881 F.3d 1226
10th Cir.2018Background
- Oklahoma and the Citizen Potawatomi Nation executed a Class III gaming compact (the Compact) that includes Part 12: an arbitration clause allowing AAA arbitration for disputes "arising under" the Compact and a Part 12(3) clause permitting either party to seek de novo review of any arbitration award in federal district court.
- A dispute arose over the Nation’s alcohol sales and state sales-tax reporting at its gaming facilities; administrative proceedings occurred before Oklahoma regulators (ABLE and OTC) and the Nation sought to resolve related questions via Compact arbitration.
- An arbitrator ruled for the Nation, finding federal preemption of Oklahoma’s attempted taxation/enforcement and enjoining enforcement actions against the Nation; the Nation sought confirmation of the award in federal district court under the FAA.
- Oklahoma moved to vacate the award under 9 U.S.C. § 10 and also relied on Compact Part 12(3) to demand de novo federal-court review of the arbitrator’s determinations.
- The district court confirmed the award, concluding Hall Street v. Mattel foreclosed contractual de novo review beyond the FAA’s narrow vacatur/modification grounds but did not address whether the arbitration clause was unenforceable if its de novo-review term was invalid.
- On appeal, the Tenth Circuit held the Compact’s de novo-review provision is legally invalid under Hall Street and that de novo review was a material condition of the parties’ agreement to arbitrate; therefore the Part 12 arbitration obligation was unenforceable and the arbitration award must be vacated.
Issues
| Issue | Plaintiff's Argument (Oklahoma) | Defendant's Argument (Nation) | Held |
|---|---|---|---|
| Whether Compact Part 12(3)’s contractual de novo review provision is enforceable despite Hall Street | IGRA’s policy and the Compact’s approval justify de novo review; IGRA contemplates federal-court resolution of gaming disputes | Hall Street does not invalidate the entire arbitration clause; severability preserves arbitration without the de novo term | De novo-review clause invalid under Hall Street; FAA §§9–11 provide exclusive grounds for review |
| Whether the arbitration obligation in Part 12 is severable from the invalid de novo-review provision | De novo review was material to the agreement to arbitrate; if removed, the arbitration clause must be severed entirely | Arbitration clause remains operable absent the invalid review term (severable) | De novo review was material and linked to waiver of sovereign immunity; the arbitration obligation is unenforceable and not severable |
| Whether the district court should have vacated the award under FAA §10 for excess of powers/vagueness | Arbitrator exceeded powers, rendered a vague award, and failed to confine remedies to Compact enforcement | Award was within arbitrator’s authority and drew its essence from the Compact | Court remanded to vacate award because arbitration provision itself is unenforceable due to invalid de novo-review condition |
| Whether IGRA or the Secretary’s approval of compacts alters FAA review rules | IGRA’s objectives and Interior approval permit/require de novo federal-court review of compact arbitration awards | IGRA does not displace the FAA review regime and does not authorize broader judicial review than FAA allows | IGRA and Secretary approval do not override the FAA; de novo-review clause cannot be enforced |
Key Cases Cited
- Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (Sup. Ct.) (holding FAA §§10–11 provide exclusive grounds to vacate or modify arbitration awards and contractual expansion to de novo review is invalid)
- White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (Sup. Ct.) (federal preemption balancing framework for state regulation of tribal activities in Indian Country)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (Sup. Ct.) (arbitration is a matter of contract; FAA places arbitration agreements on equal footing with other contracts)
- Seminole Tribe of Florida v. Florida, 517 U.S. 44 (Sup. Ct.) (context on IGRA and the nature of tribal-state compacts)
- Pueblo of Santa Ana v. Kelly, 104 F.3d 1546 (10th Cir.) (treating gaming compacts as creations of federal law and discussing compact interpretation)
- Kyocera Corp. v. Prudential-Bache Trade Services, Inc., 341 F.3d 987 (9th Cir.) (addressing severability of invalid judicial-review clauses in arbitration agreements)