Happy summer!  It’s been far too long since my last update, but rest assured I have been thinking a lot about arbitration.  In fact, I’m currently teaching a summer course at Queen Mary University of London’s International School of Arbitration, which is a ton of fun.

My teaching, in fact, partly inspired this post.  Teaching arbitration in an international context reminds me of the fact that the United State’s permissive “everything can be arbitrated” approach isn’t universal or inevitable.  Plus, the Sixth Circuit recently issued a deceptively simple decision, in Arabian Motors Group v. Ford Motor Co., 2019 WL 2305313 (May 30, 2019), which raises some significant arbitration policy issues, particularly with respect to subject matter arbitrability and delegation.

A quick clarification of terminology first.  Though courts tend not to be clear about various branches of arbitrability, it’s useful to distinguish between them.  By “subject matter arbitrability,” I mean the power of an arbitrator to hear certain categories of disputes as a matter of public policy.  In the United States, there are virtually no subject matter constraints on arbitration.  But there are a handful, and Arabian Motors implicates one of them: 15 U.S.C. § 1226.

In relevant part, § 1226 says that “whenever a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of or relating to such contract, arbitration may be used to settle such controversy only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy.”

The dispute in Arabian Motors centered on Ford’s termination of a franchise with a Kuwaiti company selling cars in the Middle East.  Briefly, the Kuwaiti company argued that § 1226 prevented enforcement of the pre-dispute arbitration clause in its contract with Ford.  It went further and argued that a court – not the arbitrator – needed to decide the applicability of § 1226.

The district court disagreed.  While compelling the parties to go to arbitration, the district court concluded that the arbitrator, not the court, should decide whether § 1226 undermined the arbitrator’s ability to hear the dispute.  The arbitrator considered the statute and decided that it didn’t apply extraterritorially.  Then, on the merits, the arbitrator ruled in favor of Ford. The Kuwaiti company sought to vacate the award, and the district confirmed it.

An appeal followed.  Perhaps because the Kuwaiti company had framed up its complaint as being about manifest disregard, the Sixth Circuit merely focused on whether the arbitrator had made a decision that flew “in the face of clearly established legal precedent.”  Because the issue was one of first impression in the United States, the court reasoned that “the arbitrator, at most, could have made an ‘error in interpretation or application of the law’ and that is ‘insufficient’ to constitute a manifest disregard for the law.”  The court never really engaged with the “who decides” question.  Accordingly, the Sixth Circuit affirmed the lower court.

The case is simple on the surface, but it raises some significant issues and it conflicts, I think, with the logic of SCOTUS in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019).

Although there are currently precious few subject matter limits on arbitration in the U.S., there are constant calls for arbitration reform at the federal level.  As the drama surrounding the CFPB’s short-lived 2017 arbitration rule indicated, those efforts are fraught, but they are also always bouncing around the margins of arbitration practice.  To the extent that congress might and could create additional limits on arbitration, a case like Arabian Motors takes on tremendous importance. Who decides whether a statutory subject matter limitation on arbitration applies, a court or an arbitrator?

New Prime suggests strongly, I think, that it must be a court.  Remember, in New Prime, SCOTUS was considering whether the employment exemption in § 1 of the FAA applied to independent contractors.  In its analysis, the majority (which included everyone except Justice Kavanaugh) says that the Court has “long stressed the significance of the [FAA’s] sequencing.”  Although “a court’s authority under the Arbitration Act to compel arbitration may be considerable, it isn’t unconditional.”  Instead, the FAA’s authority “doesn’t extend to all private contracts, no matter how emphatically they may express a preference for arbitration.”  This lead to the conclusion that a court must decide whether § 1’s exclusion applies before ordering arbitration, even if the arbitration agreement contains a delegation clause.  It seems to me that the same logic should apply to any other congressional act that regulates the recourse to arbitration.

The point, I think, that is that New Prime suggests that there’s a difference between contractual arbitrability – issues about flaws in the arbitration agreement, scope of the arbitration agreement, or procedural preconditions that need to be satisfied before the recourse to arbitration is appropriate – and subject matter limits on what can be arbitrated.  Parties are free to assign the former questions to an arbitrator through a delegation clause. But because certain subjects are – or could be – excluded from the federal policy favoring arbitration – like disputes arising out of a motor vehicle franchise agreement – parties cannot assign an arbitrator to arbitrate about whether the exclusion applies.

The interplay of the separability doctrine and delegation clauses can create a bullseye that only Hawkeye, the OG Avenger with a bow, might have a prayer of hitting.  The Missouri Supreme Court provided a nice reminder about this problem in a recent case, State Ex Rel. Newberry v. Jackson, 2019 WL 2181859 (May 21, 2019).

The underlying facts of the case are simple enough: employees filed timely charges of sex, age, and disability discrimination with the Missouri Human Rights Commission. They received notices of a right to sue their employer.  The employer, in turn, filed motions to compel arbitration.  The employees attacked the arbitration clause as unenforceable because it lacked consideration.

You probably recall that the doctrine of separability, which is a first principle of arbitration law, treats arbitration clauses as analytically independent of the container contracts in which they appear.  So, a general attack on the container contract does not necessarily render the arbitration clause ineffective.  Separability works to funnel disputes about the validity of container contracts to arbitrators.  But here, the employees specifically aimed their consideration argument at the arbitration clause.

According to SCOTUS, a court should decide whether a valid arbitration agreement exists unless there is “clear and unmistakable” evidence that the parties agreed to delegate this determination to the arbitrator.  First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).  In this particular case, however, the employer had incorporated the AAA Rules, and the AAA Rules include a delegation provision, so it looked like the employees would have to arbitrate their lack of consideration argument.

But the employees didn’t give up.  Instead, they also took aim at the delegation clause.  So, for anyone wanting to count the concentric rings of the target, there was (1) the overall employment contract (container contract) that included (2) an arbitration clause, and the arbitration clause, in turn, contained (3) a delegation provision.  The employees zeroed in on the delegation clause, claiming that it was unconscionable and was not supported by consideration.

On first blush, this would seem to be the sort of pin-point shot needed to disable the delegation provision. As SCOTUS explained in Rent-A-Ctr. W., Inc. v. Jackson, 561 U.S. 63, 70-72 (2010), a delegation provision is severable from an arbitration agreement just as that arbitration agreement is severable from the broader employment contract.  But, if an employee specifically challenges the delegation provision, then we’re back to having to have a court determine whether the delegation was valid.

But the Missouri Supreme Court waived off the shot.  According to the Court, the employees’ “unspecified” unconscionability argument was too generic to render the delegation suspect, and the employees’ lack of consideration argument was aimed only at the arbitration clause as a whole, not at the delegation clause in particular.  The Court said, “Rent-A-Center teaches that a delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact that it is contained in an arbitration contract that the party also contends is invalid.”

In short, as the Missouri Supreme Court reminds us, it’s almost impossible to imagine “an additional ground or basis” for invalidating a delegation clause.  The target that a party wanting to avoid a delegation clause must hit is so small that it’s virtually invisible.

If you’re in California or looking for a good reason to get to Malibu (like you need a good reason besides the fact that it’s Malibu), you should think about an upcoming dispute resolution conference on June 18-19 at the Straus Institute for Dispute Resolution at Pepperdine School of Law.

The conference, entitled Appreciating Our Legacy and Engaging the Future: An International Conference for Dispute ResolutionTeachers, Scholars, and Leaders, will bring together leading dispute resolution teachers, scholars, and leaders of educational programs to compare perspectives on four decades of change in managing and resolving conflict.   Interactive sessions will explore:

● Balancing skills, law, ethics, and policy in the classroom
● Integrating practitioners into our courses, research, and programs
● Mediation and dispute resolution clinics and public service
● Initiatives aimed at bridging the societal divide
● Globalization, culture, legal tradition, and ethics in the classroom and research
● How technology is changing what and how we teach
● Research and scholarship across borders
● Big Data’s revolutionary effect on research

The conference is co-sponsored by the Straus Institute for Dispute Resolution, ABA Section of Dispute Resolution, and Aggie Dispute Resolution Program, Texas A&M University School of Law, in cooperation with:

● Cardozo School of Law of Yeshiva University
● Marquette University Law School
● University of Missouri School of Law Center for the Study of Dispute Resolution
● The Dispute Resolution Institute at the Mitchell Hamline School of Law
● The Ohio State University Moritz College of Law
● Sandra Day O’Connor College of Law at Arizona State University
● UC Hastings Center for Negotiation and Dispute Resolution
● Center on Dispute Resolution at Quinnipiac
● Northwestern University Pritzker School of Law
● University of Nevada-Las Vegas Saltman Center for Conflict Resolution
● University of Oregon ADR Center

The registration fee is $285 but the first 100 people can register for $185.

Check out the website for more information and to register.


The Second Circuit just reminded us that there’s nothing magical about the label “arbitration” and, despite it being a good idea to include it, there’s nothing magical about using – or failing to use – phrases like “final and binding” in an arbitral clause.

In Milligan v. CCC Information Services, Inc., 920 F.3d 146 (2d Cir. 2019), the court was faced with an appraisal process in an auto insurance policy.  The underlying dispute involved a payout for a total loss on a current model year vehicle. The plaintiff brought a putative class action alleging that the insurer failed to pay the full value of her vehicle following a total loss in breach of insurance policy and in violation of New York insurance law.  The insurer calculated the value of the loss by using the average of three similar dealer vehicles that were available or recently sold in the marketplace at the time of the valuation.  The plaintiff argued that the insurer should have calculated the value of her car by using her purchase price less any applicable deductible and depreciation.

In response, the insurer sought to compel the plaintiff to use the policy’s appraisal process.  Essentially, the process provided that either the insurer or the insured could, within 60 days after proof of a loss was filed, demand an appraisal of the loss.  Each side would select an appraiser and those party-selected appraisers would, in turn, select a neutral third umpire.  This process was not called arbitration, and it nowhere provided, at least expressly, that the result of the process would be final and binding.

No matter, the Second Circuit held.  The process constituted arbitration.  To be arbitration, the process needs only to manifest an intention by the parties to submit a dispute to a specified third party for binding resolution.  But this intention doesn’t need to be expressed in any particular language.  According to the court,

[t]he appraisal provision identifies a category of disputes (disagreements between the parties over “the amount of loss”), provides for submission of those disputes to specified third parties (namely, two appraisers and the jointly-selected umpire), and makes the resolution by those third parties of the dispute binding (by stating that “[a]n award in writing of any two will determine the amount of the loss”).

As a result, because the lower court didn’t compel the parties to go to the process, the court had jurisdiction to consider the interlocutory appeal under FAA § 16(a)(1)(B).

I’m just finishing an article on procedural customization by contract, so I’m particularly attentive to the ways in which creative contract designers can think about process innovations. Generally, in my view, this sort of creativity is much needed.  I’m frankly surprised at just how little procedural customization actually exists out there.

But, the Milligan case reminds me that parties need to be thoughtful about how courts might construe their procedural customizations. Because the appraisal process at issue was deemed to be arbitration, the rules regarding scope of the arbitral clause applied.  The court found that the scope of what was to be submitted to this appraisal process was narrow.  It only required the parties to submit factual issues regarding proof of loss to this process.  Because the plaintiff’s claims were about the legal meaning of “reasonable value,” they were not arbitrable.  (And, although the court doesn’t mention this, because there was no delegation clause, it got to decide whether the claims fell within the scope of the clause or not.)  I’m guessing that this outcome might not have been what the insurer intended when it drafted this clause.

This week, we’ll get to the nitty gritty of a topic that can be extremely relevant to litigators: the law applicable to determine the preclusive effect of an arbitral award.

If something’s been arbitrated, it generally cannot be relitigated. In other words, arbitral awards usually have preclusive effect.  There’s not much controversy about this much.

But what law determines the preclusive effect of the arbitral award?  At least with respect to awards that have been confirmed by a federal court sitting in diversity, most of the doctrinal ingredients needed to supply an answer have been in place for a while.  The Ninth Circuit, though, just put those ingredients together in NTCH-WA, Inc. v. ZTE Corp., 2019 WL 1810776 (April 25, 2019).

First, a court order confirming an award has “the same force and effect” as a final judgment on the merits. FAA § 13.  This includes, of course, the preclusive effect of the award. See, e.g., Restatement (Second) of Judgments § 84(1).  So far, simple enough.

Second, “[F]ederal common law governs the claim-preclusive effect of” a judgment rendered “by a court sitting in diversity.”  Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508, (2001).  Cool, cool, cool.

Third, federal common law, in these circumstances, looks to the law of the state where the federal district court rendering the judgment sits.  A moment’s pause to think through this confirms that it squares with the federalism concerns of Erie. In fact, this is just a variation on the Erie-inspired choice-of-law principle of Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)).  Long and short of it, so long as the state preclusion rules are not incompatible with federal interests, they apply.

Those ingredients all laid out, the Ninth Circuit mixes them altogether:

Because a federal-court order confirming an arbitration award has “the same force and effect” as a final judgment on the merits, 9 U.S.C. § 13, and because we determine the preclusive effect of a prior federal diversity judgment by reference to the law of the state where the rendering court sat, we hold that when a federal court sitting in diversity confirms an arbitration award, the preclusion law of the state where that court sits determines the preclusive effect of the arbitral award.

My students are sometimes surprised to learn that statutory rights are, with a handful of very minor exceptions, fully arbitrable.  That surprise often turns to indignation when they read Justice Scalia’s majority opinion in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and realize that this is true even absent class-wide proceedings.  Without aggregative process, of course, the enforcement many statutory rights becomes prohibitively expensive.  But Italian Colors makes it clear that individuals still have the right to pursue their statutory claims, even if doing so just doesn’t make a lick of economic sense.

In short, Italian Colors deflated the “effective vindication” doctrine.  Civil rights are arbitrable even when people can’t “effectively” vindicate those rights.

But something important might have survived Italian Colors.  Or, that’s, at least, what the Second Circuit says in a hot-off-the-presses decision, Gingras v. Think Finance, Inc., 2019 WL 1780951 (April 24, 2019).

In Gingras, borrowers brought a putative class action against individuals and companies involved in an online lending operation owned by the Chippewa Cree Tribe in Montana.  The borrowers alleged that the “payday” loans offered by the lender violated Vermont and federal consumer protection laws.  Some defendants moved to dismiss on the basis of tribal sovereign immunity, and all defendants moved to compel arbitration under terms of loan agreements.

The loan agreements provided that Chippewa Cree tribal law would govern. Additionally, the arbitral clauses specified that the arbitrator “shall apply Tribal Law” and any arbitral award must “be supported by substantial evidence and must be consistent with [the loan agreement] and Tribal Law.” Chippewa Cree tribal courts were then empowered to set aside the arbitrator’s award if it did not comply with tribal law.  Finally, and perhaps most significantly, the agreements provided that they were not “subject to the laws of any state of the United States” and “no other state or federal law or regulation shall apply.”

The tribal sovereign immunity arguments are quite interesting, but obviously beyond the scope of our interest here.  Suffice it to say, the Second Circuit held that sovereign immunity was not a bar.  The then court when on to hold that the arbitration clauses were not enforceable.

The first, and a sufficient, reason why the arbitration clauses couldn’t be enforced was because they were “designed to avoid federal and state consumer protection laws.”  The court went on to clarify that

[b]y applying tribal law only, arbitration . . . appears wholly to foreclose [the plaintiffs] from vindicating rights granted by federal and state law. . . . [T]he just and efficient system of arbitration intended by Congress when it passed the FAA may not play host to this sort of farce.

Although the Second Circuit doesn’t connect all of the doctrinal dots, its animating idea derives from dicta in Italian Colors.  There, SCOTUS suggested that an arbitration provision could amount to a substantive waiver of federally protected civil rights if the agreement were to forbid the very assertion of those rights.  See Italian Colors, 133 S. Ct. at 2310.  Remember, the actual arbitral clause at issue in Italian Colors didn’t forbid assertion of anything.  Instead, by waving class-wide proceedings, it just made it stupidly expensive to assert the antitrust rights at issue.

By latching onto this dicta, the Second Circuit joins at least the Fourth and Seventh Circuits.  See Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016); Jackson v. Payday Fin., LLC, 764 F.3d 765 (7th Cir. 2014).  (Liz wrote about Hayes, but she focused on the procedural aspects of the case.)

The Second Circuit also joins at least the spirit, if not the particulars, of California’s jurisprudence on this issue, which looks at five factors to determine if the arbitration of statutory rights would amount to a substantive waiver of them.  See, e.g., Ramos v. Superior Court, 28 Cal. App. 5th 1042, 1047 (Ct. App. 2018) (confirming the continuing validity of the California Supreme Court’s watershed decision in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000)).  In California, those five factors evaluate process issues to make sure, fundamentally, that arbitration gives rights holders a fair shake.  I’m not persuaded that all of these factors can be squared with Italian Colors, but I think that the bigger thematic point is that California courts aren’t willing to completely abandon the effective vindication concept.

Anyway, the Second Circuit’s decision in Gingras also noteworthy because it raises at least one objection to the arbitral process:  the arbitration clause was substantively unconscionable because tribal courts were given “unfettered discretion to overturn an arbitrator’s award” and this “effectively insulates the tribe from any adverse award and leaves [the plaintiffs] without a fair chance of prevailing in arbitration.”

In short, Gingras serves as a reminder that employers and commercial parties wanting to include broad arbitration provisions covering statutory rights can’t be cavalier.  The effective vindication doctrine may not be what it once was, but it seems like courts aren’t yet ready to give up on the notion that statutory rights holders must be assured some sort of meaningful opportunity to present their claims.

It’s not at all evident to me why SCOTUS felt the need to grant review of Lamps Plus, Inc. v. Varela. But it did. And the majority decision, authored by Chief Justice Roberts, did precisely what I think that everyone who looked at the case expected: it held that courts cannot find the necessary consent to class arbitration in an ambiguous arbitration clause. (See Liz’s prediction, for instance (“In my view, the issue of class arbitration has largely been hammered out.”)

Still, the case has reverberations that may be far more significant than its simple holding.

As a reminder, the case involved an employee who had filed a class action against his employer, Lamps Plus. Lamps responded by seeking to compel arbitration on an individual rather than a classwide basis. The district court compelled arbitration but on a class basis and dismissed the employee’s case. Lamps appealed and the Ninth Circuit upheld the district court. SCOTUS reversed.

Critical to SCOTUS’s decision, the Ninth Circuit’s reasoning hinged on the fact that the employment arbitration agreement was ambiguous about the availability of class arbitration. The Ninth Circuit thus distinguished Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), arguing that in Stolt-Nielsen the parties had stipulated to the fact that the agreement was silent about class arbitration. In contrast, in Lamps Plus, the parties had no such stipulation.

Because the agreement was ambiguous, the Ninth Circuit turned to California’s contra proferentem rule – a general rule of contract law that serves as a tie-breaker when a contract of adhesion is ambiguous, reading the adhesive contract against the drafter.

A majority of SCOTUS disagreed. The reasons why matter. Quite a lot, I think.

As the majority frames it, the real issue is “the interaction between a state contract principle for addressing ambiguity and a ‘rule[] of fundamental importance’ under the FAA, namely, that arbitration ‘is a matter of consent, not coercion.”

The state contract principle at issue, of course, was the contra proferentem rule, which again everyone admits is a generally applicable rule. In other words, it applies not just to adhesive arbitration contracts but to all adhesive contracts. Thus, it would have seemed that this generally applicable contract rule could apply to the arbitration agreement under FAA § 2’s “savings clause.” But here’s where the majority threw a curve ball.

Justice Roberts reiterated that class arbitration constitutes a radically different and more risky form of adjudication than traditional bilateral arbitration. Citing to AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis, Justice Roberts highlighted the fact that, given the differences and extra risks of class arbitration – including the due process risks to absent parties – it’s incumbent on courts to make darned sure that parties are actually consenting to class proceedings.

But the contra proferentem rule does not make any pretense of uncovering the actual intentions of the parties. Instead, it’s just a tie-breaker: “Unlike contract rules that help to interpret the meaning of a term, and thereby uncover the intent of the parties, contra proferentem is by definition triggered only after a court determines that it cannot discern the intent of the parties.” Accordingly, “contra proferentem seeks ends other than the intent of the parties.” Basically, the doctrine reads against the drafter for public policy reasons, implicitly concluding that weaker parties should be protected in close calls.

That understanding of the doctrine in place, the majority ties a bow on its reasoning: “[c]lass arbitration, to the extent it is manufactured by [state law] rather than consen[t], is inconsistent with the FAA.”

Of course, this is not the first time that SCOTUS has rejected the application of what appears to be a generally-applicable contract rule to arbitration agreements. (Most recently, the Court did so in Kindred Nursing Centers L. P. v. Clark (2017).) But the Court’s transparent elevation of the “object preemption” rule of the FAA merits attention. (By object preemption, I mean the Court’s view that state law not only cannot expressly interfere with the parties’ recourse to arbitration, but it also cannot stand as an obstacle to the fundamental attributes of arbitration.)

Finally, it’s worth mentioning Justice Ginsberg’s trenchant dissent, especially in light of my recent post on mutual assent in arbitration. Basically, Justice Ginsberg recognizes the “irony of invoking ‘the first principle’ that ‘arbitration is strictly a matter of consent’ . . . to justify imposing individual arbitration on employees who surely would not choose to proceed solo.” In short, she puts her finger on a critical and increasingly significant point: boilerplate presents a “Hobson’s choice”: accept the terms and conditions offered, whether you know about them or not, or give up on the transaction. That framework may make practical sense, but it hardly amounts to “assent” in any traditional sense.

One of arbitration’s supposed virtues is that it’s fast and simple – streamlined, as many courts are fond of saying.  As a consequence, arbitral awards generally do not need to be supported by any reasoning or rationale.  Unless the parties have requested a specific form of award, an arbitrator may issue an award that does nothing more than announce a result – declare the winner and the loser. See Cat Chater LLC v. Schurtenberger,646 F.3d 836, 844 (11thCir. 2011).

Sometimes that’s just not good enough for parties, however.  So, it’s becoming more and more common for them to contract around this default, requiring arbitrators to issue more detailed awards. (A number of international institutional rules of arbitration include requirements that arbitrators issue “reasoned” awards.  Thus, parties who incorporate these rules by reference are implicitly opting for this reasoned award requirement.  See, e.g., LCIA Arbitration Rules Art. 26.2 (“The Arbitral Tribunal shall make any award in writing and, unless all parties agree in writing otherwise, shall state the reasons upon which such award is based.”); ICC Arbitration Rules Art. 32(2) (“The award shall state the reasons upon which it is based.”); SIAC Arbitration Rule 32.4 (“The Award shall be in writing and shall state the reasons upon which it is based unless the parties have agreed that no reasons are to be given.”)

In a very rough sense, awards can fall into three broad categories: simple awards that are merely announcements of the conclusion of the arbitrators without any support; reasoned awards, which are something more than “a line or two of unexplained conclusions, but something less than full findings of fact and conclusions of law on each issue raised before the panel,”Leeward Const. Co., Ltd. v. Am. Univ. of Antigua-College of Medicine, 826 F.3d 634, 640 (2d Cir. 2016); and awards that set out full findings of fact and conclusions of law.  (See also Liz’s brief discussion of Leeward here.)

The middle category can create problems, though.  Just how much reasoning is enough reasoning?  And what happens if an award isn’t sufficiently reasoned?

A recent decision, Smarter Tools, Inc. v. Chongquing Senci Import & Export Trade Co., Ltd., from the Southern District of New York, sheds some light on these questions.  The basic dispute involved a dispute over the sale of generators.  The seller claimed over $3 million was owed to it for deliveries, and the buyer counterclaimed for liability for fines it had to pay because the generators were not compliant with certain regulatory requirements and the seller failed to deliver a number of generators it promised to deliver.  Additionally, the buyer sought damages for lost profits and damage to its goodwill.

It’s worth noting that this was an international sales transaction, and thus the arbitration was governed by the AAA’s The International Centre for Dispute Resolution (ICDR) rules.  More importantly, the parties specifically required, in their arbitral agreement, that the arbitrator issue a “reasoned” award.

The final award was six pages long, most of which set out basic facts about the dispute and recognized a stipulation between the parties that the buyer owed $2.4 million, after credits, for delivered generators.  With respect to buyer’s counterclaims, the arbitrator made a credibility determination about a key witness for the buyer and then simply concluded that the buyer’s claims against the seller were denied.

The court didn’t like this.  It said that the award was not sufficiently reasoned because “it contain[ed] no rationale for rejecting [buyer’s] claims.”  While the credibility determination was a partial rationale, it was not, in the court’s view, sufficient to address all of the buyer’s counterclaims.  As a result, the court concluded that the arbitrator had exceeded his powers under FAA § 10.

This portion of the opinion is noteworthy because it suggests that a “reasoned” award requires at least some sort of explanation to support each and every necessary conclusion in the award.  The court conceded that the arbitrator’s credibility finding was some reasoning, but it failed to account for each of the counterclaims.

Perhaps the more noteworthy part of the case, however, has to do with the remedy the court granted. Rather than vacating the award, the court “remanded” it to the arbitrator for “clarification.”  The grounds for “remanded” an award are extremely limited under the FAA, but that didn’t seem to deter the court.

I think that this issue is well worth thinking about more, so look for an upcoming primer post to discuss the circumstances when the proper remedy for an unenforceable award is remand rather than vacatur.


You might recall SCOTUS’s 2017 smack down of a Kentucky common law rule regulating the formation of an arbitration agreement in Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017).  Liz wrote about the case here and here.  Basically, in the case, the Kentucky Supreme Court said some unkind things about arbitration, reminiscent of the old-time hostility that the FAA was designed to overcome.

More particularly, three wrongful death cases had been consolidated.  In all three, a family member with power of attorney for the decedent had signed admission documents with care facilities that included an arbitration clause.  The Kentucky Supreme Court said that the POAs did not grant the family members the necessary authority to waive the principal’s constitutional right of access to courts.

The case was modestly interesting doctrinally – but only modestly, as the core issue has been essentially settled since SCOTUS’s watershed 1984 decision, Southland v. Keating, 465 U.S. 1 (1984).  Still, the Kentucky Supreme Court attempted to denominate its rule as a “generally applicable” contract defense that would apply to other sorts of serious waivers of rights in POAs.  The idea was to squeeze into the savings clause of FAA § 2.  But, in no uncertain terms, SCOTUS said it didn’t believe the state court.  “We do not suggest that a state court is precluded from announcing a new, generally applicable rule of law in an arbitration case. We simply reiterate here what we have said many times before—that the rule must in fact apply generally, rather than single out arbitration.”  Hammer. Dropped.

State courts and state legislatures cannot regulate the recourse to arbitration on any grounds other than generally applicable contract law defenses.

The Kentucky Supreme Court, however, didn’t get the message.  (Or, more likely, it just didn’t seem to care. Remember, there’s an ongoing theme on this blog about some state court resistance to SCOTUS’s strong pro-arbitration policy.)  In Northern Ky. Area Development District v. Snyder, 2018 WL 4628143 (Ky. Sept. 27, 2018), it held that the FAA did not preempt a Kentucky statute that prohibited an employer from requiring an employee to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled.”  Employees, in short, could not be required to submit to arbitration as a condition of employment or ongoing employment.

Liz wrote about this case as well.  And, as she said, what the hell!  (Sorry, I’m paraphrasing.)

Fast forward to the waning days of March.  The Kentucky legislature stepped in and saved SCOTUS from having to worry about reigning in the Kentucky Supreme Court.  The legislature amended the statute at issue in Snyder, and on March 25, 2019, Governor Matt Bevin signed the Bill into law.

In a nutshell, the newly minted amendment nullifies Snyderand clarifies that employers may, among other things, require an employee or person seeking employment to execute an agreement for arbitration, mediation, or other form of alternative dispute resolution as a condition or precondition of employment.

The details of the new statute matter, of course, to lawyers, employers, and employees in Kentucky, but I think that the more interesting point is that we sometimes forget – or I do, at least – the potentially important role that state legislatures have to play in upholding the policies of the FAA.

As regular readers of the blog may recall, Liz wrote a brief note about a decision by the Supreme Court of Missouri holding that arbitration is not available when companies select a defunct institution to administer their arbitrations with consumers.  See A-1 Premium Acceptance, Inc. v. Hunter, 2018 WL 4998256 (Mo. Oct. 16, 2018).  In the case, the commercial party — A-1 — had designated, in a 2006 arbitration agreement contained loan documents, the National Arbitration Forum (“NAF”) as the administering institution.  The NAF, however, entered into a consent decree in 2009 requiring it immediately to stop providing arbitration services for consumer claims nationwide.

Other courts around the country have enforced similar arbitration agreements.  But a Circuit split exists about how best to handle this situation.  The Missouri court took one approach, distinguishing between agreements where the parties agree to arbitrate regardless of the availability of a particular arbitration and agreements where the two sides agree to arbitrate only in a particular forum.  Under the first kind of agreement, the Missouri court conceded that the FAA authorizes courts to name a substitute arbitrator if the forum contemplated in the original agreement is unavailable. But under the second kind of contract, in which the agreement specifies the arbitration forum, the FAA doesn’t grant courts the authority to swap in a new institution. “Nothing in the FAA authorizes (let alone requires) a court to compel a party to arbitrate beyond the limits of the agreement it made,” the Missouri court said.

Although the case presented an opportunity for SCOTUS to provide guidance on this issue, on March 18, it declined to do so.