Now that the football season is behind us, I bid it farewell by embracing a football term — the “personal protector “– and applying it to arbitration. In football parlance, the personal protector is a player assigned to protect the punter (kicker) from harm. Watching the Super Bowl the other day, I came to the realization that arbitration has its own personal protector embedded in the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq. Two of the many benefits of arbitration are its relative finality and speed. The strong public policy in support of these benefits is embodied by the FAA, which was enacted in 1925. Those most familiar with arbitration and the FAA tend to think protection of arbitration’s finality and speed is expressed in section 10 of the FAA, which sets forth four major grounds for challenging arbitration awards (fraud, arbitrator bias, arbitrator misconduct, or the arbitrators exceeding their authority. And the United States Supreme Court in Hall Street Associates v. Mattel stated that the sole grounds for moving to vacate arbitration decisions were those in the FAA. But is that it? Is the FAA’s support of arbitration speed and finality limited to section 10? It turns out the answer is “no” and a recent Ninth Circuit case underscores the point.
Section 16: The Rodney Dangerfield Section of the FAA
The late comedian Rodney Dangerfield’s tag line was “I don’t get no respect.” I think the same can be said for FAA section 16. While section 10 focuses on post-arbitration award court challenges to arbitration, and gets most of the attention and respect, section 16 is directed at trips to the court house during an arbitration, and gets scant attention. Specifically, this oft-overlooked part of the FAA encourages arbitration finality and speed by severely limiting court challenges to the arbitration process while a case is pending while at the same time allowing appeals of court rulings impinging on arbitration. How would acourt become involved in an arbitration before a decision is rendered by the arbitrator? The usual scenario is as follows: 1) the parties sign a contract containing a predispute arbitration agreement (“PDAA”); 2) a dispute eventually develops; 3) one of the parties brings a lawsuit instead of an arbitration; and 4) the other side moves in court to stay the litigation, and compel arbitration pursuant to the PDAA. Or, one side announces its intention not to honor the PDAA and the other side moves in court for an order compelling arbitration.
Arbitration’s “Personal Protector”
Section 16 of the FAA protects arbitration in two ways. First, section 16(a) allows immediate appeals when a court issues decision that impacts negatively on arbitration, providing:
(a) An appeal may be taken from—
(1) an order—
(A) refusing a stay of any action under section 3 of this title,
(B) denying a petition under section 4 of this title to order arbitration to proceed,
(C) denying an application under section 206 of this title to compel arbitration,
(D) confirming or denying confirmation of an award or partial award, or
(E) modifying, correcting, or vacating an award;
(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject to this title; or
(3) a final decision with respect to an arbitration that is subject to this title.
So, for example, if the court in our scenario above refuses to stay an arbitrable law suit, or declines to compel arbitration, or enjoins an arbitration, section 16(a) allows the aggrieved party to file an appeal.
On the other hand, section 16(b) specifically prohibits interlocutory appeals when the lower court issues a pro-arbitration ruling, stating:
(b) Except as otherwise provided in section 1292 (b) of title 28, an appeal may not be taken from an interlocutory order—
(1) granting a stay of any action under section 3 of this title;
(2) directing arbitration to proceed under section 4 of this title;
(3) compelling arbitration under section 206 of this title; or
(4) refusing to enjoin an arbitration that is subject to this title.
So, for example, if the court in our scenario stays an arbitrable law suit, or orders the parties to proceed to arbitration, or declines to stay an arbitration, section 16(b) does not permit an appeal.
This is all pretty strong stuff which in my view expresses Congress’ intent that arbitration be a relatively speedy, final process. A recent Ninth Circuit case nicely illustrates the point. In MediVas, LLC v. Marubeni Corp., No. 12-55375, (9th Cir., Jan 27, 2014), the court ruled that a court order compelling a matter to arbitration that didn’t explicitly dismiss the underlying lawsuit, by implication stayed the litigation that had been brought by a party to PDAA. Following the scenario I describe above, the federal district court issued an order compelling arbitration but did not explicitly stay the lawsuit or dismiss it. Accordingly, it was not an appealable “final decision with respect to an arbitration” under FAA section 16(a)(3). Instead, what was before the Ninth Circuit were a section 16(b)(1) stay of litigation and a section 16(b)(2) order compelling arbitration, both of which were expressly notappealable. Also, the court adopted a rebuttable presumption for future cases, that “an order compelling arbitration but not explicitly dismissing the underlying claims stays the action as to those claims pending the completion of the arbitration.”
And this Means….?
While at first blush MediVas appears to be a somewhat esoteric, narrow, fact-specific case, in my eyes it demonstrates that the courts, including the generally arbitration-averse Ninth Circuit, will not permit parties to thwart the twin societal goals of arbitration speed and finality. Arbitration’s personal protector won’t allow it.