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

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

Introduction: This Term’s SCOTUS Arbitration Cases 

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

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

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

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

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

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

Eastern District of Pennsylvania Federal District Court Judge Rules that Petition to Confirm Arbitration Award Must be Served by U.S. Marshal

August 19th, 2021 Awards, Confirmation of Awards, Default Award, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 12, Federal Arbitration Act Section 9, Federal Courts, Federal Rules of Civil Procedure, Personal Jurisdiction, Petition or Application to Confirm Award, Petition to Modify Award, Petition to Vacate Award, Section 12, Section 9, United States Court of Appeals for the Second Circuit, United States District Court for the Eastern District of Pennsylvania Comments Off on Eastern District of Pennsylvania Federal District Court Judge Rules that Petition to Confirm Arbitration Award Must be Served by U.S. Marshal

Confirming Awards | Nonresident | Service by Marshal Required by MarshallFederal Arbitration Act (“FAA”) Section 9, governing confirmation of awards, says that “[i]f the adverse party shall be a nonresident[]” of the district in which a party commences a proceeding to confirm an arbitration award, “then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.” 9 U.S.C. § 9. Federal Arbitration Act Section 12, which governs the service of motions to vacate, modify, or correct awards, says the same thing. 9 U.S.C. § 12. Absent party consent to another mode of service, must a party commencing against a nonresident of the district a proceeding to confirm, vacate, modify, or correct an award arrange to have a U.S. Marshal serve the papers? In Red Spark, LP v. Saut Media, Inc., No. 2:21-cv-00171-JDW (E.D. Pa. Mar. 19, 2021), United States District Judge Joshua D. Wolson, who sits in the United States District Court for the Eastern District of Pennsylvania, applied a textualist analysis to Federal Arbitration Act Section 9 and said the answer is “yes.”

Background: The Service Issue in Red Spark

In Red Spark the claimant filed on January 14, 2021, in federal district court a petition to confirm an arbitration award made in an arbitration administered by the American Arbitration Association (the “AAA”). The petition’s certificate of service said the petition had been served by mail on the respondent, which was a corporate resident of California, and not of the Eastern District of Pennsylvania. The respondent did not appear, and the Court ordered the claimant to serve the respondent as required by Section 9 of the FAA. Following the Court’s instructions, the claimant requested that the U.S. Marshal Service (the “USMS”) serve process and was told that a court order authorizing the service was required. Consequently, the claimant petitioned the Court for an order directing the USMS to serve the respondent in California. The Court issued an opinion in response to the petition and made an order directing the USMS to serve the papers on respondent in California. “The passage of time, and evolving approaches to the law, can render some statutes out-of-date[,]” said the Court. Slip op. at 1. “But courts must enforce the laws as they are written, even when doing so requires an outdated approach.” Id.  Section 9 of the FAA “predates changes to the Federal Rules of Civil Procedure, which shift the burden of service of process from USMS to private parties.” Id.  “The approach in the Rules might make more sense than the approach in the FAA[,]” “[b]ut the Court does not get to choose which statutes to enforce.” Id. “Though,” said the Court, it “would prefer to excuse USMS from serving process here, the FAA compels the Court to grant Petitioner’s motion and order USMS to serve the petition in this case.” Id. As a backdrop for its textualist analysis, the Court briefly summarized the history of the service of process by U.S. Marshals. Prior to February 26, 1983, explained the Court, “USMS was responsible for service of process in federal court cases[,]” and that was therefore the case in 1925, when the FAA was first enacted as the U.S. Arbitration Act. See Slip op. at 2. But from February 26, 1983 forward, “Congress amended Federal Rule of Civil Procedure 4 to relieve USMS of the burdens of serving as process-server in all civil actions[,]” and “[s]ince then, USMS has been out of the summons-serving business, aside from a few unique circumstances.” Slip op. at 2 (citation omitted).

The Court’s Interpretation of Section 9’s Service by Marshal Requirement

Turning to Section 9, the Court found “scant” case law interpreting the service by marshal requirement, necessitating interpretation of the statute’s text. Slip op. at 2 (citation and quotation omitted). As far as service of district nonresidents is concerned, Section 9 says “notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.” 9 U.S.C. § 9. The Court concluded that Section 9 unambiguously required service on a nonresident to be made by U.S. Marshal. “By using the word ‘shall,’” said the Court, “Congress intended that service by USMS would be mandatory in post-arbitration proceedings involving nonresident respondents.” Slip op. at 3 (citations omitted). Further, explained the Court, “the statute specifies only one method of service: ‘by the marshal.’” Slip op. at 3. The statutory text “in like manner as other process of the court” does not provide for “an alternative method of service.” Slip at 3. That text “modifies the phrase ‘served by the marshal.’” In 1925, when the FAA was enacted, the term “‘manner’ meant ‘a mode of procedure; the mode or method in which something is done or in which anything happens[.]” Slip op. at 3-4 (quoting Webster’s New International Dictionary of the English Language 1497 (2d ed. 1937)). “‘[L]ike manner,’” reasoned the Court, therefore “means how process gets served, not who serves it.” Slip op. at 4. Had “Congress intended for the phrase ‘like manner as other process of the court’ to provide an alternative route to service by the marshal, it would have used the conjunction ‘or’ to permit service by the marshal or in like manner as other process of the court.” Slip op. at 4. Construing “the phrase to permit an alternate method of service” would “essentially render[] meaningless the reference to the marshal[,]” and the Court “must interpret Section 9 in a way that gives effect to all of its words.” Slip op. at 4 (citation and quotation omitted). The Court also could not “rewrite the statute to conform to modern expectations.” Slip op. at 4 (citing Bostock v. Clayton City, Georgia, 140 S. Ct. 1731, 1738 (2020) (“If judges could add to, remodel, update, or detract from old statutory terms inspired only by extratextual sources and our own imaginations, we would risk amending statutes outside the legislative process reserved for the people’s representatives.”)).

The Court’s Response to the Second Circuit and Certain Other Courts

The Court explained that the U.S. Court of Appeals for the Second Circuit in Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1277 (2d Cir. 1971), “held that the phrase “like manner as other process of the court” refers to Rule 4.” Slip op. at 4 (also citing Puerto Rico Tel. Co. v. U.S. Phone Mfg. Corp., 427 F.3d 21, 25 n.2 (1st Cir. 2005), abrogated on other grounds, Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008)). And the Court noted that “some district courts have permitted parties to make service under Federal Rule of Civil Procedure 4 rather than enlist USMS,” and that these courts “reason[ed] that Section 9’s requirement of service by marshal is an anachronism under the current Federal Rules of Civil Procedure.” Slip op. at 4 (quotations and citation omitted). “But,” said the Court, even though “requiring USMS to serve a petition might be anachronistic, courts may not ‘favor contemporaneous or later practices instead of the laws Congress passed.’” Slip op. at 4-5 (quoting McGirt v. Oklahoma, 140 S. Ct. 2452, 2568 (2020) (emphasis in original)).

Interplay between Section 9 and Rule 4

The Court said Section 9 trumped Rule 4 because “‘when two statutes cover the same situation, the more specific statute takes precedence over the more general one.’” Slip op. at 5 (quoting Coady v. Vaughn, 251 F.3d 480, 484 (3d Cir. 2001) (citations omitted)). For “Section 9 specifically governs service of petitions to confirm an arbitration award, whereas Rule 4 deals with service of process generally.” Slip op. at 5. And, in any event, under Fed. R. Civ. P. 81, the Federal “Rules yield to the ‘other procedures’ set forth in the FAA.” Slip op. at 5 (quoting Fed. R. Civ. P. 81(a)(6)(B)). The Court wrapped up by holding that Rule 4 did not repeal by implication Section 9’s service by marshal requirement. The Court concluded that “[a]lthough there is some tension between. . . [Section 9 and Rule 4],” it could “harmonize” the two provisions. Slip op. at 5. “Rule 4,” said the Court, authorizes a court to order USMS to serve process[,]” slip op. at 5 (citing Fed. R. Civ. P. 4(c)(3)), and “Rule 4.1(a) authorizes USMS to serve process other than a summons or a subpoena ‘anywhere within the territorial limits of the state where the district court is located and, if authorized by a federal statute, beyond those limits.’” Slip op. at 5 (citing Fed. R. Civ. P. 4.1(a) (emphasis added by Court).  Section 9, the Court explained, was “consistent with” these Federal Rules of Civil Procedure provisions, because Section 9 authorizes “marshals to serve a nonresident adversary in any district where that adverse party may be found. . . .” Slip op. at 5. Finally, the Court found that Congress did not by implication repeal Section 9 because it was able to reconcile Section 9 and Rule 4. Such repeals are, said the Court, “not favored,” Slip op. at 6 (citation and quotation omitted), “and the Court has not discerned any affirmative intention by Congress” to effect such a repeal. Slip op. at 6. Congress had amended Fed. R. Civ. P. 81 (concerning the applicability of the Federal Rules of Civil Procedure in general and in removed actions) several “times since the passage of Section 9. . . and has not elevated the Federal Rules to something more than a gap-filler for purposes of arbitration proceedings governed by the FAA.” Slip op. at 6; see Fed. R. Civ. P. 81(a)(6)(B) (“These rules, to the extent applicable, govern proceedings under the following laws, except as these laws provide other procedures: . . . 9 U.S.C., relating to arbitration. . . .”) That means “Congress has not repealed Section 9’s special procedures for service.” Slip op. at 6.

Elephant in the Room: Did the Parties Consent to Service by Mail?

Section 9 requires U.S. marshal service on nonresidents of the district, but that does not mean parties cannot consent in advance to an alternative form of service. That may have happened here, although it is unclear: (a) whether the parties disputed the existence of arbitration agreement; and (b) assuming there was no such dispute, whether the point about consent to mail service was argued. The arbitration was apparently administered by the AAA, which ordinarily means that the parties have expressly consented to application of AAA arbitration rules (or are deemed to have so consented). Agreements to accept service of process by a mode other than formal service, or to waive service altogether, are valid and enforceable, and excuse compliance with statutory service rules. Gilbert v. Burnstine, 255 N.Y. 348 (1931); see National Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315-16 (1964). Assuming the parties agreed to AAA’s Commercial Arbitration Rules and Mediation Procedures, Rule 43(a) provides that parties consent to service by mail of a petition to confirm an arbitration award:

(a) Any papers, notices, or process necessary or proper for the initiation or continuation of an arbitration under these rules, for any court action in connection therewith, or for the entry of judgment on any award made under these rules may be served on a party by mail addressed to the party or its representative at the last known address or by personal service, in or outside the state where the arbitration is to be held, provided that reasonable opportunity to be heard with regard to the dispute is or has been granted to the party.

AAA Commercial Arbitration Rules and Mediation Procedures R. 43(a) (2013).

Other versions of AAA arbitration rules may contain similar provisions, although we have not, for purposes of this article, reviewed other AAA Rules to confirm that point. The Petitioner’s service of the petition by regular mail may therefore have been sufficient service.

It is also possible that there was a dispute between the parties as to whether they agreed to arbitrate at all, let alone under the AAA Rules. In any event, according to the PACER case docket, it appears that on May 7, 2021, the Petitioner voluntarily dismissed the Petition without prejudice, so our query about the validity of service-by-mail in this case may well be moot, albeit one to keep in mind for future cases.

Want to learn more about confirming arbitration awards? See here, here, & here.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other dispute-resolution-related matter, please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

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

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Section 9 | Confirming Awards Part III | Post-Award Federal Arbitration Act Enforcement Litigation Businessperson’s Federal Arbitration Act FAQ Guide

June 22nd, 2020 Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Confirmation of Awards, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition or Application to Confirm Award, Section 9, Uncategorized 4 Comments »
Section 9 Confirm Award

In the last two segments of the Businessperson’s Federal Arbitration Act FAQ Guide, we discussed the substantive and procedural requirements for confirming under Section 9 Chapter One Domestic Awards, that is, domestic awards that fall under Chapter One of the Federal Arbitration Act, but not under Chapter Two, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (See here and here.)  Now we address additional, FAQs concerning the confirmation under Section 9 of Chapter One Domestic Awards.

Does an Application to Confirm under Section 9 a Chapter One Domestic Award Require One to File a Full-Blown Law Suit to Confirm an Award?

Fortunately, the answer is no. Like all other applications for relief under the FAA, an application to confirm an award under Section 9 is a summary or expedited proceeding, not a regular lawsuit.  Rule 81(a)(6)(B) of the Federal Rules of Civil Procedure provides that the Federal Rules “to the extent applicable, govern proceedings under the following laws, except as these laws provide for other procedures. . . (B) 9 U.S.C., relating to arbitration.  .  .  .” Fed. R. Civ. P. 81(a)(6)(B).

Section 6 of the FAA “provide[s] for.  .  . procedures” other than those applicable to ordinary civil actions because it requires applications for relief under the FAA to be made and heard as motions:

Any 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 FAA].

9 U.S.C. § 6.

A Section 9 action to confirm an award is, of course, “[a]n application to the court” under the FAA, and thus, unless the FAA otherwise provides, must be “made and heard in the manner provided by law for the making and hearing of motions.  .  .  .”

Confirming Arbitration Awards under Section 9: What Papers does a Party File to Apply for Confirmation of an Award?

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Arbitration Nuts and Bolts: Federal Appellate Jurisdiction over Orders Compelling Arbitration and Staying Litigation

March 21st, 2019 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, FAA Section 16, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Stay of Arbitration, Stay of Litigation, United States Court of Appeals for the Second Circuit 1 Comment »

Introduction

Appellate Jurisdiction 1

Today we look at federal appellate jurisdiction over orders compelling arbitration and staying litigation.

Sections 3 and 4 of the Federal Arbitration Act (the “FAA”) provide remedies for a party who is aggrieved by another party’s failure or refusal to arbitrate under the terms of an FAA-governed agreement. FAA Section 3, which governs stays of litigation pending arbitration, requires courts, “upon application of one of the parties,” to stay litigation of issues that are “referable to arbitration” “until arbitration has been had in accordance with the terms of the parties’ arbitration agreement, providing [the party applying for a stay] is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. Faced with a properly supported application for a stay of litigation of an arbitrable controversy, a federal district court must grant the stay. 9 U.S.C. § 3.

Section 4 of the FAA authorizes courts to make orders “directing arbitration [to] proceed in the manner provided for in [the [parties’ written arbitration] agreement[,]” and sets forth certain procedures for adjudicating petitions or motions to compel arbitration. 9 U.S.C. § 4. It provides that when a court determines “an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.” 9 U.S.C. § 4 (emphasis added). Just as courts must grant properly supported applications for relief under Section 3, so too must they grant properly supported applications for relief under Section 4. See 9 U.S.C. §§ 3 & 4.

There is much to be said about the many issues that may arise out of applications to stay litigation, compel arbitration, or both, but our focus here is on the appellate jurisdiction of the U.S. Circuit Courts of Appeals over appeals from the grant or denial of such applications. Before a U.S. Circuit Court of Appeals can hear an appeal on the merits of a federal district court’s order and judgment, it must be satisfied that: (a) the federal district court had original subject matter jurisdiction (e.g., diversity jurisdiction or federal question jurisdiction); (b) there is still a “case or controversy” within the meaning of Article III of the U.S. Constitution (e.g., the controversy has not become moot by settlement or otherwise); and (c) the order or judgment appealed from is one over which it has appellate jurisdiction.

Appellate Jurisdiction and the FAA

Appellate Jurisdiction 2

Appellate jurisdiction refers to a Circuit Court of Appeals’ power to review, amend, vacate, affirm, or reverse the orders and judgments of the district courts within the judicial circuit over which the Court of Appeals presides. Generally, and outside the context of injunctions and the certification procedure of 28 U.S.C. § 1292(b), U.S. Courts of Appeal have jurisdiction to review only “final decisions” of district courts. See 28 U.S.C. §§ 1291, 1292. A “final decision” “is a decision that ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.” Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 86 (2000) (citations and quotations omitted).

But Federal Arbitration Act litigation is quite different from ordinary litigation from both a substantive and procedural prospective, and so it comes as no surprise that the FAA features its own set of appellate jurisdiction rules.

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