Federal Arbitration Act

By: R. Chauvin Kean

Generally, a contract is the law between parties, which has long been the position of the U.S. Supreme Court. However, as most well know, this principle is not without limitation. On January 15, 2019, in New Prime v. Oliveira, the Court unanimously held that disputes concerning contracts of employment involving transportation workers engaged in foreign or interstate commerce cannot be compelled to arbitrate. 586 U.S. —, 4, 2019 WL 189342, at * — (2019). Also, despite strong, express language in an agreement ordering the parties to arbitrate any of their disputes, a court – not the arbitrator – is the appropriate forum to review and decide the applicability of the Arbitration Act to any contract.

The Federal Arbitration Act declares that an express arbitration clause in a maritime transaction involving commerce shall be valid and enforceable provided the Act does not further limit its application. 9 U.S.C. §§ 1 – 2 (West 2019). However, §1 declares that “nothing contained [in this Act] 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 (West 2019). Specifically, the Court in New Prime resolved a longstanding issue of whether a “contract of employment” concerned any type of contract for work (such as one involving independent contractors) or only those contracts between an employee – employer. The Supreme Court affirmed the First Circuit’s ruling that in 1925, at the time of the Act’s inception, “contract of employment” was not a term of art; it was a phrase used to describe “agreements to perform work” and was not limited to agreements only between employees and employers as a modern jurist might first think.

New Prime provides two important lessons: first, no contract provision – however ironclad – is immune from court oversight and interpretation. Parties to a contract may attempt to limit their litigation exposure, but cannot be immune from all possibilities, especially when they try to contract around statutes. New Prime is a great example of limited application of a broad federal statute, which, even though is favored by the courts, is limited by Congress. Second, New Prime provides greater clarity in the realm of contracts for work relating to transportation workers. Any “contract for employment” concerning workers engaged in foreign or interstate commerce cannot be contractually compelled into arbitrations regardless of contractual provisions that state otherwise. New Prime, 586 U.S. at 15. It’s also worth noting that the type of workers engaged in foreign or interstate commerce has vastly expanded over time as our society grows further connected. Thus, companies should be mindful that even though contracts of employment might attempt to limit litigation through arbitration provisions, a court may not be inclined to order the parties into arbitration based on New Prime and the employee’s/independent contractor’s scope of work.

LouisianaPaddleboatStamp

By Mallory McKnight Fuller

When two parties agree to arbitrate, the obvious hope of the prevailing party is that the losing party will voluntarily comply with the arbitrator’s decision. This article is directed towards the situation in which the losing party refuses to so comply, and the prevailing party must petition the appropriate court system to “enforce” the arbitrator’s award.

Until confirmation, modification, or correction by a court of competent jurisdiction, an arbitration award is unenforceable under the law. The process for enforcing an arbitration award in Louisiana depends on whether the Federal Arbitration Act (“FAA”) or the Louisiana Binding Arbitration Law (“BAL”) applies.[1]

CONFIRMING ARBITRATION AWARDS

Whichever law applies, a party wishing to confirm an arbitration award must file a proceeding requesting confirmation of the award in a court of competent jurisdiction within one year of the award’s issuance.[2] While this one-year period is mandatory under the BAL, the federal courts of appeals are split on whether the same period is mandatory under the FAA. However, the U.S. Court of Appeals for the Fifth Circuit, which is the appellate court of federal jurisdiction over Louisiana, has implied that the one year limitations period is mandatory.[3]

In federal court, the FAA requires a party to begin the process of confirming an arbitration award by filing (and serving) either a petition or motion to confirm in the appropriate federal district court.[4]  Unlike the BAL, however, the FAA does not create independent subject matter jurisdiction, so the applicant must show that the federal district court has original subject matter jurisdiction over the dispute.[5]  The federal court has personal jurisdiction over the necessary parties once a party serves notice of the confirmation application on all parties.[6]

In both federal and state court, the confirmation of an arbitration award is a summary proceeding.[7]  The appropriate court will confirm the arbitration award (by granting the applicant’s motion) if no party challenges the enforcement of the award, and the court finds no grounds for vacating, modifying, or correcting the award.[8]  The court enters judgment on the award, which has the same force and effect as an ordinary judgment.[9]

VACATING, MODIFYING, OR CORRECTING AN ARBITRATION AWARD

Both the FAA and the BAL permit a party to challenge or request vacation, modification, or correction of an arbitration award.[10]  A notice of a motion to vacate, modify, or correct an arbitration award must be served upon the adverse party within three months after the award is issued.[11]  The grounds upon which an arbitration award can be changed or overturned are narrow and well-defined. Practically, this makes it very rare and difficult to alter an arbitration award.

Because arbitration is favored, both federal and state courts presume that an arbitration award is valid. Under the FAA and BAL, a court has authority to vacate an award only upon the following grounds:

  1. where the award was procured by corruption, fraud, or undue means;
  2. where there was evident partiality or corruption in the arbitrators, or either of them;
  3. where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
  4. where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.[12]

The FAA and BAL also limit a court’s authority to modify or correct an arbitration award. An award can be modified or corrected only:

  1. Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.
  2. Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.
  3. Where the award is imperfect in matter of form not affecting the merits of the controversy.[13]

If one of these two grounds apply, the courts will modify or correct arbitration awards “so as to effect the intent thereof and promote justice between the parties.”[14]

AWARDS AND ORDERS SUBJECT TO APPEAL

Both the FAA and the BAL permit the appeal of certain arbitration orders, including any order confirming, modifying, correcting, or vacating an award.[15]  Under the BAL, a party appeals from an arbitration order or judgment entered on an award in the same manner as a party appeals from an ordinary order or judgment.[16]  The federal courts and Louisiana appellate courts review a trial court’s confirmation of an arbitration award de novo.[17]

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[1] Chapter 1 of the FAA governs domestic arbitrations and applies to maritime disputes and contracts “involving commerce.” 9 U.S.C. §§ 1-16. The BAL governs arbitration in Louisiana, unless preempted by the FAA. La. R.S. §§ 9:4201-9:4271.

[2] 9 U.S.C. § 9; La. R.S. 9:4209.

[3] Bernstein Seawell & Kove v. Bosarge, 813 F.2d 726, 731 (5th Cir. 1987) (noting the complaint to enforce the arbitration award was filed within one year “As required by 9 U.S.C. § 9”).

[4] If the arbitration agreement does not specify the particular court, the party applying for confirmation of the award may file in any court in the district where the award was issued. 9 U.S.C. § 9.

[5] Vaden v. Discover Bank, 556 U.S. 49 (2009).

[6] 9 U.S.C. § 9.

[7] Id.; La. R.S. § 9:4209; see also Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 22-23 (1983).

[8] 9 U.S.C. §§ 10-11; La. R.S. §§ 9:4205 and 9:4209.

[9] 9 U.S.C. § 13; La. R.S. § 9:4214.

[10] 9 U.S.C. § 11; La. R.S. § 9:4211.

[11] 9 U.S.C. § 12; La. R.S. § 9:4213.

[12] 9 U.S.C. § 10; La. R.S. § 9:4210.

[13] 9 U.S.C. § 11; La. R.S. § 9:4211.

[14] Id.; Gilbert v. Robert Angel Builder, Inc., 45,184 (La. App. 2 Cir. 4/14/10); 24 So. 3d 1109, 1113.

[15] La. R.S. § 9:4215; 9 U.S.C. § 16.

[16] La. R.S. § 9:4215.

[17] NCO Portfolio Mgmt., Inc. v. Walker, 08-1011 (La. App. 3 Cir. 2/4/09); 3 So. 3d 628, 632; Sarofim v. Trust Company of the West, 440 F.3d 213 (5th Cir. 2006)