Kluwer Arbitration will present the live Webcast “Prepare for the Worst: Designing the Best Arbitration Clauses for Latin American Investments” this Wednesday, May 4th, 2011 at 11:30am EDT. International arbitration experts will discuss drafting arbitration clauses in Latin America. The panel will also provide tips and guidelines about Latin American M&A transactions. Speakers: Nigel Blackaby – Freshfields Bruckhaus Deringer, Washington, DC Gilberto Giusti – Pinheiro Neto Advogados, São Paulo Christian Leathley – Herbert Smith, London Eduardo Zuleta – Gómez-Pinzón Zuleta, Bogotá To register click here. Technorati Tags: law, ADR, arbitration  

By James M. Gaitis [See Part I here. ] Because the only valid grounds for vacatur now recognized by the Supreme Court are those grounds found in Section 10 of the FAA, the above statements by the Supreme Court in AT&T Mobility show that the Court in effect was stating that an arbitral failure to at least attempt to apply the Federal Rules of Civil Procedure in the Court’s hypothetical example would constitute either “misbehavior” that prejudiced the rights of a party or an “act in excess of arbitral authority,” both of which would give rise to vacatur under Section 10(a)(4). That the Court implicitly was relying on one or both of these statutory grounds must be the case because judicial vacatur of such an award is the only means by which courts can, as the Court in AT&T Mobility phrased it, “honor” the parties’ agreement requiring the application of specific procedural rules. And the only grounds that would fit the situation described in the Court’s hypothetical are those found in Section 10(a)(4). Under the Court’s line of reasoning, an arbitral failure to at least attempt to apply the parties’ chosen substantive law (as defined in a choice of law provision), logically would also constitute either “misbehavior” prejudicing a party’s right or an “act in excess of arbitral authority,” also thereby giving rise to potential vacatur under Section 10(a)(4). The only argument against that conclusion presupposes that while the FAA permits the judicial enforcement of a contractual agreement to employ specific procedural rules, it prohibits the judicial enforcement of an agreement to employ a particular choice of law. Such a distinction not only is without foundation but also contradicts the emphasis found in many Supreme Court decisions, now including AT&T Mobility, on the parties’ right to craft their own arbitration process. Such a purported distinction also contradicts two hundred years of American case law recognizing that the scope of an arbitrator’s authority is restricted by a choice of law provision. It also contradicts the Court’s emphatic point in AT&T Mobility that while states may not impose upon arbitrating parties guidelines that make the arbitration process more cumbersome than that “envisioned by the FAA,” contracting parties are free to agree to do so and court’s must “honor” that agreement. And it also contradicts the Supreme Court’s prior statement that when interpreting a contract that has an arbitration provision and a choice of law provision, courts must adhere to “another cardinal principle of contract construction: that a document should be read to give effect to all of its provisions and to render them consistent with each other.” See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63 (1995). Detractors no doubt will argue that Hall Street stands for the proposition that courts may not review an arbitral award for errors in the application of law because such a review is not contemplated by the limited vacatur grounds set forth in Section 10 of the FAA. But that argument begs the question (the legitimacy of which question was acknowledged, and then left unresolved, by the Court in Hall Street) regarding whether an egregious failure to apply the law could, at least under some circumstances, constitute either “misbehavior” prejudicing a party’s rights or an act in excess of authority under Section 10(a)(4) of the FAA. The logical conclusion, and one that is consistent with the Court’s “Federal Rules of Civil Procedure” hypothetical in AT&T Mobility, is that when the arbitrator fails to even attempt to apply the parties’ chosen law, a vacatur of the resulting award is justified, but not because the arbitrator erroneously applied the governing law. Instead, vacatur is warranted because the arbitrator’s failure to even attempt to apply the governing law constitutes a clear failure to comply with the parties’ arbitration agreement and thus violates the parties’ rights. The same no doubt is true with respect to an arbitration agreement requiring the application of the Federal Rules of Civil Procedure. Courts presumably are empowered to vacate the resulting award if the arbitrators do not even attempt to apply those procedural rules. Whether a court can properly vacate an award based on the conclusion that the arbitrators grossly failed to correctly apply clearly established aspects of those rules, of course, is an entirely different question. The alternative proffered approach, whereby arbitrators are deemed to have unfettered authority to resolve the parties’ dispute without being obligated to comply with the parties’ choice of law provision, would permit arbitrators to “dispense [their] own brand of industrial justice” in violation of the Court’s express prohibition in Stolt-Nielsen. Stolt-Nielsen thus clearly holds that when the arbitrator “strays from interpretation and application of the [arbitration] agreement,” the underlying award is subject to vacatur. That principle in no way conflicts with the Court’s decision in Hall Street, which merely prohibited the enforcement under the FAA of contractual provisions purporting to “enhance” judicial review of arbitral awards. Hall Street did not serve to expand the authority of arbitrators such that arbitrators are no longer required to attempt to comply with the parties’ directives concerning the manner in which their disputes are to be resolved. As Judge Posner observed when he affirmed the vacatur of an award under Section 10(a)(4) on the very eve of Hall Street: “[P]recisely because arbitration is a creature of contract, the arbitrator cannot disregard the lawful directions the parties have given [him]. If they tell him to apply Wisconsin law, he cannot apply New York law.” Edstrom Industries, Inc. v. Champion Life Insurance Company, 516 F.3d 546, 552 (7th Cir. 2008). AT&T Mobility reinforces that principle. While it thus seems clear to this writer that Hall Street, Stolt-Nielsen, and now AT&T Mobility all support the ongoing enforceability of choice of law provisions in contracts subject to arbitration, one broader ambiguity remains. That ambiguity arises in part due to the Court’s determination in Stolt-Nielsen that arbitrators have no discretion and are entitled to no deference in the resolution of questions regarding the scope of their […]

By James M. Gaitis Last week’s United States Supreme Court decision in AT&T Mobility LLC v. Concepcion, 2011 WL 1561956 (U.S., April 27, 2011) no doubt will provide arbitration law commentators with ample fodder to debate merits the Court’s opinion as pertains not only to class arbitration but, also, related questions concerning federal preemption under the Federal Arbitration Act (FAA) and the “substantive federal law of arbitration” (to use a phrase coined by Professor Stipanowich). Still, the Court’s ultimate decision in AT&T Mobility was predictable in light of the Court’s prior ruling in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758, 1773 (2010), in which the Court made it clear that courts and arbitrators are not authorized to order class arbitration unless the application of controlling contract interpretation principles shows the parties have agreed thereto. The prospects for class arbitration in the United States now will remain dismal, at least until such time as Congress passes new legislation providing for class arbitration or until the composition of the Supreme Court significantly changes. Neither of those events seems likely in the near future. But that does not mean that discussions of AT&T Mobility must be relegated solely to postmortem commentary on class arbitration and the broad topic of preemption. As is often the case, buried within the Court’s opinion in AT&T Mobility are clues as to how the Court might rule on other significant matters related to the FAA. One obvious example of such a clue is the Court’s discussion of party autonomy principles and the enforceability of the parties’ mutually agreed arbitration processes and guidelines. Among other things, that aspect of the Court’s AT&T Mobility opinion relates directly to questions concerning both the ongoing viability and enforceability of choice of law provisions in contracts subject to arbitration and the so-called “manifest disregard of the law” standard, both of which happen to be the subject of my forthcoming article entitled Clearing the Air on “Manifest Disregard” and Choice of Law in Commercial Arbitration: A Reconciliation of Wilko, Hall Street, and Stolt-Nielsen, 21 Am. Rev. Int’ Arb __ (forthcoming summer 2011). Largely lost amid the ongoing debate regarding the viability of the so-called manifest disregard of the law doctrine is the fact that the manifest disregard controversy directly implicates the viability and enforceability of choice of law provisions contained in contracts subject to arbitration. As obscure as that issue might seem, it is now beginning to garner attention. Based on his perception that manifest disregard died with the issuance of the Court’s opinion in Hall Street Associates L.L.C. v. Mattel, Inc., 522 U.S. 576, 585 (2008), at least one academic, Professor Reuben, has already asserted that choice of law provisions are no longer enforceable in contracts governed by the FAA. In my forthcoming article, I take a different and opposing view. I argue not only that the origins and meaning of “manifest disregard of the law” are generally misunderstood by the courts and commentators, but also that in order for the Supreme Court to maintain logical consistency in its arbitration decisions, the Court must ultimately hold that choice of law provisions are enforceable under some degree of judicial review. The “degree” of that enforcement and judicial review might be as weak as to require that arbitrators at least purport to attempt to apply the chosen law of the parties. Ironically, as weak as that potential standard seems, such a standard of review would actually be more vigorous than the currently prevailing court-applied manifest disregard standard in the sense that the law would not require intent on the part arbitrator in order for courts to vacate an award for arbitral failure to apply the chosen substantive law of the contract. Egregious mistake, gross negligence, and the like would suffice. The analysis of the question regarding whether choice of law provisions in contracts subject to arbitration should be deemed enforceable under the FAA requires an in-depth inquiry in which I will not fully engage here. For the purposes of this comment it is important to note that the AT&T Mobility decision lends further support to the conclusion that choice of law provisions must be deemed enforceable under the FAA, such that an arbitral failure to apply the parties’ chosen law should give rise to potential vacatur. I make that assertion for the following reasons. In AT&T Mobility, the Court re-affirmed its prior conclusion in Hall Street that the only valid grounds for vacatur under the FAA are found in Section 10 of the FAA. In that regard, the Court expressly recited the vacatur grounds found in Section 10, including two grounds set forth in Section 10(a)(4)—i.e, “any misbehavior by which the rights of any party have been prejudiced” and when “arbitrators exceed[] their powers.” In emphasizing the broad and enforceable right of contracting parties to craft their own arbitration processes, the Court in AT&T Mobility then observed, by way of hypothetical example, that “Parties could agree to arbitrate pursuant to the Federal Rules of Civil Procedure, or pursuant to a discovery process rivaling that in litigation” and that, because “[a]rbitration is a matter of contract . . . the FAA [would] require[] courts to honor [the] parties’ expectations.” (Emphasis in the original). [Continue to Part II here. ] James M. Gaitis is the former Director of the International Dispute Management Programme at the Centre for Energy, Petroleum & Mineral Law & Policy, University of Dundee, Scotland, where he remains a member of the Global Faculty. He is the Editor-in-Chief of the second edition of The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration (J. Gaitis, C. von Kann, R. Wachsmuth forthcoming Fall 2010) and the author of numerous law review articles on the topic of arbitration, several of which have been repeatedly cited to the United States Supreme Court and lower state and federal appellate courts. Over the past twenty years he has served on a diverse array of arbitration rosters, including as a Fellow of the College of Commercial […]

The Center for Public Policy Dispute Resolution at the University of Texas School of Law will host the Eleventh Annual Spring Symposium on Dispute Resolution on April 29, 2011 from 8:30 am to 4:00 pm in the Jeffers Courtroom. The featured keynote speaker is Robert M. O’Neil, former President of the University of Virginia and Professor of Law Emeritus at the University of Virginia School of Law. The symposium, hosted by The Center for Public Policy Dispute Resolution at the UT School of Law—will also feature eleven UT graduate and law students presenting research on various dispute resolution topics. The student presentations and the keynote address are free and open to the public. O’Neil will give the symposium’s keynote address, “Forging Paths in Dispute Resolution- A Lifelong Fascination,” in the Jeffers Courtroom at 11:15 a.m. The address will be followed by a panel presentation featuring Prof. H.W. Perry– Associate Professor of Law and Government, Prof. Madeline Maxwell– Communication Studies, and Melissa Biggs-Coupal- Difficult Dialogues program coordinator. Graduate students from the Cockrell School of Engineering, LBJ School of Public Affairs, and the School of Law will present their research on topics including plea bargaining in the war against Al-Qaeda, the Catholic Church’s influence on labor arbitration, and child protection mediation in the Jeffers Courtroom and classroom TNH 3.142 from 8:35-10:50 a.m. and 1:45-3:30 p.m. For more information on the event you may contact Mary Gaski, Center for Public Policy Dispute Resolution, at mgaski@law.utexas.edu. Technorati Tags: law, ADR, mediation, arbitration