Roadway Package System, Inc. v. Scott Kayser D/B/A Quality Express Scott Kayser

for further Accordingly, we will remand opinion. with this

proceedings consistent SYSTEM, INC., PACKAGE

ROADWAY Quality Express KAYSER

Scott d/b/a Kayser, Appellant.

Scott

No. 99-1907. Appeals,

United States Court

Third Circuit.

Argued Sept. 7, 2001.

Filed June (Argued), Tomar Ballow &

Laurence I. Hills, PA, Tomar, Ap- for Fairless Counsel pellant. (Ar- Botta,

Frank Ellen P. Milcic C. LLP, gued), Thorp, Armstrong, Reed & PA, Appellee. Pittsburgh, Counsel BECKER, private terms of Judge, courts must enforce the Chief Before: AMBRO, agreements. Judges. Circuit and NYGAARD must decide question The second we OF THE COURT OPINION conceptually complex involves the issue of BECKER, Judge. Chief par- how courts should determine whether from an order of the appeal This is an de- ties have contracted out of the FAA’s vacating an arbitrator’s Court District contains a fault rules. The LCOA Package Sys- Roadway Plaintiff award. clause, stating that it “shall choice-of-law (RPS) tem, packages for ships Inc. small in governed by and construed accor- linehaul “Independent clients. corporate dance with the laws of the Commonwealth contractors,” Defendant Scott such as Pennsylvania.” Kayser submits we RPS ter- Kayser, operations. assist its expressing should read this clause alleging contract Kayser’s minated opt out of the FAA’s default desire to obligations had failed to fulfill his he regime incorporate and to arbitration rules Operating Linehaul under the Contractor from law. dis- borrowed We (LCOA), governed their Agreement which agree. Kayser exercised his contrac- association. why explain first the choice-of-law We and tual to demand arbitration right little, any, light if on the clause sheds damages. RPS then awarded substantial parties’ actual us intent. issue before in the District Court for the brought suit contract construction simply a matter of Pennsylvania, asking Eastern District of rather than one of choice-of-law. Because Applying the award. the court to vacate designed are to deal choice-of-law clauses in the Fed- the vacatur standards set forth with a different issue from the one with (FAA), Act the District eral Arbitration faced, currently which we are and because grounds on granted the motion than few federal statutes other scope exceeded the that the arbitrator permit parties to contract out of their re- authority. affirm. his We will quirements, we do not read the LCOA’s requires us to Kayser’s appeal decide evidencing clause as a clear significance questions two of considerable displace intent the FAA’s default re- arbitration, governing for the law both gime. conclusion is consistent with Our currently subject of circuit- which are Lehman Hut- Mastrobuono Shearson splits. question The first is whether con- ton, Inc., 115 S.Ct. parties may opt out of the FAA’s tracting (1995), though L.Ed.2d 76 Volt Infor- default and fashion their vacatur standards Sciences, Inc., mation v. Board Trustees is a “contract own. Because the LCOA University, Leland Junior Stanford evidencing involving a transaction com- 103 L.Ed.2d 488 merce,” § FAA governs U.S.C. (1989), may appear contrary, our previously Resolving question this case. opinion, Supreme of that review Court, first hold that reserved subsequent Court’s decision Mastrobuo- permits parties the FAA to contract for no, holdings unanimous of six oth- and the pro- than the ones vacatur standards other Appeals er Courts of convince us Volt FAA sets out “a vided the FAA. The distinguishable. in state as well applicable substantive rule courts,” Corp. presence Because the as federal Southland (if 1, 16, any- 79 choice-of-law clause tells us little Keating, 465 U.S. (1984), contracting parties simply thing) rule is about whether L.Ed.2d but its out of the default opt specified safety standards, intended FAA’s service and permitted incorporate early ones termination if standards borrowed he did not meet them. RPS terminated the from state we must announce and 1998, alleging mid that Kayser had re- apply ge- a default rule. hold that a peatedly failed to obligations fulfill his un- clause, alone, neric choice-of-law standing der the contract. support finding is insufficient to

contracting parties opt intended to out forty-one The pages long and regime. the FAA’s default This rule will: is divided into sixteen sections. This ap- (1) parties ensure who have never peal implicates Sections 9 and Section thought about the issue will not be found 9.3 binds the disputes to arbitrate to have elected out of the FAA’s default and outlines procedures for doing so. (2) Its regime; comparatively simple introductory provides: for sentence apply; arbitrators and district courts to In the event that RPS acts to terminate (3) preserve ability and sophisticat- Agreement this ... [Kayser] and dis- opt agrees ed out. our Applying rule to with such termination ... then (but others) case, disagreement each such this no conclude the District shall be settled in accor- apply Court was correct to the FAA’s va- dance with the Commercial Arbitration catur standards. Rules of the American Arbitration Asso- Analyzing the issue under those stan- .... ciation dards, we hold the District Court 9.3(e) Section states: correctly determined that the arbitrator authority arbitrator shall have the scope authority. exceeded the of his only to conclude whether the termi- Though our cases against exploit- caution [Kayser] nation of was within terms ing an in ambiguity an arbitrator’s award Agreement, of this to deter mine dam- support inference he or she ages if required to do so under this powers, they exceeded his or her also es- subparagraph, provide and to for the that a reviewing pre- tablish court is not expenses division of the of the arbitra- examining cluded from an arbitrator’s parties_If between the the arbi- case, statement of reasons. In this trator concludes that the termination opinion crystal arbitrator’s written makes was not Agree- within the terms of this clear that his decision was based on the ment, then, (2) option at the ... RPS fact that thought procedures he that RPS’s [Kayser] shall nevertheless be terminat- notifying Kayser of its dissatisfaction ed, and ... shall damages be entitled to performance with his were unfair. Yet the equal to the arbitrator’s determination procedures intrinsic fairness of RPS’s [Kayser’s] of what earnings net ... not before the empow- arbitrator —he was during period would have been be- ered to only decide the termi- tween the date of termination to the last nation was within the terms of the LCOA. day of the Agreement, term Accordingly, we conclude that the District (without renewals). any [Kayser] shall award, in vacating was correct damages any have no claim for other will, therefore, affirm its order. amount, and the arbitrator shall have no power punitive any award or other I. damages. A. 9.3(f) Finally, specifies: Section Kayser RPS and entered into the LCOA authority The arbitrator shall have no required Kayser alter, 1996. It to conform to modify any amend or of the terms (in- Managers. only This is up by Local Agreement of this and conditions to the contractor.... estoppel, waiv- verbalized by application cluding ratification), further, er, the arbi- larger equipment at [Kayser] bought any award which may not enter trator took on that the behest of RPS and alters, modifies the terms or amends or responsibility, when his financial but Agreement conditions of this unsatisfactory, he performance was (including by applica- manner form or warnings point until the received verbal ratification). waiver, or estoppel, tion of course, which of is writ- of termination with warehouse aggressive Section 16 contains ten. He is stating get that the LCOA “shall be provision, people several locations in accordance governed by and construed other ... customers. When out serve remiss, employees the laws of the Commonwealth driver were with his own brought once Pennsylvania.” replaced he them RPS attention. He was an problem to his B. very man in a com- aggressive business termination of the Following warnings RPS’s petitive environment. Verbal arbitration, LCOA, Kayser demanded persuade not him of RPS’s serious did Mech- which was conducted before William concerns. $141,961.40in total sought Kayser mann. many years dealing on Based $129,930.00 projected for lost damages: jurisprudence industrial relations $12,031.40 in- expenses for profits plus business, sys- I American find the RPS a tractor-trailer at purchasing curred lacking process [Kay- tem in due toward Mechmann request. Arbitrator RPS’s ser]. $174,431.15 Kayser and awarded ruled for system, which I re- Here the RPS Kayser more than in damages $32,469.75 — spect, thinking long itself into blinds —as originally requested. document our side of the business as we decision consists of Mechmann’s written arrangement, is sufficient. For ir- paragraphs. The first is short twelve per reputable organization business para- appeal. to this The second relevant in the important forms an service econo- arbitra- graph acknowledges “[t]he my, inadequate. that is 9.3(e) authority set forth Section tor’s Paragraph eight gives Mechmann’s conclu- The third characterizes LCOA].” [of sion: question” main before Mech- the “[t]he wrongful I conclude that this was ter- mann RPS’s termination of as whether mination RPS of the LCOA and de- proper.” The “wrongful or LCOA was (after earnings termine the contractor’s sixth, fourth, fifth, paragraphs and seventh expenses all are payment of which bor procedures focus on RPS’s opinion of the contractor) according ne LCOA contractors notifying independent for 9.3(e). 9.3(e) pro- As Section Section perfor- their it is dissatisfied with

when vides, damage period here runs from manner in which mance and discuss the 05/21/98, the date of RPS’s termination Kayser’s procedures played out those 01/25/99, of the the normal They read as follows: case. present of the date of termination dealing with procedure for The RPS (LCOA). Agreement com- by its contractors is performance nine, explanation, sets Paragraph without Documentation mendable. [sic] $174,431.15. Para- Kayser’s damages at are written by the contractors breaches ten, eleven, ruling are not view a district court’s on a and twelve motion to graphs appeal. relevant to this vacate arbitration award de novo. See Inc., Kaplan Options v. First Chicago C. 1503, 1509 (3d Cir.1994). 19 F.3d suit, asking filed the District RPS then modify the Court to vacate or arbitrator’s II. granted District RPS’s award.1 The Court must first We decide whether (1) motion, FAA, that: not holding properly District applied the FAA’s the standards Pennsylvania supplied vacatur standards or whether it should judicial review arbitrator’s deci- have, submits, Kayser used laid those (2) sion; and the arbitrator had exceeded out Arbitra Uniform In authority light under the contract. his (PUAA). tion Act For conclusion, reasons we set of this the Court did not reach margin, forth in the the answer to this proffered RPS’s other bases for vacatur. appeals. appellate juris- question quite important could be Kayser § disposition diction under 28 U.S.C. 1291. We re- ultimate of this case.2 We have Indus., Inc., Botany Act 1. The Federal Arbitration does create (3d Cir.1972) question jurisdiction. (noting federal See Moses H. that an arbitrator's Hosp. Mercury Corp., award must meet the test Cone Mem’l Constr. of fundamental ra- 32, 927, tionality). Correction 460 U.S. 25 n. 103 S.Ct. 74 and modification under (1983). § the FAA are covered 9in U.S.C. which L.Ed.2d 765 But because RPS is a “(a) empowers Kayser courts to act: Where there corporation Delaware is a and citizen (and fig- was an evident material miscalculation Jersey of New because the amount in ures or an evident material mistake in the case), controversy requirement met in is this any description person, thing, property or diversity jurisdiction the District Court had award!; (b) referred to in the Where or] § under U.S.C. 28 upon arbitrators have awarded a matter not ” submitted to them.... 2. The FAA where a lists four circumstances may grant vacatur three under court and governed law is arbitration modify may which it correct or an award. PUAA, by the which sets forth two discrete 10(a). by governed § Vacatur It 9 U.S.C. regimes. "statutory The first is known as ar- provides may a vacate award court an if: bitration,” which the standards for va- under fraud, (1) by procured corruption, it "was or catur, modification, parallel and correction means,” 10(a)(1); (2) §id. undue the arbitra Compare perfectly almost the FAA. those of ]," "partial! corrupt! id. tor was or 7314(a) 1 (governing § 42 Pa. Con. Stat. vaca- 10(a)(2); (3) § unjustifiably the arbitrator re tur), 7315(a) (covering § and id. modification hearing, postpone fused to refused to con 10(a) (vaca- correction), § with 9 U.S.C. pertinent sider and material to the "evidence tur) (modification § and id. and correc- controversy,” any engaged or other "mis tion). regime second is known as "com- The rights par prejudiced behavior” that of a power Judicial to set mon arbitration.” 10(a)(3); (4) ty, § id. or the arbitrator "ex aside common law arbitration awards is powers, imperfectly or ceeded[his her] or so sharply circumscribed. See Pa. Con. Stat. mutual, final, executed them that a and defi "may (stating § not that such awards upon subject nite award matter submitted clearly vacated unless it is or modified made,”id. courts, 10(a)(4). § was not Some hearing parly a or shown that was denied one, including recognized fraud, misconduct, addi also corruption or other tional, nonstatutoiy upon bases which a re irregularity unjust, caused the rendition of an viewing may award”). court vacate an arbitrator’s inequitable or unconscionable The generally award under the FAA. See Tanoma provides that to arbitrate PUAA Mining conclusively presumed” Co. v. Local Union No. "shall be to be (3d Cir.1990) (recognizing agree- that an common law arbitration “unless may writing displays expressly award be set aside if it "mani to arbitrate ment Indus., law”); disregard provides statutory pursuant fest for the Inc. for” arbitration Swift Hutton, Inc., 514 U.S. this case is Shearson Lehman determining no trouble Subject 52, 57, a few L.Ed.2d 76 FAA. by the governed here, (1995). Thus, the statute implicated if contract arbi exceptions any “written applies pro rules or pursuant trate to arbitration in evidencing a transaction ... contract law, the fed from state cedures borrowed arbitration commerce settle volving long so as their policy eral satisfied out of such contract controversy arising Sci., enforced. See Volt agreement is Info. language § 2. This transaction.” 9 U.S.C. Inc., Board Trustees Leland Stan r each to the limits the Act’s “extend[s] 468, 478, University, 489 U.S. Junior ford power[.]” Clause Congress’ Commerce (1989). 1248, 103 L.Ed.2d 488 Cos., Inc. v. Dob Terminix Allied-Bruce agree foregoing does not mean that The son, 265, 268, will be specifying ments arbitration (1995). ar agreement to L.Ed.2d 753 pursuant proce to state rules or conducted citizens of in this case-one between bitrate FAA; subject to it being cease dures involving a contract states and different permits par FAA simply means packages delivery pick-up for the rules under “specify ties to contract the shipped inter that have been or will be ... will be conducted.” which within unquestionably Con state —was a court Id. at 109 S.Ct. 1248. When the Commerce power to reach under gress’ agree the terms of an arbitration enforces Clause. rules, it incorporates ment that state law ended, however, sim- is not inquiry Our have cho does so not because we have concluded ply because governed by state rather than sen to be enacted the applies. Congress Rather, federal law. does so because refusals to enforce “to overcome courts’ court enforce requires law federal 270, 115 to Id. at agreements arbitrate.” agreement. of the Mastro the terms Cf. purpose ultimate The statute’s S.Ct. 834. (in buono, 58, 115 514 U.S. at private arbitra- the terms is to enforce say has to quiring “what the contract (pro- § 2 See 9 U.S.C. agreements. tion arbitrability petitioner’s claim about “shall be val- viding agreements that such punitive damages” rather than whether enforceable, id, irrevocable, upon save and was controlled a New for the equity at law or in grounds as exist barring from award York rule arbitrators contract”); any see also revocation of them). ing Byrd, 470 Reynolds Inc. v. Dean Witter reserved the thresh- Having previously 213, 220, 84 L.Ed.2d U.S. Sales, question, Apex see Fountain old (1985) (observing that the statute “was & Kleinfeld, Inc. v. 1094-95 foremost, motivated, by a and con- first (3d Cir.1987), n. 4 we now hold agreements to enforce gressional desire judicial review of an arbi- may agree entered”). Though into which had decision will be conducted accord- trator’s “proarbi- generally embraces law. borrowed from state ing standards oper- policy “does not policy,” tration appli- “a rule The FAA creates substantive to the wishes regard ate without courts,” in state as well as federal Mastrobuono cable contracting parties.” statutory Pennsylvania apply. And because chapter. Id. standards relevant 7302(a). for common the PUAA's vacatur standards § the LCOA's arbitration Neither are so much narrower law arbitration awards of law clause mentions clause nor its choice FAA’s, issue (much the choice of standards particular chapter), so than the less a the PUAA dispositive in this case. could well be law arbitration if this would be a common Keating, 1, 16, Southland Corp. We do not believe provisions such (1984), L.Ed.2d but these Volt demonstrate a clear intent displace clarified that its Mastrobuono rule is FAA’s vacatur standards and simply replace that courts must them enforce the terms with ones borrowed from agreements. join law. We now Choice-of-law clauses ubiquitous are great weight agreements, with the commercial authority and hold good reason. parties may opt out of Contract law is the FAA’s off- mostly state and it varies the-rack from state vacatur standards and fashion result, to state. As a parties to their commercial (including by own referencing state agreements often care great standards).3 deal about This holding makes it which state’s govern law will their associa- necessary for us to decide a truly difficult tion. And because modern choice-of-law question Kayser and RPS did so —whether doctrines place tend great weight on in this case.

intent, contracting parties have an incen- tive to include choice-of-law clauses in III. agreements. their Commercial parties of- We first consider whether RPS and also bargain ten clauses, for arbitration Kayser manifested a clear intent hoping to benefit from pur- arbitration’s judicial review of the ported arbitrator’s award advantages over litigation. As a result, would be pursuant conducted many to standards commercial contracts include borrowed from Pennsylvania Though law. both arbitration clauses. our ultimate is to goal effectuate their required When to determine the legal intent, we little evidence with which standards governing particular contro- to work. Section 9.3 of the LCOA binds versy, courts typically confront two choice- them to any disputes “by resolve arbitra questions. of-law The first is the horizon- accordance with the Commercial question: tal whether the laws X of State Arbitration Rules of the American Arbitra or State Y supply the relevant rule of tion Association.” Section 16 directs that (and, decision. Choice-of-law doctrines governed “shall and con clauses) consequently, choice-of-law speak strued accordance with the laws of the this issue. The second choice-of-law of Pennsylvania.” Commonwealth The question that courts face is vertical the says LCOA itself nothing about the issue one: whether rule of sup- the decision is us, before and there is no extrinsic evi plied by the laws of State X or federal by dence that Kayser gave RPS the mat law. Judge-made choice-of-law doctrines ter All consideration. (and, we have to accordingly, attempts by contracting us, guide therefore, anis arbitration clause parties to influence application their and a clauses) choice-of-lawclause. choice-of-law have no applicability See, e.g., 3. Corp. Kyocera Tech. 247, Corp., LaPine v. Corp., F.Supp. Prods. 248-49 884, (9th Cir.1997); 130 F.3d Syncor Int'l (E.D.Wis.1994); Flight Sys. v. A. Paul Lau 96-2261, McLeland, Corp. v. No. 1997 WL Co., (D.D.C. 715 F.Supp. rence 1127-28 (4th Cir., 1997) at *6-*7 Aug.11, (per 1989). Management But see UHC Co. v. Com curiam) (unpublished opinion); Gateway (8th puter Corp., Sciences Tech., Inc. 64 F.3d Corp., MCI Telecomm. 1998) ("It Cir. is not clear ... (5th 1995); 996-97 Cir. M&L Power any say have in how a federal court will Servs., Int'l, Inc. v. American Networks Congress review an arbitration award when F.Supp.2d (D.R.I.1999); Eng New specific, self-limiting proce has ordained a F.Supp.2d Hydro-Quebec, land Util. v. occur."). dure for how review such is to (D.Mass.1998); Mfg. Sys. Super Flexible two broker a securities pute between rel- because the question answering this

to agreed parties had The its customers. by the Constitution supplied rule is evant by any disputes any to resolve preempts law federal a valid itself: agree their to have a desire indicated the same had regulate to purporting law state of the State by the laws “governed ment VI. Art. Const. U.S. See issue. ar permits Though the York.” New however, one is not us, issue before The damages, the punitive award to bitrators is sim- preemption of choice-of-law —it Supreme Court the before question No construction. contract matter of ply a incor to intended parties had the whether gov- this matter were contests that one York a New into their porate rule relevant law, then the erned awarding from arbitrators that barred rule the Com- laws of by supplied be would them. But, we as Pennsylvania. monwealth governed examining is not this case began explained, Court The by federal Id. at governed “in isolation.” law—it clause by state choice-of-law decide must only reason It noted law. stan- merely or state federal apply “reasonably to as be read

whether could clause analy is because case in this dards for conflict-of-laws a substitute by contract “specify to what determine permits would that otherwise sis will be ... arbitration under which out of arising rules disputes apply to to 479, 109 Volt, 489 id., i.e., whether relationship,” conducted.” contractual in this case issue 1248. The or those of York the laws New apply to choice-of-law LCOA’s was the reading If this state. another specifying as observed, be read should then clause one, the Court correct deci- arbitrator’s any judicial review in the contract nothing would “there according to conducted should be sion constitute evidence possibly could arbi- forth set damages standards punitive to exclude intent an in the set out of those law instead tration also stated Id. The Court claims.” FAA. intend clause was the choice-of-law even if for ordi a substitute than “more to be ed the choice-of-law construe decline still analysis” conflict-of-laws nary a clear evidencing case in this clause punitive award preclude “might stan- Pennsylvania’s incorporate intent allows its York New damages because into the LCOA. judicial review dards arbitrators, enter courts, though not its above, claus- explained As we this, the Because of Id. awards.” such speak intended generally es are might that “the reasoned one with from wholly distinct issue rights substantive New York’s include Moreover, currently faced. arewe which alloca and, not State’s obligations other (if statutes any) federal few because tribu alternative between power opt permit even the FAA than 60, 115 1212. S.Ct. Id. at nals.” them, contained standards out of the issue particular are confident interpre- resolving which Though never ex contracting parties rarely occurs was the clause choice-of-law tation ante. that it held one, squarely Court best opt an intent clearly evidence not did conclusion for our support

findWe arbitra- rule that default of the federal Hut out Lehman v. Shearson Mastrobuono re- damages punitive may 1212, award 131 tors 52, Inc., S.Ct. ton, 115 York from New one borrowed it with place a dis (1995), involved which 76 L.Ed.2d 295 they law that may not award them. See terms. 474-76, See id. at 109 S.Ct. 1248. id. (remarking that choiee-of-law And, Court, said the because the Califor “not, itself, clause was an unequivocal nia courts had found that exclusion of punitive damages claims”); meant to incorporate the California rules 62, (“At see also id. at most, 1212 agreement, into their applying those rules the choice-of-law clause introduces an am to their case was perfectly consistent with biguity into an arbitration policies of the FAA. 475, See id. at would otherwise punitive allow damages 109 1248. added)). awards.” (emphasis Mastrobuo not do view Volt as supports offering no thus guid our conclusion that the ance as to how evidences no clear intent to choice-of-law displace claus es the FAA’s should default judicial interpreted; rather, standards for review and to replace Court merely them with those followed obligation its to de borrowed from Pennsylvania fer to law. state court of private constructions agreements in cases where no federal

Our conclusion that RPS and Kayser rights are at stake. supposition This have expressed clear no intent as to supported by Mastrobuono, where the the District Court should have Court was reviewing a applied federal court’s con federal or state vacatur standards struction of a is not choice-of-law clause. undermined Re Volt Information sponding Sciences, to Justice dissent, Inc. v. Board Thomas’s Trustees Le which land relied heavily Volt, Junior on University, 489 Stanford U.S. clarified that in 103 that case L.Ed.2d it had 488 not con (1989). case, In that strued the underlying con contract de novo. See Mastro tract buono, included both an clause at 60 n. 115 S.Ct. 1212. and a Instead, choice-of-law clause. See id. at Court, said the it had “deferred to 470, 109 S.Ct. A California court the California court’s construction of its interpreted the contract to mean that the own State’s law.” Id.

parties had intended to incorporate Cali Our understanding of Volt is bolstered fornia’s arbitration rules into agree their by case law from our sister circuits. Six ment, 471-73, see id. at 109 S.Ct. 1248, other Appeals Courts of expressly have and the Supreme Court of the United considered the relationship between Volt States affirmed. Though the contractor and Mastrobuono. All six have unani- argument “devote[d] bulk its mously concluded that Volt is inapposite convincing Supreme [the Court] when a federal court is unconstrained by [California court had] erred in interpret the need to defer to state court construc- ing the clause,” it stressed PaineWebber, tions. See Elahi, v. that “the Inc. interpretation private con (1st F.3d Cir.1996); 594 n. 5 tracts is ordinarily question National state Union Fire Ins. Co. v. which this Court does Belco sit Petroleum to re ” Corp., (2d view. Id. at F.3d Cir.1996); S.Ct. 1248 (empha added). sis Hayden Porter The Court acknowledged Century Co. Indemnity Co., it might (4th needed n. Cir.1998); review the courts’ interpretation Corp. Indus., had that Ferro interpreta Inc., Garrison tion infringed upon 926, (6th rights, federal F.3d Cir.1998); but ex 936 UHC Man- plained that the only “right” Co., agement conferred by Inc. v. Computer Sciences the FAA is private to have Corp., 992, (8th arbitration 148 F.3d 996 Cir.1998); agreements enforced according to their Wolsey, Foodmaker, Inc., Ltd. v. 144 F.3d

296 consis is guidepost This to do so. Cir.1998).4 intend there- (9th Volt

1205, 1212-13 admonition Court’s Supreme with tent our undercuts that nothing contains fore “in the control standards the FAA that expressed Kayser RPS and that conclusion con intent contractual absence incorporate to intent no clear 59, 115 Mastrobuono, at trary.” into their review judicial standards with It is also consonant S.Ct. agreement. d’etre, tois overcome which raison FAA’s legisla (whether by state created rules IV. courts) it more make or tures of a presence Because the agreements. enforce arbitration to difficult (if any- little us clause tells choice-of-law 478, 1248 109 Volt, S.Ct. U.S. 489 See contracting parties about thing) ‘to overrule (“The designed FAA was default the FAA’s opt to out intended to enforce refusal long-standing judiciary’s ones borrowed incorporate and standards ”) Dean (quoting to arbitrate.’ agreements a to establish we need from Byrd, v. 470 Inc. Reynolds, Witter adopt is that rule, the one we default 158 219-20, 105 84 L.Ed.2d standing clause, states (1985)). acknowledge that some We finding support to alone, insufficient to protection much or more as provide opt to intended contracting than does agreements eW standards. default FAA’s out § 7302 et see, 42 Pa. Stat. FAA, e.g., Con. in- three considerations lay out first see, Garrity v. not, e.g., do seq, but others rule why the articulate analysis, our form 354, 386 Inc., Stuart, 40 N.Y.2d Lyle them, consistent today is announce we (1976) 793 353 N.E.2d N.Y.S.2d case in line with rule is why our show precluding law as York (construing New and six Supreme Court from both dam awarding punitive from arbitrators to respond then circuits. We our sister en is to goal FAA’s ultimate ages). proposed approach alternative any de bargains, but actual parties’ force by applying conclude Ambro. We Judge inaccurate to be doomed rule fault case. rule to this our therefore, must, decide cases. some concluding wrongly is worse: error which A. out, wrong opt parties intended light of not. In they did concluding ly guide us considerations Three history, believe FAA’s we First, aimwe rule. formulating a default latter. than the former worse par with which frequency minimize the regime Second, to create strive we out of opted found ties will be easy for arbitrators it will which not under they did regime when FAA’s default Cucchiella, cur., Mass.App.Ct. 32 Inc. v. are decisions acknowledge that there 4. We decisions, (1992). Other 870 little to be of 594 N.E.2d them contrary, but find Mastrobuono, never so before though were decided after Many decided cases value. meaning of Volt. on tend focus clarified the the decision Mastrobuono much cite Hutton, Inc., v. Shearson Lehman Barbier construction. See than contract preemption rather Cir.1991); Sys. Mfg. (2d Co., Flexible 117 Inc. Painting & Constr. ASWAllstate See Cir.1999); 247 Ltd., F.Supp. Corp., 874 Super (5th Prod. v. Co., 307 F.3d Lexington Ins. Sys. A. Lau (E.D.Wis.1994); v. Paul Flight Inc., Health, F.3d v. Value trom Eks 1391 (D.D.C.1989); Co., F.Supp. 1125 rence Servs., Inc. (D.C.Cir.1995); & L Power M Co., Inc. & Barney, Upham Harris Smith Int’l, F.Supp.2d Network v. American Luckie, N.Y.S.2d 85 N.Y.2d (D.R.I.1999). (1995); Se McKinnon Thomson N.E.2d and district courts to provide deter mine whether “any that controversy shall be set parties opted have out of federal stan- by tled arbitration in accordance with the Finally, dards. we seek to a create rule terms of the Pennsylvania Uniform Arbi sophisticated parties may that bargain tration Act.” Ford v. NYLCare Health Cf. significantly around without increasing Coast, Inc., Plans of Gulf (5th their transaction costs. Cir.1998) that (noting parties’ contract provided “[a]ny that controversy In light of guideposts, these we believe ... shall by be settled accor that best rule is that a generic choice- dance with the Texas General Arbitration clause, alone, of-law standing no in- raises Act”).5 We note also that other rule ference that parties contracting intended impose would transaction costs as well opt out regime. FAA’s default impelling parties not wishing opt out to rule will parties This ensure that who have include a saying that their never thought particular about this issue— choice-of-law clause should not be read to that, a characterization suspect, would raise such an inference. apply parties in this case—will not be found to opted out. It will also Our rule is also consistent with the case make life easier for First, both arbitrators and law. it honors Mastrobuono’s di- judges analysis because the will be com- rective that FAA apply standards “in the plete once they agree- conclude absence contractual intent to the con- ment nothing contains more than a trary.” 514 U.S. at 1212. S.Ct. As contrast, choice-of-law clause. In any oth- explained, we have good there is reason to er rule would often require protracted believe contracts often contain both analysis to determine parties whether the generic choice-of-law and arbitration claus- have contracted out of the default federal es in cases where it likely standards, process that would impose parties gave absolutely no thought opt- (1) two burdens: make would cases out ing of the FAA’s default standards. harder to decide for both arbitrators and Second, the rule we today announce is in (2) judges; and the resulting legal uncer- synch with holding. Mastrobuono’s tainty might deter settlements. acknowledge that opinion concludes

Lastly, the rule we pre- announce will with a premised discussion that is on the serve and ability facilitate the of parties to assumption that presence of a choice- contract around the default federal stan- of-law clause can render contract ambig- Sophisticated (i.e., dards. parties those uous to whether the parties intended to employ experienced lawyers who to draft incorporate state arbitration rules into contracts) their will soon learn ge- that a agreement. 63-65, their See id.

neric choice-of-law enough. Court, clause however, S.Ct. 1212. The was care- Assuming that both genuinely wish ful to make clear that it rendering no governed by holding standards other than as to the meaning of the clause FAA’s, requiring something See, more will e.g., itself. id. at (“At impose minuscule most, costs. It is the choice-of-law clause transaction intro- difficult, not particularly example, ambiguity duces an into an arbitration We do suggest parties may not mean to might inference. The case well be different if not be found opted to have out unless their language other contractual or other evidence contract includes a statement such as this suggested intended to be one. We hold that a choice-of- bound standards borrowed from state law. clause, alone, standing raises no such 298 is based First, proposal Judge Ambro’s pu- allow otherwise that would a must that we find premise the false on add- (emphasis damages awards.”

nitive Mastrobuo Volt and “reconcile[ ]” way to with ed)).6 holding is in accord Third, our at supra explained, But as we Id. no. that circuits sister of our by six decisions already III, has Supreme Court the Part generic choice-of- a construe declined the two relationship between the clarified that an inference raising as law clause its rule Volt, the Court followed In cases. incorporate intended contracting parties interpretations court deferring their into standards arbitration state law as no federal long so contracts private agreement.7 no had The Court at stake. rights are because in Mastrobuono obligation such one) (like originated B. fed this that case Mastrobuono, at court. eral See ap- a different proposes Ambro Judge Volt, 1212; also 489 4, see 60 n. containing that contracts arguing proach, 474-76, Judge 1248. at and arbitra- clauses by Mas- unconvinced apparently Ambro incor- be construed should tion clauses Volt, distinguishing method trobuono’s that are rules all state porating 2, & n. but Op. at 303 Ambro see and “substantive” in nature “procedural” persuasive or not find Mastrobuono we “con- that do not rules state arbitration province It is not of no moment. Op. at FAA. See Ambro flict” with on an a based to craft rule unconvinced, believing are Court was Supreme 304-05. We that assumption that coun- above have meant outlined it could not wrong that the reasons or that earlier, numer today. noted announce it said. As we of the rule we what sel favor interrelation examined the with cases problems three ous Additionally, we have and Mastrobuono. See ship between Volt proposal. Judge Ambro’s proferen- ambiguous, contra legally is not in- Mastrobuono’s this reason 6. It is for justify inapplicable. its proferentem to tem is contra vocation of we rule is not decision inconsistent party that 589, drafted here. Elahi, announce PaineWebber, 87 F.3d Inc. v. See 7. case contended at issue contract Cir.1996); 592, (1st Union Fire National 594 preclud- York rule that incorporated a New 129, Corp., 88 F.3d Belco Petroleum Ins. Co. v. awarding punitive dam- from ed arbitrators Cir.1996); Hayden Co. (2d Porter 134-35 opinion the Court its ages. the end of Near Co., Indemnity 136 F.3d Century v. come could not "over the drafter stated that Indus., Cir.1998); (4th Corp. v. Garrison Ferro interpreta- of contract rule the common-law 927-28, (6th Inc., Cir. 142 F.3d ambiguous construe a court should tion that Co., 1998); Comput Management Inc. v. UHC party against the language interest (8th Corp., 148 F.3d er Sciences But as Id. at drafted it.” Foodmaker, Inc., Cir.1998); Wolsey, Ltd. v. text, the Mastrobuono explained Cir.1998). (9th 1205, 1209, 1212-13 144 F.3d deciding that Court assumed without Co., Painting & Constr. ASW Allstate But see Consequently, ambiguous. agreement was Co., F.3d Lexington Ins. Inc. that, arguing Judge Ambro incorrect otherwise); curiam) 1999) (concluding (5th (per Cir. Mastrobuono, generic choice-of-law "a under Inc., Health, Value trom Eks any in the specific electing provision (same). (D.C.Cir.1995) 1391, 1394-96 Op. ambiguous.” Ambro agreement, is same a Elcstrom for unpersuaded ASW and are holding added). Under our (emphasis gives opinion rea neither simple reason: is insuf- clause today, generic choice-of-law a concluding choice-of- sons for law to show as matter ficient evidencing an be read as law clause should displace contracting parties intended regime. default result, of the FAA’s opt intent out contract rules. As FAA's default pp. n. supra 295-96 & 5. We have not determine whether a given rule sup- was located, cited, Judge nor has Ambro a plied by the FAA or was instead borrowed single case that “reconciled” the Court’s from state law would first need to classify opinions on proposed by two the basis the relevant being rule as either “substan- Judge Ambro. “procedural” tive” or for purposes of the It possible FAA.8 that arbitrators and

The second reason for our disagreement courts simply would the import distinctions Judge with proposal Ambro’s is that we that have been believe that drawn the diversity would not con- effectively ad- pursuant purpose vance its stated text to effectuating Erie Railroad Co. v. the intent of most contracting parties. Tompkins,

Judge Ambro concludes his (1938), concurrence L.Ed. 1188 jurisprudence but the by arguing that practice “custom and that area is always not a model of clarity, among contract drafters” counsel favor and, events, at all we do not understand construing contracts such as this one as why distinctions drawn in a totally differ- incorporating arbitration standards bor- ent context necessarily would transfer well Op. rowed from state law. Ambro at 308. the FAA. But that would not happen even under problematic Judge nature of Am- Judge approach; rather, Ambro’s Judge proposal bro’s only would increase in any approach Ambro’s would have courts con- case where the party seeking vacatur com- strue contracts like this as incorporat- one plained issues, about multiple ing all at least one arbitration rules that are “procedural” nature, “procedural” of which was and at only but least one those (however “substantive” of which rules do not “conflict” “substantive” those defined). with the FAA. Though people case, reasonable are terms In a such a quarrel may over most whether to reviewing court could required apply be contracts such as the one before us would (i.e., some rules borrowed from state law wish to be by bound the FAA’s default “procedural” rules and the relevant state’s standards or would instead choose to be “substantive” rules that do not conflict bound standards borrowed from state FAA) with some rules taken from law, we think it unlikely most (i.e., “substantive” rules where number sizeable would wish to rule from the relevant state is “con- be bound some federal standards and FAA). flict” with the involving Issues va- some state ones. catur are difficult enough without the addi- tional Lastly, challenge balancing applying we believe Judge Ambro’s proposal unduly multiple legal regimes would complicate within the the law same in this area. Under Judge ap- reasons, Ambro’s case. For all of these we decline proach, seeking arbitrators and courts adopt Judge proposal. Ambro’s Although Judge Pennsylva- Ambro, Ambro regime cites two proposed by Judge under the proposition nia cases for the categorization given standards of of a rule as “substan- procedural, review are we think "procedural” tive” large part or would in question would have to be a of federal law. determine preempted by whether it was Judge view, Ambro's view is that a choice- FAA. In our scope because of the incorporates of-law clause all of the preemptive chosen effect aof federal statute is itself a state's except portions arbitration law question those question of federal incorporation whose given be "procedur- would inconsistent a rule was "substantive" law, i.e., federal substantive purposes rules that al” for of the would likewise consequence, “conflict” with the FAA. question As of federal law. court Op.). The Arb. (quoting Op. at

C. “[t]he stressed of this rule to facts our Applying authority to limits the arbitrator’s clearly answer. The simple yields an case termination only whether decide clause contains Agreement, the terms within of an evidence no extrinsic there is proce- of the extrinsic fairness examine FAA’s default out of to contract intent of notifies contractors RPS by which dures the hold that Dis- therefore regime. “[b]y that It concluded Id. problems.” concluding that correct Court was trict such consider- his decision on grounding govern review of FAA standards the altering the thereby of fairness ations case. pre-termi- require to certain Agreement over- the arbitrator procedures, nation V. authority grant- the of the bounds stepped standards, we FAA the Applying at 14- Agreement.” Id. him the ed to that the Court the District agree adopts the essentially RPS appeal, 15. On his scope of au the exceeded arbitrator analysis. Court’s District the under judicial review Though thority. in re arguments three advances Kayser circumscribed,” Local “narrowly that mance. See supra page 290. The conclu- Workers, Bhd. Int’l Elec. 886 F.2d sion that arbitrator Mechmann derived (3d Cir.1989) (concluding particular that a from this Kayser’s discussion was not that dispute was not arbitrable and remarking termination contrary had been to the “[n]othing that in the arbitrator’s two rul- (the question actually him), before ings contrary” convinces us because but rather that system “the RPS [was] opinions the that the revealed arbitrator lacking in due process [Kayser].” toward based had his decision “on general the Kayser would have us believe that the desirability of arbitration” than the rather arbitrator devoted four paragraphs language of agreement). the dicta,” “mere but not one sentence ex- hand, On the other also cau- plaining have supposed his “holding” that the against tioned exploiting ambiguity” “an in termination violated the terms of the an arbitrator’s support decision to “an in- agreement. reading That simply not ference” that he or she his or her supported by exceeded the opinion, arbitrator’s authority. Corp. NF&M demonstrates, United Steel- which beyond peradventure, Am., (3d workers that Mechmann ruled on an issue that was Cir.1975). The reason for policy properly this is not him. before require opinions “[t]o ambigui- free of Moreover, RPS, by as noted the arbitra- ty [could] lead by arbitrators to it safe play tor never framed or decided in the issue writing no supporting opinions. This by the terms stated the LCOA: “[W]heth- undesirable, would be for a well-reasoned er the [Kayser] termination was within opinion engender tends to confidence Instead, the terms of Agreement.” this integrity process aids Mechmann stated ques- “[t]he main clarifying the underlying agreement.” tion” was whether “the termination” was United Steelworkers Am. v. Enterprise “wrongful proper.” And Mechmann’s Corp., & Car Wheel was “that this wrongful “conelu[sion]” (1960). L.Ed.2d 1424 LCOA,” termination RPS of the not We distill the following principles from that the termination violated “the terms (1) precedents: our a reviewing court Though of’ LCOA. these latter two presume should that an references, arbitrator acted alone, standing would not suf- scope within the of his or her authority; fice show that the arbitrator exceeded (2) presumption this may not be rebutted authority, they his lend support further ambiguity a written opinion; but our conclusion that he so. did We hold (3) a may court conclude that an arbitrator District Court was correct to va- But I contract construction.1 matter of award, and will there- the arbitrator’s

cate conclusion my colleagues’ disagree with its order.9 fore affirm construction, that, a matter of contract Concurring: AMBRO, Judge, Circuit law to Pennsylvania parties’ choice Operating Linehaul Contractor govern by my reached outcome in the I concur “LCOA”) (the requires that Agreement arbitrator in agree I colleagues. FAA, pro- making authority exceeded his this case to be judicial review vide standard Kayser against Mr. in favor of the award provi- to that contract’s arbitration applied (“RPS”). Inc. Roadway Package System, (which govern- mention of makes no sion result, I that the agree arriving at In law). determining In ing (the “FAA”), Act Arbitration Federal a “clear contain that the LCOA requires by pri- seq., permits § 1 et U.S.C. govern Pennsylvania law intent” have around the to contract vate by default or else provision, its arbitrators’ by which standards FAA’s believe, I colleagues, applies, my agree I also are vacated. awards Supreme Court’s decision misapply our out of contracted Hut- Lehman Shearson a Mastrobuono v. standard is of awards vacatur the FAA’s According to Section profits.” ior his "lost Court's vaca- District affirmance of the 9. Our LCOA, 9.3(e) Kayser to was controversy of the entitled as gives to rise to tur order earnings during ... damages for his "net Kayser may rearbitration. The whether seek "[wjhere to date of termination period award is va- between the an the provides that Agreement.” agree- day term of this the of the which the last the time within cated and text, originally sought Kayser not to be made has required the award noted in the As ment discretion, $141,961.40 ($129,930.00 profits may, di- lost and in its expired, the court $12,031.40 9 rehearing by arbitrators.” U.S.C. the be- purchasing the a truck at rect a for 10(a). previous RPS), discussion indi- § As our him but the arbitrator awarded hest of cates, opinion is unclear as to $174,431.15. the arbitrator's truck satisfied that We are the issue that was before ruled on the scope whether he of plainly the purchase was outside Kayser's of RPS’s whether termination him: damages support no and can find allowable terms of LCOA. Un- within the contract was of arbitrator's award record for the the circumstances, rehearing would der these $32,469.75 originally Kayser re- than more query whether "the appropriate. But seem said, panel expresses being the quested. That agreement required the which the within time of an award opinion as to whether no Though expired.” ... award to be made has $129,930.00 justified this case. by particular date no itself sets LCOA the entered, parties the be an award must which colleagues My use "contract construction” in accordance the agreed "arbitration to interpretation,” and I instead of "contract the Rules of Ameri- Arbitration Commercial deliberately. con they presume so Under do [(AAAor Associa- Association can Arbitration construes effect a court the tract construction tion)].” question § seems to 9.3. The Con agreement applicable law. under of an therefore, be, impose AAArules by attempt a court interpretation is the tract limit, may well be time outer parties the to an intent of to ascertain the by the Association. resolved better matter they express by use agreement words to the issues, which are not decide these difficult do of agreement. former is matter The us, for further them before but leave not law, F. Har one of fact. See John the latter may occur. proceedings Co., Waldinger Corp., F.2d 796 Inc. v. kins 657, (3d Cir.1986); Ram Co. Const. 659-60 matter, this If a rearbitration occurs 1049, Co., 1052-53 F.2d Am. States Ins. 749 guidance all members note Cir.1984); (3d Patter generally Edwin W. events, see that, at all agreement are in panel son, and Construction Interpretation been reduced have arbitrator's award should 833, (1964); Contracts, $129,930.00 Colum. L.Rev. amount no more than to —the 534, (1960). § at 9 3 Corbin on Contracts compensate him Kayser originally sought ton, Inc., 514 U.S. generic2 S.Ct. choice of “the law of place (1995), L.Ed.2d 76 disregard custom Project (in where the case, is located” California). practice among agree- drafters of Ruling that “where par ments. agreed ties have their arbitration

agreement governed will the law of A. The FAA California,” court, a California pursuant to its stay could The issue of preemption the FAA’s arbitration pending the results of related subject state arbitration law is a of consid litigation involving third parties, something See, 52, 56, e.g., erable debate. id. at contemplate does not and thus 1212; Scis., S.Ct. Volt Inc. v. Bd. Info. permit would not if it governed. Volt, 489 Univ., Trustees Leland Junior Stanford U.S. at “Where, 109 S.Ct. 1248. 468, 472, 489 U.S. here, parties agreed abide (1989); L.Ed.2d Op. Maj. 296 n. 4. arbitration, state rules of enforcing those Interestingly, the FAA was enacted in according rules agree terms of the purpose 1925 for the of “overcoming] fully ment is consistent goals with the courts’ refusals to agreements enforce FAA, even if the result is that arbitra arbitrate.” Allied — Bruce Terminix Cos. is stayed where the would oth [FAA] Dobson, 265, 270, 115 permit erwise go forward.” Id. at (1995). 130 L.Ed.2d 753 But this obvious 479, 109 S.Ct. 1248. That because “[a]r

pro-arbitration policy operate does bitration under the[FAA] is a matter of regard without intent consent, not coercion.” Id. Understood to an to arbitrate. may Parties way, where have a choose that their governed arbitration be governing their by rules other than supplied by those contract, they must affirmatively choose to FAA, Volt, 489 U.S. at agreement have their gov arbitrate FAA “simply and the requires courts to by erned only the FAA. exception The privately enforce negotiated agree [those] if would be the state chosen rule “would ... ments accordance with their terms.” goals undermine the policies and of the 478, 109 Id. at S.Ct. 1248. 478, 109 FAA.” Id. at 1248. S.Ct. Supreme B. Jurisprudence— Court Mastrobuono, only years decided six af- Volt and Mastrobuono Volt, held, ter in the of a form context Supreme Our Court has twice within the contract containing generic a New York years twelve last dealt with the deceptively provision separate and a ar- difficult (which issue of whether the FAA impli- provision, bitration the FAA edly governs an agreement permitted to arbitrate punitive damages awards ar- bitrators) within a specifically contract (which chosen the preempted York New law not). governed by to be state law. Supreme See did Court determined Mastrobuono, 52, 514 at U.S. 115 S.Ct. that New York govern law would substan- Volt, 1212; 489 U.S. at 109 S.Ct. 1248. principles of agreement tive the but could Volt, In Supreme held that provide, by generic the use of choice- preempt FAA did not a super- alone, contract’s language of-law “special rules limit- My colleagues generic 2. refer to a jurisdiction choice of particular agree- was listed in the Thus, as an that states it will be under ment review. our if case in- governed by particular jurisdic- the laws of a volves a pertains choice Volt of case, (in Volt, Pennsylvania). tion this In no super-generic ato choice of law. (absent goals and express agreement) Mas authority the arbitrator.”

ing the 56, 115 S.Ct. FAA. at of the Id. policies 1212. trobuono, at 115 S.Ct. U.S. (“New against ar prohibition York’s or to reverse purport did not Mastrobuono ... is a punitive damages awards of Instead, distin bitral the Court even limit Volt. hostility to judicial ‘ancient’ vestige in a footnote: Volt guished arbitration.”). principle is The second California ... deferred In Volt that, a in its contract by placing state’s of its own construction court’s law_ and an arbitration choice of law case, by con- present In the law, Shearson specific without choice court’s inter- trast, a federal we review contract, ambiguous “drafted an Lehman contract, inter- our and pretation of the benefit of ... cannot now claim accords pretation 1212. at 115 S.Ct. Id. the doubt.” to def- arguably entitled decision-maker read to “a be Finally, document should arbitrator.3 erence—the and to ren provisions to all its give effect 4, 115 1212. n. S.Ct. Id. at 60 Id. with each other.” der them consistent in Mas decision Court’s Underlying discussed below principles these is Each of the con that “the wishes is trobuono of this case. context at prevail, id. tracting parties” and Mas- between Volt The difference 468, 109 Volt, at (citing 489 U.S. S.Ct. there, trobuono, difficult “while 1248), contra even if those wishes Co., Republic Ins. Lanier v. Old grasp.” unequivocal exclu by “an the FAA vene (M.D.Ala.1996). But F.Supp. at claims.” Id. punitive damages sion of believe, can, reconciled. I cases those these ascertaining In 1212. they require that sub- together, to Taken wishes, instructs a court Mastrobuono (such as rule stantive state arbitration of con principles three take into account award- barring York’s of arbitrators The New interpretation. construction tract by the superseded (which Volt, ing damages) punitive at in line with first 1248) there is a between FAA where conflict application is that rule, though even that and the state mine FAA not under the law would chosen 'encourage re- would pointed out To hold otherwise Ironically, Supreme Court Furthermore, shopping.... forum the case ward that it would decide in Mastrobuono interpreta- court’s premise that a defer Court's either a de "the same novo under Mastrobuono, is entitled to a choice of law clause ential standard.” Moreover, interpreta- court's 1, while federal Mastrobuo deference 55 n. 115 S.Ct. insupport- subject review is to de novo distinguish received is Volt effort to has no's omitted); Diamond, able.”) (citations also Heather J. see strong See Thomas criticism. A. Note, Haase, Rights to Preemptive In Parties’ Clauses and Their Law Choice Defense of the Federal Arbi- Arbitral Awards Under Act: Recon Limit the Federal Arbitration on Effect Lehman v. Shearson Itself, tration Act: Mastrobuono 39 Ariz. Supreme Court with ciling the 309, Hutton, Inc., 331- 35, (1997) (“This Wake Forest L.Rev. suggest 31 would 56-58 L.Rev. (1996) ("Although to follow purporting only 32 applicable when is Mastrobuono Volt, ignored its own Supreme Court has meaning is clause’s intended choice of law rights 'contractual in Volt to enforce State would mandate in court. courts resolved federal parties,’ has in- expectations of the while fed ignore remain free to Mastrobuono meaning of the federal distorted the obligated it. stead to honor courts would be eral to the conclusion policy in order reach Southland Supreme Court held When the in 852, in arbi- damages be allowed punitive should 79 Keating 104 Corp. [465 U.S. (citations omitted); tration.”) Joshua M. Bar- (1984)] provisions of the that the L.Ed.2d 1 Note, rett, Policy Arbitration Federal as well must be honored courts FAA After Hutton, Lehman courts, v. Shearson uniformi Mastrobuono Inc., it did so to assure as federal (1996). 534 32 Willamette L.Rev. forum. irrespective of the ty of law selected (the “PUAA”)4 if ex- Act governs can be overcome dealt with tration conflict hand, parties’ in the contract. On the other arbitration. plicitly easily This issue is procedural FAA state arbi- only defers resolved favor of the PUAA if Volt (such rule tration rules as California But applies. Mastrobuono creates pending an arbitration resolution delaying I complexity. Consequently, analyze our in litigation), of another matter even when my issue reading princi- based on of the Mastrobuono, the FAA is in conflict. See ples of Volt and Mastrobuono. (“We 63-64, at 1. Application Principles of the way think that the best to harmonize the of Volt and Mastrobuono with the arbitration read ‘the laws of the State provision is to a. Law Chosen to Govern LCOA provi- of New York’ the choice-of-law [in (Pennsylvania) Does Not encompass principles substantive sion] Undermine apply, that New York courts would but In applying Volt and Mastrobuono to special limiting to include rules the author- case, question our the initial is whether the arbitrators.”); Volt, at ity of application Pennsylvania law to the arbi- (“Where, here, par- tration section of the LCOA undermines agreed ties have abide state rules view, my FAA. requires, pre- This arbitration, enforcing those rules accord- liminary vacating consideration of whether ing fully to the terms of the an arbitrator’s award because the arbitra- FAA, goals consistent with the even authority procedural tor exceeded his stayed if the result is that arbitration is former, If the substantive. permit would otherwise [FAA]

where the Pennsylvania govern choice of law to forward.”); Diamond, go A. Thomas governs LCOA means that the all PUAA Preemp- Choice Law Clauses and Their substantive, If aspects of arbitration. on the Federal Arbitration Act: tive Effect then must address whether the PUAA is Supreme Itself, Reconciling the Court with FAA, in conflict then (1997) (hereinaf- 39 Ariz. L.Rev. 60-65 the FAA preempt does our case. “Diamond”). ter

I vacating believe that an arbitrator’s C. Our Case award because the arbitrator exceeded his authority procedural, see Hade v. Na case, Applied to our the issue is this: in Co., Pa.Super. tionwide Ins. containing provi- a contract an arbitration (1986), A.2d overruled on other FAA, making sion no mention of the is the Co., grounds by Keystone Ins. affirmative choice of law a Ostroff (1986) Pa.Super. 515 A.2d 584 general enough gov- choice-of-law clause (“ ‘Irregularity’ contract, refers not award ern that entire or does the itself, process arriving but to the used require that further the arbitration section award.”); Diamond, 39 Ariz. L.Rev. at explicitly Pennsyl- of that contract choose (and FAA’s) FAA 62 & n. and thus the defers to again vania law for its not the procedures generic govern choice of state law to apply? arbitration More But if specifically, the conflict is whether such matters. even the vacatur of substantive, Pennsylvania FAA or the Uniform Arbi- arbitrators’ awards is Penn- PUAA, types My colleagues §§ 4. Under the three of arbitration Cons.Stat. 7361-7362. and (1) provided: statutory, agree are Pa. Cons.Stat. I that common law arbitration would 7301-7320; law, (2) Pennsylvania applicable §§ law were to common Pa. Cons. be if 7341-7342; (3) judicial, Maj. §§ apply. Op. Stat. 42 Pa. See at 291-92 n. 2. and provision coupled in with arbitration is not conflict with sylvania law common law FAA, and any for both law in the same electing specific permit vacat under the PUAA arbitration Mastrobuono, agreement, ambiguous.5 is in cir modifying awards ing or arbitral 62-63, 1212. 514 U.S. at Under exceeds where the arbitrator cumstances proferentum, drafters the rule contra authority. Compare 9 U.S.C. his or her (such Lehman in Mastrobuo as Shearson 10(a)(1) (allowing § courts to vacate arbi no) claim “cannot now the benefit of “procured by awards where cor trators’ respect ambiguity. to that Id. doubt” with means”), fraud, or undue and id. ruption, 1212. is in the same at RPS 10(a)(4) ar (allowing § vacatur where the rowing with the same oars. It alone boat powers”), bitrator “exceeded [his her] Pennsyl drafted the LCOA and it chose § (authorizing 42 Pa. with Cons.Stat. mentioning law without the FAA vania misconduct, “fraud, corrup vacatur where section of that contract. It irregularity caused ... an tion or other argue cannot now that what Mastrobuono award”) (em unjust inequitable ... [or] ambiguous interpret found to should be added). “irregularity” An under phasis by applying the FAA to ed RPS’s favor Pennsylvania common law arbitration can award. the vacatur arbitrator’s include the arbitrator considered is beyond scope of the arbitration sues find, My colleagues disregard of Mas- (“Ad Hade, clause. See 503 A.2d at 983 believe, (and, I counterintuitive- trobuono mittedly, finding panel a that the consid ly), that the choice of beyond scope of the ered an issue LCOA, coupled a general arbitra- a support arbitration clause would modifi that does not select a set of Thus, appeal.”). cation of the award on rules, a state arbitration default “not I my colleagues, unlike do not believe legally ambiguous” choice of the judicial power Pennsylvania com under Maj. Op. govern the arbitration section. mon law arbitration to vacate awards “so much narrower than the FAA’s” vaca 298 n. 6. But even their own words belie Maj. Op. tur n. 2. In standards. at 291-92 this conclusion. event, may any differences exist presence generic a Because the case, of this do not determine the outcome (if any- choice-of-law clause tells us little and thus the PUAA does not undermine thing) contracting parties about goals policies the FAA in this opt intended to out of the FAA’s default instance. incorporate standards and one borrowed Ambiguous

b. LCOA Is and Must from we need to establish a Against be Construed its rule, adopt default the one we (RPS) Drafter clause, choice-of-law alone, standing support is insufficient to teaching Following the further of Mas- trobuono, provision, finding contracting parties intend- choice-of-law deciding My colleagues Court assumed without conclude that Mastrobuono Mastrobuono merely prem- ambiguous.”). What “a discussion that is that the contains they ignore following Shermanesque presence of a is the assumption ised on the that the "Respondents clause can render a contract statement of Mastrobuono: Lehman, ambigu- ambiguous al.] intended et drafted an [Shearson as to whether the document, they incorporate rules into ous cannot now claim state arbitration Mastrobuono, 298; agreement.'' Maj. Op. their at see also benefit of doubt.” ("[A]s Maj. Op. explained, at 115 S.Ct. 1212. at 298 n. affected, opt applies out of the FAA’s default stan- commerce is the FAA ed dards. enforce arbitration. If agreement an containing provision arbitration has no Maj. generic at If a Op. 296. supplies choice of the FAA default if agreement clause in an “tells us little By contrast, the rules of arbitration. if opted anything” parties about whether the agreement contains an arbitration sec- FAA, plain out of the then the words of tion with no choice of law but a generic agreement are unclear. Where some choice of state agree- the entire thing incapable possi is unclear one ment, (a) supplies state law choice meaning, ipso ambiguous. it is ble facto procedural rules for arbitration even if Third New International Dictio Websters’ (the the FAA is in conflict teaching nary English Language Unabridged Volt) (b) (1971); the substantive rules for Corp. accord Sumitomo Mach. Inc., 328, arbitration unless the FAA in AlliedSignal, Am. v. is conflict (3d Cir.1996) (an agreement and the agreement ambigu explicitly does not “susceptible conflicting if it choose the ous of more than one substantive rule (the Mastrobuono).7 is, meaning”). argue teaching To unclear default, Maj. legally ambiguous,” Op. “not Thus, I agree my do with colleagues not 6, is, best, interestingly at 298 n. at ironic. my approach “unduly complicate[s] My colleagues’ attempt to answer this Maj. the law in this Op. area.” at 299. irony is that “a choice-of-law Rather, comports Supreme with the clause is insufficient as matter of law to rulings Court’s Volt and Mastrobuono. contracting show that the intended displace the FAA’s default rules.6 As a Reading c. LCOA’s Choice-of-Law and result, legally ambigu- the contract is not Arbitration Sections as Consistent ous, proferentum is inapplica- and contra ble.” Id. Finally, Mastrobuono counsels “that a

I give do not understand this statement. document should be read to effect to ge- provisions Mastrobuono nowhere that a all its and to render them con- states Mastrobuono, neric choice of law is insufficient as a sistent each other.” hardly matter of law to show that at 1212. It displace internally intended to the FAA. The Su- inconsistent to determine that preme position govern Court’s is more subtle. the choice of law to agreement involving governs an interstate also its section on When arbi- But, My colleagues displace 6. never state what the FAA’s intent” to it. as I note in this Instead, they posit by concurring opinion, default rules are. ukase I believe that Mastrobuo- they what determine to be the default rule for approach. no takes a more nuanced choice of law in an con- taining electing My colleagues any attempt an arbitration write that its own internal choice law. Their default reconcile Volt Mastrobuono is a "false that, rule is absent a "clear intent” to choose premise,” Maj. Op. at and that I "craft govern agreement's state law to assumption rule based on the that the Su- provision, applies. Maj. Op. the FAA at wrong." preme Court was Id. To the con- 293-94. trary, Supreme I believe that the Court itself supplies the two reconciliation between these brings This default rule into focus where however, light FAA, suggest, that in cases. I would my colleagues part. They and I read the issue, Maj. split Op. of the Circuit on this see presumably by preemptive principle some may (though they deny Supreme at n. wish to pre- that this is a case of 294), emption, Maj. Op. requiring clarify holding "clear its in Mastrobuono. agree all implicates that choice a rule Where does this leave us? We tration when (which contracting parties and in no that the intentions of procedural I believe FAA) relating I prevail with the over the FAA. believe that the event inconsistent reviewing govern for an arbitra- choice of state law to to the standard provi- governs tor’s award. contract also arbitration that contract when arbitration sion within preempts The FAA procedure is affected. Among and Practice Drafters 2. Custom law is and the when substantive affected Agreements Support the Determi- state law chosen conflicts with the Pennsylvania nation that Law Gov- explicit agreement absent to override that erns the LCOA applied preemption. The standard to be practice among the drafters Custom and vacating modifying when or an arbitrator’s agreements support my belief that the submit, is, I procedural award matter. Pennsylvania in the choice of law LCOA Notwithstanding, law governs (including the entire contract its vacating arbitrators’ awards does not con- provisions). practice, In arbitration flict FAA. with the Therefore the PUAA. provisions highly are often apply should to the arbitration LCOA’s always They negoti- contested. are almost provision. comports This result with Volt agree- ated one Moreover, and Mastrobuono. under Mas- (as LCOA) usually ment and provisions trobuono the contractual here agreement. near the end of ambiguous are and must be construed invariably choice of law almost is meant to RPS, against the drafter of the Usually encompass agreement. the entire only Pennsylvania govern chose law to it thought given having no a bifurcated argues governing and now for the as is, choice of but if it the bifurcated Following approach arbitration. choice of law is set forth the choice-of- internally. leaves LCOA consistent provision itself. law thing One is certain to me. No default apply If that the FAA RPS had intended rule is called for which an unclear LCOA, to the section of the (as find) my colleagues intent becomes Moreover, would have so stated. to re- transmogrified legally unambiguous. quire within the arbitration section of the event, done, analysis In all when Pennsylva- LCOA the redundant choice of Pennsyl- result is the same whether under logically nia leads conclusion vania law or the FAA—the arbitrator’s provisions may that other of the LCOA Thus, I award is vacated. concur with the choice, also need to contain that redundant not, judgment part, my Court’s but col- e.g., provisions treating indemnification reasoning. leagues’ rights or termination events contracts involving transportation the interstate Thus,

products. express preemp- absent FAA,81 Pennsylva- believe that governs

nia law the LCOA’s arbitration

section.

[******] Volt, preemptive provision.”). 8. There is none. 489 U.S. at ("The express S.Ct. 1248 FAA contains no notes Mechmann rightly He sponse. Jersey Coast Teamsters Int’l Bhd. 863 justify or rationalize required (3d was not Inc., 533 Producers, F.2d Egg F.2d at Local his decision. See au of an arbitrator’s Cir.1985), scope the the correctly observes He also by the confined thority is defined sugges make was entitled arbitrator see, arbitrate, e.g., In Swift of his scope beyond that went tions Inc., Indus., F.2d dus., Botany Inc. v. Apex Fountain See authority to decide. Cir.1972). (3d Accordingly, the 1125, 1131 Sales, Kleinfeld, 818 F.2d Inc. v. make “may a court provides Cir.1987). (3d though ac Finally, [wjhere ... vacating [an] award order “ref made that the arbitrator knowledging powers.” their exceeded arbitrators issues,” Kayser process to due erence 10(a)(4). § U.S.C. of Mech eighth paragraph stresses pre- only issue undisputed that It “I decision, conclude which states: mann’s whether was arbitrator sented wrongful termination this was within [Kayser] was “termination RPS’s Kayser argues of the LCOA.” RPS District LCOA].” [the terms of not, analysis, “in the final did Mechmann exceeded the arbitrator found that issues process to the due tie his reference it manifest powers, his claims, Instead, Kayser decision.” into his text on the was based conclusion court’s simply process [was] to due “the reference decision, the rele- written arbitrator’s Mr. Mech irrelevant surplus, [was] pages set out are portions of which vant been not have and should mann’s decision noted that court opinion. The of this suggest by the court a basis used issue as “fram[ed] had the arbitrator au beyond his went the Arbitrator proper termination” wrongful one 14-15. Br. at thority.” Appellant’s the inade- to discuss “proceed[ed] and then opinion arbitrator’s parsing Before warning inde- procedure quacy of RPS’ au- his he exceeded whether to determine defi- performance contractors of pendent ques- first confront thority, must that ‘the finally conclude[d] ciencies and Kayser so. to do proper it is process to- in due lacking system[is] RPS ” from are barred that courts argue Ct. does Dist. contractor.’ the Claimant ward examining an statement of rea- arbitrator’s exceeded his or her authority when it is sons, and, events, at all such a contention obvious from the opinion. written contrary would be to our cases. See Unit- standards, Under these we hold that the Carnegie ed States Steel & Pension Fund District Court was correct in concluding (3d v. McSkimming, 759 F.2d that Mechmann exceeded authority. his Cir.1985) (vacating an arbitrator’s award Although opinion Mechmann’s begins by payment that ordered the pension bene- acknowledging that his authority is set fits where an examination of the arbitra- 9.3(e) forth LCOA, Section tor’s written decision convinced the Court contains paragraphs four of substan- that “the arbitrator’s award patently [was] tive discussion—all of which focus on the statutory interpretation based on rather way in which RPS communicated to Kay- Plan”); than the see also that it ser perfor- dissatisfied with his Power Co. Local Union # 272

Case Details

Case Name: Roadway Package System, Inc. v. Scott Kayser D/B/A Quality Express Scott Kayser

Court Name: Court of Appeals for the Third Circuit

Date Published: Jun 7, 2001

Citation: 257 F.3d 287

Docket Number: 99-1907

Court Abbreviation: 3rd Cir.