The United States strongly favours arbitration, which has long been a common choice of forum for parties to domestic and international commercial agreements. Arbitration is often the preferred method of resolving business disputes since litigation can be expensive and time consuming, while arbitration proceedings generally eliminate time-consuming and costly discovery.
In the United States, as elsewhere, the COVID-19 pandemic has affected arbitration procedures. US-based arbitral institutions have issued guidance regarding the use of remote platforms for virtual hearings. The guidance addresses topics such as general preparation, platform selection, costs, confidentiality and security, access to exhibits, technical support, and enforcement of an award. It appears that this guidance has led to a re-evaluation of the traditional practice of holding in-person hearings, since remote hearings save time and costs. During 2020, most of the arbitral institutions saw significant increases in caseloads, claim amounts and virtual hearings.
Arbitration is the method for dispute resolution chosen most frequently in the following industries: construction, insurance, real estate, energy, financial services, life sciences, technology, aviation and aerospace, and entertainment. The construction industry, in particular, has experienced an increase in arbitration activity in the past year, and that trend is expected to continue.
The major alternative dispute resolution providers in the United States are the American Arbitration Association (AAA) and its international arm, the International Centre for Dispute Resolution (ICDR); JAMS; and the International Institute for Conflict Prevention and Resolution (CPR). Parties often use the International Chamber of Commerce (ICC) and, to a lesser extent, the London Court of International Arbitration (LCIA), the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC). Disputes involving securities are often arbitrated by the Financial Industry Regulatory Authority (FINRA).
There are no courts specifically designated to hear arbitration disputes. Disputes concerning applicability and scope of arbitration agreements, as well as post-arbitral proceedings, may be heard in state or federal court. Disputes arising out of arbitrations with foreign sovereigns or their state-owned entities are typically heard in federal court in the District of Columbia.
The Federal Arbitration Act, 9 U.S.C. §§ 1–16 (FAA), governs arbitration agreements in contracts involving foreign or interstate commerce. The FAA applies in both federal and state courts. The same legal principles that apply under state contract law apply to arbitration agreements under the FAA.
While the United States has not enacted the United Nations Commission on International Trade Law (UNCITRAL) Model Law, eight individual states have statutes based on UNCITRAL’s model: California, Connecticut, Florida, Georgia, Illinois, Louisiana, Oregon and Texas.
The FAA and the UNCITRAL Model Law have several similar provisions. Differences primarily concern:
There are several issues addressed by UNCITRAL that are not covered by the FAA, including the availability of provisional measures from a court; the disclosure obligations of the arbitrators; and, in the absence of agreement, the arbitrator’s authority to determine venue and governing law.
There have not been any changes to national arbitration law in the past year. Legislation to prohibit forced pre-dispute arbitration clauses in employment, consumer, antitrust, and civil rights disputes was introduced in 2018 and passed the House of Representatives in 2019. The bill was not enacted, but it was reintroduced in February 2021. Several states have enacted such legislation, although it is unclear whether the state statutes violate the FAA and thus are pre-empted by federal law.
The only express requirement for enforceability under the FAA is that the arbitration agreement be in writing (9 U.S.C. §§ 2–4). The writing need not be signed, and the form of the writing can vary; it can be an arbitration clause in the underlying commercial contract, a standalone arbitration agreement, or some other type of memorialisation.
There is no subject matter that may not be referred to arbitration. However, traditional contract defences available under state law can invalidate an arbitration agreement. These defences include fraud, duress, unconscionability and public policy violations.
The US Supreme Court has held that parties to a contract may not only place the merits of a dispute before an arbitral panel, but also so-called gateway questions of jurisdiction or arbitrability, “such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy” (Henry Schein, Inc. v Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019) (citation and internal quotations marks omitted)). However, courts cannot simply assume that the parties agreed to arbitrate these issues without “clear and unmistakable evidence that they did so” (id at 531 (citing First Options of Chi., Inc. v Kaplan, 514 U.S. 938, 944 (1995))).
A current controversy concerns whether the incorporation by reference of arbitral rules that give arbitrators authority to determine questions of arbitrability constitutes the “clear and unmistakable” evidence required by the Supreme Court in First Options. All federal courts of appeals to have considered the issue have ruled that the incorporation of the arbitration rules is clear and unmistakable proof that the parties intended the arbitrator to determine arbitrability (see Blanton v Domino’s Pizza Franchising, LLC, 962 F.3d 842 (6th Cir. 2020), cert denied, 141 S. Ct. 1268 (2021)).
However, the American Law Institute has taken the position that the incorporation of standard arbitration rules does not meet the “clear and unmistakable” test of First Options because “the rules do not purport to give arbitrators the exclusive authority to rule on the enforceability of the arbitration agreement” (see Restatement of the U.S. Law of International Commercial and Investor-State Arbitration, §§ 2–8 reporter’s note b (iii) (Tentative Draft No. 4) (Am. L. Inst. May 19, 2019)).
The incorporation issue was squarely presented to the Supreme Court last term, but the court declined to reach it (Archer & White Sales, Inc. v Henry Schein, Inc., 935 F.3d 274, 283 (5th Cir. 2019), cert. denied, 141 S. Ct. 113 (2020), and cert. dismissed as improvidently granted, 141 S. Ct. 656 (2021)).
The FAA does not provide choice-of-law rules. Agreements are to be enforced according to their terms. Therefore, arbitral tribunals apply the substantive law chosen by the parties. Where the agreement does not specify the substantive law to be applied, an arbitrator has the authority to determine the appropriate choice of law rules. Indeed, institutional rules generally give arbitrators discretion to apply whatever law they deem appropriate (see, eg, CPR Rule 10.2).
The Supreme Court has held that the FAA expresses “a national policy favoring arbitration when the parties contract for that mode of dispute resolution” (Preston v Ferrer, 552 U.S. 346, 349 (2008)). Accordingly, where the FAA applies, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration” (Moses H. Cone Mem’l Hosp. v Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)). Arbitration agreements are regularly enforced by state and federal courts.
Unless the parties provide otherwise, an arbitration provision is severable from the remainder of the contract and independently enforceable (Prima Paint Corp. v Flood & Conklin Mfg. Co., 388 U.S. 395, 402 (1967)). Accordingly, to avoid arbitration, a party must attack the arbitration clause itself. The rule, however, is not absolute. At least one federal court of appeals has held that when there is a legitimate question about whether the underlying contract exists, courts, not arbitrators, must decide the threshold issue of contract formation (see MZM Constr. Co. Inc. v N.J. Bldg. Laborers Statewide Benefits Funds, 974 F.3d 386 (3d Cir. 2020)).
There are no restrictions on the parties’ autonomy to select arbitrators. The FAA expressly favours the selection of arbitrators by the parties rather than the courts. In their arbitration agreement, the parties may specify the number of arbitrators, their qualifications, and the method of their selection.
Section 5 of the FAA, 9 U.S.C. § 5, authorises judicial intervention in the arbitral process to select an arbitrator on a party’s application if:
Unless the agreement specifies otherwise, the court will appoint a single arbitrator. The arbitrators chosen by the court “shall act... with the same force and effect” as if they had been specifically named in the arbitration agreement (id). State laws may also empower courts to appoint arbitrators.
Except in rare cases, a court will not intervene pre-award to remove an arbitrator, even for bias, corruption or evident partiality. The FAA does not contain any express authorisation for such intervention.
Because the FAA is silent on removal, federal courts have consistently ruled that they lack authority to remove arbitrators during an arbitration (see in re Sussex, 781 F.3d 1065 (9th Cir. 2015) (district court erred by intervening mid-arbitration to remove arbitrator for conflict of interest; intervention should only occur in extreme cases); Savers Prop. & Cas. Ins. Co. v Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 748 F.3d 708, 716 (6th Cir. 2014) (“Parties to an arbitration generally may not challenge the fairness of the proceedings or the partiality of the arbitrators until the conclusion of the arbitration and the rendition of a final award.”)). Some courts nonetheless have held that they have “inherent” authority to disqualify an arbitrator before an award is rendered if there is a possibility that an injustice will result (see Matter of Excelsior 57th Corp., 630 N.Y.S.2d 492, 494 (1st Dep’t 1995)).
The rules of the arbitral institutions, on the other hand, expressly address the removal of arbitrators (see AAA Rule 18 (“Disqualification of Arbitrator”) (arbitrator can be subject to disqualification for partiality or lack of independence, inability or refusal to perform his or her duties with diligence and in good faith, and “any grounds for disqualification provided by applicable law”); JAMS Rule 15(i) (“At any time during the Arbitration process, a Party may challenge the continued service of an Arbitrator for cause”)).
The FAA does not have express arbitrator disclosure requirements, except to provide that an award can be set aside on the ground of evident partiality or corruption on the part of the arbitrators (see 9 U.S.C. § 10).
The rules of the arbitral institutions require that arbitrators be impartial and independent of the parties and impose disclosure requirements on arbitrators. For example, Rule R-17(a) of the AAA’s Commercial Arbitration Rules & Mediation Procedures (2019) requires disclosure of “any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives”. These rules also provide that a party who fails to raise a claim of bias against an arbitrator in a timely fashion may be deemed to have waived the objection.
In the US, there is no specific subject matter excluded from arbitration. The Supreme Court has held that even rights created by statute – for example, securities and antitrust claims – may be resolved through arbitration. In some states, certain disputes over divorce and child custody have been held to be non-arbitrable. However, when state law prohibits arbitration of specific claims, the state law may be pre-empted by the FAA (AT&T Mobility LLC v Concepcion, 563 U.S. 333, 341 (2011)).
There is a presumption that courts will decide whether the parties have agreed to arbitration and whether a particular dispute falls within the scope of the arbitration clause. According to clear decisions of the US Supreme Court, however, an arbitral tribunal may rule on a party’s challenge to the tribunal’s jurisdiction so long as the parties have clearly and unmistakably so provided in their agreement. The federal courts of appeal have consistently held that parties meet this standard by referencing, in the arbitration clause, arbitral rules that assign gateway questions to the arbitrators, in the first instance. For example, Article 21(1) of the ICDR Rules, promulgated in 2021, provides: “The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to arbitrability, to the existence, scope, or validity of the arbitration agreement(s), or with respect to whether all of the claims, counterclaims, and set-offs made in the arbitration may be determined in a single arbitration, without any need to refer such matters first to a court.”
The arbitral rules also address the timing of a party’s challenge to jurisdiction. For example, AAA Rule R-7(c) provides as follows: “A party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection.”
A trial court has the authority to determine whether there is a valid arbitration agreement between the parties and, if so, whether the current dispute is within its scope, except where the arbitration agreement clearly and unmistakably gives such “gateway” issues to the arbitrators to decide.
A party that objects to the arbitral tribunal’s jurisdiction and has not delegated that issue to the arbitration panel can seek an injunction from a court of competent jurisdiction, prohibiting the claimant from proceeding with the arbitration.
An arbitral tribunal’s determination that it lacks jurisdiction to hear a dispute may be reviewed by a court of competent jurisdiction.
A party may go to court to challenge the jurisdiction of the arbitral tribunal only after an award has been rendered.
Courts review de novo questions of arbitral jurisdiction; ie, whether the parties validly agreed to binding arbitration (see Henry Schein, Inc. v Archer & White Sales, Inc., 139 S.Ct. 524, 530 (2019); Nat’l R.R. Passenger Corp. v Boston & Maine Corp., 850 F.2d 756, 761 (D.C. Cir. 1988); Chevron Corp. v Republic of Ecuador, 795 F.3d 200, 205 n.3 (D.C. Cir. 2015) (the court has an independent duty to “satisfy itself” of the existence of a valid arbitration agreement)).
Questions of admissibility – ie, “whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement” (First Options of Chicago, Inc. v Kaplan, 514 U.S. 938, 944–45 (1995)) – are subject to varying degrees of review. If the parties have clearly and unmistakably delegated that question to the arbitral tribunal, then the courts will generally not reconsider the merits of the tribunal’s decision. If the parties have not delegated the question of arbitrability, the courts will review the tribunal’s decision de novo.
When a party initiates litigation despite having an arbitration clause in their agreement, the counterparty may move to stay the litigation pursuant to Section 3 of the FAA and to compel arbitration under Section 4 of the FAA (in these circumstances, a court may be asked to rule on the existence or validity of the arbitration agreement or whether the agreement applies to the parties’ particular dispute).
Even when a stay is not requested, the district court has discretion to determine whether to stay or dismiss the case pending arbitration (see Occilien v Related Partners, Inc., No. 19 Civ. 7634, 2021 WL 184399, at *9 (S.D.N.Y. Jan. 1, 2021) (exercising discretion to compel arbitration and stay litigation)). Courts have granted stays of litigation where a plaintiff’s non-arbitrable claims are “commingled with facts and circumstances being litigated in the arbitration proceeding” and awaiting the outcome of arbitration would serve judicial efficiency (United States ex rel. Postel Erection Grp., L.L.C. v Travelers Cas. & Ins. Co. of Am., No. 6:12-cv-182-ORL-37, 2012 WL 2505674, at *2 (M.D. Fla. June 28, 2012)). Moreover, a court’s discretion to stay litigation pending a related arbitration is not limited by a requirement that the litigating parties all be signatories to the relevant arbitration agreement (Quash Seltzer, LLC v PepsiCo, Inc., No. 21-cv-60191, at *5 (S.D. Fla. 17 May 2021)).
There is no reluctance on the part of the courts to stay proceedings, but the burden of demonstrating the appropriateness of a stay is on the party seeking the stay. The FAA does not, however, authorise federal courts to stay proceedings pending in state courts, and the Anti-Injunction Act, 28 U.S.C. § 2283, generally prohibits federal courts from enjoining proceedings in state courts. The court does have the authority to enjoin a litigant from proceeding in state court.
Furthermore, US courts have issued anti-suit injunctions to prohibit a party from proceeding with litigation abroad in violation of an arbitration agreement. Courts in that situation typically consider international comity principles when deciding the motion for an anti-suit injunction.
State law contract principles control the applicability of an arbitration agreement to non-signatories. Courts have held that non-signatories may be bound to arbitration agreements under several principles, including (i) incorporation by reference, (ii) assumption, (iii) agency, (iv) veil piercing/alter ego, (v) third-party beneficiary and (vi) estoppel (see Arthur Andersen LLP v Carlisle, 556 U.S. 624 (2009) (arbitration agreements are enforceable by and against non-signatories, under state law contract principles); Brock Servs. v Rogillio, No. 18-867, 2020 WL 2529396 (M.D. La., 18 May 2020) (compelling arbitration by a third-party non-signatory under an equitable estoppel theory)).
The US Supreme Court has, pursuant to the New York Convention as implemented by Chapter 2 of the FAA, permitted non-signatories to international arbitration agreements to compel arbitration, on the basis of domestic-law equitable estoppel principles (see GE Energy Power Conversion Fr. SAS Corp. v Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020)).
It is generally accepted that arbitrators have inherent authority to order interim or preliminary relief pending a final award. As the Southern District of New York ruled in Stone v Theatrical Inv. Corp., 64 F. Supp. 3d 527, 541 (S.D.N.Y. 2014), “an arbitrator is empowered to grant any relief reasonably fitting and necessary to a final determination of the matter submitted to him, including legal and equitable relief” (citation, internal quotation marks, and emphasis omitted).
Arbitrators may also have express authorisation to order interim relief by the terms of the arbitration agreement itself and/or the terms of the chosen arbitral rules (see, eg, AAA Arbitration Rule R-37(a) (“[t]he arbitrator may take whatever interim measures he or she deems necessary”); AAA Rule R-38(a) & (b) (once notified of the need for emergency interim relief, the AAA will appoint a single arbitrator within one day of receipt of the notice, to hear the application); CPR Arbitration Rule 13.1 (“[a]t the request of a party, the Tribunal may take such interim measures as it deemed necessary, including measures for the preservation of assets, the conservation of goods or the sale of perishable goods”)). Interim relief may also include preliminary injunctions and temporary restraining orders, as well as measures intended to preserve evidence.
Courts can enter orders in aid of arbitration. If an arbitral tribunal orders preliminary or interim relief, courts can enter orders implementing that relief. Further, the arbitration clause may have a carve-out providing that while all disputes must be submitted to arbitration, the parties may seek injunctive relief in court, which can be sought on an emergency basis.
Courts do grant interim relief in aid of foreign-seated arbitrations (see Sojitz Corp. v Prithvi Info. Solutions Ltd., 921 N.Y.S.2d 14, 17 (App. Div. 2011) (Japanese creditor could attach, for security purposes only, New York assets of an alleged debtor whose principal place of business was India, in aid of an award the creditor anticipated securing in an arbitration in Singapore)). Interim relief includes, among other remedies, orders of attachment and injunctions.
The FAA does not expressly address the topic of emergency arbitrators, but the rules of the arbitral associations provide for their appointment (see AAA Rule 38(a) & (b)). Decisions of emergency arbitrators are binding on the parties by terms of their agreement but are reviewed by the tribunal once constituted.
In appropriate situations, courts will review interim orders of emergency arbitrators (see Vital Pharmaceuticals v PepsiCo., Inc., No. 20-Civ-62415, 2020 WL 7625226 (S.D. Fla. Dec. 21, 2020) (confirming interim injunctive order of emergency arbitrator appointed under AAA rules); Yahoo Inc. v Microsoft Corp., 983 F. Supp. 2d 310 (S.D.N.Y. 2013) (upholding emergency arbitral order requiring Yahoo to continue its contractual performance during the pendency of the arbitration)).
The FAA does not have a provision governing costs and fees. However, certain institutional arbitral rules expressly grant arbitral tribunals the power to require security for costs (see AAA Arbitration Rule R-37(b); CPR Arbitration Rules 13.1, 19.1 and 19.2).
There is no federal policy favouring arbitration under a certain set of procedural rules, nor does the FAA prescribe specific procedures for arbitrations. Rather, the parties have leave to determine the procedural rules under which the arbitration will be conducted. Arbitrators generally must follow the procedural rules agreed upon by the parties. Contracting parties will typically agree to arbitrate under the rules of an established arbitral institution. These rules give arbitrators discretion to manage the arbitration in the manner they deem appropriate, subject to minimum due process requirements.
Federal law does not require any particular procedure or procedural steps for arbitrations, and parties may include in their arbitration agreements whatever procedural terms they wish, so long as those procedures comply with fundamental fairness and afford the parties minimum due process.
In terms of arbitrator powers, Section 7 of the FAA provides that arbitrators “may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case”. As concerns duties, Section 10 of the FAA, in setting forth the grounds for vacatur of an arbitral award, requires arbitrators to be impartial and to avoid any form of misconduct.
A party representative in arbitration need not be a lawyer. Parties may represent themselves or choose non-lawyers to represent them. However, since the dispute resolution process is adversarial, the rules and procedures can be complex, and there is usually a great deal at stake, it is no surprise that lawyers overwhelmingly are chosen to represent parties in arbitration in the US.
The practice of law in the United States is regulated by the individual states. The American Bar Association Model Rules of Professional Conduct have been adopted (often with modifications) by all states except California, which has its own ethics rules. The rules apply to lawyers’ conduct in arbitrations and other contexts. Under Model Rule 8.5(a), lawyers remain subject to the disciplinary authority of the jurisdiction where they are admitted, regardless of where the conduct occurred (see N.Y. Rule of Prof’l Conduct 8.5(a); D.C. Rules of Prof’l Conduct 8.5(a)). However, the rules of the jurisdiction where the arbitration is pending may also apply (N.Y. Rule 8.5(b)(1); D.C. Rule 8.5(b)(1)). Some states may impose particular procedural requirements on lawyers’ participation, depending on whether the arbitration is domestic or international.
Section 7 of the FAA gives arbitrators the authority to “summon... any person to attend before them or any of them as a witness and in a proper case to bring with him or them any [document] which may be deemed material as evidence in the case”. Beyond that, the FAA has no formal requirements regarding the production of documents, the disclosure process more generally, or the manner in which testimony or evidence is presented in arbitration.
As a general matter, however, parties are free to address matters of discovery and the presentation of testimony and evidence in their agreement, and may incorporate by reference arbitral rules that address these matters with specificity. Usually, arbitrations conducted in the US entail some amount of document discovery, with the parties typically producing those documents upon which they intend to rely and then exchanging requests for the production of documents. Legal privileges are consistently enforced in arbitrations in the US. Witness testimony is presented orally at the hearing, or in witness statements in advance of the hearing, but in either event, cross-examination is permitted and regularly employed.
The FAA does not impose any rules of evidence on arbitral proceedings. It does, however, provide, in Section 10(a)(3), that courts have authority to vacate an award where the tribunal “refuses to hear evidence pertinent and material to the controversy” (9 U.S.C. § 10(a)(3)).
Absent agreement of the parties, who may address evidentiary matters in their agreement and are free to incorporate institutional arbitral rules that address document disclosure, arbitrators are not bound by the Federal Rules of Evidence.
Section 7 of the FAA provides that “[t]he arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case” (9 U.S.C. § 7). The statute does not otherwise provide for discovery from non-parties. Courts are divided as to whether arbitrators can order the production of documents or deposition testimony from non-parties before the hearing. State courts also differ on this issue (see, eg, Aixtron, Inc. v Veeco Instruments, Inc., 265 Cal. Rptr. 3d 851 (Cal. Ct. App. 2020) (neither subpoena provisions of California Arbitration Act, nor JAMS rules nor FAA authorise arbitrator to compel pre-hearing discovery from a non-party)).
Under Section 7 of the FAA, when a party fails to comply with a tribunal’s order to testify or produce documents, the party seeking to enforce the order may petition a court for enforcement (9 U.S.C. § 7). If the subpoenaed party does not comply with the court order, the party may be held in contempt. However, Section 7 does not provide an independent grant of federal subject-matter jurisdiction. Accordingly, a separate federal statute must provide the statutory basis for subject-matter jurisdiction.
US courts have authority, pursuant to 28 U.S.C. § 1782, to compel the production of evidence “for use in a proceeding in a foreign or international tribunal”. Courts are divided as to whether private international arbitrations qualify as tribunals, and the US Supreme Court has agreed to hear this issue in its upcoming Term. Additionally, the target of discovery must “reside” or be “found” in the district where discovery is sought, which can raise nettlesome jurisdictional questions.
The FAA does not address confidentiality, and there is no case law establishing a general duty of confidentiality in arbitrations. The parties, however, can provide for confidentiality in their arbitration agreement. And institutional arbitral rules typically authorise arbitrators to issue orders protecting the confidentiality of materials. CPR Arbitration Rule 20, for example, requires the parties, the arbitrators and CPR to treat proceedings, related document disclosure and tribunal decisions as confidential, subject to limited exceptions. Most state laws allow the tribunal to issue protective orders and confidentiality orders.
Publicly held companies may be required by US securities law to disclose the arbitration proceeding if it is material to the company’s financial condition or performance. Post-award judicial proceedings to confirm or vacate will likely make the award public.
Information from an arbitral proceeding may be voluntarily disclosed by a party unless disclosure is prohibited by the parties’ agreement, institutional arbitral rules, or confidentiality orders issued by the arbitrators. However, there is a strong public interest in preserving the confidentiality of arbitration proceedings.
Section 10(a)(4) of the FAA, 9 U.S.C. § 10(a)(4), provides that an arbitral award must be “mutual, final, and definite”. There is no requirement that the award be reasoned. The New York Convention provides that foreign awards must be in writing.
Institutional arbitral rules, such as AAA Arbitration Rule R-46, require that the award be in writing and signed by a majority of the arbitrators (see also CPR Arbitration Rule 15.2 (award must be in writing and signed by at least a majority of the arbitrators); JAMS Arbitration Rule 24(h) (award shall be written and signed)).
The FAA does not limit the types of remedies available in arbitration. Subject to the parties’ agreement, arbitrators may award any type of relief. This includes damages, specific performance, injunctions, interest, costs and attorney’s fees. The Supreme Court has held that under the FAA, arbitrators may award punitive damages unless the parties’ agreement expressly prohibits such relief.
An arbitration agreement that expressly eliminates certain relief will be enforced. For example, in Henry Schein, Inc. v Archer & White Sales, Inc., 139 S. Ct. 524 (2019), the Supreme Court held that an agreement removing injunctive relief from the jurisdiction of the tribunal was enforceable.
Arbitrators may award fees and costs subject to the parties’ agreement. However, the general practice in US courts is for the parties to bear their own costs and fees. The parties may agree on a different rule of cost allocation in their arbitration agreement, including by adopting institutional arbitral rules that give arbitrators the authority to grant such relief.
The FAA does not address interest. Whether interest is permitted, and at what rate, will depend on the agreement of the parties, the applicable institutional rules, and the substantive law governing the contract. There is a presumption in favour of awarding pre-judgment interest from the time of the award through the court’s judgment confirming the award, at a rate prescribed by the state statutory law governing the contract.
Federal law controls post-judgment interest in federal cases, including cases based on diversity of citizenship. Once a court judgment confirming the award is entered, the award is merged into the judgment and the interest rate is governed by the federal post-judgment interest rate statute, 28 U.S.C. § 1961. The parties may contract around the statute if they clearly and expressly agree on a different post-judgment interest rate and that rate is consistent with state usury laws.
While trial court decisions may ordinarily be appealed as of right, that is not the case with respect to arbitrations. The FAA has no procedures for appealing the legal or factual determinations of an arbitrator. However, the major arbitral associations have promulgated optional appellate rules that parties can incorporate into their arbitration agreements.
Under the FAA, a party may challenge an award by moving to vacate, modify, or correct an award. Under the FAA, the award may be vacated where:
Under 9 U.S.C. § 12, a motion to vacate, modify, or correct an arbitral award must be served on the opposing party within three months after the award was filed or delivered. The action must be brought in the district where the award was made. When the challenge to an award is made in federal district court, the moving party must establish that the court has both subject-matter jurisdiction over the dispute (ie, the claim exceeds USD75,000 and the parties are citizens of different states, or the claim arises under federal law) and also has personal jurisdiction over the parties.
Once an arbitration award is entered, “the finality of arbitration weighs heavily in its favour and cannot be upset except under exceptional circumstances” (Mid-Atl. Cap. Corp. v Bien, 956 F.3d 1182, 1189-90 (10th Cir. 2020) (citation omitted)). Moreover, “review of arbitral awards is among the narrowest known to law” (id at 1189 (citation omitted)).
The Supreme Court held in Hall Street Associates v Mattel, Inc., 552 U.S. 576 (2008) that the grounds for vacatur under Section 10 of the FAA are exclusive and that they cannot be supplemented by a contract. However, federal courts are divided on the issue of expanded judicial review of arbitration awards, and some state courts – including California, Connecticut, New Jersey and Rhode Island – have held that the parties can agree to an expanded judicial review under state arbitration laws (see Cable Connection, Inc. v DIRECTV, Inc., 190 P.3d 586 (Cal. 2008) (requiring an explicit contract provision for expanded review)). The major arbitral associations have adopted appellate rules, with differing procedures and standards of review (see, eg, JAMS Rule 34 (optional arbitration appeal procedures)).
As for exclusion, there is case law holding that parties cannot agree to exclude any of the grounds for vacatur under Section 10(a) of the FAA, 9 U.S.C. § 10. Burton v Class Counsel (in re Wal-Mart Wage & Hour Emp’t Practices Litig.), 737 F.3d 1262, 1267–68 (9th Cir. 2013) (non-appealability clause in arbitration agreement that eliminated all federal court review of an award, including review under § 10, unenforceable).
Jurisdictional issues are reviewed de novo.
Apart from questions of jurisdiction, arbitration panel determinations are accorded great deference under the FAA. As the Supreme Court explained, Section 10(a)(4) of the FAA allows a district court to vacate an arbitrator’s decision “only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly” (Oxford Health Plans LLC v Sutter, 569 U.S. 564, 572 (2013)). If the arbitrator is “even arguably construing or applying the contract”, his decision must stand “regardless of a court’s view of its (de)merits” (id at 569 (citations omitted)). “The arbitrator’s construction holds, however good, bad, or ugly” (id at 573).
The United States acceded to the New York Convention in 1970 and implemented its provisions in Chapter 2 of Title 9 of the US Code, with two reservations. First, the United States recognises only awards made in another state that has ratified the Convention. Second, the United States applies the Convention only to matters recognised under domestic law as “commercial”. These reservations are narrowly construed. In 1990, the United States acceded to the Inter-American Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Panama Convention") and implemented its provisions in Chapter 3 of Title 9 of the US Code.
The FAA supplies mechanisms for enforcing arbitration awards; these include a judicial decree confirming an award, an order vacating it, or an order modifying or correcting it (Hall Street, 552 U.S. at 582 (citing 9 U.S.C. §§ 9–11)). Notably, once an arbitration award has been entered, it can only be overturned in exceptional circumstances.
With respect to domestic arbitration awards, and international arbitration awards rendered in the United States, the award must be “confirmed” before it can be enforced. The FAA, which governs confirmation in federal courts, requires the filing of a petition to confirm along with certain supporting documents (eg, a copy of the agreement and a copy of the award) (9 U.S.C. §§ 9, 13). A petition to confirm a domestic award may be filed “at any time within one year after the award is made” (9 U.S.C. § 9). Notice of the petition must be filed on the adverse party (id). “[T]he burden of proof necessary to avoid confirmation of an arbitration award is very high; the court will enforce an award so long as there is “a barely colorable justification for the outcome reached” (Kolel Beth Yechiel Mechil of Tartikov, Inc. v YLL Irrevocable Trust, 729 F.3d 99, 103–04 (2d Cir. 2013)).
The New York Convention and the Panama Convention, as implemented by Chapters 2 and 3 of the FAA, require that US courts honour the agreement to arbitrate and the resulting award, with certain exceptions. US courts have held that, in arbitration cases, they may refuse to recognise a foreign court’s decision if it “clearly misinterprets the  Convention, contravenes the Convention’s fundamental premises or objectives, or fails to meet a minimum standard of reasonableness” (Cerner Middle E. Ltd. v iCapital, LLC, 939 F.3d 1016, 1024 (9th Cir. 2019) (alteration in original)).
Article V of the New York Convention allows recognition to be declined in various circumstances, including when the award “has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”. But the Convention does not expressly prohibit enforcement in these circumstances.
Under the Foreign Sovereign Immunities Act, a sovereign state is immune from court proceedings under the FAA unless one or more of the enumerated exceptions to state immunity apply. One exception arises when the state has entered into an agreement to arbitrate, subject to additional restrictions (see 28 U.S.C. § 1605(a)(6)). Similarly, when a state has agreed to arbitration, a claimant may enforce the resulting judgment against state assets (see 28 U.S.C. § 1610(a)(6)).
The United States has a well-recognised policy in favour of arbitration. Violation of public policy is not one of the FAA’s listed grounds for vacating an award, but courts have recognised a public policy exception (see Welch Foods, Inc. v Gen. Teamsters Loc. No. 397, No. 19-cv-00322, 2021 WL 780147, at *2 (W.D. Pa. Jan. 25, 2021) (remanding for clarification but observing that before vacating an arbitral award on public policy grounds the court must identify “a well-defined and dominant public policy” and then determine if it has been violated)). In addition, Article V(2)(b) of the New York Convention provides that recognition may be denied where it would be contrary to the public policy of the country where recognition and enforcement are sought, but the term “public policy” is not defined.
Class-action or group arbitration generally is permitted in the US. However, the Supreme Court ruled in Lamps Plus Inc. v Varela, 139 S. Ct. 1407 (2019) that the FAA does not allow a court to compel class arbitration when the agreement is ambiguous and does not clearly provide for class arbitration.
Counsel in the United States are bound by the ethics rules of the states in which they practise, which largely are based on the Model Rules of the American Bar Association. These rules typically cover conflicts of interest, financial arrangements, conduct before a tribunal and confidentiality.
The FAA does not prohibit an unrelated third party from funding a party in an arbitration. State law addresses third-party funding through:
ABA Model Rule 5.4(a) prohibits an attorney or law firm from sharing legal fees with a non-lawyer, except in narrow circumstances. However, courts have held that third-party funding arrangements do not constitute improper fee splitting (see, eg, Hamilton Capital VII, LLC, I v Khorrami, LLP, No. 650791/2015, 2015 WL 4920281, at *5 (N.Y. Sup. Ct. Aug. 17, 2015)).
The FAA does not have a provision that addresses multiparty or multi-contract arbitration. Most US-based arbitral institutions, however, have rules that provide for joining additional parties or consolidating arbitrations between the same parties under more than one contract. The ICDR, for example, provides in Article 9(1) for the appointment of a special consolidation arbitrator: “At the request of a party or on its own initiative, the Administrator may appoint a consolidation arbitrator, who will have the power to consolidate two or more arbitrations pending under these Rules, or these and other arbitration rules administered by the AAA or ICDR, into a single arbitration.” Some states have similar procedures allowing courts to order consolidation of cases where appropriate.
Applying principles of contract law, federal and state courts have held that third-party non-signatories can be bound by arbitration agreements based on various theories, including estoppel, agency, assumption of the contract containing the arbitration agreement, third-party beneficiary status, and piercing the corporate veil principles.
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Delegation to Tribunals of Authority to Determine Matters of Consent to Arbitrate
Among the most consequential issues under discussion in the US law of international arbitration is the effectiveness of a contract clause by which parties purport to confer exclusive authority on arbitral tribunals – to the exclusion of courts – to determine issues of consent to arbitrate. Under US Supreme Court case law, parties have the right, though certainly not the obligation, to raise issues of consent to arbitrate before a court prior to arbitration, and may be deprived of that right only if they “clearly and unmistakably” manifest their intention to make such a “delegation” (First Options of Chicago. Inc. v Kaplan. 514 U.S. 938 (1995)). It is strongly presumed in US law that parties enjoy access to a court on these “gateway” or “arbitrability” matters if they so wish. They are, of course, entirely free, if they prefer, to present those issues to the arbitral tribunal, rather than a court, in the first instance, thus allowing the tribunal to decide the matter in an exercise of their kompetenz-kompetenz.
Issues of consent to arbitrate are essentially the following.
These are the issues on which parties, under First Options, have the presumptive right to a judicial ruling if that is what they seek.
In the vast majority of cases, claimants have pointed to the kompetenz-kompetenz provisions in institutional rules, such as those of the American Arbitration Association (AAA), as constituting “clear and unmistakable” evidence of a delegation within the meaning of First Options. They have been successful in convincing every US Court of Appeals that has addressed the matter that such provisions do indeed meet First Options’ test and accordingly deprive parties of access to a court on gateway or arbitrability issues. Despite their insistence that they never agreed to arbitrate the dispute in question, parties will be sent to arbitration, thus entrusting the jurisdictional matter to the tribunal to whose jurisdiction they claim never to have assented. On the other hand, state courts are split over the matter. Some take the position that the federal appellate courts have taken, but others insist that references to kompetenz-kompetenz in the procedural rules incorporated by reference in an arbitration agreement do not suffice for First Options purposes.
Supreme Court's ruling in Henry Schein, Inc. v Archer & White Sales, Inc. fails to resolve key questions
The question was first raised before the Supreme Court in the case of Henry Schein, Inc. v Archer & White Sales, Inc. There, Archer & White, a distributor of dental equipment, filed an antitrust suit against Henry Schein, Inc., a competitor distributor of dental equipment, for violation of the Sherman Antitrust Act and the Texas antitrust statute. Schein moved to stay proceedings and compel arbitration on the basis of the contract’s arbitration clause, in response to which Archer & White argued that the dispute fell within the arbitration clause’s “carve-out” for suits that involved requests for injunctive relief, as Archer & White’s did.
The federal district court found, on the basis of the AAA Arbitration Rules’ kompetenz-kompetenz clause, that the parties had delegated the jurisdictional question to a tribunal but refused, on the basis of the carve-out, to compel arbitration. It found that it could do so, despite the delegation, because Schein’s objection to the carve-out was “wholly groundless”. The US Court of Appeals for the Fifth Circuit affirmed that decision and Schein appealed to the US Supreme Court. The Court granted certiorari and vacated the Fifth Circuit's ruling on the ground that, under the Federal Arbitration Act, there existed no “wholly groundless” exception to a valid delegation (139 S. Ct. 524, 2019 U.S. LEXIS 566 (2019)). Interestingly, though the Supreme Court was not asked to consider, and did not consider, whether a delegation could validly be predicated on the AAA Rules’ kompetenz-kompetenz clause, several justices expressed doubt on that score, and in remanding the case, the Court asked the Fifth Circuit to specifically address that question.
The Court of Appeals on remand did not, in fact, address the question of whether the parties, by adopting the AAA Rules, had delegated the arbitrability question to the tribunal. It instead held that, whether they had or had not done so, because the dispute fell within the arbitration clause’s carve-out, the arbitration clause, including its delegation provision, was inapplicable to the case. lt accordingly again declined to compel arbitration.
Schein again petitioned for certiorari, asking the Supreme Court to determine whether the question of the carve-out’s applicability was primarily for a court or, due to its delegation provision, for an arbitral tribunal. The Court granted certiorari on that question, while denying Archer & White’s cross-petition for certiorari on the question of whether the presence of a kompetenz-kompetenz clause in the rules constituted clear and unmistakable evidence of a delegation. The Court heard oral argument on the question of the allocation, as between the court and a tribunal, of authority to determine whether the carve-out was applicable; ie, on whether the delegation clause required that the carve-out’s applicability be determined exclusively by the tribunal. Yet, to much surprise, the Court thereafter removed the case from its docket on the ground that certiorari had been “improvidently granted”, without further explanation. It therefore issued no ruling on the allocation of authority to determine the applicability of the carve-out to the case at hand, much less on the question whether a kompetenz-kompetenz clause in the institutional rules adopted by the parties amounted to clear and unmistakable evidence of a delegation to the tribunal of authority to determine arbitral jurisdiction.
That the Court shied away from the question of whether a kompetenz-kompetenz clause in institutional rules constitutes clear and unmistakable evidence of a delegation is highly regrettable. The proposition that inclusion of a kompetenz-kompetenz clause in the procedural rules adopted by the parties constitutes clear and unmistakable evidence of a delegation is a questionable one. First, kompetenz-kompetenz clauses are understood in US law as having a “positive” dimension only, conferring on arbitrators authority to determine arbitral jurisdiction, but not divesting courts of that authority. In this, US law differs from French law, under which kompetenz-kompetenz is said to have both a “positive” and a “negative” dimension, thus both empowering tribunals and disempowering courts to address issues of arbitral jurisdiction. Properly understood, a kompetenz-kompetenz clause does not, under US law, preclude judicial jurisdiction over arbitrability questions. Notwithstanding that fact, the US Courts of Appeals, as noted, have uniformly assumed that if arbitrators enjoy authority to determine arbitral jurisdiction, then courts cannot.
Significant impact of the Supreme Court's First Options ruling on the interpretation of kompetenz-kompetenz clauses
Moreover, kompetenz-kompetenz clauses have become ubiquitous. They are found in all modern arbitration laws and arbitration rules. If the presence of a kompetenz-kompetenz clause in those instruments is treated as clear and unmistakable evidence of a delegation, then a delegation will nearly always be found. It seems doubtful that the Supreme Court intended in First Options to render the presumption of a party’s right of access to a court on issues of arbitral jurisdiction so easily rebuttable – so much so as to effectively make delegation the rule and no longer the exception. Arguably, the prevailing case law deprives the Supreme Court’s insistence in First Options on clear and unmistakable evidence of a delegation of any meaning.
It should not be supposed that US courts will regain authority to ensure consent to arbitration after the arbitration has been ended and an award is sought to be annulled or denied enforcement on arbitrability grounds. According to the prevailing view, a delegation not only bars access to a court on arbitrability issues before an arbitration, but effectively after the arbitration as well. The furthest courts have been willing to go on post-award review is to determine whether a tribunal’s finding of arbitrability is baseless, which will be difficult to establish. Interestingly, under French law, by contrast, while a court has virtually no role to play on arbitrability issues before arbitration, it has authority after arbitration to examine a tribunal’s finding of arbitrability on post-award review, and to do so on a de novo basis.
Treating kompetenz-kompetenz provisions in procedural rules that the parties have incorporated by reference in their arbitration agreement as clear and unmistakable evidence of a delegation has enormous consequences. Notwithstanding the fact that party consent is the cornerstone of arbitration, the determination as to whether a party agreed to arbitrate a given dispute, or to arbitrate at all, will, for all practical purposes, now lie entirely in the hands of an arbitral tribunal to whose jurisdiction the party resisting arbitration allegedly never consented. That is not only how the law now stands, but also as it is likely to remain. All but one Court of Appeals has taken the view that incorporated kompetenz-kompetenz provisions meet the First Options test, as a result of which we are unlikely to see the kind of circuit split that tends to lead the Supreme Court to grant certiorari. It is also unlikely that the Court will regard the fact that several state courts have taken the opposite view as making any difference.
All who are interested in international arbitration, and the centrality to it of party consent, should ponder seriously whether, in their approach to delegations and their treatment of kompetenz-kompetenz clauses, the US courts have gone down the right path.