Motion to Vacate an Arbitration Award: Within the time limit but still too late?
Arbitrators don’t have marshals, sheriffs, or other means to enforce their awards. So, a winning party must go to court to enforce an award if the opposing party doesn’t pay up. Under the Federal Arbitration Act (FAA), and under many state counterparts to that act, the first step is to move the court to “confirm” the award. That turns it into a court judgment that can be enforced. A party who is dissatisfied with the award, can seek to overturn the award by asking the court to “vacate” it.
Battling motions and timing
Things can get interesting when there are battling motions to confirm and vacate, depending on the timing. Under the FAA and under many state counterparts to it, a motion to vacate an award must be brought within three months of the award being filed. A motion to confirm must be brought within a year. But what happens when the winning party seeks to confirm the award right away. Does a party who wants to vacate still get three months to move to vacate?
In my book, Arbitrating Patent Cases: A Practical Guide, I punted on the issue. I had to admit “I honestly don’t know.” But I had experience with the issue in state court, where the judge postponed the hearing on the motion to confirm so the losing party had the full time to seek to vacate. Still, I don’t recall that any legal analysis was done in delaying the motion and never found any controlling precedent on the matter.
An automatic delay would not be ideal
Requiring a three-month lag before starting to confirm the award would not be ideal. Arbitration is designed to get disputes fully resolved quickly. After all the effort that goes into making that happen in a typical arbitration, bringing the end of the whole process to a standstill for three months seems counterproductive. After all, the FAA doesn’t say there is to be a three-month delay before a party can seek to confirm an arbitration award.
A case of first impression
The Eleventh Circuit has now addressed this issue in what it called a case of first impression, McLaurin v Terminix International Company LP, No. 20-12904 (11th Cir. 2021).
Ann McLaurin and Lynne Fitzgerald were avid bird watchers. They planned to spend their retirement years in a home they bought off the coast of Alabama. It was an ideal location to watch birds. But, as the Eleventh Circuit put it, “[u]nfortunately their dream house was eaten by termites.” The house was beyond repair and had to be torn down.
Terminix had contracted with the property’s previous owner to inspect the property for termites annually and treat or fix any termite damage. The previous owner had assigned the contract to Ms. McLaurin and Ms. Fitzgerald.
The case went to arbitration. Terminix couldn’t prove it ever provided any inspections. The arbitrator awarded Ms. McLaurin and Ms. Fitzgerald over $2.7 million.
They then moved to confirm the award and enter judgment. The district court said any opposition to their motion was to be briefed by a certain date. Terminix timely filed a short brief saying the motion to confirm was premature because it was filed before the deadline for bringing a motion to vacate. It provided no substantive reason why the award should not be confirmed. Ms. Fitzgerald pointed out she was elderly and without a place to live except a travel trailer, since her home had been torn down. Terminix then moved to vacate the award just before its three months to do so was up. The district court confirmed the award and struck Terminix’s motion to vacate as untimely. Terminix appealed.
The Eleventh Circuit affirmed the confirmation of the award and found the district court did not abuse its discretion in striking the motion to vacate.
“Must” means must
The Eleventh Circuit noted that the FAA at 9 U.S.C. § 9 allows a party to file a motion to confirm an arbitration award for any reason, which “the court must grant . . . unless the award is vacated, modified, or corrected.” The Eleventh Circuit found Terminix’s response to the district court’s deadline for opposing a motion to confirm “baffling.” Instead of providing substantive arguments to vacate the award, it waited until a month and a half after the deadline for opposing the motion to confirm to provide arguments to support vacating the award.
Terminix argued that a court can’t confirm an arbitration award without giving the losing party three months to move to vacate. But the Eleventh Circuit found that argument was incompatible with the plain text of the statute that says a court “must grant” a motion to confirm unless the award is vacated, modified, or corrected.
There is no automatic three month-stay on confirmation
Terminix also argued that even if the district court rejected its procedural argument, it should have ruled on the merits of Terminix’s separate motion to vacate. The Eleventh Circuit disagreed. It reasoned that the FAA does not impose an automatic three-month stay on confirmation. It is true the FAA does grant a court discretion to stay a motion for confirmation while it is considering a motion to vacate. See 9 U.S.C. §12. But, since the FAA provides for a discretionary stay, it makes no sense to conclude it also imposes a mandatory stay. The discretionary stay provision would be superfluous if a stay was mandatory.
The court noted that the Second Circuit had rejected an argument comparable to Terminix’s in The Hartbridge, 57 F.2d 672 (2d Cir. 1932). Like the Second Circuit, it found “[n]othing in [the FAA] prevents a party from moving for confirmation of an award within three months of that award or mandates that a district court wait to rule on such a motion because another party may file a motion to vacate.”
An expected motion to vacate does not preclude confirmation
The Eleventh Circuit also disagreed with Terminix’s argument that, once the district court knew the losing party intended to file a motion to vacate, modify, or correct the award, it could not confirm the award. The FAA, said the court, does not condition confirmation on the absence of an expected motion to vacate. It further noted that Terminix had the right to raise as a defense to confirmation that the award should be vacated. But it didn’t do that. It provided no substantive grounds on which to deny confirmation of the award, only the argument that the motion was too early.
The right way to do it
The Eleventh Circuit finally gave some advice on how best to handle situations such as that presented in the McLaurin case. It “encourage[ed]district courts faced with motions to confirm to set simultaneous deadlines for the arbitration’s losing party to file an opposition to the motion to confirm, if any, and to file a separate motion to vacate, modify, or correct, if any.” But still, it noted, “a district court is the master of its own docket, and the parties ignore its orders at their peril. Here, the district court was within its discretion in granting McLaurin and Fitzgerald’s substantively unopposed motion to confirm without addressing Terminix’s later-filed motion to vacate.”
The situation now
The McLaurin decision provides some useful guidance on how to handle the FAA’s allowing an immediate action to confirm, but also allowing three months to move to vacate an arbitration award. Once a motion is made to confirm, a party that has good reason to vacate the award should bring it up in opposition to the motion.
In my experience, that’s how most parties proceed anyway because a party that wants to vacate the award doesn’t want to take a chance on losing its chance to do so. With this recent guidance from the Eleventh Circuit, the wisdom of this cautious approach is confirmed. And the Eleventh Circuit has also made it clear that the FAA doesn’t impose an automatic three-month delay in finally resolving disputes. That is consistent with arbitration’s goal of resolving disputes quickly.
One more thing (or three)
One more thing. Note that, somewhat curiously, the FAA provides “three months” to move to vacate an award rather than stating the time period in days. Many state statutes that have adopted versions of the Uniform Arbitration Act provide for 90 days to vacate. Three months and 90 days are pretty close. But be sure you know which statute you are operating under, so you don’t miss any deadlines. Better yet, err on the side of filing sooner rather than waiting until the eleventh hour. And check the state statute carefully if it might apply. State versions of the Uniform Arbitration Act or the Revised Uniform Arbitration Act aren’t always uniform. They can vary.
Finally, a word of caution. You will only want to proceed with a motion to vacate if you have solid grounds to bring such a motion. To learn more about that, see the earlier article in this series entitled “Courts to Lawyers: We Mean It. Stop Making Baseless Attacks on Commercial Arbitration Awards.”