Eleventh Circuit Acknowledges Role for State Arbitration Laws

The Eleventh Circuit recently issued an opinion dealing with vacatur of an arbitration award.  Original Appalachian Artworks, Inc. v. Jakks Pacific, Inc., No. 17-11513 (11th Cir. Nov. 17, 2017) (click here for a copy of the decision).  The case involved the owner of the Cabbage Patch brand of toys and a licensee who was authorized to manufacture and distribute the toys for a limited time period on an exclusive basis.  A few months before this exclusive license expired, the owner began negotiating with other potential licensees, so that a new license could be in place when the first license expired.  The first licensee challenged these negotiations with other companies as a breach of contract.  However, an arbitrator issued an award finding that the negotiations were proper, and there was no breach of the original license.

A federal district court confirmed the award, and the Eleventh Circuit affirmed, which is no surprise under the narrow judicial review standards for vacatur.  What I find interesting is a footnote in the opinion, where the Eleventh Circuit cites the Supreme Court’s Hall Street v. Mattel decision and the possibility of applying state law permitting a more expansive review of arbitration awards.  In section IV of the Mattel decision, the Supreme Court recognized that “The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable.”  Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 590, (2008).

Supreme Court cases have interpreted the FAA as having extremely broad preemptive powers over state law (take a look at the expansive, sometimes vague, preemptive powers recognized in Concepcion).  However, Section IV of Mattel opens up exciting possibilities for the use of state arbitration law, when parties choose it.  Mattel recognizes a safety valve against the broad application of federal arbitration law; there is still room for state arbitration law to operate, even if it is different from the FAA, if parties agree to the application of state law.

2 Comments

  1. So here’s the rub, Georgia state arbitration law provides for vacatur if the award is in manifest disregard (M/D) of the law. OCGA 9-9-13(b)(5). This provision was added to the Ga Arb Code after the Ga Sup Ct rejected the M/D standard. In Frazier, 604 F3d 1277 (11th Cir 2010), the 11th Circuit determined that manifest disregard was no longer a valid bases for vacatur in light of Hall Street. Interesting side not was that the 11th Circuit, usually very pro-arbitration, is one of the few Circuit courts that actually used M/D to vacate an award (see Montes 1997). Putting aside for the moment that SCOTUS hedged its bets on M/D in n. 3 of the Stolt-Neilsen decision, after Hall Street, there was a strong presumption in Georgia that OCGA 9-9-13(b)(5) was functionally irrelevant because the reach of the FAA to preempt what appeared to be a state law contrary to pro-arbitration federal law and policy. After Cabbage Patch, will parties who had Georgia law in their governing law clause have a plausible argument that by selecting that state law they intended to expand the scope of judicial review, even in matters covered by the FAA and in light of the Volt decision, to include M/D? Wow.

  2. Thanks so much for your comments. Parties should be able to agree to incorporate Georgia’s vacatur provisions using the rationale from Section IV of Mattel. But what will it take to prove this agreement? Will a generic choice of law clause suffice, such as “the parties agree that this contract is governed by Georgia law”? Or will a more specific incorporation be required, such as “the parties agree that Georgia arbitration law applies?” I believe there is a split of authority. Take a look at the conflicting cases cited in the following cert petition: Applied Underwriters, Inc. v. Arrow Recycling Solutions, Inc., 2015 WL 4035938 (U.S.).

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