforcement.
A judgment, by contrast, is an official decree by a governmental body (the court) that not only can be coercively enforced through subsequent summary proceedings in the same or other courts (including courts in other states and federal judicial districts), but is, to some extent, self-enforcing. A judgment, for example, can ordinarily be filed as a statutory lien on real property, and applicable state or federal law may, for example, authorize attorneys to avail their clients of certain judgment-enforcement-related remedies without prior judicial authorization.
Confirming Arbitration Awards 2
The Federal Arbitration Act, and most or all state arbitration statutes, provide for enforcement of arbitration awards through a procedure by which a party may request a court to enter judgment on the award, that is to “confirm” it. Once an award has been reduced to judgment, it can be enforced to the same extent as any other judgment. See, e.g., 9 U.S.C. § 13 (Under Federal Arbitration Act, judgment on award “shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered”); Fla. Stat. § 682.15(1)( “The judgment may be recorded, docketed, and enforced as any other judgment in a civil action.”); N.Y. Civ. Prac. L. & R. § 7514(a) (“A judgment shall be entered upon the confirmation of an award.”).
Chapter One of The Federal Arbitration Act (the “FAA”), and most or all state arbitration statutes, authorize courts to confirm domestic awards in summary proceedings. State arbitration-law rules, procedures, limitation periods, and the like vary from state to state and frequently from the FAA, and state courts may apply them to FAA-governed awards (provided doing so does not frustrate the purposes and objectives of the FAA). And Chapter 2 of the FAA provides some different rules that apply to the confirmation of domestic arbitration awards that fall under the Convention on the Recognition of Foreign Arbitral Awards (the “Convention”), and the enforcement of non-domestic arbitration awards falling under the Convention (i.e., awards made in territory of a country that is a signatory to the Convention.
But let’s keep things simple, and take a brief look at the FAA’s requirements for confirming arbitration awards, as applicable in federal court for domestic awards not falling under Chapter Two of the Federal Arbitration Act in situations where there is no prior pending action related to the arbitration, and there are no issues concerning federal subject-matter jurisdiction, personal jurisdiction, sufficiency or service of process, venue (i.e., whether the suit should have been brought in a different federal judicial district), or the applicability of Chapter One of the FAA (9 U.S.C. §§ 1-16). We’ll also discuss how applications to confirm are supposed to be summary proceedings, why timing of an application is important, and how courts decide them.
What are the Requirements for Confirming Arbitration Awards under the Federal Arbitration Act?
Confirming Arbitration Awards 3
Like most other issues arising under the FAA, whether a court should confirm an award depends on what the parties agreed. Section 9 of the FAA, which governs confirmation of awards, says—with bracketed lettering added, and in pertinent part: “[A] If the parties in their agreement have [B] agreed that a judgment of the court shall be entered upon [C] the award made pursuant to the arbitration, and [D] shall specify the court, then [E] at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and [F] thereupon the court must grant such an order unless [G] the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” 9 U.S.C. § 9. Items [A] through [D] above each concern party consent as evidenced by the parties’ arbitration agreement.
The key substantive requirements for confirming arbitration awards are thus: Continue Reading »
This is Part II of this two-part Arbitration Law FAQ Guide, which is designed to provide individuals and businesses with a brief and broad overview of challenging awards under the Federal Arbitration Act. Part I (here) addressed eight FAQs concerning this topic. This Part II addresses six more.
These FAQs, like the first eight, assume that a party is seeking to challenge a Federal-Arbitration-Act-governed arbitration award in a federal court having subject matter jurisdiction, personal jurisdiction, and proper venue.
This guide is not legal advice or a substitute for legal advice. An individual or business contemplating a challenge of an award under the Federal Arbitration Act should consult with an attorney or firm that has experience and expertise in arbitration law matters.
What does a person have to prove to convince a Court to grant it vacatur, modification, or correction of an award?
Awards Under the Federal Arbitration Act 2
An arbitration award is presumed valid and an award challenger has a heavy burden of proof to show otherwise. Some courts require clear and convincing evidence of certain grounds, such as evident partiality or corruption in the arbitrators. And even if a challenger can meet its burden, challenging an award under the Federal Arbitration Act must ordinarily be done in a summary proceeding, which is heard and determined in the same manner as a motion.
Generally, the challenger must establish that the only legitimate inference that can be drawn from the law and undisputed facts is that vacatur, modification, or correction of the award is warranted. Even where there are factual disputes, courts ordinarily will not order discovery or evidentiary hearings absent “clear evidence of impropriety.” See, generally, Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 701, 702 (2d Cir. 1978).
What proceedings does a Court usually hold to determine applications to vacate, modify, or correct awards under the Federal Arbitration Act?
These applications are summary proceedings that are made and decided like motions. See 9 U.S.C. § 6. If there is not already pending an action between the parties in which a motion may be made, then a challenger can start a proceeding by filing and serving, among other things, a petition or application, a notice of petition or application, supporting affidavits, and a memorandum of law in support. The responding party serves and files a memorandum in opposition, along with any affidavits in support.
Since the matter is a summary proceeding, and since the ordinary pleading rules do not apply, courts generally require the challenger to make all of its arguments at the time its response is due, including arguments that might be made by pre-answer motion in an ordinary law suit, such as lack of subject-matter or personal jurisdiction. The responding party will also typically file a cross-motion to confirm the award, that is, a request that the Court enter judgment upon the award. See 9 U.S.C. § 9. Continue Reading »
A Headings Clause typically provides that contract provision headings and captions are for reference purposes only, and do not negate, modify or otherwise affect the provisions to which they relate. While arguments can be made for or against Headings Clauses, they are fairly common in commercial contracts.
Contract dispute outcomes rarely turn on the interpretation or application of these clauses. But on November 16, 2016, the U.S. Court of Appeals for the Second Circuit decided Infrassure, Ltd. v. First Mutual Trasp. Assur. Co., No. 16-306, slip op. (2d Cir. 2016) (summary order), which not only turned on the meaning and application of a headings clause, but did so in the context of an arbitration-law dispute in a reinsurance case. A confluence of the arcane, indeed!
Infrassure: Background
Infrassure was a dispute between the parties to a facultative reinsurance contract. The facultative reinsurance contract (the “Certificate”) contained two different arbitration clauses. One was in the body of the pre-printed contract (the “Form Arbitration Clause”). The other was in Endorsement No. 2 (the “Endorsement No. 2 Arbitration Clause”). Endorsement No. 2 was titled “LONDON ARBITRATION AND GOVERNING LAW (UK AND BERMUDA INSURERS ONLY).”
The Form Arbitration Clause provided for arbitration of “any dispute arising out of the interpretation, performance or breach of this Certificate.” It designated a specific set of arbitration rules to govern the arbitration, and provided that “[a]ll arbitrators will be disinterested active or former officers of insurance or reinsurance companies.”
The Endorsement No. 2 Arbitration Clause provided for arbitration of “[a]ny dispute, controversy or claim arising out of or relating to this agreement or the breach, termination or invalidity thereof,” and prescribed different arbitration rules. It did not require arbitrators to be active or former officers of insurance or reinsurance companies.
Which Arbitration Clause Applies?
The parties disputed which arbitration clause applied. Reinsurer Infrassure, Ltd. (“Infrassure” or the “Reinsurer”), argued for the Form Arbitration Clause, with its more stringent arbitrator qualification requirements. Cedent First Mutual Transportation Assurance Company (“First Mutual” or the “Cedent”), a New York State captive insurer of the Metropolitan Transportation Authority, apparently wanted to appoint (or nominate) arbitrators or arbitrator candidates who were not current or former officers or directors of insurance or reinsurance companies. It therefore argued that the Endorsement 2 Arbitration Clause applied.
Infrassure, which is a Swiss company, argued that the Endorsement No. 2 Arbitration Clause did not apply because the title of the endorsement contained the parenthetical limitation “(UK and Bermuda Insurers only)” (the “Parenthetical Limitation”). It asserted in the alternative that the Endorsement No. 2 Arbitration Clause should be construed to impose the same arbitrator qualification criteria as the Form Arbitration Clause imposed.
The Headings Clause
First Mutual argued that the Certificate’s headings clause (the “Headings Clause,” which the Court refers to as the “Titles Clause”) rendered inapplicable the Parenthetical Limitation. The Headings Clause stated: “The several titles of the various paragraphs of this Certificate (and endorsements … attached hereto) are inserted solely for convenience of reference and will not be deemed in any way to limit or affect the provisions to which they relate.”
“This argument [was] thin,” observed the Court, but a reported opinion was in order, because the dispute “requires us to construe wording that apparently has not been construed before, and that is in a contract that may share features with other standard forms and endorsements.” Slip op. at 4.
Court Holds that Headings Clause did Not Strip the U.K.-and-Bermuda-Insurer-only Limitation on the Scope of Endorsement No. 2
The Court, in an opinion by Circuit Judge Dennis Jacobs (an esteemed member of the reinsurance bar before he was appointed to the Second Circuit), held that the Headings Clause was “unambiguous,” but did not negate the Parenthetical Limitation, even though that limitation appeared in the heading or title of Endorsement No. 2.
The Parenthetical Limitation, said the Court, “is not part of the title itself, though it shares the same line and bolded format.” The Heading Clause’s “purpose. . . is not to strip away an express indication as to the context in which a particular provision operative, but to ensure that the text of a provision is not discounted or altered by the words of its heading.” Slip op. at 4.
Court finds Further Support for its Conclusion by Applying First Mutual’s Heading Clause Interpretation to other Contract Provisions
The Court found confirmation of the accuracy of its conclusion “by consulting other [Certificate] provisions,” including “critical” ones, which would “would have no meaning at all if the Titles Clause were mechanically applied.” Id.
To illustrate, the Court referred to paragraph 14 of the Certificate, which, states:
Program Policy Limits
Various as per the attached schedule.
Id. (emphasis in original)
The Court observed that applying the Ceding Company’s interpretation of the Headings Clause to Paragraph 14 would reduce that paragraph to “the cryptic provision, ‘Various as per the attached schedule.’” Id. The “heading ‘Program Policy Limits,’ instructs the reader that the phrase ‘Various as per the attached schedule refers to program policy limits, as opposed to some other concern of the reinsurance agreement.” Id. That heading, said the Court, does not purport to contradict, alter or otherwise ambiguate the text that follows, but explains what the otherwise contextually ambiguous (indeed, meaningless) text was intended to mean in the context of the whole contract.
According to the Court, “other provisions beside Paragraph 14 likewise would be rendered meaningless if the [Headings Clause] were applied in the way pressed by First Mutual.” Slip op. at 4.
Given the Court’s holding, it was unnecessary to consider Infrassure’s alternative argument that the arbitrator selection provisions of the Form Arbitration Agreement should be made part of the Endorsement No. 2 Arbitration Agreement. All the Court had to say about this argument was “we need not reach [it], which is just as well for well for Infrassure.” Slip op. at 5.
Photo Acknowledgements:
All photos used in the text portion of this post are licensed from Yay Imagesand are subject to copyright protection under applicable law. The Yay Images abbreviations of the photographer’s name for each of the three images, in order of their appearance, are:
The long- and short-term success of a business is generally measured by the economic benefits it produces for its investors. Most business decisions require a business to accept risks of varying severity and frequency if the business is going to realize a meaningful return on investment. All else being equal, to increase the likelihood that those decisions will yield profits, the business must accurately assess all material risks, their corresponding benefits and the interplay between the two.
The same holds true for the decision whether to make an arbitration agreement part of a business transaction, and if so, on what terms. But in the author’s experience otherwise savvy and intelligent small-business-persons frequently view an arbitration agreement as a throw-in term that isn’t likely to affect materially the risk-benefit calculus of the transaction as a whole. These business persons are therefore likely to agree to arbitrate with a more economically powerful counterpart without giving the matter much thought, let alone the careful thought they devote to the price and performance terms of the deal. This approach, as a number of business people have learned the hard way over the years, can result in a very frustrating and potentially debilitating one-two punch: dashed reasonable expectations coupled with very little, if any, meaningful judicial review. Continue Reading »
Readers are excruciatingly aware of the amount of time and energy we expend on what seems at first blush to be a relatively arcane area of the law: practice and procedure under the Federal Arbitration Act. It is a practice area that arises under a single federal statute that consists of three chapters and a handful of rather skeletal provisions. Why is this stuff so important?
If you hold yourself out to be a commercial litigator who handles arbitration proceedings arising under the Federal Arbitration Act, then you need to know arbitration law cold (or co-counsel with someone who does). If you do not, then you have no business representing clients in arbitration proceedings.
In one sense, arbitration law is to the lawyer handling an arbitration what civil procedure law is to the lawyer handling a litigation. No lawyer cognizant of his or her ethical obligations and professional responsibility would represent a client in a litigation without a good, working knowledge of the applicable procedural code and cases construing it. Doing so would be a recipe for professional disaster.
Yet commercial litigators with no experience or expertise in arbitration law sometimes believe their knowledge of court procedure qualifies them to represent parties in arbitration proceedings. Arbitration is more informal than litigation, so if you know how to litigate, you can certainly arbitrate, right? Wrong.
Arbitration law is what ensures that arbitration agreements will be enforced, whether that means confirming or vacating an award, compelling arbitration, staying litigation, or what have you. Without it, arbitration would be, for the most part, an empty gesture. Parties would have to commence cumbersome plenary actions to enforce awards and obtain specific performance of arbitration agreements, arbitrators would lack subpoena power and breakdowns in the arbitrator selection process could not be remedied (or would be very difficult to remedy). In short, arbitration would lose much of its appeal because it would be difficult and expensive to enforce, and some aspects of it might not be enforceable at all.
Perhaps in a perfect world arbitration law would be spelled out for us in great detail in a user-friendly and comprehensive statute or administrative code, which would contain all or most of the answers to the multitude of enforcement-related questions that arise at various stages of arbitration proceedings. But our world is far from perfect, and in many domestic cases our sole source of statutory guidance is contained in the first chapter of the Federal Arbitration Act, which contains only 16 provisions, 15 of which have been on the books without material revision since 1925. In “non-domestic domestic cases” — you have to love that informative moniker — which involve, for example, arbitrations taking place in the United States between domestic and international parties, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and its enabling provisions set forth in Chapter 2 of the Federal Arbitration Act, usually come into play, but the Convention and its enabling legislation does not directly answer that many questions.
So in our imperfect world, the answers must come from the courts. That would all be well and good if we lived in a country with a single court system, but we do not. We have a multi-circuit federal court system (over which the United States Supreme Court presides) and a multi-jurisdiction state court system (over which the Supreme Court has limited jurisdiction to hear certain types of appeals). And the substantive provisions of the Federal Arbitration Act are applicable in, and construed by, both state and federal courts.
Cases involving arbitration law are constantly being decided. There are currently three-arbitration-law-related cases pending before the United States Supreme Court, and the Court usually decides at least one or two each term. The federal district and circuit courts regularly churn out decisions on arbitration law, as do state trial, intermediate appellate and supreme courts.
If state and federal court decisions from various jurisdictions and circuits were fairly uniform on Federal Arbitration Act issues, then perhaps things would be simpler. But courts are split on a number of issues, and even in situations where different courts might reach the same result on a given set of facts, the rationale each court applies may be different, leading to different outcomes if the facts are changed slightly.
Apparently someone somewhere decided that things were not quite complicated enough. So it was necessary to interject some other variables: horizontal (state-versus-state) and vertical (state versus federal) choice of law issues. Not all arbitration proceedings are governed solely by the Federal Arbitration Act — it applies only to written arbitration agreements “in maritime transaction[s] or. . . contract[s] evidencing. . . transaction[s] involving commerce. . . .” 9 U.S.C. § 2. When the Federal Arbitration Act does not apply, then the arbitration law of some state will generally apply. Choice-of-law rules will determine which state’s law applies in a multi-jurisdictional case.
Even when the Federal Arbitration Act applies, the parties may have agreed that state arbitration law applies, or at least there may be a substantial question whether state arbitration law applies. Federal and state arbitration law may conflict, and it is necessary to determine which applies. And sometimes there is a question whether the Federal Arbitration Act pre-empts state arbitration, or substantive contract, law. In other cases there may be a question whether state arbitration law fills a gap in federal arbitration law.
Arbitration-law-related issues can and do arise at all stages of an arbitration proceeding, and arbitration practitioners must keep in mind that litigation under the Federal Arbitration Act may be necessary to enforce a client’s rights or that such litigation may be brought by the other party. In the beginning stages of an arbitration, for example, issues may arise as to what the arbitration was intended to cover. A party may demand arbitration on a few claims, but there may be other actual or potential disputes which, if submitted, would fall within the scope of the arbitration agreement. Depending on what those claims are, and other considerations, the party against whom arbitration is demanded will want to ensure that the arbitration does or does not encompass those claims. That requires the party to carefully tailor its own submissions and, if necessary, to object to the other party submitting additional issues once the proceedings are underway.
The party resisting an arbitration demand may have arguments that some or all of the issues that are the subject of the demand are outside the scope of the arbitration clause. Those arguments must be carefully preserved, and sometimes it is necessary to seek an order staying the arbitration in whole or in part.
The party seeking arbitration may need to compel arbitration if the other party is resisting arbitration. That requires court intervention and both parties must be prepared to brief the applicable law and facts. Or perhaps the arbitration clause is self-executing, allowing a party to appoint a defaulting party’s arbitrator and proceed ex parte. In that case, the non-defaulting party may be unable to compel arbitration, but must take special care to ensure that the resulting default award is enforceable.
Arbitrator selection is another area where arbitration-law issues arise. It might be necessary to compel a party to participate in arbitration selection or request that a court appoint an arbitrator. If, at some point in the proceedings, one of the arbitrators dies or resigns, a number of important issues must be addressed. The process of arbitrator disclosure is yet another area where arbitration law must guide strategy.
Confirming or vacating awards requires knowledge of arbitration law and careful attention to strategy long before an award is rendered. There may be grounds for vacating an award, but those grounds generally must be preserved during the proceedings. There are also important deadlines that must be met and those deadlines may be triggered with respect to certain interim final awards long before the arbitration proceeding itself is concluded.
Once an award is issued issues may arise as to whether it is ambiguous or whether it may be modified by the arbitrators. Or arbitrators may purport to retain jurisdiction when they are not entitled to do so. Dealing with these issues requires careful attention to arbitration law.
When Federal Arbitration Act litigation is necessary, counsel need to know how to address the various procedural issues that arise, including subject matter jurisdiction, service, personal jurisdiction, the necessity of treating the proceeding as a motion and a host of other matters. And counsel must know the extent to which procedural rules are supplied by the Federal Arbitration Act itself, state arbitration law, the Federal Rules of Procedure or state procedural rules.
This is just a broad overview: There are literally dozens of issues that may arise, including ones implicating state general contract law, the Federal Arbitration Act itself, state arbitration law, choice-of-law rules, and federal preemption doctrine. Handling arbitration-related litigation demands special expertise, just as handling the underlying arbitration demands such expertise. Practitioners and clients that fail to pay careful attention to this ever-evolving area of the law do so at their peril.
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Disclaimer: The content of this blog is not intended to be legal advice and should not be construed as such. The views expressed in this blog are solely those of the author and do not necessarily reflect those of The Loree Law Firm or any of its current or former clients.
As readers may remember on May 29, 2024, 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) (“CPR Alternatives”), interviewed our friends and colleagues—Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, former judge, and overall arbitration guru, Richard D. Faulkner (“Rick Faulkner”); and yours truly, Loree Law Firm principal, Philip J. Loree Jr.— about the three arbitration cases the United States Supreme Court (“SCOTUS”) heard and decided this 2023 Term: (a) Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024); (b) Smith v. Spizzirri, 601 U.S. 472 (2024); and (c) Coinbase, Inc. v. Suski, 602 U.S. ___ (2024). (See here and here.) That interview was one of several that we have given to CPR concerning arbitration law developments. (See, e.g., here, here, and here.) All of them are posted on CPR’s YouTube channel, @CPRInstituteOnline.
In case you haven’t already noticed, the Loree Reinsurance and Arbitration Law Forum is now the Arbitration Law Forum. The Loree Reinsurance and Arbitration Law Forum began publishing articles about arbitration, arbitration-law, reinsurance, and insurance issues when it was launched by Loree & Loree in March 2009. Our first post is 
First Mutual argued that the Certificate’s headings clause (the “Headings Clause,” which the Court refers to as the “Titles Clause”) rendered inapplicable the Parenthetical Limitation. The Headings Clause stated: “The several titles of the various paragraphs of this Certificate (and endorsements … attached hereto) are inserted solely for convenience of reference and will not be deemed in any way to limit or affect the provisions to which they relate.”
