{"id":890611,"date":"2016-08-08T15:27:54","date_gmt":"2016-08-08T21:27:54","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=890611"},"modified":"2016-08-08T15:27:54","modified_gmt":"2016-08-08T21:27:54","slug":"whats-in-a-name-defining-arbitration-across-the-circuits","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/whats-in-a-name-defining-arbitration-across-the-circuits\/","title":{"rendered":"What\u2019s in a Name?: Defining Arbitration Across the Circuits"},"content":{"rendered":"

Liz Kramer | Stinson Leonard Street LLP<\/a> | August 3, 2016<\/p>\n

What is \u201carbitration\u201d? Although courts often use and apply the word, rarely do they stop to define it.\u00a0 While the FAA concerns agreements to \u201csettle by arbitration a controversy,\u201d the FAA does not define \u201carbitration<\/a>,\u201d leaving the question to the courts. Lacking definitive guidance from the U.S. Supreme Court, two lines of cases have developed among the U.S. Courts of Appeals.<\/p>\n

The split can be traced back to\u00a0AMF Inc. v. Brunswick Corp.<\/em>, where bowling lane companies agreed to submit disputes about advertising to a third party<\/a> to determine whether the claims in the ads were supported. 621 F. Supp. 456 (E.D.N.Y. 1985). After ads from Brunswick claimed \u201chigh tech\u201d superiority over AMF\u2019s wooden lanes, the court set out to resolve whether the process detailed in the agreement was \u201carbitration.\u201d The key language from the case is that the \u201cessence of arbitration\u201d is \u201cto have third parties decide disputes.\u201d The court concluded that the parties had agreed to arbitrate because at least one controversy \u2014 the factual issue of whether the advertising claim was supported \u2014 would be \u201csettled.\u201d \u201cArbitration<\/a>\u201d need not end\u00a0all<\/em>\u00a0controversy between the parties, and with the factual dispute resolved it was \u201chighly likely\u201d that the litigation based on that factual dispute would also be resolved.<\/p>\n

Will it resolve the dispute?<\/strong><\/p>\n

The first line of case law stemming from\u00a0AMF\u00a0<\/em>emphasizes the likelihood of parties to resolve their disputes through a given dispute resolution process. The Third, Ninth, Fourth, Tenth, and Second Circuits take this view, each with their own twist. In\u00a0Harrison v. Nissan Motor Corp. in U.S.A.<\/em>, the Third Circuit narrowed the\u00a0AMF<\/em>\u00a0holding slightly, reviewing an arbitration provision<\/a> that expired after 40 days and holding that the process agreed to was not arbitration because the parties did not agree to see the dispute \u201cthrough to completion.\u201d 111 F.3d 343 (3d Cir. 1997).<\/p>\n

The Ninth Circuit expanded\u00a0Harrison\u2019s<\/em>\u00a0definition in\u00a0Wolsey, Ltd. v. Foodmaker, Inc.<\/em>, 144 F.3d 1205 (9th Cir. 1998), holding that an agreement that did not \u201cexplicitly permit one of the parties to seek recourse to the courts\u201d was still arbitration, even though it was non-binding. The Fourth Circuit stretched\u00a0Harrison<\/em>\u2019s definition even further in\u00a0United States v. Bankers Ins. Co.<\/em>, holding that an agreement that permitted a federal agency to unilaterally reject a third party\u2019s determination qualified as arbitration. 245 F.3d 315 (4th Cir. 2001). The court reasoned that because the agency would presumably approve an arbitration award it found favorable, the dispute resolution process<\/a> would not be a \u201cfutile exercise.\u201d<\/p>\n

Seemingly rejecting the more expansive views of the Ninth and Fourth Circuits, the Tenth Circuit held that an agreement to accept a series of appraisals to resolve a purchase price dispute was not an agreement to arbitrate in\u00a0Salt Lake Tribune Publ\u2019g Co., LLC v. Mgmt. Planning, Inc.<\/em>, 390 F.3d 684 (10th Cir. 2004). Relying heavily on\u00a0Harrison<\/em>, the court found that the appraisal at issue would only fix the purchase price under certain circumstances, and therefore would \u201cnot necessarily settle a dispute\u201d between the parties. The Second Circuit took a similar approach in\u00a0Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135<\/em>, emphasizing precedent requiring a binding resolution for arbitration, and holding that a doctor\u2019s \u201cfinal and binding\u201d evaluation of a disability diagnosis met the definition. 707 F.3d 140 (2d Cir. 2013).<\/p>\n

Does it look like \u201cclassic\u201d arbitration?<\/strong><\/p>\n

The\u00a0second line of\u00a0AMF<\/em>-derived cases focuses less on a dispute resolution process\u2019s likelihood of settling disputes, and instead looks for a set of procedural features indicative of \u201cclassical arbitration.\u201d In\u00a0Fit Tech, Inc. v. Bally Total Fitness Holding Corp.<\/em>, the First Circuit identified several \u201ccommon incidents of arbitration,\u201d including a binding resolution, an independent adjudicator, substantive standards, and an opportunity for each side to present its case. 374 F.3d 1 (1st Cir. 2004). Finding that the parties\u2019 dispute resolution process had all of these features, at least with respect to some of their disputes, the court held that it qualified as arbitration.<\/p>\n

The Eleventh Circuit identified the circuit split on the definition of arbitration, but did not see a real disagreement.\u00a0Advanced Bodycare Sols., LLC v. Thione Int\u2019l, Inc.<\/em>, 524 F.3d 1235 (11th Cir. 2008). The court concluded that submitting a dispute to a third party for a binding decision is \u201cquintessential classic arbitration,\u201d and identified four factors used to decide whether a dispute resolution method is arbitration, expanding on the \u201ccommon incidents of arbitration.\u201d<\/p>\n

The Sixth Circuit provided the most comprehensive definition of arbitration of all the\u00a0AMF<\/em>-derived appellate cases in\u00a0Evanston Ins. Co. v. Cogswell Properties, LLC<\/em>, 683 F.3d 684 (6th Cir. 2012). In building its definition of arbitration, the court cited\u00a0Fit Tech<\/em>\u00a0factors in support of the proposition that the definition of arbitration depends on \u201chow closely it resembles classic arbitration.\u201d The court observed that a central feature of classic arbitration is a third party empowered to render a decision settling the dispute between parties, mirroring the reconciliation approach taken in\u00a0Advanced Bodycare<\/em>. CitingHarrison<\/em>, the court also observed that arbitration requires parties to submit to the process \u201cthrough to completion.\u201d<\/p>\n

Why does this matter?\u00a0<\/strong><\/p>\n

Many contracts provide that some third party will decide a dispute between the parties.\u00a0 For example, a third party appraiser<\/a> will determine if a change in rent is fair, or a CPA will determine the buy-out price for a departing shareholder.\u00a0 But, if those provisions are treated as arbitration by the court, that means they can be strictly enforced pursuant to Section 2 of the FAA, and it means the third party\u2019s decision is entitled to great deference, pursuant to Section 10 of the FAA.\u00a0 That may not have been what the parties intended when they were drafting.<\/p>\n","protected":false},"excerpt":{"rendered":"

Liz Kramer | Stinson Leonard Street LLP | August 3, 2016 What is \u201carbitration\u201d? Although courts often use and apply the word, rarely do they stop to define it.\u00a0 While the FAA concerns agreements to \u201csettle by arbitration a controversy,\u201d the FAA does not define \u201carbitration,\u201d leaving the question to the courts. Lacking definitive guidance… Continue reading What\u2019s in a Name?: Defining Arbitration Across the Circuits<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[41,436],"tags":[42,80,9703],"class_list":["post-890611","post","type-post","status-publish","format-standard","hentry","category-arbitration","category-dispute-resolution-2","tag-arbitration-2","tag-dispute-resolution","tag-third-party-appraiser","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nWhat\u2019s in a Name?: Defining Arbitration Across the Circuits - Advise & Consult, Inc.<\/title>\n<meta name=\"description\" content=\"What is arbitration? 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