What is Arbitration Law and Why is it so Important?

 

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Arbitration law is the body of  common law  and statutory rules, principles and procedures that require and regulate the enforcement of arbitration agreements, whether  by confirming, vacating, modifying or correcting arbitration awards; compelling or staying arbitration; staying litigation; appointing arbitrators and the like. 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 in any meaningful fashion.

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 in many domestic arbitration enforcement cases our sole source of statutory guidance is contained in Chapter 1 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,” 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 (the  “New York Convention”), and its enabling provisions set forth in Chapter 2 of the Federal Arbitration Act, usually come into play, but the New York Convention and its enabling legislation leave many questions unanswered.

So in our imperfect world, the answers must come from the courts, who must fill in the gaps left open by the relatively sparse statutory framework.  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.  The federal district and circuit courts regularly churn out decisions on arbitration law, as do state trial, intermediate appellate and supreme courts. Several U.S. Supreme Court decisions in recent years have concerned the Federal Arbitration Act or labor arbitration arising under Section 301 of  the Labor Management Relations Act, 28 U.S.C. § 185 (2013).

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, which may result in different outcomes if certain facts in case A are even slightly different from those of case B.

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 (2013). While it admittedly is very broad in scope, it is not all encompassing. In addition, even when Federal Arbitration Act applies, state contract law governs many issues. Generally, state choice of law rules will determine which state’s contract or arbitration law applies in cases where more than one state’s law is potentially applicable, and there is a material conflict between or among the potentially applicable bodies of state law.

Sometimes the parties in an FAA-governed  case 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 preempts 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 the other party may commence such litigation to enforce its own alleged rights. 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, in appropriate circumstances, to make to the arbitrators timely objections in the event the other party seeks to expand the scope of  the submission beyond what was agreed.

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 agreement. Those arguments must also be carefully preserved, and, depending on applicable law and the circumstances, it may be necessary or appropriate to seek in a timely fashion 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 may arise and need to be addressed.  The disclosure by arbitrators of potential conflicts of interest is  yet another area where arbitration law will dictate strategy.

Confirming or vacating awards requires knowledge of arbitration law and usually requires 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 or partial 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 may not be entitled to do so.  Dealing with these issues requires careful attention to arbitration law as well.

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 many additional 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.

Read more about the Federal Arbitration Act here.

         

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