What to do with an arbitration award that appears to be fatally internally inconsistent and provides no explanation or reconciliation of the inconsistency?  For lack of something better to say, perhaps tee up the elusive “manifest disregard of the law” doctrine as a basis to seek vacatur of the award.  See, Weiss v. Sallie Mae, Inc., No. 18-2362, 2019 U.S. App. LEXIS 27476 (2d Cir. Sept. 12, 2019).  Or is the award’s defect that it is not adequately “reasoned” and therefore constitutes an imperfect execution of the arbitrator’s powers under FAA § 10(a)(4)?  The Second Circuit recently wrestled with the problem . . . and punted.

Heads up, sureties!  (And all other contracting parties.)  Incorporation by reference of the terms of one agreement into another is a classical common law basis for binding the incorporating parties to the incorporated terms.  As a performance bond surety recently learned, the rule is little different when the terms of a commercial agreement containing an arbitration clause are incorporated by reference into the terms of a bond.  The surety may become subject to the arbitration agreement as well. 

The United States joined 45 other countries on August 7, 2019 as the initial signatories of the UN Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention”).  Other notable vanguard signatories included China, India, South Korea, and of course Singapore.  The aim of this Convention is to make mediated international settlement agreements as easily enforceable as international arbitration awards now are under the New York Convention.  But is it likely to succeed?  We think it could ... to a degree.

Add the Fifth Circuit to the growing list of Federal Circuit Courts that have decided that “class arbitrability” is a gateway question for a court, rather than an arbitrator, to decide in the first instance, absent the parties’ “clear and unmistakable” manifestation of an agreement otherwise.  See, 20/20 Communications, Inc. v. Crawford, 2019 U.S. App. LEXIS 21765 (5th Cir. Jul. 22, 2019).  (It thus joined the 3rd, 4th, 6th, 7th, 8th, 9th and 11th Circuits in this regard.  The U.S. Supreme Court (“SCOTUS”) has noted, but not decided, the issue.  See, Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407, 1417n.4 (2019).)  However, while that decision may have been correct, the court’s ultimate holding in this particular case was arguably not.

Federal law nowadays certainly favors enforcement of agreements to arbitrate.  But generally applicable state contract law determines contract formation – i.e., whether such an agreement has been made.  Contract formation generally requires three simple elements:  offer, acceptance, and consideration.  Posting an arbitration section in your employee handbook may put an employee on notice of a company policy or “offer,” of which the employee could be said to be “generally aware,” but it might not, without more, establish that there is an agreement to arbitrate.  There must be evidence of the employee’s acceptance.

The United States Constitution, a U.S. treaty, two federal statutes, a state statute, and a commercial contract walk into a bar.  The federal statutes are arguing.  The Constitution, the treaty, one of the federal statutes, and the state statute are arguing.  The treaty and the other federal statute are arguing.  And the contract and the state statute are arguing.  In what order does the bartender serve them?  Which one does the bartender serve first?

Predictably, the U.S. Supreme Court has ruled in Lamps Plus, Inc. v. Varela, No. 17-988, 2019 U.S. LEXIS 2943 (U.S. April 24, 2019), that, under the Federal Arbitration Act, neither silence nor “ambiguity” in an arbitration agreement regarding the permissibility of class arbitration enables a court to find that the parties agreed to permit class arbitration.  According to the Court, consent is fundamental to arbitration, and such an agreement must be express and unambiguous because it would so drastically alter the nature of the proceeding from the simple “bilateral” process that was envisioned in the FAA.

Can an arbitrator require an arbitrating party to post collateral prior to a hearing on the merits of the substantive claim(s) as security with respect to payment of a possible final award against that party?  And can such an interim award then be confirmed and enforced by a Federal court?  “Yes” and “yes”.  First, absent an agreed prohibition, it is usually within an arbitrator’s authority to take steps to insure that an eventual merits award will not be rendered meaningless, and requiring the posting of security to insure the payment of such an award is an unremarkable, if not well known, form of interim relief that an arbitrator can grant.  Furthermore, an interim award of this sort is considered final for purposes of judicial review, including confirmation.

It is not unusual for an arbitration agreement to require, expressly or impliedly, a “reasoned award.”  Indeed, that is very likely.  And if the parties have stipulated that any award is to be “reasoned,” an arbitrator who fails to satisfy that requirement arguably is exceeding his/her powers by rendering an award in a non-compliant form, thereby making it vulnerable to vacatur under FAA § 10(a)(4).  So what is a “reasoned” award?

You are in federal court facing a motion to compel arbitration, and you reach for your well-worn copy of the Federal Rules of Civil Procedure in order to confirm how to go about your next step -- demanding a jury trial for example.  Better reach for your perhaps less well-worn copy of the Federal Arbitration Act (“FAA”) first.  Fed. R. Civ. P. 81 tells you that procedures set out in the FAA supersede the corresponding Federal Rules.  And then the courts weigh in and it gets complicated.