69 The Alabama Lawyer 435 (2008). Judicial Review of Arbitration Awards in the Alabama Courts.

AuthorBY WILLIAM H. HARDIE, JR.

The Alabama Lawyer

2008.

69 The Alabama Lawyer 435 (2008).

Judicial Review of Arbitration Awards in the Alabama Courts

Judicial Review of Arbitration Awards in the Alabama CourtsBY WILLIAM H. HARDIE, JR.Introduction

On June 20, 2008, the Supreme Court of Alabama in Horton Homes, Inc. v. Shaner, ____ So.2d ____, 2008 WL 2469364 (Ala. June 20, 2008), adopted an entirely new set of procedures for the review of an arbitration award in state court. This opinion will have significant impact on the review of arbitration awards in state court in Alabama.

In addition, on March 25, 2008, the Supreme Court of the United States issued an opinion in which it held that the grounds listed in §§ 10 and 11 of the Federal Arbitration Act, 9 U.S.C. §§ 10 and 11, for vacating or modifying an arbitration award are the exclusive grounds available when the review is sought under the "streamlined treatment" provided in the Act. Hall Street Associates, LLC v. Mattel, Inc., ____ U.S. ____, ____ 128 S. Ct. 1396, 1401-1402 (2008). This opinion will have significant impact on the substantive grounds for future review of arbitration awards in Alabama.

The Court's opinion in Hall Street raised serious questions concerning the continued viability of extra-statutory grounds for vacating an arbitration award in state court. See William H. Hardie, Arbitration: Post-Award Procedures, 60 Ala. Law. 314, 3 22-23 (1999) (discussing extra-statutory grounds created by the courts). The most prominent of these grounds is "manifest disregard of the law" which owes its origins to dicta in Wilko v. Swann, 346 U.S. 427, 436 (1953), and that ground for vacatur under the FAA was specifically rejected by the following language in the Hall Street opinion:

Then there is the vagueness of Wilko's phrasing. Maybe the term "manifest disregard" was meant to name a new ground for review, but maybe it merely referred to the § 10 grounds collectively, rather than adding to them. . . . Or, as some courts have thought, "manifest disregard" may have been shorthand for § 10(a)(3) or § 10(a)(4), the subsections authorizing vacatur when the arbitrators were "guilty of misconduct" or "exceeded their powers." . . . We, when speaking as a Court, have merely taken the Wilko language as we found it, without embellishment, . . . and now that its meaning is implicated, we see no reason to accord it the significance that Hall Street urges.Hall Street Associates, LLC v. Mattel, Inc., ____ U.S. at ____ 128 S. Ct. at 1404.

The Hall Street opinion was clearly limited to the procedures available under the FAA, and its rejection of extra-statutory grounds would apparently not apply to proceedings in state courts. Indeed, the Court was at pains to emphasize the continued viability of procedures other than the FAA:

In holding that §§ 10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable. But here we speak only to the scope of the expeditious judicial review under §§ 9, 10, and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards.Id. at ____, 128 S. Ct. at 1406.

Nevertheless, the Supreme Court of Alabama in Hereford v. D.R. Horton, Inc., 2008 WL 4097594 (Ala. September 5, 2008), followed the lead of the United States Supreme Court on this issue and abandoned "manifest disregard of the law" as an extra-statutory ground for review of an arbitrator's award:

Earlier this year, the Supreme Court of the United States, in Hall Street Associates, L.L. C. v. Mattel, Inc., supra, rejected the conclusion that it had adopted manifest disregard of the law as an additional, nonstatutory ground for relief from an arbitrator's decision. . . . Under the Supreme Court's decision in Hall Street Associates, therefore, manifest disregard of the law is no longer a proper basis under the Federal Arbitration Act for vacating, modifying, or correcting an arbitrator's award. In light of the fact that the Federal Arbitration Act is federal law, and in light of the Supremacy Clause of the Constitution of the United States, Art. VI, we hereby overrule our earlier statement in Birmingham News that manifest disregard of the law is a ground for vacating, modifying, or correcting an arbitrator's award under the Federal Arbitration Act, and we also overrule any such language in our other cases construing federal arbitration law.Id. at 4-5.

Federal Arbitration Act

The Supreme Court of the United States has recognized a state court's concurrent jurisdiction under the FAA. Moses H. Cohen Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 25 (1983) ("the federal courts' jurisdiction to enforce the [Federal] Arbitration Act is concurrent with that of the state courts"). The general principle is that state courts have jurisdiction over cases arising under federal law absent provision by Congress to the contrary or disabling incompatibility between the federal claim and state court adjudication. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 477-478 (1981); see also Tafflin v. Levitt, 493 U.S. 455, 458-460 (1990); Howlett v. Rose, 496 U.S. 356, 367 (1990). Therefore, in addition to its role requiring enforcement of arbitration agreements, the FAA may have a role as a source of procedure in state court.

Federal courts hold that the petition to enforce or vacate under the FAA may be filed not only in the district in which the award was made, but also in any suitable district under general venue provisions. See Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co., 529 U.S. 193, 195 (2000). It remains an open question whether an action in state court invoking the FAA could rely on the FAA's permissive venue. In MBNA America Bank, N.A. v. Bodalia, 949 So.2d 935, 939 n.6 (Ala. Civ. App. 2006) and Dunigan v. Sports Champions, Inc., 824 So.2d 720, 721 (Ala. 2001), the courts held that the restrictive rules of venue were jurisdictional, but the opinions were careful to point out that the FAA had not been invoked by the parties.

The pleading filed in federal court under § 8 of the FAA to confirm an award is a petition to confirm the award, not a complaint. Booth v. Hume Publishing, Inc., 902 F.2d 925, 932 (11th Cir. 1990). Section 12 of the FAA provides that judicial review of an arbitration award is invoked in the trial court by "Notice of a motion to vacate, modify, or correct an award . . . ". The Supreme Court of the United States has not ruled definitively whether the procedural provisions of the FAA must be applied when the FAA is invoked in a state court. See Government of the Virgin Islands v. United Industrial Workers, 169 F.3d 172, 175 (3d Cir. 1999). The court has said, however, that the FAA is not intended to occupy the entire field of arbitration. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989), and the Court in Hall Street observed similarly that the FAA is not the "only way into court for the parties wanting review of arbitration awards . . .". Hall Street Associates, LLC v. Mattel, Inc., ____ U.S. at ____ 128 S. Ct. at 1406.

The Supreme Court of Alabama has not considered whether review of an arbitrator's award could be commenced in state court solely by motion to vacate in reliance on the FAA procedures.

Section 9 of the FAA provides that the summary confirmation procedure is available for only one year after the award. A conflict exists among the federal circuits whether this is mandatory or permissive. Compare Photopaint Technologies, LLC v. Smartlens Corp., 335 F.3d 152 (2d Cir. 2003), with Val-U Construction Co. v. Rosebud Sioux Tribe, 146 F.3d 573, 581 (8th Cir. 1988); see General Electric Co. v. Anson Stamping Co., 426 F. Supp. 2d 579, 583 (W.D. Ky 2006) (discussing the permissive-mandatory issue at length).

Section 12 of the FAA provides three months for serving notice of a petition to vacate, modify or correct an award in federal court. There are no Alabama cases discussing whether the more generous FAA time limitations would apply to proceedings brought in state court under the FAA.

The decision in Hall Street compels the conclusion that, at least in federal court, a motion to vacate or modify under the FAA may rely only on the grounds enumerated in the Act. Those grounds are:

Section 10(a)(1): Where the award was procured by corruption, fraud or undue means

"Corruption" is not defined in either the state or federal acts. The dictionary defines corruption as "impairment of integrity, virtue, or moral principle." Webster's Ninth New Collegiate Dictionary 294 (1987). This evidently refers to corruption by a party, witness or other person as well as the arbitrator. Certainly, it would include bribery or other improper conduct intended to influence the arbitrator, but it also might include bribery of witnesses or other parties.

"Fraud" is a common concept in the law. It seems clear that in order to justify vacating an award because of fraud, the parties seeking vacation must show that the fraud was materially related to the arbitration. In Pruett v. Williams, 623 So. 2d 1115, 1116 (Ala. 1993)...

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