Beaumont COA Holds Section 9 of the FAA Established One Year SOL

The Beaumont Court of Appeals has held in a memorandum opinion that Section 9 of the Federal Arbitration Act (“FAA”) established a mandatory one year statute of limitations for the enforcement of arbitral awards.

In Arthur v. FIA Card Services, N.A., No. 09-09-00520-CV, (Tex. App. – Beaumont, March 10, 2011), Sally LaRue Arthur (“LaRue”) appealed a judgment which confirmed a National Arbitration Forum (“NAF”) award because she was served with a motion to confirm the award outside of the FAA’s one year statute of limitations. On April 27, 2007, an arbitration award was issued by the NAF in favor of MBNA America Bank. On December 5, 2007, FIA Card Services (“FIA”), formerly known as MBNA America Bank, filed an action to confirm the arbitration award in a state court. LaRue was ultimately served more than one year after the award was issued, however. LaRue filed an answer and moved to vacate the arbitral award asserting that under Texas law, “a timely filed suit does not interrupt the running of limitations unless a plaintiff exercises due diligence in the issuance and service of citation.” The trial court issued a judgment confirming the arbitration award on August 17, 2009. LaRue appealed.

First, the Beaumont Court of Appeals noted that a split exists among federal courts as to whether FAA Section 9 acts as a statute of limitations. In Bernstein Seawell & Kove v. Bosarge, 813 F.2d 726 (5th Cir. 1987), the Fifth Circuit “recognized the one year provision is mandatory,” stating, “[w]ithout discussion” that “’[t]he complaint to enforce the arbitration award was filed within one year as required by 9 U.S.C. § 9.’” Relying on this and other precedents, the Beaumont Court of Appeals concluded “the one year limitation period set forth in section 9 is mandatory, not permissive.”

The Court of Appeals then stated Texas courts look to federal law for substantive matters but state law to resolve procedural questions when applying the FAA. According to the court,

Texas law regarding tolling of the statute of limitations is procedural in nature and has been applied when analyzing the application of a federal statute of limitations in state court.

The Beaumont court next addressed the matter of “whether a plaintiff used due diligence in serving a defendant,” further noting that “[g]enerally, a plaintiff’s due diligence in effecting service is a question of fact.”

According to the court, because LaRue pled a statute of limitations defense and established that she was served after the one year limitations period passed, “the burden shifted to FIA to explain the delay in service of process,” and FIA’s response raised an issue of fact. Although the Court of Appeals recognized that proceedings to confirm arbitration awards under Section 9 are typically summary proceedings,

when disputed issues of material fact arise in a matter for which the legislature has prescribed summary disposition, the trial court still has a duty to hear evidence when necessary to resolve disputed fact issues.

The Beaumont Court of Appeals held the one year statute of limitations set forth in section 9 of the FAA was mandatory and material issues of fact existed regarding whether FIA used due diligence in serving LaRue. The court reversed and remanded the case for an evidentiary hearing prior to confirmation of the arbitral award.

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