Commentary: Avoid this pitfall when challenging an arbitration award in court

Under the Federal Arbitration Act (FAA), courts may no longer refuse to enforce arbitration provisions in contracts affecting commerce. And so, arbitration today has become common and largely uncontroversial — far more so than in years past.

Yet courts still play a critical role in arbitration. They often decide the scope of an arbitration provision, can aid the arbitration by issuing and enforcing subpoenas, may give limited review to an arbitration award, and can confirm an award in an enforceable judgment, among other things. The U.S. Supreme Court hears a handful of cases each year touching on a court’s role in arbitration. It heard three cases last term.

Today’s topic involves review of an award in court, specifically the deadline to seek review. Once a party who loses an arbitration decides to challenge the award in court, two questions its lawyer must ask are where to file the challenge – state or federal court – and what law applies – the Missouri Uniform Arbitration Act or the Federal Arbitration Act. Due consideration must be given to both issues.

The FAA itself creates no right to challenge an award in federal court, so an independent jurisdictional basis, such as diversity jurisdiction, must exist to enter a federal forum. Absent one, a challenger must go to state court. But going to state court does not necessarily mean that state law will apply. The FAA may still apply and have unanticipated consequences. Of prime importance, challengers must be careful to file (and serve) a challenge on time.

For its part, the FAA gives the “United States court in and for the district wherein the award was made” the statutory authority to vacate an arbitration award on certain narrow grounds (9 U.S.C. § 10), and to modify or correct the award on different (still narrow) grounds (id. § 11). Importantly, notice of a motion to vacate, modify, or correct an award “must be served upon the adverse party or his attorney within three months after the award is filed or delivered.”  Id. § 12 (emphasis added). Simply filing the motion within three months of the award is not enough; the motion must also be served on the adverse party within that time. See Sanders-Midwest, Inc. v. Midwest Pipe Fabricators, Inc., 857 F.2d 1235, 1237 (8th Cir. 1988).

Compare the FAA’s service requirement to the Missouri Uniform Arbitration Act’s less onerous requirement. Under Missouri’s law, an application to vacate, modify, or correct an award is timely if merely “made within ninety days after delivery of a copy of the award to the applicant.”  Mo. Rev. Stat. §§ 435.405.2, 435.410.1 (emphasis added). Unlike the FAA, then, the Missouri Act says that a challenge is timely if filed (and not necessarily also served) within 90 days of the award.

A practitioner might say, “I’ll be timely if I file in state court and under the Missouri law within 90 days after the award; I can worry about service later.”  That would be a mistake in some cases – especially in Missouri. For what happens if the party who won at arbitration removes the challenge to federal court? In that case, assuming there is diversity jurisdiction and that the underlying contract “affects” commerce (which is easily satisfied), the federal court could conclude that the FAA’s service requirement applies over Missouri law’s filing-only requirement, and may deem the challenge late if not served within three months of the award. Two different federal courts have done exactly that, tossing on procedural grounds challenges that were timely when filed in state court under Missouri law but late under the FAA. See Sanders-Midwest, 857 F.2d at 1238; Infinity Fulfillment Group, LLC v. Cenveo Corp., No. 4:14CV966 SNLJ, 2015 WL 3823166, at *6 (E.D. Mo. June 19, 2015).

This same conclusion may likewise follow even for a case that stays in a Missouri court after it is filed there. In fact, Sanders-Midwest and Infinity Fulfillment Group both relied on a Missouri Supreme Court decision holding, in a related context, that the FAA applied to a proceeding in a Missouri court and observing that state courts must “apply federal law, and may not apply state law, substantive or procedural, which is in derogation of federal law.” Bunge Corp. v. Perryville Feed & Produce, Inc., 685 S.W.2d 837, 839 (Mo. banc 1985). A Missouri state court might reasonably conclude that the FAA’s service requirement governs a challenge filed in state court under state law. Indeed, the Nebraska Supreme Court held just that in 2017, even finding that the FAA service provision is jurisdictional and thus not waivable or limited by the party presentation rule. Karo v. Nau Country Ins. Co., 901 N.W.2d 689, 704 (Neb. 2017).

Practitioners who handle arbitrations must be aware of this nuance and potential pitfall. Otherwise, they could be in for an unpleasant surprise.

Britton St. Onge is a shareholder with Polsinelli in St. Louis.