THIRD CIRCUIT HOLDS THAT A PARTY CANNOT “OPT OUT” OF THE FEDERAL ARBITRATION ACT IN ITS ENTIRETY
The Third Circuit has affirmed a judgment in favor of several foreign reinsurers confirming arbitration awards against the statutory liquidator (the Pennsylvania Insurance Commissioner) for two insolvent insurance companies, but reversed a sanctions award against the Commissioner. Following an arbitration award rescinding three of the four reinsurance treaties at issue, the Commissioner filed a motion in state court to confirm in part, and to vacate in part, the award as part of the liquidation proceedings. The reinsurers removed the case to the District Court for the Eastern District of Pennsylvania pursuant to the Federal Arbitration Act’s removal provision in 9 U.S.C. § 205, and filed a motion to confirm the award. The Commissioner moved to remand the case, arguing that the parties had selected the Pennsylvania Uniform Arbitration Act to govern the arbitration and, thus, that the parties had opted out of the FAA. The district court denied the remand motion and confirmed the award, concluding that the FAA’s vacatur standards applied, not the PUAA’s standards. The district court also sanctioned the Commissioner for filing what the court perceived to be a frivolous remand motion.
On appeal, the Third Circuit initially concluded that removal was proper. That court rejected the Commissioner’s arguments that, first, the parties opted out of the FAA and, second, even if the FAA applies, the arbitration provisions at issue clearly expressed an intent to opt out of the removal provision in § 205. As a matter of law, parties cannot “opt out” of the FAA in its entirety “because it is the FAA itself that authorizes parties to choose different rules in the first place,” and the parties did not agree to waive the right of removal. Not only did the treaties’ arbitration provisions not make any mention of removal, the only provision referring to removal, a service-of-suit provision, stated that nothing in it should be understood to constitute a waiver of the reinsurers’ removal rights.
The Third Circuit next concluded that the FAA supplied the vacatur standards. In the absence of clear intent to the contrary, the FAA’s standards apply to an arbitral award rendered in favor of a foreign party and enforced in the United States. In addition, there was no clear intent to apply the PUAA vacatur standards. Although the treaties stated that “the arbitration shall be in accordance with the rules and procedures established by the [PUAA],” the service-of-suit provision specifically referred to enforcement of the arbitration award in federal courts. The award was thus confirmable under the FAA’s limited vacatur standards.
Finally, the Third Circuit reversed the order granting sanctions for the remand motion, in part because there was no basis in existing law for the district court to conclude that parties could not opt out of § 205 and divest a federal court of jurisdiction. Ario v. The Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, No. 09-1921 (3d Cir. Aug. 18, 2010).
This post written by Brian Perryman.
