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May 30, 2014 Articles

"Entry of Judgment" Language in Arbitration Clauses

What language is required for confirmation of judgment?

by Sarah Rubin and Judy Barrasso

Attorneys routinely seek court enforcement of awards and judgments made in private arbitrations. A court judgment is required to collect on any arbitration award where the party against whom the award is made does not voluntarily submit payment. Given the liberal standard on enforcement of awards under the Federal Arbitration Act (FAA), courts typically enter such judgments without delay. Confusion can arise where the underlying contract contains a "final and binding" arbitration clause but does not contain an express "entry of judgment" provision. Many contracts contain arbitration provisions that provide that any arbitration conducted under the contract must be "final and binding"—but contracts occasionally omit language that permits "entry of judgment" upon the arbitrator's decision. In the absence of such language, some federal courts have questioned whether they have any power at all to issue a judgment confirming a private arbitration award. This article explains the basic contours of the statutory source of the confusion and outlines why express "entry of judgment" language should not be required for a district court to confirm an arbitration award.

The Federal Arbitration Act, 9 U.S.C. § 9, provides a mechanism for judicial confirmation of awards issued in a private arbitration. Judicial review of an arbitration award under the FAA is extraordinarily narrow, and the proceedings connected with judicial confirmation are intended to be summary proceedings. Confirmation is denied in only a very limited set of circumstances set out in sections 10 and 11 of the FAA. However, some courts have questioned whether parties are everentitled to judicial confirmation of an arbitration award under the FAA in the absence of an express entry of judgment provision in a contract.  

The question arises because section 9 of the FAA authorizes a judgment to be entered on an arbitration award if the parties "have agreed that a judgment of the court shall be entered." In other words, some courts have expressed concern that section 9 has limiting language that can be read to prohibit entry of a judgment without specific "entry of judgment" language in the underlying contract that led to the arbitration.  In the absence of express language in the contract for the "entry of judgment," does a district court have the power to issue such an award? 

The answer must be yes. Irrespective of the missing link in the FAA, express contractual entry of judgment language is not required in order for a federal court to act. As an initial matter, the U.S. Supreme Court spoke to this issue in dicta in the 2008 case Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 587 (2008).  Examining section 9 of the FAA, the Supreme Court noted that the confirmation provision of the FAA "carries no hint of flexibility." Where a party petitions a court for an order confirming an arbitration award, section 9 states that the court "must grant" the order (absent vacatur or modification under sections 10 and 11). This, the Court explains, is "unequivocal[]"—there is "nothing malleable" about stating that a court "must grant" confirmation.  As if this was not strong enough, the Court concludes by stating: "This does not sound remotely like a provision meant to tell a court what to do just in case the parties say nothing else." 

This strong language from the Supreme Court in Hall Street should be the end of the analysis, but courts have continued to question their authority due to the limiting language of section 9. In response, several courts addressing this issue have expressed convincing arguments against the requirement for such express language, and an examination of their analyses sets out three interrelated arguments against the requirement for such express language.

First, courts address contracts that contain language requiring "valid and binding" arbitration in the arbitration clause but do not contain entry of judgment language. Many courts have interpreted such contractual "valid and binding" language to be sufficient for judicial confirmation of an arbitration award. For instance, in Qorvis Communications, LLC v. Wilson, 549 F.3d 303 (4th Cir. 2008), the Fourth Circuit considered an appeal from the district court's entry of a judgment made by a petitioner arguing that the agreement at issue did not provide for entry of judgment.. Rejecting this argument, the court noted that the authority of a court to enter a judgment in accordance with section 9 "may be implied from both the final and binding nature of an arbitration clause and from the federal policy favoring arbitration." In other words, because the arbitration provision at issue contained language that it would be "final and binding," any interpretation that prevented the parties from seeking enforcement would make no logical sense. As explained in Hall Street, courts "must" enforce arbitration awards so long as the parties "contemplated" judicial enforcement. By including "valid and binding" language—even in the absence of "enforcement of judgment" language—the parties are demonstrating their "contemplation" to permit judicial confirmation. See Cigna Ins. Co. v. Huddleston, 986 F.2d 1418 (5th Cir. 1993).

Courts also examine the rules of the organizations under which the arbitration is administered to determine whether the parties agreed to judicial confirmation of an award. These courts hold that the parties contemplate judicial enforcement where the rules of the arbitration organization contemplate that the arbitration would be binding. As the Fifth Circuit explained in McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 983 (5th Cir. 1995), under the rules of the American Arbitration Association, arbitral awards are "deemed both binding and subject to entry of judgment." As a result, the district court could enter a confirmation order despite the fact that the contract at issue lacked explicit language authorizing a judgment. That reasoning makes good sense. Just as with the "valid and binding" language, where the parties agree to arbitrate under the rules that contemplate entry of judgment following binding arbitration, they are also agreeing to permit the court to enforce a judgment under those rules. In Qorvis, the Fourth Circuit applied this reasoning to an arbitration that took place before Judicial Arbitration and Mediation Services (JAMS), because the JAMS rules "imply" that the parties to the arbitration are deemed to have consented to a judgment. This was the case even though the JAMS rules were not as explicit as the AAA rules. This reasoning should apply to any arbitration association whose rules contemplate judicial enforcement of arbitration awards. 

Following these first two principles, courts have held that the intent and conduct of the parties before and during the arbitration are relevant to determining a court's jurisdiction to enforce an arbitration award.  Specifically, a party that participates in arbitration—and then finds that the results are not in its favor—cannot later claim that the court cannot enforce the judgment. This is especially true where (a) a party consents to arbitration, (b) the arbitration provision in the underlying contract contains "final and binding" language, and (c) the rules of the arbitration administering agency contemplate judicial enforcement. For instance, the Second Circuit has held that, where a contract did not contain entry of judgment language, but the arbitration provision required that it be settled by the rules of the AAA and the parties participated in the arbitration, it was "abundantly clear" that the parties consented to entry of a judgment. I/S Stavborg (O.H. Meling, Manager) v. Nat'l Metal Converters, Inc., 500 F.2d 424 (2d Cir. 1974).  Likewise, in Qorvis, the "final and binding" language, the JAMS provisions and "the conduct of the parties" led the court to conclude that the parties agreed to and contemplated binding, enforceable arbitration.

As a final note, in the Fifth Circuit, where I practice, pre-Hall Associates cases caused even further confusion at the district court level because the cases imply that a party must "invoke" a federal court's jurisdiction prior to seeking entry of judgment where there is no express entry of judgment provision in the underlying contract. See Place St. Charles v. J.A. Jones Constr. Co., 823 F.2d 120 (5th Cir. 1987); T&R Enters., Inc. v. Cont'l Grain Co., 613 F.2d 1272 (5th Cir. 1980).

However, even in the absence of the Supreme Court's Hall Associates decision, interpreting the Fifth Circuit's language to require an initial invocation of jurisdiction before an arbitration proceeding would be both contrary to an agreement to arbitrate and common sense. A party could secure federal jurisdiction for an enforcement proceeding where it would otherwise not exist only by violating the arbitration agreement and initiating suit prior to arbitration proceedings. In other words, in order to secure a federal court judgment, one party would have to waste the court's resources by first filing a lawsuit to "secure" jurisdiction when the agreement to arbitrate means that suit is not required or permitted. A party logically could not be required to breach its agreement to arbitrate by first filing a lawsuit to secure jurisdiction, be compelled to arbitration, go through arbitration, then return to court for the issuance of a judgment. This cannot be the result the Fifth Circuit contemplated in Place St. Charles and T&R Enterprises, and the above rationales should assure courts that express enforcement of judgment language is not required.

Practice Tip
To the extent possible, drafters of contracts should include "enforcement of judgment" in arbitration clauses. Though such express language should not be required for the reasons explained above, it could avoid confusion and unnecessary expense and delay at the confirmation stage.

Keywords: litigation, commercial, business, entry of judgment, language, arbitration clauses, enforcement of awards and judgments, valid and binding language

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