By Wm. Grayson Lambert
Every day people across the country mindlessly click "Accept" for the terms and conditions on phones, computers and tablets for services as varied as social media, music and finance. They are incorporated in the fine print of many, if not most, consumer documents that are signed as a matter of routine. These terms and conditions to which we—even lawyers—all so often unconsciously agree often include an arbitration agreement. In other words, without really thinking about it, people agree to settle a potential dispute out of court, using a private decisionmaker, rather , than in a courtroom with a judge › and a jury.
' At the same time, arbitration j agreements are also prevalent in I negotiated contracts between individuals, as in partnership agreements; between corporations and ; individuals, such as employment : agreements; and between corpora-tions. In many contexts, arbitration agreements have become more the rule than the exception. For example, in the construction industry, it's now unusual for the parties not to choose arbitration.
The popularity of arbitration agreements is unsurprising. It helps keep disputes off the front page of a newspaper or the top of a website, and it is designed to be a faster and cheaper way to resolve disputes.1 Moreover, the U.S. Supreme Court has repeatedly endorsed and protected arbitration agreements, ensuring that they will generally be enforced.2
Judicial review of arbitration awards
The award in an arbitration proceeding, however, is rarely the end of the dispute. Far from it. To collect money if the losing party is not simply willing to write a check, a prevailing party must ask a court t o confirm the award and enter judgment in its favor.3 That judgment, unlike an arbitration award, can then be enforced against the losing party.
Alternatively, if the losing party believes the arbitrator's decision is flawed, it can challenge the arbitration award. If this party prevails, the court would vacate the award. The case could then return to arbitration, not unlike a case being remanded to a trial court for a new trial after an appeal.
No matter whether a party seeks to have a court confirm or vacate an arbitration award, the court's review of that award is "severely circumscribed" and "among the narrowest in law."5 As the Fourth Circuit once put it, "[a] court sits to 'determine only whether the arbitrator did his job—not whether he did it well, correctly, or reasonably, but simply whether he did it.'"6 An award may be vacated only on one of the four bases set forth in 9 U.S.C. § 10 or if the arbitrator manifestly disregards clear legal precedent.7 If these limited circumstances are not met, then the award "must" be confirmed.8 (These rules under the Federal Arbitration Act (FAA)9 apply to most arbitration agreements because the FAA applies to any contract impacting interstate commerce.10 Even when the FAA does not apply, this narrow judicial review and the grounds for vacating an award are similar under the South Carolina Uniform Arbitration Act.11 ) But in what court should you seek to confirm or vacate an arbitration award? In South Carolina, it's not clear.
Subject-matter jurisdiction over arbitration awards
South Carolina's circuit courts are courts of general jurisdiction.12 Thus, a party can bring any claim— including one to confirm or vacate an arbitration award—in circuit court, assuming the claim isn't subject to exclusive jurisdiction somewhere else13 and the defendant is subject to personal jurisdiction in South Carolina.14 In other words, a state court is always an option for confirming or vacating an arbitration award, and subject-matter jurisdiction is not an issue.
Federal courts are, on the other hand, courts of limited jurisdiction.15 The FAA, while providing a framework for the relationship between arbitration proceedings and courts, lacks any provision conferring subject-matter jurisdiction on federal courts.16 Thus, to confirm or vacate an arbitration award in federal court, a party must find a jurisdictional hook outside of the FAA.
Because a federal question in the underlying arbitration is insufficient to invoke federal jurisdiction, the typical hook is diversity jurisdiction under 28 U.S.C. § 1332. Establishing diversity jurisdiction requires (1) complete diversity and (2) at least $75,000 in controversy18 This much is simple.
The complication comes when determining the amount in controversy. Is it the original amount demanded or the amount of the ultimate award? Courts have developed two (or three, depending how one counts) different ways to decide how much is in dispute to determine whether a court has subject-matter jurisdiction over an action to confirm or vacate an arbitration award.
Approaches to the amount-in-con-troversy requirement for federal subject-matter jurisdiction
Some courts, most prominently the Fifth and D.C. Circuits, have adopted what has become known as the "demand approach."19 In this approach, the amount in controversy is determined exclusively by the amount that was sought in the arbitration, regardless of the ultimate award. Courts have given multiple justifications for adopting this approach. Some have reasoned that it best supports the congressional policy favoring arbitration. Others have worried that adopting a different rule...