Polsinelli recently defeated a motion to dismiss a client’s judicial review of an arbitration award, successfully arguing that adopted arbitration rules that waive appellate rights do not waive a party’s right to judicial review under the Federal Arbitration Act (“FAA”). The case presented a conflict between the parties’ contractually-adopted arbitration rules and an individual party’s statutory rights under the FAA. Although ultimately successful, the case served as an important reminder for parties to thoroughly review contractual arbitration provisions – and any procedural rules referenced therein – before agreeing to them.
In a contractual dispute involving domestic and international entities, the parties submitted their dispute to arbitration. The parties’ arbitration provision incorporated by reference the International Centre for Dispute Resolution (“ICDR”)’s Rules and Procedures. After an improper arbitration award was entered against the client, Polsinelli sought judicial review and vacatur of the award pursuant to Section 10 of the FAA.
Buried within the ICDR’s procedural rules was a “no appeal” provision that contractually waived any appellate rights to challenge the arbitral award. The opposition asserted that this provision barred any type of review of the award – even the limited judicial review authorized by the FAA. The ICDR’s “no review” rules are by no means unique, and rules of other arbitral fora contain similar provisions that arguably waive judicial review. For example, the Financial Industry Regulatory Authority (“FINRA”)’s arbitration rules also prohibit judicial review “[u]nless the applicable law directs otherwise.” These types of provisions can cause significant hurdles for unaware parties who incorporate them into their arbitration agreements.
In our case, the opposing party filed a motion to dismiss the requested judicial review, asserting that the parties’ contract and incorporated ICDR rules prevailed over the FAA and precluded any review of the award. However, Polsinelli successfully argued that, pursuant to the terms of the New York Convention and the FAA, a party cannot contractually waive judicial review of an arbitral award under the grounds outlined in Section 10 of the FAA. To the contrary, several federal circuits and state courts have affirmed that parties may not contractually forfeit their right to seek review of an arbitral award under the FAA. The court agreed with Polsinelli and denied the dismissal motion, allowing the client to challenge the arbitral award. Although the client was ultimately able to seek review of the arbitral award, it required considerable resources to confirm this statutory right. If there is any confusion or potential conflict between the FAA and specific dispute resolution rules, parties should contractually agree that any arbitral award will still be subject to review under the FAA. This short amendment may save clients substantial resources and limit risk in future disputes.
As the popularity of private dispute resolution continues to grow, it is essential for both clients and their counsel to be cognizant of the express terms of arbitration provisions and the rights, limitations, and potential pitfalls of incorporated dispute resolution rules. In addition to the ability for appeal or judicial review of arbitration awards, there are several other terms in standardized arbitration rules that are often overlooked when incorporated into contractual arbitration provisions. These dispute resolution rules may incorporate unrealistic or ambiguous filing requirements, vague conditions precedent to initiate an arbitration, evidentiary or procedural rules that the parties did not intend to adopt, a silent or undefined location for arbitration proceedings, an ineffective arbitrator selection process, or inadequate fee-shifting rules. Failing to be aware of all dispute resolution rules included in a party’s agreement can result in terms that are inconsistent with a party’s expectations and may cause significant challenges in arbitration.
Polsinelli is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements.