Finn v. Partners

Richard B. McNamara, Presiding Justice

Plaintiff has filed a Motion to Reconsider this Court's Order of April 9, 2015 confirming and vacating the Arbitration Award in part. Plaintiff makes three arguments. First, Plaintiff argues that the Court erred in applying the New Hampshire standard of review to the Arbitration Award, because the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. preempts use of the New Hampshire standard for review of an arbitration award. She also argues that the Court found facts contrary to the facts found by the arbitrators, and incorrectly applied the law of res judicata. Defendants object. For the reasons stated in this Order, the Motion is DENIED.

To the extent that Plaintiff's Motion argues that the Court erred in applying the law of res judicata, it raises no points that the Court did not consider, and for that reason must be denied. See Super. Ct. R. 12 (e). Similarly, the Court finds Plaintiff's claim that it found facts inconsistent with the Arbitration Award without merit. Review of the award establishes that the Court did not find facts, but simply applied New Hampshire law to the facts found by the arbitrators.

Plaintiff also argues that application of the New Hampshire standard of review of an arbitration award instead of the Federal standard for review of an arbitration award is prohibited by the FAA. This issue is of significance, because under settled New Hampshire law, a court which is asked to affirm an arbitrator's decision will consider whether or not the arbitrators correctly applied the law de novo, giving the arbitrator's decision on purely legal issues no deference. Sherman v.Graciano, 152 N.H. 119, 120 (2005). Under New Hampshire law, an arbitration award may be set aside "'on the ground that the arbitrators were mistaken in point of law' if it is clear 'that they would not have made such an award if they knew what the law was.'" Walsh v. Amica Mut. Ins. Co., 141 N.H. 374, 375 (1990) (quoting New Hampshire Ins. Co. v. Bell, 121 N.H. 127, 129 (1981)). On the other hand, federal law concerning review of arbitration decisions is deferential; the United States Supreme Court has held that because the parties bargained for an arbitrator's construction of the agreement, an arbitral decision even arguably construing or applying a contract must stand "regardless of the court's view of its (de)merits". Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2068 (2013)(citation omitted).

Plaintiff did not argue that this Court should apply the Federal standard of review at any time prior to the Court's Order of April 9, 2015. See Finn v. Ballentine Partners, LLC et al., (Merrimack County Superior Ct.) No. 2013- CV- 12 (April 9, 2015) (Order, McNamara, J.) at 11, n.5. While under those circumstances, a court has authority to refuse to consider the argument, in the interests of justice, the Court will consider the Plaintiff's argument on the merits. Appeal of Vicki Morton, 158 N.H. 76, 79 (2008).

The purpose of the FAA has been said to overcome the common-law hostility to arbitration and to ensure that the expectations of those who desire arbitration and whose contracts relate to interstate commerce will not be undermined by federal judges or State courts or legislators. Southland Corporation v. Keating, 465 U.S. 1, 13 (1984). The FAA was designed to overrule the judiciary's long-standing refusal to enforce agreements to arbitrate, and to place such agreements "upon the same footing as other contracts." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). For that reason, the United States Supreme Court has consistently held that "[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA." AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740, 1747 (2011); see also Marmet Health Care Center v. Brown, 132 S.Ct. 1201, 1203 (2012).

But the Supreme Court has also stated that "the FAA contains no express preemptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration." Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989). While the FAA preempts state laws which would require judicial resolution of claims the parties agreed to arbitrate, it does not preempt all state law relating to arbitration. As the Court noted in Volt Information Sciences:

[I]t does not follow that the FAA prevents the enforcement of agreements to arbitrate under different rules than those set forth in the act itself. Indeed, such a result would be quite inimical to the FAA's primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms.

This interpretation of the FAA is supported by the plain meaning of the statute. The FAA provides in substance that if the parties have agreed that a judgment of the court may be entered upon the award and if they further specify the court, that at any time within a year they may do so, and the court must grant an order unless the award is vacated, modified, or corrected as provided in sections 10 and 11 of the Act. See 9 U.S.C. § 9. The FAA sets forth the grounds for vacating an arbitration award in § 10, but by the terms of the statute itself limits its application to cases in the United States District Court. See 9 U.S.C. § 10.

It is true that some commentators have argued that the FAA should preempt any state ground for vacating an arbitration award. See, e.g., Stephen K. Huber, State Regulation of Arbitration Proceedings: Judicial Review of Arbitration Awards by State Courts, 10 Cardozo Journal of Conflict Resolution, 509, 524 (2009) (collecting commentators). But Plaintiff has not cited, and the Court has not found, controlling state or federal authority supporting this proposition. As noted in the Huber article, "there is a considerable body of state court decisions that rely on state law as the basis for review of arbitration proceedings, including those that, consistent, with Supreme Court decisions, take place prior to arbitration". Id. at 532; see generally Cable Connection Inc., v. DirectTV, Inc. 190 P.3d 586, 599 (Cal. 2008); Humitech Development Corporation v. Pearlman, 424 S.W.3d 782 (Tex. App. 2014); Schmidt v. UBS Financial Services., No. 13-P-371, 2014 WL 297518 at *4 (Mass. App. Ct. July 3, 2014).

Plaintiff also argues in her Reply that "as a matter of public policy the Court should not create a review process which conflicts with and defeats the purpose of the FAA." (Pl.'s Reply to Obj. to Mot. to Reconsider at 6.) This Court has no ability to make policy, and must apply the law as pronounced by the New Hampshire Supreme Court. But the Court notes that the legislative purpose of the FAA is fulfilled by allowing parties to choose the standard of review for the arbitration as the parties did here, by seeking to confirm the award in a New Hampshire state court. As the California Supreme Court noted in holding that the California Arbitration Act allow parties to contract for heightened judicial review of arbitration awards:

The benefits of enforcing agreements like the one before us are considerable, for both the parties and the courts. The development of alternative dispute resolution is advanced by enabling private parties to choose procedures with which they are comfortable. Commentators have observed that provisions for expanded judicial review are a product of market forces operating in an increasingly "judicialized" arbitration setting, with many of the attributes of court proceedings. The desire for the protection afforded by review for legal error has evidently developed from the experience of sophisticated parties in high stakes cases, where the arbitrators' awards deviated from the parties' expectations in startling ways.

The judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets. Courts are spared not only the burden of conducting a trial, but also the complications of discovery disputes and other pretrial proceedings. Incorporating traditional judicial review by express agreement preserves the utility of arbitration as a way to obtain expert factual determinations without delay, while allowing the parties to protect themselves from perhaps the weakest aspect of the arbitral process, its handling of disputed rules of law.

There are also significant benefits to the development of the common law when arbitration awards are made subject to merits review by the parties' agreement. "[I]f courts are reduced to the function of merely enforcing or denying arbitral awards, without an opportunity to discuss the reasoning for the arbitral decision, the advancement of the law is stalled, as arbitral decisions carry no precedential value. Thus, expansion of judicial review gives the courts of first instance the opportunity to establish a record, and to include the reasoning of expert arbitrators into the body of the law in the form of written decisions. This procedure better advances the state of the law and facilitates the necessary beneficial input from experts in the
field."

In sum, this Court is not required to apply Federal standards for review of arbitration, but is required to apply the rules for review established by the New Hampshire Supreme Court. The New Hampshire standards afford the parties and the public substantial benefits which in no way conflict with or defeat the Congressional purpose behind the FAA. When the standard for review of an arbitrator's award established by the New Hampshire Supreme Court is applied to the Award presently before the Court, it is apparent that it cannot stand. It follows that the Motion to Reconsider must be DENIED. SO ORDERED. 5/14/15
DATE

s/Richard B. McNamara

Richard B. McNamara,

Presiding Justice
RBM/