Magazine article Business Credit

"Confirming" an Arbitration Award

Magazine article Business Credit

"Confirming" an Arbitration Award

Article excerpt

As more and more contracts include arbitration clauses, more claims settle more quickly, less money is spent on the legal process, and final resolution is completed with far less expense and aggravation than when a lawsuit is used. For some companies, the use of arbitration has reduced legal expenses by 70 percent, collection costs by two-thirds, and pending time for claims by 90 percent.

Arbitration generates these results for a combination of reasons: Arbitration is quicker, cheaper, private, not subject to discovery abuse and does not encourage overstatement of claims.

All of these factors (and others) encourage settlement and discourage making (or defending) a futile claim. Nonetheless, on rare occasions (far rarer than a lawsuit is actually tried) an arbitration claim is pursued all the way to judgment and execution.

For purpose of "execution" (the court-ordered seizure of the property of judgment debtor), an arbitration award must be "confirmed" as a civil judgment. Arbitration acts in all 50 states allow a party to confirm an arbitration award, and the Federal Arbitration Act similarly provides a confirmation process in federal court. The basic confirmation process is a simple proceeding that involves answering this question: Where, when and how can this award be confirmed?

Where?

A state court will confirm (1) arbitration awards authorized by the Federal Arbitration Act, and (2) arbitration awards which comply with the applicable state arbitration act. Federal courts can confirm an award only if federal jurisdiction exists.

State Courts Are the Enforcers

Arbitration awards are routinely confirmed in state courts. The Federal Arbitration Act controls the enforceability of arbitration awards issued in cases involving interstate commerce. The United States Supreme Court has held that a state court must confirm an arbitration award rendered pursuant to the Federal Arbitration Act because the Federal Act supersedes any contrary state acts if the Federal Arbitration Act applies. These holdings require a state court judge to enforce an arbitration award issued by an arbitrator in another state. This is true, even if the state court judge dislikes arbitration awards or a state law suggests that the arbitration award to be unenforceable.

The Federal Arbitration Act requires all state and federal judges to recognize the enforceability of an award issued under a procedure controlled by the Federal Arbitration Act. The FAA governs all awards where the arbitration matter involves interstate commerce and where the parties involve the Act by their language. This broad definition encompasses virtually all transactions and relationships, and effectively governs all arbitration cases. The United States Supreme Court made clear that federal law is supreme on this issue and that no judge can refuse to enforce an arbitration award governed by the Federal Arbitration Act.

Every state has a separate arbitration act, which will apply in those rare cases where no interstate commerce is involved. State acts typically codify the provisions of the Uniform Arbitration Act and require the enforcement of an arbitration award by an arbitrator in another state.

Federal Courts Are Confirmers

Federal courts will confirm arbitration awards only if federal subject matter jurisdiction requirements have been met. If an arbitration case results in an award that meets the "diversity" or "federal question" requirements of federal jurisdiction, the federal court has jurisdiction. Diversity jurisdiction requires there to be a complete "diversity" between the parties to the arbitration and an amount in controversy exceeding $50,000. It has not been definitively decided whether the arbitration case has to involve an amount in excess of $50,000 or the arbitration award itself has to result in that award in excess of $50,000. The best analysis suggests that the award for which confirmation is sought must exceed $50,000. …

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