On August 9th, 2022, a federal court in Virginia confirmed an arbitration award and held that a general choice of law provision does not displace the Federal Arbitration Act (FAA) and require the application of state arbitration law. Vogel v. Gracias Juan, LLC, 1:21-CV-1355, 2022 WL 3213537 (E.D. Va. Aug. 9, 2022)
Plaintiffs Glenn Vogel and Doug Lee entered into a Membership Interest Purchase Agreement (MIPA) with Nathan Hibler and defendant Gracias Juan, LLC (hereinafter “Gracias”) to purchase a 91 percent interest in Espire Services, LLC (Espire). A dispute arose under the agreement. RSM US LLP (RSM), an independent accounting firm, arbitrated the dispute and issued an award in favor of Vogel and Lee.
On November 10, 2021, Vogel and Lee filed suit in the Circuit Court of Fairfax County, Virginia, seeking to confirm the arbitration award. Gracias removed the action to federal court on the basis of diversity jurisdiction and moved to vacate the award.
The parties’ agreement contained a choice of law provision stating that the MIPA “shall be governed by and construed in accordance with the internal laws of the Commonwealth of Virginia without giving effect to any choice or conflict of law provision or rule.” Based on this, Vogel and Lee argued that the Virginia Uniform Arbitration Act governed the MIPA. Gracias argued that the FAA applied.
Before deciding whether to confirm or vacate the award, the court addressed what law to apply. The court determined that "[a] general choice of law provision, as the MIPA contained, is insufficient to displace the FAA[.]” The court reasoned that “while the general choice-of-law provision invokes [state] substantive law for issues of contract interpretation,” a general choice of law provision “is irrelevant to the decision whether the FAA applies.” Rota-McLarty v. Santander Consumer USA, Inc., 700 F.3d 690, 697 n.7 (4th Cir. 2012)
The court then noted that, under the FAA, a party moving to vacate an arbitration award faces a “heavy burden.” The court emphasized that "review of an arbitration award is limited to determining whether the arbitrators did the job they were told to do—not whether they did it well, or correctly, or reasonably, but simply whether they did it.”