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A Pivotal Ruling for Appellate Arbitration Award Enforcement

Authors: Albert Bates Jr. and R. Zachary Torres-Fowler

3/11/2019
A Pivotal Ruling for Appellate Arbitration Award Enforcement

This article was published in Law360 on March 11, 2019. © Copyright 2019, Portfolio Media, Inc., publisher of Law360. It is republished here with permission.

In 2008, the U.S. Supreme Court in Hall Street Associates LLC v. Mattel Inc. determined that parties may not contractually agree to expand judicial review of arbitral awards beyond the grounds set forth in the Federal Arbitration Act, or FAA.1 In the aftermath of the Hall Street decision, the American Arbitration Association issued its “Optional Appellate Arbitration Rules,” a set of optional procedures designed to permit parties to appeal arbitration awards to three-arbitrator appellate panels.

The Optional Appellate Arbitration Rules apply where business-to-business users have provided for the appeal of an arbitration award rendered under the auspices of the AAA or its international arbitration division, the International Centre for Dispute Resolution. Other U.S.-based arbitral institutions, like JAMS and the International Institute for Conflict Prevention and Resolution, have also developed optional appellate arbitration rules.

The AAA/ICDR’s appellate arbitration procedures are unique, however, because, among U.S.-based arbitral institutions, the ICDR’s arbitration rules are the most commonly utilized set of rules for administered international arbitration proceedings. Moreover, among the leading international arbitration institutions (e.g., International Chamber of Commerce, London Court of International Arbitration, Singapore International Arbitration Centre, Hong Kong International Arbitration Centre, the Stockholm Chamber of Commerce), the ICDR is the only arbitral institution to offer an optional set of appellate procedures.

Given that appellate arbitration rules remain relatively uncommon in international arbitrations and that the AAA/ICDR’s appellate arbitration rules have only been utilized a handful of times since their release in 2013, the question of whether enforcing courts would apply the same standard of review to appellate arbitration awards as compared to non-appellate awards remained something of a gray area.

However, on Feb. 14, 2019, Judge Paul A. Crotty of the U.S. District Court for the Southern District of New York seems to have dispelled any doubt concerning the enforceability of appellate arbitration awards under the AAA/ICDR’s Optional Appellate Arbitration Rules. In what appears to be the first case to address the Optional Appellate Arbitration Rules, Judge Crotty affirmed an arbitration award issued by an AAA appellate arbitration panel that previously reversed the original arbitrator’s award.

As explained below, the decision in Hamilton v. Navient Solutions LLC2 indicates that the federal courts will likely review questions concerning the vacatur of appellate arbitration awards in the same manner as non-appellate awards and will continue to afford the appellate arbitrators significant deference under the FAA. Moreover, given that the AAA Optional Appellate Arbitration Rules used in Hamilton are the same appellate rules used by the ICDR, Judge Crotty’s decision should have equal significance to the enforceability of appellate arbitration awards issued in connection with international arbitration proceedings.

Facts

In September 2007, the petitioner and claimant, Lucin Hamilton, entered into a student loan agreement with the respondent, Navient Solutions LLC, a student loan servicing company. According to that agreement, Hamilton allowed Navient to contact her regarding the loan via automated telephone dialing equipment or artificial pre-recorded voice messages. Nearly a decade later, Navient began to contact Hamilton on her cellphone concerning the outstanding loan amount of $12,512.72 and ultimately declared Hamilton’s loan in default.

In October 2016, Hamilton initiated arbitration against Navient pursuant to an arbitration clause in the student loan agreement, and argued that Navient harassed her using the automated telephone dialing system in violation of the Telephone Consumer Protection Act.3

During the proceedings, Hamilton and Navient agreed to a set of stipulated facts that (1) in April 2016, Hamilton instructed Navient’s call center agents to stop making automated calls to her cellphone, (2) Navient’s call agent agreed to do so and updated Navient’s records to indicate that Hamilton did not consent to the automated calls, and (3) Navient continued to use its automated telephone dialing system to call Hamilton’s cellphone 237 times after April 21, 2016.

Following the conclusion of the hearing, and just before issuance of an arbitration award, the U.S. Court of Appeals for the Second Circuit held in Reyes v. Lincoln Automotive Financial Services4 that the TCPA does not permit a party to unilaterally revoke his or her consent to be contacted by a creditor as part of a bargained-for exchange (e.g., a loan agreement). Following the decision in Reyes, Navient requested that the arbitrator reopen the proceedings to consider the impact of Reyes on the arbitration.

The arbitrator declined Navient’s request because Navient stipulated that it no longer possessed Hamilton’s consent and issued an award in favor of Hamilton for the amount of $103,487.28. Navient appealed pursuant to the AAA appellate procedures. After approximately eight months of proceedings, the AAA appellate panel issued a final award, finding that Hamilton’s consent was not revocable under Reyes and that the portion of the original arbitration award finding in Hamilton’s favor should be vacated and reversed.

Following the AAA appellate panel’s award, Hamilton initiated proceedings in the Southern District of New York to vacate the revised arbitration award on the grounds that the AAA appellate panel exceeded its powers and manifestly disregarded the law by vacating the original arbitration award.

Decision

Upon review of Hamilton’s motion, Judge Crotty declined to vacate the appellate arbitration award. Although Judge Crotty determined that Hamilton’s motion for vacatur was time-barred because Hamilton failed to complete service of her motion on Navient within the three-month period set by the FAA, Judge Crotty held that, even if service had been proper, Hamilton’s motion must be denied pursuant to traditional standards of review for vacatur under the FAA.

Judge Crotty reiterated that his review of the appellate panel award should be “narrowly limited” and that the arbitrators’ determinations should be afforded “great deference.” Accordingly, based on his review of the facts and law, Judge Crotty determined that the appellate panel neither exceeded its powers nor manifestly disregarded the law by issuing an award consistent with the Second Circuit’s decision in Reyes.

Judge Crotty’s decision to deny Hamilton’s motion to vacate the appellate arbitration award using the same standard that the courts apply to non-appellate awards — without considering whether there should be a substantive difference in the applicable standard of review — makes clear that awards issued by appellate arbitration panels will remain subject to limited judicial review under the FAA.

While the decision in Hamilton concerned a domestic arbitration — managed in accordance with the AAA’s rules, and not the ICDR’s rules — Judge Crotty’s opinion will likely have equal significance for enforcement challenges of appellate arbitration awards stemming from an international arbitration under the ICDR’s arbitration rules because the Optional Appellate Arbitration Rules are the same for AAA and ICDR arbitrations.

As a result, when international arbitration parties utilize the ICDR’s or potentially other similar forms of appellate arbitration procedures, it appears that the U.S. courts will continue to apply a limited form of judicial review to all forms of international appellate arbitration awards.

Endnotes

1 Hall Street Assocs. LLC v. Mattel Inc.,128 S. Ct. 1396 (2008).

2 Hamilton v. Navient Solutions LLC, No. 18-CV-5432, 2019 U.S. Dist. LEXIS 23312 (S.D.N.Y. Feb. 14, 2019).

3 47 U.S.C. Section 227.

4 Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017).

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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