FAA vs. PUAA: Defining Vacatur Standards in Arbitration Awards

Introduction

The case of Mary Gurlen et al. v. Henry Management, Inc. (CA09-1380), adjudicated by the Court of Appeals of Arkansas on August 18, 2010, centers on the intricate interplay between federal and state arbitration laws. The primary issue revolves around whether the Federal Arbitration Act (FAA) or the Pennsylvania Uniform Arbitration Act (PUAA) governs the vacatur standards for an arbitration award rendered under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The parties involved include Mary Gurlen and others as Appellants against Henry Management, Inc. as the Appellee. The tension arises from conflicting provisions in the arbitration agreement regarding the applicable legal framework for enforcing and vacating arbitration awards.

Summary of the Judgment

The United States Court of Appeals, Third Circuit, affirmed the District Court's decision to deny the Appellants' motion to remand and their motion to vacate the arbitration award. However, it reversed the District Court's decision to impose Rule 11 sanctions against Pepper Hamilton, the Appellants' counsel, for contesting jurisdiction in the motion to remand. The court held that the FAA's vacatur standards applied, not the PUAA's, due to the lack of clear intent by the parties to adopt state law vacatur standards. Consequently, the arbitration award was confirmed as it met the rationality requirement under the FAA.

Analysis

Precedents Cited

The judgment extensively references key precedents that shape the interpretation of arbitration agreements and the applicability of vacatur standards:

• Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University (489 U.S. 468, 1989): This case established that the FAA enforces private arbitration agreements as per their terms, including the use of state arbitration rules.
• Roadway Package Sys., Inc. v. Kayser (257 F.3d 287, 2001): Reinforced the notion that parties can contractually choose arbitration rules outside the FAA's default provisions, so long as there is no attempt to opt out of FAA coverage entirely.
• Hall Street Associates, L.L.C. v. Mattel, Inc. (552 U.S. 576, 2008): Determined that arbitration agreements cannot be modified by the parties to alter the FAA’s confirmation, vacatur, and modification standards.
• SUTER v. MUNICH REINSURANCE CO. (223 F.3d 150, 2000): Highlighted the necessity for clear and unambiguous language to waive specific arbitration rights under the FAA.
• Mut. Fire, Marine Inland Ins. Co. v. Norad Reins. Co. (868 F.2d 52, 1989): Emphasized the deferential "irrationality" standard under the FAA for vacating arbitration awards.

These cases collectively underpin the court’s reasoning that while parties may choose state arbitration rules, they cannot entirely escape FAA oversight unless explicitly stated.

Legal Reasoning

The crux of the court's reasoning lies in discerning whether the parties intended to opt out of the FAA's vacatur standards in favor of those under the PUAA. The judgment underscores that any such opt-out must be explicit and unequivocal. The arbitration provisions specified adherence to PUAA rules only concerning the conduct of arbitration, not its judicial enforcement. Additionally, the service-of-suit provision explicitly preserved the right to remove actions to federal courts, contradicting any implied waiver of § 205 rights under the FAA.

The court applied a stringent "clear intent" standard to determine if the PUAA vacatur standards were intended to replace those of the FAA. The absence of explicit language indicating such a substitution led the court to conclude that the FAA’s standards remained applicable.

Impact

This judgment reinforces the supremacy of the FAA in arbitration matters, particularly in cases lacking explicit contractual language to the contrary. It serves as a precedent that merely adopting state arbitration rules does not suffice to override federal standards for vacatur unless there is a clear, unambiguous agreement to do so. Future arbitration agreements must clearly articulate the desired legal framework for judicial review to avoid defaulting to FAA standards.

Complex Concepts Simplified

Federal Arbitration Act (FAA)

The FAA is a federal law that provides a strong policy favoring arbitration agreements and compelling courts to enforce them in accordance with their terms.

Pennsylvania Uniform Arbitration Act (PUAA)

The PUAA is a state law that governs arbitration proceedings within Pennsylvania, including the grounds and procedures for vacating arbitration awards.

Vacatur Standards

Vacatur refers to the legal process of setting aside or nullifying an arbitration award. Under the FAA, the standards for vacatur are highly restrictive, requiring proof of "completely irrational" decisions by arbitrators. State laws like the PUAA may have different, often broader, standards for vacatur.

Rule 11 Sanctions

Rule 11 of the Federal Rules of Civil Procedure allows courts to impose sanctions on parties or attorneys who file frivolous or unsupported claims or motions.

Conclusion