Commercial Arbitration & Procedure
Prof. Neal Troum
How is arbitration different than a mediation?
· Arbitration goes outside to let someone outside a judge/jury decide your dispute in whichever way the parties decide. Contractual
· Arbitration is typically private, fast, inexpensive, informal (can access arbitrator at any time)
· Anyone can be your arbitrator (contracted by private parties) and court system will later treat that process and decision as a court ruling!
So when do the courts get involved?
1. Deciding if the matter is fit for arbitration – arbitrability
2. When a party contests the “award” (decision/outcome) of arbitration – to confirm the award (and ensure enforceability) or to vacate the award.
· Prerequisite to suit, filling fee, subsidized by government, but the total cost could be higher.
· Rules in civil procedure;
· Limited forum selection, fixed location and jurisdiction rules;
· Judge/ Jury would be the decision-maker
· Facts/ law / contract
· Enforce the judgment, government enforced judgment
· Fee more expensive (Supp. 124), parties pay the aggregate of all costs to arbitrator, administration and experts, no tax subsidy; may not be more higher than court, less discovery cost…Consumer arbitration can be expensive…
· No government set-out rules, use rules that parties agreed
· Wherever you agree to have the arbitration, more flexible
· The arbitrator/ private judge would be the decision-maker
· Facts/ Contracts/ not much about the law as the court
· Private and confidential
· Not government-involved, private way to enforce it
· May or may not have appeal process
· Rely on precedent doctrine
· Legal experts, lawyers
· Judge is picked by election or appointment
· Paid by public funds or taxed
· Life/ Elective term
· Can’t pick the judge, jus the court
· May follow precedents, authority can be the same, but less degree in reliance on precedent.
· Doesn’t have to be a lawyer, but may be an expert in the field
· Picked by the parties
· Paid by the parties
· Only for this case
· Can pick the arbitrator
Federal Arbitration Act (9 USC S 1-16)
§2: Validity, irrevocability & enforcement of agreement to arbitrate: contracts to arbitrate are enforceable like contracts (subject to state law) – irrevocable due to fraud, illegality, etc (even playing field)
· “commerce” = interstate commerce. FAA reaches to the full extent of the commerce clause
§3: Staying litigation – Scope. Is the question referable to arbitration? If you have an agreement to arbitrate, what did you agree to arbitrate? Is this particular issue arbitrable or not?
· Threshhold arbitrability – who decides who decides? Who decides if the dispute is arbitrable
§4: Compelling arbitration – Enforceability. Question of whether the contract is enforceable is decided by the courts.
§9: Award of the arbitrator; confirmation – Default provision. If party comes to the court requesting confirmation of the award, court must confirm unless §10 (modification) or §11 (vacating) apply.
(a): Grounds for vacature – grounds under which can strike an award (partiality, corruption, misconduct, fraud, etc)
§11: Modification – purpose to correcting clerical mistakes
§16: Appeals of arbitration decisions- if the court compels arbitration, no appeal (must go through entire arbitration before arguing to court that you shouldn’t have gone to arbitration). If it denies it (if you loose motion to compel arbitration), immediate appeal. Why? Preference for arbitration.
2 policy preferences:
1. deference to arbitrators
2. preference for arbitration
Where does the FAA not apply?
1. Collective bargaining
2. Court-annexed arbitration
Threshold Arbitrability: (You can have a situation in which a court decides whether an arbitrator has the power to decide whether they should hear the case.) Arbitrator is deciding that he/she lacks/has the power to decide the decision they just made.
Southland – FAA is substantive (this is not true!! Section 2 has pre-emptive power, has substantive law that applies in federal courts. Sections 3 & 4 don’t have pre-emptive power, states can opt into state procedural law. FAA is not procedural! Section 2 pre-emptive power is procedural, aligns with diversity – power of federal court to enact substantive law that give parties rights.
I. DEFENSES TO CONTRACT FORMATION:
1. fraud in the inducement – promise that was not kept, something that was hidden, which was not in the agreement
a. “bait & switch” – tricked into signing something
2. fraud in the execution
a. parol evidence rule – where the parties have written something down, extrinsic evidenc
urt should look to the parties' underlying dispute (“look through”) and determine whether, in the absence of the arbitration agreement, any federal question had been raised. Here, state law claims, federal counterclaims. Federal jurisdiction cannot arise from counterclaims. Federal court has no authority here.
Baltin v. Alaron Trading Corp (1997): Do Sections 10 & 11 of FAA confer federal matter jurisdiction? NO FAA does not confer subject matter jurisdiction on federal courts!!! (UNDER NO SECTION OF FAA. THIS IS UNIQUE TO FAA – assigns rights without providing jurisdiction to enforce those rights). There must be an independent basis for federal for federal jurisdiction. Complaint alone must contain federal question. Here, no substantive question of feeral law, no federal jurisdiction.
No federal questions under Sections 9-11 (Confirm/vacate/modify)…
Northport Health Services v. Rutherford (2010): Rutherford sued Northport nursing home. Initially named only Northport. Amended complaint adding administrator as a defendant, destroying diversity jurisdiction and case was remanded to state court. Diversity of citizenship is determined by the citizenship of the parties named in the proceedings before the district court + any indispensable party who must be joined pursuant to Rule 19. A party joined in a parallel state court contract or tort action, who would destroy diversity, is not an indispensable party. No look through for diversity jurisdiction claims!
Volt v. Stanford (1989): CA Arb. Act allows a court to stay arbitration pending resolution of related litigation. CA statutes is not pre-empted by the FAA in a case where the parties have agreed that their arbitration agreement will be governed by the law of CA. Parties agreed that their arbitration agreement would be governed by CA law. Enforcing state rules according to the terms of the agreement is consistent with the goals of the FAA, even if the result is that arbitration is stayed where Act would otherwise permit it to go forward.