USA Trends and Developments Contributed by: John Desmond, Alexis Taitel and Alice Samberg, Dickinson Wright PLLC
Once parties have initiated arbitral proceedings, the arbitrator (or panel of arbitrators) functions similarly to a judge and presides over pre-arbitration proceedings – including discovery disputes and motion practice – and rules on the admissibility of evidence. The pro- ceedings ultimately culminate in an evidentiary hear- ing that closely resembles a trial, during which the parties present to the arbitrator testimony and other evidence of the merits of their claims and defences. At the close of the evidentiary hearing, the arbitrator must weigh the merits of the evidence placed before him or her, issue formal findings of fact and conclu- sions of law on all issues presented, determine the prevailing party, and issue an award in that party’s favour. Nuances of Arbitration Awards Compared to Judgments The key distinction between arbitration awards and judgments is their enforceability. A prevailing party cannot automatically enforce an arbitration award against the losing party because that award was not issued by a judge in a court of law. Although the los- ing party is technically liable to the prevailing party for the performance or monetary amount awarded by the arbitrator, the prevailing party has no legal mechanism through which to immediately enforce an arbitration award. In other words, if the loser does not comply with the arbitrator’s decision, the winning party must present the arbitrator’s findings to a judge in a court to seek confirmation of the award. Only a judge, not an arbitrator, has authority to command parties to comply with the final determination of a dispute. Arbitrators who issue awards are third parties operating outside of the court system, so a ruling of theirs does not carry the same effect unless a court formally recognises and adopts it. Specifically, the prevailing party must “con- firm” the arbitration award with a court by request- ing that the court recognise the validity of the award and enter a judgment in accordance with the terms of the award. By confirming the award and entering a judgment consistent with it, a court converts the unenforceable arbitration award into an enforceable judgment. This is not always necessary, as there are certainly instances in which parties voluntarily comply with an arbitration award. But if they do not, then the prevailing party has no choice but to resort to a court of law to seek enforcement.
The time by which a prevailing party must confirm an arbitration award and the exact mechanisms to do so vary by jurisdiction throughout the United States. Most broadly, the FAA applies to contracts affect- ing interstate commerce or to contracts in which the parties have chosen the FAA to govern any potential future arbitral proceedings. In addition, each state has its own arbitration laws that address issues outside of the FAA’s purview. Although each state’s statutory scheme may differ from the others, 22 states and the District of Colum- bia have adopted the Revised Uniform Arbitration Act, which is based on the FAA and codifies rules regard- ing judicial recognition and enforcement of arbitration awards. In these states, the confirmation process is largely the same, if not identical, to that of the FAA. Indeed, under the principle of federal pre-emption, no state’s arbitration scheme can conflict with the FAA. Although a state may enact rules as it pleases regard- ing areas or topics on which the FAA is silent, states’ confirmation processes cannot be so entirely different as to directly conflict with the FAA. The confirmation process is usually initiated when the prevailing party files with a court of competent juris- diction a motion or petition to confirm an arbitration award. At a minimum, such a motion or petition must include a copy of the final arbitration award and basic information about the parties, their dispute, and the clause or agreement rendering their dispute arbitra- ble. The transcripts of the arbitration proceedings are often attached as well. The Supreme Court of the Unit- ed States has emphasised that judicial discretion in the review of an arbitration award is narrow and highly deferential. This means that a court must confirm an arbitration award and convert it into a judgment unless there exist legitimate grounds upon which the court may either modify or vacate the award. If a court determines that modification or vacatur of an arbitration award is appropriate, the body of law governing the arbitration award – either the FAA or the arbitration act of the appropriate state – controls the circumstances under which that may occur. Again, these exceptions to the general rule of confirmation will vary by jurisdiction, but, generally, and per 9
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