A recent decision from the 10th Circuit shows there is a whole new way to invalidate an arbitration agreement.  In Citizen Potawatomi Nation v. Oklahoma, 2018 WL 718606 (10th Cir. Feb. 6, 2018), the court found the arbitration agreement unenforceable because the parties provided for de novo review of any arbitration award in federal court, which is prohibited under the Hall Street decision from SCOTUS in 2008.

The agreement at issue was a Tribal-State gaming compact between the Citizen Potawatomi Nation and the State of Oklahoma.  The Compact had a dispute resolution procedure providing for arbitration under AAA rules.  But it also stated that “notwithstanding any provision of law, either party to the Compact may bring an action against the other in a federal district court for the de novo review of any arbitration award …”

The parties then had a dispute over liquor licensing and taxes, which was heard in arbitration.  The Potawatomi Nation moved to confirm the award in federal court, and argued for narrow review under FAA Section 10.  Oklahoma moved to vacate the award,  seeking de novo review of the dispute under the Compact.  The district court applied the narrow review in Section 10 and confirmed the award.

On appeal, the 10th Circuit upended the entire arbitration agreement.  It noted that the 2008 Hall Street decision makes clear that parties cannot alter the standard of review in Section 10.  It also found that the provision for de novo review could not just be severed, because it was material to the parties’ decision to choose arbitration, as evidenced by a review of the Compact as a whole.  As a result, the court found the arbitration agreement as a whole unenforceable.

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By Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com