October 30, 2020 Practice Points

Federal Court Jurisdiction over FAA Confirmation Motions

The Third Circuit held that an application to confirm an arbitration award does not require a separate showing of a “present” case or controversy as would be required for a federal complaint.

By Robert Bartkus

In Teamsters Local 177 v. United Parcel Services, 966 F.3d 245, No. 19-3150, 2020 U.S. App. LEXIS 22102 (3d Cir. July 16, 2020), the court held that an application to confirm an arbitration award—even where the respondent does not challenge the award—does not require a separate showing of a “present” case or controversy as would be required for a federal complaint. In so ruling, the court sided with the Second Circuit and disagreed with the First Circuit.

Background

Local 177 filed an arbitration against UPS regarding drivers’ work location assignments. The arbitrator issued an award in Local 177’s favor, and UPS agreed to abide by it. When additional violations occurred—through drivers being improperly assigned to different work centers—UPS corrected them. UPS did not move to vacate or modify the award within the three month limitations period in §12 of the Federal Arbitration Act (FAA).

Local 177 moved to confirm the award, and UPS moved to dismiss contending that Local 177 lacked Article III standing because UPS had agreed to abide by the award and was not moving to vacate it. UPS maintained that, absent an actual injury-in-fact, a key element of a case or controversy, as required by cases such as Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the “case” could not go forward.  The district court agreed and, relying on Derwin v. General Dynamics Corp., 719 F.2d 484 (1st Cir. 1983), dismissed the action. The district court stated that, if a material breach of the award occurred after the one-year time to confirm the award under the FAA, Local 177 still would be able to enforce the award under the Labor Management Relations Act, 29 U.S.C. § 185, or the common law.   

The Appellate Opinion

On appeal, the Third Circuit reversed, siding with cases in the Second Circuit, including Florasynth, Inc. v. Pickholz, 750 F.2d 171 (2d Cir. 1984), and NFL Players Ass’n v. NFL Mgmt. Council, No. 08-3658, 2009 U.S. Dist. LEXIS 24859 (S.D.N.Y. Mar. 26, 2009). The court reasoned that, absent collusion, an arbitration begins with a live controversy, not only on the merits but, often, with a dispute about whether the matter should be submitted to arbitration at all. In such an instance, an order might be entered compelling arbitration and the case stayed pending the award. Should it make any difference to federal jurisdiction if, instead of a motion to compel arbitration, the parties’ first foray into court is a motion to confirm the award? The Third Circuit essentially said no.

According to the court, when the arbitrator renders an award, the process envisioned by the FAA has not ended. Not only does §9 of the FAA say the award “shall” be confirmed (absent limited grounds) upon “appl[ication]” to a court, but §13 says that the resulting order shall be entered as a judgment and have “the same force and effect, in all respects,” as a judgment “rendered in an action in the court in which it is entered.”

Confirmation is thus integral to the scheme of the FAA, and it is intended to provide the same benefits as a judgment at the end of a lawsuit, including the ability to enforce it and for it to have preclusive effect. The Third Circuit reasoned that to require a separate action, outside the FAA, once a “dispute” arises over enforcement of the award would reduce arbitration to a status less than was intended by Congress and fail to insulate arbitration from judicial hostility. 

Requiring a new case or controversy also could allow a losing party to delay challenging an award past the one-year limitations period in which the wining party must move to confirm, without the award-protective features of the FAA. This also would upset the pro-arbitration balance between motions to confirm and motions to vacate or modify. The Third Circuit thought ignoring this structure was illogical and would incentivize game playing. Indeed, any opposition to the award filed outside the strict three-month period in the statute—as was done by UPS here—would be prohibited by the statute.

The court emphasized that a proceeding to confirm an award is made by motion and not by filing a complaint and should not be confused with processes under the Federal Rules of Civil Procedure for asserting claims and defenses. In fact, no separate claim or defense may be interposed opposing an application to confirm—other than a timely cross-motion raising the statutory grounds to vacate or modify. 

Robert Bartkus is of counsel to McCusker, Anselmi, Rosen & Carvelli, P.C. in Florham Park, New Jersey.


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