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In affirming a lower court order denying confirmation of an arbitration award, the Montana Supreme Court held that the deadline for challenging an award under the Federal Arbitration Act (FAA) does not apply unless the arbitrator was selected in accordance with the arbitration agreement. This interpretation of the FAA offers additional protection against sham arbitration awards.
In Bank of America, N.A. (USA) v. Dahlquist, 152 P.3d 718 (Mont. 2007), Bank of America (BOA) sued Dahlquist, seeking the recovery of unpaid credit card debt.
In response, Dahlquist filed a motion to dismiss, arguing that the suit was subject to an arbitration award issued by the National Arbitration Counsel (NAC). Dahlquist also filed a motion to confirm the award. The trial court denied Dahlquist's motions on the ground that the arbitration was not conducted in accordance with the parties' arbitration agreement.
On appeal, Dahlquist relied on Montana's Uniform Arbitration Act (UAA) in arguing that BOA could not challenge the award because the statutory deadline for challenging an award (within 90 days of delivery) had already passed.
The Court found that Dahlquist's reliance on the UAA was misplaced because the parties' arbitration agreement, according to its terms, was governed by the FAA. The FAA has a comparable deadline for challenging arbitration awards, but unlike the UAA, the FAA does not provide for vacatur on the ground that "there was no arbitration agreement."
Moreover, under the FAA, an arbitration award is invalid ab initio if the parties have not agreed to arbitrate or if the arbitration is not conducted in accordance with the arbitration agreement. See MCI Telecomms. Corp. v. Exalon Indus., Inc., 138 F.3d 426 (1st Cir. 1998). Accordingly, an arbitration award is not valid unless the arbitrator is selected in accordance with the specified procedure. See R.J. O'Brien & Associates, Inc. v. Pipkin, 64 F.3d 257, 263 (7th Cir. 1995).
Based on that rule, the Court held that the trial court properly denied Dahlquist's motion to confirm because the parties' arbitration agreement designated JAMS, not NAC, as the arbitration administrator. As the Court explained, under MCI and R.J. O'Brien, the NAC arbitration award was invalid ab initio and therefore did not trigger the FAA deadline for challenging an award.
In Citibank (South Dakota) N.A. v. National Arbitration Council, Inc., No. 3:04-cv-1076-J-32MCR, 2006 WL 2691528 (M.D. Fla. Sept. 19, 2006), the court described NAC arbitration awards as "nothing more than a sham" and ordered NAC to stop conducting arbitrations. This case should deter sham arbitrations by reminding people that sham arbitration awards are a nullity and therefore meaningless.
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