Can You Waive Appellate Review of an Arbitration Award? The Fourth Circuit Says Yes

Apr 2021

Many arbitration agreements address the finality of any resulting award, with differing and sometimes vague language. A number of readers might assume that regardless of the agreement language, federal courts still retain jurisdiction to review awards under the Federal Arbitration Act, 9 U.S.C. § 10 (FAA). As a recent Fourth Circuit opinion reveals, the interpretation is a bit more complex than that.

In Beckley Oncology Associates, Inc. v. Abumasmah, No. 19-1751 (4th Cir., April 8, 2021), Judge Albert Diaz wrote an opinion exploring the validity of language in an employment agreement Dr. Rami Abumasmah had with Beckley Oncology Associates (BOA), which stated that an arbitrator’s award “shall be final and conclusive and enforceable in any court of competent jurisdiction without any right of judicial review or appeal” (emphasis in opinion). The employment agreement also had a severability clause stating that the invalidity of any agreement provision “shall not in any way affect the validity or enforceability of any other provision.”

After his departure from BOA, Abumasmah sought arbitration of his bonus claims against BOA and ultimately was successful. BOA responded by filing a complaint in district court to vacate the award, and Abumasmah moved to confirm the award. The court found the clause foreclosing judicial review was unenforceable under the FAA but upheld the arbitrator’s award.

On appeal, the gateway issue was whether BOA had waived “any right of appeal” based on the language of the arbitration agreement. While this was a matter of first impression in the Fourth Circuit, the Tenth Circuit had “evaluated such a waiver and deemed it enforceable” in MACTEC, Inc. v. Gorelick, 427 F.3d 821, 830 (10th Cir. 2005). And the court agreed with its “sister circuit.”

The relevant provisions in Gorelick declared “[j]udgment upon the award rendered by the arbitrator shall be final and nonappealable” but did not forbid all judicial review. That fact was pivotal. Indeed, the Tenth Circuit found that a clause foreclosing appellate but not district court review is a valid “compromise whereby the litigants trade the risk of protracted appellate review for a one-shot opportunity before the district court.” 427 F.3d at 829-30. Stated differently, the Gorelick opinion reasoned:

“The agreement here preserves district review under 9 U.S.C. §10(a)(7), and while an unsatisfied defendant would not be able to appeal a district court order denying his application to vacate the award, so too would an unsatisfied plaintiff be unable to contest a district court’s vacation of an arbitration award in plaintiff’s favor.” Id.

So, according to Gorelick, the waiver clause aligned with “the fundamental policy behind the FAA . . . to reduce litigation costs by providing a more efficient forum.” Id. at 829.

Premised on this reasoning, Judge Diaz concluded that “nothing precludes a party from waiving appellate review of [an award], as BOA expressly did here.” The authority on which BOA relied, did not dissuade the panel. The 2013 Ninth Circuit opinion in In re Wal-Mart Wage & Hour Employment Practices Litigation, 737 F.3d 1262 (9th Cir. 2017), even if correct, did not reach the issue before the Fourth Circuit. It declared that “[p]ermitting parties to contractually eliminate all judicial review of arbitration awards would not only run counter to the text of the FAA, but would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” Id. at 1268 (emphasis added). Moreover, in a footnote, the Ninth Circuit clearly stated, “[w]e express no opinion concerning whether a non-appealability clause that precludes only appellate review is enforceable.”

Finally, the language of the employment agreement covered waiver of two separate matters – the right to judicial review and the right to appellate review of the award. Based on the severability clause, the panel found that the appeal waiver was still valid because it did not concern “the essence of the contract.” What’s more, “enforcing [that] waiver in this context furthers the FAA’s policy objectives.”

Lessons Learned

As we have said before, drafting arbitration provisions requires careful analysis of what the parties’ goals are and what the FAA permits. In a time when mandatory arbitration agreements are under scrutiny, it’s more important than ever. The Supreme Court’s opinion in Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), held that parties cannot agree to more extensive judicial review than § 10 of the FAA but suggested that narrower judicial review may also be a concern. The Fourth and Tenth Circuits have addressed that concern and engaged in some meaningful line-drawing with respect to waiver provisions.

Bottom Line

The Fourth Circuit held that while an arbitration provision cannot waive judicial review, it can waive appellate review of the arbitrator’s decision.

This article first appeared on the Employment Class Action Blog, here.

author

John Lewis

John Lewis concentrates his practice on the resolution of complex employment, labor and regulatory disputes, including the defense and oversight of class action litigation. The majority of John's time is devoted to litigation, appellate practice and alternative dispute resolution procedures involving federal and state anti-discrimination, wage and hour and fair…

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