Commercial Litigation and Arbitration

Arbitration — Generic Choice of Law Provision Does Not Opt Out of Federal Arbitration Act and Permit Expanded Appellate Review Under State Law

From Oberwager v. McKenchnie Ltd., 2009 U.S. App. LEXIS 23006 (3d Cir. Oct. 20, 2009):

This case arises from a stock purchase agreement ("SPA") entered into by the parties in 1999, providing for arbitration of any dispute arising from the agreement. The SPA also contained a generic choice-of-law provision which stated that the agreement was to be "governed by and construed in accordance with the laws of the State of Delaware without regard to choice of law principles . . . ."

Plaintiffs argue that the district court erred in concluding that the FAA [Federal Arbitration Act], rather than the DUAA [Delaware Uniform Arbitration Act], governed their motion to vacate. They argue that the Supreme Court's decision in Hall Street [ Associates v. Mattel, Inc., 552 U.S. 576 (2008)] makes Roadway [Package System, Inc. v. Kayser, 257 F.3d 287 (3d Cir. 2001] inapposite by clarifying that parties may seek judicial review of arbitration decisions under any applicable law, so long as the law is not preempted by the FAA. Plaintiffs' argument is without merit.

As the district court noted, it is uncontested that the SPA [Stock Purchase Agreement] falls within the broad reach of the FAA. However, as we explained in Roadway Package, parties can contract out of the FAA and select alternate rules to govern arbitration proceedings between them. To do so, parties must "manifest[] a clear intent," ...and a generic choice-of-law provision, standing alone, is not sufficient evidence of such intent....

As noted at the outset, Plaintiffs argue that Roadway has been undermined by the Supreme Court's intervening decision in Hall Street. According to Plaintiffs, Hall Hall Street effectively overruled Roadway under the circumstances here, and now allows review of an arbitration award pursuant to any applicable law, so long as that law is not preempted by the FAA. Plaintiffs base this argument on the following language which they pluck from Hall Street: "[t]he FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable." Hall Street, 128 S.Ct. at 1406.

According to Plaintiffs, these few sentences undermine the contractual intent framework elucidated in Roadway, and usher in a new regime in which a plaintiff may select any cause of action, so long as it is not preempted by the FAA. Plaintiffs insist that, after Hall Street, the essential inquiry in determining the applicable law in situations such as these is not the parties' intent beforehand as expressed in the arbitration agreement. Rather, it is the plaintiff's subsequent intent as set forth in the action to vacate an arbitration award. Because Plaintiffs only assert claims under the DUAA, they argue that the district court erred in relying on time limitations established in the FAA. The argument is meritless.

The few sentences cited by Plaintiffs merely reiterate the long-standing rule that, under certain circumstances, parties may choose to opt-out of the FAA. This language does not, however, change the fundamental mechanism through which parties actually express that choice. They still must express it beforehand in the applicable provisions of their arbitration agreement. In Roadway, we held that a generic choice-of-law provision is insufficient to evidence the clear intent necessary to opt out of the FAA's default regime. Hall Street does not alter that holding.

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