ARBITRATION: INTERFACE OF THE FEDERAL ARBITRATION ACT AND NEBRASKA STATE LAW

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1 ARBITRATION: INTERFACE OF THE FEDERAL ARBITRATION ACT AND NEBRASKA STATE LAW TABLE OF CONTENTS JOHN M. GRADWOHLt I. INTRODUCTION II. FAA SECTION 2, SUBSTANTIVE ARBITRATION LAW, AND PREEMPTION A. In General B. Transaction Involving Commerce C. Arbitration Rules D. Special Provisions on Arbitration Venue, Qualifications of Neutral Arbitrator, and Small C laim s E. Notice in Standardized Agreements F. Punitive Damages G. "Written Provision" or "Written Contract" H. Personal Injury Based On Tort I. Nebraska Fair Employment Practice Act J. Voluntarily and Willingly III. FAA AND NEBRASKA UAA IN TANDEM A. In General B. Motions to Compel Arbitration and Stay Litigation C. Subpoenas and Discovery D. Labor and Employment E. Vacating and Confirming Awards F. Appealable Orders IV. LIMITATIONS ON ARBITRABLE SUBJECTS A. Insurance (McCarran-Ferguson Act and E R ISA ) B. Workers' Compensation C. Motor Vehicle Franchise Contracts D. Other Limitations V. CHOICE OF LAW ISSUES t Judge Harry A. Spencer Professor of Law, University of Nebraska College of Law. The valuable assistance of Dean Steven L. Willborn, Professor Roger W. Kirst, Professor Coleen E. Medill, Professor Anthony B. Schutz, Judge Jan Gradwohl, and Brian M. Sabata, a member of the Class of 2009, is gratefully acknowledged and appreciated.

2 CREIGHTON LAW REVIEW [Vol. 43 A. Separability B. Arbitration Agreement Formation C. Modification of Arbitration Provisions D. Choice of State Law and Choice of Arbitration R ules E. Review of Arbitration Awards VI. ROLES OF NEBRASKA GENERAL CONTRACT LAW UNDER THE FAA VII. A FINAL NOTE I. INTRODUCTION Arbitration law in the United States is often a confusing and uncertain mixture of federal and state law and policies. The simplest generalization is that it is a contractual arrangement with the Federal Arbitration Act 1 ("FAA") controlling enforcement of dispute resolution by arbitration and state law providing the basic contract law, supplementing the FAA procedurally, and regulating the underlying transaction between the parties. This Article examines the relationships of the FAA, Nebraska Uniform Arbitration Act 2 ("Nebraska UAA"), and other Nebraska state law. These issues are similarly relevant in other states. The analysis pertains almost exclusively to agreements to arbitrate future disputes, that is "to settle by arbitration a controversy thereafter arising out of such contract or transaction." 3 Agreements to arbitrate an existing controversy are also authorized by the arbitration statutes, 4 are ordinarily carried out voluntarily by the parties as specified in the agreement, and relatively infrequently present critical issues of arbitration law or policy. Agreements to arbitrate an existing controversy are the product of negotiation or an opportunity for negotiation. Many agreements to arbitrate future disputes are formed in standardized provisions designed and mandated by one of the parties, a topic of major controversy in basic state contract law and policy far beyond its application to arbitration agreements. Agreements to arbitrate "future disputes" bring into play a body of federal substantive law which "represents a liberal federal policy 1. 9 U.S.C (2006). References to "FAA " throughout the article are to those statutes. 2. NEB. REV. STAT (Reissue 2008). Its official name is "Jniform Arbitration Act," despite important variations from the Uniform Arbitration Act (1956) of the National Conference of Commissioners on Uniform State Laws. References to "Nebraska UAA " throughout the article are to those statutes. 3. FAA 2; Nebraska UAA (b) (stating "any controversy thereafter arising between the parties"). 4. FAA 2; Nebraka UAA (a).

3 20091 ARBITRATION favoring arbitration agreements notwithstanding any state substantive or procedural policies to the contrary." 5 Prior to amendment of the Nebraska Constitution in 1996,6 there was a substantial conflict between the federal and state law and policies for agreements to arbitrate "future disputes." 7 Agreements to arbitrate an existing controversy were enforceable under both the FAA and Nebraska law. Agreements to arbitrate future disputes were enforceable under the FAA but not under Nebraska law. With the Nebraska constitutional amendment, legislative repair of the Nebraska UAA in 1997, 8 and numerous recent decisions of the Supreme Court of the United States and Nebraska Supreme Court, there will be a much more viable and effective combination of federal and state arbitration law. It is important that the FAA and Nebraska UAA work well together to provide an effective system for arbitration. 9 The FAA does not "bestow" federal court jurisdiction, but requires an "independent jurisdictional basis." 10 As a consequence, there will continue to be significant litigation with respect to the FAA in state courts. The Supreme Court of the United States has noted: "Given the substantive supremacy of the FAA, but the Act's nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to ar- 5. Cornhusker Int'l Trucks, Inc. v. Thomas Built Buses, Inc., 263 Neb. 10, 18-19, 637 N.W.2d 876, 883 (2002) ("The U.S. Supreme Court has held that the FAA not only declared a national policy favoring arbitration but withdrew power from the states to require a judicial forum for the resolution of claims which the contracting parties have agreed to resolve by arbitration."). 6. NEB. CONST. art. I, 13. See generally John M. Gradwohl, Historical Perspectives on Nebraska Law Concerning Arbitration Agreements, 58 NEB. L. REV. 438 (1979); John M. Gradwohl, Current Dimensions of the Federal Arbitration Act in Nebraska, 74 NEB. L. REV. 304 (1995). 7. See generally Dowd v. First Omaha Sec. Corp., 242 Neb. 347, 353, 495 N.W.2d 36, 40 (1993). This was the first decision of the Nebraska Supreme Court applying the preemptive provisions of the FAA. 8. L.B. 151, 95 Leg., 1st Sess., 1997 Neb. Laws Neither the FAA nor Nebraska UAA contains a definition of "arbitration." See Thomas J. Stipanowich, The Arbitration Penumbra: Arbitration Law and the Rapidly Changing Landscape of Dispute Resolution, 8 NEV. L.J. 427, (2007) ("Viewed in full, both the FAA and the UAA appear to contemplate a process in which disputes are submitted to a hearing before a third party, who renders a binding decision that fully and finally addresses the disputes presented."); Kelley v. Benchmark Homes, Inc., 250 Neb. 367, , 550 N.W.2d 640, 645 (1996) (applying the FAA to require the parties to submit to nonbinding arbitration a dispute arising under their agreement as a condition precedent to litigation). Long before "arbitration" agreements were enforceable under Nebraska law (even agreements for damages only), the Nebraska Supreme Court enforced statutes providing for a person, such as the State Engineer or representative, to make binding decisions for "all disputed questions that may arise in the course of construction." See, e.g., Roadmix Const. Corp. v. State, 143 Neb. 425, , 9 N.W.2d (1943) ("Generally, the courts have held that parties to a contract may agree that classification, quantity, and quality of work done or things finished shall be left to the judgment of a third person and his estimate or decision shall be final... "). 10. Vaden v. Discover Bank, 129 S. Ct. 1262, (2009) (and cases cited).

4 CREIGHTON LAW REVIEW [Vol. 43 bitrate.""1 Federal court litigation, on the other hand, must apply important basic state contract law to a portion of the dispute. 12 Nebraska contract law is relatively sparse when applied to current issues of contract formation, contract modification, and concepts of unconscionability. A careful examination of how federal and state law now mesh illustrates that there can be a sound basis for parties to plan for and carry out future dispute resolution, if needed, by arbitration and for policy makers at both levels of government to oversee the legal structure of arbitration law. II. FAA SECTION 2, SUBSTANTIVE ARBITRATION LAW, AND PREEMPTION A. IN GENERAL The Federal Arbitration Act section 2 creates a body of substantive arbitration law, applicable in state courts, which the Nebraska Supreme Court has applied in a series of cases to: " preempt the prior Nebraska constitutional bar to the enforcement of future dispute arbitration agreements; 13 * hold that time-bar issues were for an arbitrator rather than a court to decide; 14 " invalidate a Nebraska statutory limitation on arbitration of motor vehicle franchise disputes; 15 " "note that the FAA requires that any doubts regarding the scope of an arbitration clause be resolved in favor of arbitration" in affirming an order compelling arbitration; 16 " hold that a court rather than an arbitrator should rule on whether litigation related conduct amounted to a waiver of an opportunity to arbitrate the claim; 17 and 11. Vaden, 129 S. Ct. at See, e.g., E.E.O.C. v. Woodmen of the World Life Ins. Co., 479 F.3d 561 (8th Cir. 2007); Hollins v. Debt Relief of America, 479 F. Supp. 2d 1099 (D. Neb. 2007); Schreiner v. Credit Advisors, Inc., 2007 WL (D. Neb. 2007); Chilson v. Retalix USA, 2007 WL (D. Neb. 2007). 13. See Dowd v. First Omaha Sec. Corp., 242 Neb. 347, 495 N.W.2d 36 (1993); Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 550 N.W.2d 640 (1996). 14. Smith Barney, Inc. v. Painters Local Union No. 109 Pension Fund, 254 Neb. 758, 579 N.W.2d 518 (1998). This decision was four years prior to the same determination by the Supreme Court in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002). 15. Cornhusker Int'l Trucks, Inc. v. Thomas Built Buses, Inc., 263 Neb. 10, 637 N.W.2d 876 (2002). See discussion in text at Part IV, Section C, notes Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, 319, 746 N.W.2d 672, 679 (2008). 17. Good Samaritan Coffee Co. v. LaRue Distrib., Inc., 275 Neb. 674, 749 N.W.2d 367 (2008).

5 2009] ARBITRATION * preempt a Nebraska statutory contractual notice requirement.' 8 The Supreme Court of the United States has declined to rule whether provisions other than FAA section 2 apply directly to state court proceedings. 19 The Nebraska Supreme Court has recognized that although other provisions of the FAA may not be binding in state courts, state arbitration decisions relating to agreements covered by the FAA cannot "undermine the goals and policies of the FAA." 20 The Court held emphatically in Buckeye Check Cashing, Inc. v. Cardegna 2 ' "that, regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator." 22 The Florida Supreme Court had refused to enforce arbitration provisions in deferred-payment transactions because it determined that the transactions contained usurious interest rates, violated Florida consumer protection statutes, and violated Florida criminal statutes. 2 3 The Court rejected the distinction between void and voidable contracts relied upon by the Florida Supreme Court to decide the matter judicially rather than by compelling arbitration. The Court expressed "three propositions" in the substantive law of FAA section 224 to reverse and remand the Florida decision: First, as a matter of substantive federal arbitration law, an arbitration clause is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts. 2 5 FAA section 2 does not purport to change the general contract law of Nebraska. It makes arbitration "valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Supreme Court of the United States decisions have 18. Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc., 276 Neb. 700, 757 N.W.2d 205 (2008). 19. Vaden v. Discover Bank, 129 S. Ct. 1262, 1278 n.20 (2009). 20. Nebraska ex rel. Bruning, 275 Neb. at 317, 746 N.W.2d at 678 (2008) (appeals and appealable orders) U.S. 440 (2006). 22. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006) (The arbitration provisions in the contract applied to "[any claim, dispute or controversy"). The Court distinguished the issue of the validity of the contract "from the issue whether any agreement between the alleged obligor and obligee was ever concluded." Id. at 444 n Buckeye Check Cashing, Inc. 546 U.S. at Id. at Id. at (relying on Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) and Southland Corp. v. Keating, 465 U.S. 1 (1984)). These two decisions have also been cited and applied by the Nebraska Supreme Court.

6 CREIGHTON LAW REVIEW [Vol. 43 italicized the word "any" for emphasis. 26 This means that state contract law "concerning the validity, revocability and enforcement of contracts generally" applies to arbitration provisions, but state laws applicable only to arbitration are superseded by the FAA. 2 7 B. TRANSACTION INVOLVING COMMERCE The Federal Arbitration Act section 2 applies to "a contract evidencing a transaction involving commerce." In Allied-Bruce Terminix Cos. v. Dobson, 28 the Supreme Court of the United States held in 1995 that the "transaction involving commerce" language in FAA section 2, enacted in 1925, is the functional equivalent of later federal legislation using the term "affecting commerce." The Court's per curiam summary disposition of Citizens Bank v. Alafabco 2 9 in 2003, reinforcing Allied-Bruce Terminix Cos. v. Dobson, stressed that the FAA invokes the "broadest permissible exercise of Congress' Commerce Clause power" and "it is perfectly clear that the FAA encompasses a wider range of transactions than those actually 'in commerce."' 30 The litigation involved a debt-restructuring agreement between a state lending institution and a local construction company and its officers. Citizens Bank v. Alafabco explains that the decision in United States v. Lopez, 3 1 invalidating the Gun-Free School Zones Act as an exercise of the Commerce Clause, does not apply to economic regulation and, for that reason, does not apply to the FAA. 32 The crux of Citizens Bank v. Alafabco is that the FAA applies if the transaction is economic in nature and "if in the aggregate the economic activity in question would... bear on interstate commerce in a substantial way." 3 3 This expansive definition of Congressional economic authority should be easy to apply to arbitration arrangements. Judicial determinations as to "a transaction involving commerce" would ordinarily 26. See Doctor's Associates, Inc. v. Casarotto, 571 U.S. 681, 686 (1996) (quoting Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995)). 27. Doctor's Associates, Inc., 571 U.S. at U.S. 265 (1995) U.S. 52 (2003) (summary grant of petition for a writ of certiorari and reversal of the Supreme Court of Alabama). 30. Citizens Bank v. Alafabco, 539 U.S. 52, 56 (2003) U.S. 549 (1995). 32. Citizens Bank, 539 U.S. at 58 (2003): Lopez did not restrict the reach of the FAA or implicitly overrule Allied-Bruce Terminix Cos.-indeed, we did not discuss that case in Lopez. Nor did Lopez purport to announce a new rule governing Congress' Commerce Clause power over concededly economic activity such as the debt-restructuring agreements before us now... [Niothing in our decision in Lopez suggests that those limits are breached by applying the FAA to disputes arising out of the commercial loan transactions in this case. 33. Id. at

7 2009] ARBITRATION be a part of motion practice 34 in which the factual basis can be shown at a glance whether or not the transaction is economic in nature and has the very minimal interstate economic relationship required by the Commerce Clause. The type and extent of economic activity involved will frequently be sufficiently reflected in the terms of the transaction. A judge or arbitrator can ordinarily determine readily whether the activity is within the permissible outer limits of Congressional Commerce Power. Some arbitration provisions expressly refer to the FAA as the law, or choice of law, supporting their existence. 35 Arbitrators make relevant findings of fact and conclusions of law concerning the applicability of the FAA, 36 which should be entitled to considerable judicial deference under the ordinary rules for confirming or vacating an award. Several Nebraska Supreme Court decisions have cited Allied- Bruce Terminix Cos. v. Dobson for its core determinations that the words "involving commerce" in the FAA provide the same broad application as the words "affecting commerce"-adding that actual interstate activities need not be involved in the situation or within the contemplation of the parties. 3 7 Two 2008 Nebraska Supreme Court decisions, 38 and one 2008 Nebraska Court of Appeals decision, 3 9 however, missed opportunities to clarify and simplify these rules in terms of the subsequent holding of the Supreme Court of the United States in Citizens Bank v. Alafabco. As a result, some transactions will be excluded from proper coverage under the FAA and, in general, courts and practitioners will encounter unwarranted difficulties and delays in making expeditious determinations FAA 6 and Nebraska UAA specify that applications to the court and hearings shall be by motion practice except as otherwise provided in the statutes. 35. See, e.g., Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, 746 N.W.2d 672 (2008). The generic choice of law alone, however, raises an additional issue of which provisions and interpretations of the FAA are applicable. 36. See, e.g., Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc., 276 Neb. 700, 701, 757 N.W.2d 205, 207 (2008); MBNA Am. Bank v. Lang, No. A , 2009 WL (Neb. App. 2009) ("The arbitrator determined that the matter before the National Arbitration Forum involved interstate commerce and was governed by the FAA."). 37. Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc., 276 Neb. 700, 757 N.W.2d 205 (2008); Good Samaritan Coffee Co. v. LaRue Distrib., Inc., 275 Neb. 674, 748 N.W.2d 367 (2008); Webb v. American Employers Group, 268 Neb. 473, 684 N.W.2d 33 (2004); Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 550 N.W.2d 640 (1996). 38. Aramark, 276 Neb. 700, 757 N.W.2d 205 (2008); Good Samaritan Coffee Co. v. LaRue Distrib., Inc., 275 Neb. 674, 748 N.W.2d 367(2008). 39. See, Tracy Broad. Corp. v. Telemetrix, Inc., 17 Neb. App. 112, 756 N.W.2d 742 (Neb. Ct. App. 2008). 40. See, e.g., Wachovia Sec., Inc., v. Bonebrake, No. Doc No. 455, 2009 WL (Neb. Dist. Ct. 2009) (applying Nebraska Supreme Court decisions rather than Citizens Bank v. Alafabco).

8 CREIGHTON LAW REVIEW [Vol. 43 Good Samaritan Coffee Co. v. LaRue Distributing Inc., 4 1 is a very clear case to which the FAA applies. Good Samaritan purchased coffee beans in other countries, processed and packaged them in Nebraska, sold the product to LaRue in Nebraska, and LaRue distributed the product in other states. 42 More than three years after Good Samaritan sued LaRue for breach of contract and tortious interference with a business relationship, LaRue moved to compel arbitration and stay the litigation. The Nebraska Supreme Court considered the applicable law issue to determine "whether a court or an arbitrator should decide if a party has waived its right to arbitrate when the waiver allegation is based on that party's litigation-related activity." 43 Relying on Allied-Bruce Terminix Cos. v. Dobson but not Citizens Bank v. Alafabco, the Nebraska Supreme Court dealt with the "involving commerce" aspect as if the important factor was the movement of coffee beans rather than the economic significance of the transaction. 44 On the basis of the FAA, the Nebraska Supreme Court affirmed the lower court determination that waiver of a right to arbitrate due to litigation-related activity is presumptively for judicial rather than arbitral decision. Aramark Uniform & Career Apparel v. Hunan 45 is another decision in which the Nebraska Supreme Court should have cited and relied on the rationale of Citizens Bank v. Alafabco. Aramark rented restaurant items to Hunan under an agreement that contained a standard arbitration clause. When a dispute arose and Aramark demanded arbitration, Hunan asserted that the arbitration provision was invalid because it lacked the statutory notice required by the Nebraska UAA. 4 6 Hunan did not participate in the arbitration hearing. The arbitrator determined that the FAA was applicable and preempted Nebraska statutory law on the issue and awarded damages and expenses to Aramark. 4 7 Hunan opposed Aramark's attempt to confirm the award in Nebraska District Court on the basis of the statutory notice requirement in the Nebraska UAA. The District Judge held a telephone hearing Neb. 674, 748 N.W.2d 367 (2008). 42. Good Samaritan Coffee Co., 275 Neb. at 675, , 748 N.W.2d at , (2008). 43. Id. at 679, 748 N.W.2d at Id. at , 748 N.W.2d at Neb. 700, 757 N.W.2d 205 (2008) 46. See discussion in text at Part II, Section E, at notes Aramark Uniform & Career Apparel, 276 Neb. at 701, 757 N.W.2d at Id. at , 757 N.W.2d at 208: The Douglas County District Judge held a telephonic hearing regarding the motion to transfer. The parties briefly discussed Hunan's claim that the arbitration agreement was nonbinding because it failed to comply with The parties did not discuss whether their contract implicated inter-

9 2009] ARBITRATION and "determined that the FAA did not preempt the [Nebraska] UAA because 'there [was] nothing to suggest that the agreement in question was in interstate commerce or affected by interstate commerce.'" 4 9 The District Court vacated the arbitration award, invoking the Nebraska UAA statutory notice provision. Aramark's Brief on appeal argued that a commercial transaction between corporations incorporated in different states involves interstate commerce, but the Brief relied primarily on the decision and analysis in Citizen's Bank v. Alafabco. 50 Aramark's Brief explained that an individual transaction need not have a substantial effect on interstate commerce or involve something that flows between states. 51 Aramark's Brief quoted from Citizens Bank v. Alafabco that: Congress' Commerce Clause power "may be exercised in individual cases without showing any specific effect upon interstate commerce" if in the aggregate the economic activity in question would represent "a general practice... subject to federal control." [deletion in original text]... [citations omitted in Aramark's Brief]. Only that general practice need bear on interstate commerce in a substantial way. 52 Hunan's appellate Brief conceded that if the FAA applied, the Nebraska statutory notice provision would be preempted and the arbitration award should have been confirmed. 5 3 Hunan's Brief argued that "because there is nothing in the record indicating that the contract affects interstate commerce in any way whatsoever, the district court correctly applied Nebraska law in its evaluation of the dispute." 5 4 The Nebraska Supreme Court decision in Aramark Uniform & Career Apparel 5 5 sets out basic hornbook law on the general scope of the FAA. Its analysis of the Commerce Clause, however, relied on Alstate commerce. After the hearing, the district court entered an order vacating the arbitration award. 49. Id. at 703, 757 N.W.2d at 208 (second bracketed word in original text). 50. Brief of Aramark Uniform & Career Apparel, Inc., at 4-5, 17-29, Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc., 276 Neb. 700, 757 N.W.2d 205 (2008) (No. S ), 2007 WL (Nov. 15, 2007). Aramark's Brief also presented arguments that the Award was mandatorily required to be confirmed under the Nebraska UAA, that the arbitrator's findings and conclusions were presumptively correct and not subject to relitigation on their merits, and that, in any event, the burden of proof to vacate an arbitration award is on the party seeking to vacate the award. 51. Id. at Id. at 21 (quoting Citizens Bank v. Alafabco, Inc., 539 U.S. 52, (2003)). 53. Brief of Hunan, Inc., at 13-14, Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc., 276 Neb. 700, 757 N.W.2d 205 (2008) (No. S ), 2008 WL (Mar. 19, 2008). 54. Id. at 4, 21 ("Because the evidence presented to the district court was too speculative to make any definitive conclusions regarding the effect of the agreement upon interstate commerce, the district court correctly opted to apply Nebraska state law.") Neb. at , 757 N.W.2d at

10 CREIGHTON LAW REVIEW [Vol. 43 lied-bruce Terminix Cos. v. Dobson and United States v. Lopez. The emphatic summary grant of certiorari and reversal of the Alabama Supreme Court in Citizens Bank v. Alafabco by the Supreme Court of the United States was a significant reaffirmation of the broad applicability of Allied-Bruce Terminix Cos. v. Dobson, particularly as to the Alabama Court's "misreading" of United States v. Lopez concerning Congress' Commerce Clause power. 56 Aramark Uniform & CareerApparel v. Hunan does footnote as "See" an Alabama Supreme Court decision issued six months after its rebuke in Citizens Bank v. Alafabco for statements in the text of the Aramark Uniform & Career Apparel v. Hunan decision: "As we know, courts have given Congress an expansive power over economic and commercial activities. So, it is difficult to imagine an economic or commercial activity that would be outside the scope of the Commerce Clause and, by extension, the FAA." 57 The interstate commerce issue in Aramark Uniform & Career Apparel v. Hunan was resolved on a simple basis: "Thus, a commercial service contract exists between two corporations incorporated in different states for the renting of linen supplies. The contract between Aramark and Hunan clearly involves 'commerce' which is defined in the FAA to include 'commerce among the several states.'"58 Rather than delving into and "misreading" United States v. Lopez, the Nebraska Supreme Court should have relied upon the holding of Citizens Bank v. Alafabco. The message from Aramark Uniform & Career Apparel v. Hunan is that until the Nebraska Supreme Court corrects its interpretation of the term "transaction involving commerce," the party relying on the FAA should buttress its pleadings, motions and evidence with extensive facts showing interstate commerce. 59 The factual support should cover not only the interstate nature of the transaction involved but also the aggregate economic effect of that type of activity or practice. 56. Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 58 (2003). 57. Aramark Uniform & Career Apparel, 276 Neb. at 706, 757 N.W.2d at 210 (citing Service Corp. Int'l v. Fulmer, 883 So.2d 621 (Ala. 2003)). 58. Id. at 707, 757 N.W.2d at 211. The contract was for Aramark, a "nationwide" linen supply company, "to rent Hunan [Restaurant] aprons, tablecloths, napkins, bar mops, laundry bags, and other products." Id. at 701, , 757 N.W.2d 207, 211. As described in the decision, the transaction, itself, would seem to have provided a sufficient factual basis for a court to make a legal determination that the matter was within the outer permissible limits of Congress' Commerce Power and, therefore, the FAA was applicable. 59. A party intending to invoke the FAA has a responsibility to establish that the transaction is one "affecting commerce." There are certainly reported decisions to which the FAA would appear to have been applicable, and perhaps a different result reached in the litigation, when a party did not invoke the FAA. See, e.g., Millennium Solutions, Inc. v. Davis, 258 Neb. 293, 603 N.W.2d 406 (1999); Omaha Cold Storage Terminals, Inc. v. Patterson, 15 Neb. App. 548, 733 N.W.2d 219 (Neb. Ct. App. 2007).

11 2009] ARBITRATION The tenor of the Aramark Uniform & Career Apparel v. Hunan decision does not reflect judicial hostility to arbitration, itself, but may reflect some current reticence toward the preemptive effects of Congressional legislation under its Commerce Power on Nebraska state law. C. ARBITRATION RULES Procedural arbitration rules specified by the parties constitute substantive law enforceable under Federal Arbitration Act section 2.60 The black letter statement is: "There is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate." 6 1 To the extent that applicable arbitration procedural rules under FAA section 2 conflict with state law, 6 2 the federal arbitration rules preempt the state law. Thus, the Supreme Court of the United States has held arbitration rules enforceable under FAA section 2 to preempt state statutory authority of the state Labor Commissioner 6 3 and a state limitation on the award of punitive damages. 6 4 Even though the Court has held there must be a "clear and unmistakable" intent of the parties for an arbitrator, rather than a court, to decide issues of arbitrability, 65 the United States Court of Appeals for the Eighth Circuit relied on arbitration procedure rules to supersede a state rule that a court must determine the question of arbitrability as a matter of law Preston v. Ferrer, 128 S. Ct. 978, (2008). 61. Volt Info. Sci., Inc., v. Board of Tr. of Leland Stanford Junior Univ., 489 U.S. 468, 476, (1989). 62. For a discussion of potentially conflicting choices of state law and arbitration rules, see infra Part V, Section D, text at notes See Preston, 128 S. Ct. at 989. Construction Industry Rules of the American Arbitration Association preempted authority of California Labor Commissioner under the California Talent Agencies Act. 64. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, (1995) (authority of arbitrator under rules of the National Association of Securities Dealers to award punitive damages superseded New York judicial rule that judges, but not arbitrators, could give punitive damages). 65. First Options of Chicago, Inc., v. Kaplan, 514 U.S. 938, 944 (1995); AT & T Tech., Inc. v. Commc'n Workers, 475 U.S. 643, 649 (1986). 66. See Fallo v. High-Tech Inst., 559 F.3d 874, 879 (8th Cir. 2009). Commercial Rules of the American Arbitration Association, Rule 7(a), "clearly and unmistakably" provides that arbitrators, rather than courts, determine the jurisdiction of an arbitrator. Id. at 878.

12 CREIGHTON LAW REVIEW [Vol. 43 D. SPECIAL PROVISIONS ON ARBITRATION VENUE, QUALIFICATIONS OF NEUTRAL ARBITRATOR, AND SMALL CLAIMS The 1997 Nebraska Legislature added several procedural provisions to the Nebraska Uniform Arbitration Act in response to opponents of reenacting future disputes arbitration authorization following amendment of the Nebraska Constitution in Legislative Bill ("LB") 151 was advanced by the Judiciary Committee to the floor of the Nebraska Legislature without amendment, 68 but with two negative votes and a third committee opponent absent. 69 There had been an indication during the Judiciary Committee hearing that opponents were prepared to offer amendments dealing with at least their procedural objections. 70 The day before LB 151 came up for consideration by the full Legislature, its principal sponsor filed an amendment dealing with four topics: venue for arbitration proceedings, qualifications for neutral arbitrator, notice provisions in standardized agreements, 7 1 and small claims. 72 There was brief discussion of the amendments on the Legislative floor, which included a statement by one former committee member opponent that he now supported the amendments and would now support the entire bill. 7 3 The amendment was adopted by the unanimous vote of twenty-five Senators and advanced by the unanimous vote of twenty-six Senators. 74 LB 151 was subsequently enacted with the amendments by a unanimous vote of forty-four Sena- 67. The future disputes provisions of the Nebraska UAA enacted in 1987 were held unconstitutional in State v. Nebraska Association of Public Employees, 239 Neb. 653, 477 N.W.2d 577 (1991). Article I, 13, of the Nebraska Constitution was amended in 1996 by adding that "the Legislature may provide for the enforcement of... binding arbitration agreements... which are entered into voluntarily and which are not revocable other than upon such grounds as exist at law or in equity for the revocation of any contract." Neb. Leg. J., 95th Leg., 1st Sess (March 24, 1997). 69. Minutes of Executive Session of the Judiciary Committee on LB 151 (March 19, 1997) (available in the Office of the Clerk of the Nebraska Legislature). Three of the eight Committee members voted to indefinitely postpone LB 151 on February 21, 1997, in an Executive Session following its public hearing. 70. See testimony of Denzel Busick, Transcript prepared by the Clerk of the Legislature, Transcribers Office, Committee Hearing on LB 151, pp (February 21, 1997) (available in the Office of the Clerk of the Nebraska Legislature). 71. Nebraska UAA See discussion in text at Part II, Section E, notes Neb. Leg. J., 95th Legi., 1st Sess (May 15, 1997). 73. See Legislative floor consideration of LB 151 on General File, Transcript prepared by the Clerk of the Legislature, Transcribers Office, Proceedings of the Legislature, pp (May 16, 1997) (available in the Office of the Clerk of the Nebraska Legislature) Neb. Leg. J., 95th Leg., 1st Sess (May 16, 1997).

13 20091 ARBITRATION tors which included the three whom had previously voted against advancement of the bill by the Judiciary Committee. 75 The legislative history of these provisions would support an interpretation that they relate only to arbitration agreements that rely upon the Nebraska UAA for their enforceability. By 1997, Nebraska Supreme Court decisions had made clear that the Federal Arbitration Act establishes substantive law, enforceable in Nebraska state courts, which supersedes state law to the contrary. The special provisions on arbitration venue, qualifications of neutral arbitrator, and small claims were designed and intended to modify rules applicable under the FAA. These special provisions will be preempted if applied to agreements enforceable by the FAA, as the Supreme Court of the United States and Nebraska Supreme Court have determined with respect to the required notice provisions in standardized agreements added by the same amendment to LB 151. LB 151 added a sentence to Nebraska UAA section , dealing with arbitration hearings, that "Arbitration proceedings shall take place in the county designated in... [the general venue section of the civil procedure statutes] unless the parties otherwise agree at a time subsequent to the arising of the controversy." 76 The potential conflict between this sentence and the FAA is reflected in an issue raised, but not ruled upon, in Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc. 7 7 An arbitration governed by the FAA was held in Omaha, Nebraska. Among other things, the losing party asserted in the trial court that the award should be vacated because "the arbitrator exceeded his power by conducting the hearing in an improper venue under (c)." 7 8 The Nebraska Supreme Court held that the FAA preempted the special notice provisions for standardized agreements contained in the same set of amendments added to facilitate enactment of the 1997 legislation. Nebraska UAA section subjects a person to disqualification from serving as a neutral arbitrator "on any of the grounds specified... for disqualification of a judge or on the ground that such person is an employee or independent contractor of an industry, trade, or professional association of which only one party is a member...." 75. Id. at (June 4, 1997) (44 voting in the affirmative, 0 voting in the negative, 2 present and not voting, 3 excused and not voting). 76. In the context of the entire section, "arbitration proceedings" should be interpreted to refer to an "arbitration hearing." But it is in a separate paragraph following a provision that "unless otherwise provided in the agreement," the provisions in three lettered subparagraphs are applicable to arbitration hearings. Nebraska UAA is a venue statute for judicial proceedings Neb. 700, 757 N.W.2d 205 (2008). 78. Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc, 276 Neb. 700, 702, 757 N.W.2d 205, 208 (2008).

14 CREIGHTON LAW REVIEW [Vol. 43 These provisions would clearly conflict with the FAA, which does not contain requirements for serving as an arbitrator. These provisions would not be a bar to enforcement of an arbitration agreement against a recalcitrant party. They would not prevent confirmation or support vacation of an award under FAA section 10(a)(2) providing vacation "where there was evident partiality or corruption in the arbitrators, or either of them." Uncertainty may arise through choice of law issues as to the standard of review for vacating an arbitrator's award, however, in a situation where a party seeks to vacate an award done under the FAA in a Nebraska state court. 79 Nebraska UAA section (a)(6) lists failure to comply with this requirement of Nebraska law as a ground for vacating an award. The FAA contains no exception for small claims. 80 Nebraska UAA section has a special Small Claims Court provision that "[w]henever the amount of a controversy subject to the terms of an otherwise valid arbitration agreement is within the jurisdiction of the Small Claims Court..., a party may submit the controversy to the Small Claims Court for ultimate resolution The FAA will preempt the operation of this section to the extent a party seeks to invoke either substantive or procedural provisions of the FAA. 8 2 E. NOTICE IN STANDARDIZED AGREEMENTS Nebraska Uniform Arbitration Act section requires a warning statement "adjoining the signature block of any standardized agreement in which binding arbitration is the sole remedy for dispute resolution." 8 3 The warning is similar to a Montana notice requirement which the Supreme Court of the United States held in 1996 that the Federal Arbitration Act preempted. 8 4 The Nebraska Supreme 79. See discussion in text at Part V, Section E, at notes See Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 282, (1993) (O'Connor, J., concurring); Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681(1996). 81. The section also contains special provisions for judicial appeal of a decision by the Small Claims Court on grounds that resemble review of an arbitrator's award under the Nebraska UAA. 82. Application of the section, in any event, raises other questions, such as the remedies available to the Small Claims Court, representation by an attorney (since the section does not allow transfer to the regular docket of the court), and separation and delegation of powers by conferring extrajudicial authority on Small Claims Courts. See John M. Gradwohl, Arbitrability Under Nebraska Contracts: Relatively Clarified At Last, 31 CREIGHTON L. REV. 207, (1997). 83. Nebraska UAA The statement must "appear in capitalized, underlined type": "This contract contains an arbitration provision which may be enforced by the parties." 84. Doctor's Assocs, Inc. v. Casarotto, 517 U.S. 681, 683 (1996) (notice was required to be "typed in underlined capital letters on the first page of the contract").

15 2009] ARBITRATION Court has also determined that the warning statement is not required in contracts governed by the FAA. 8 5 F. PUNITIvE DAMAGES Under the Federal Arbitration Act, there is no independent authority to award punitive damages. An arbitrator can award only those punitive damages allowable under applicable state or federal law. The Reporter for the Nebraska Supreme Court Committee on Practice and Procedure ("Reporter") has stated that "[t]he common wisdom is that punitive damages generally are not available in civil cases in Nebraska." 8 6 Cited for this "common wisdom" are Nebraska Supreme Court decisions with categorical statements that "[i]t is a fundamental rule of law in this state that punitive, vindictive, or exemplary damages are not allowed." 8 7 The Reporter notes, however, that there is a contrary view stemming from the language of Art. VII, section 5, of the Nebraska Constitution, to which the limitations on punitive damages are generally attributed, that does not support the categorical prohibition but merely requires that any penalties be paid over to specified public funds. 8 8 Additionally, Art. VII, section 5, applies only to "all fines, penalties, and license money arising under the general laws of the state," which does not seem literally to include punitive damages allowable under federal law, the law of other states, or, perhaps, even Nebraska common law punitive damages. Punitive damages are recoverable in Nebraska state courts under federal civil rights statutes. 8 9 There is persuasive reasoning in United States District Court tort cases that Nebraska would follow 85. Aramark Uniform & Career Apparel, Inc. v. Hunan, Inc., 276 Neb. 700, 757 N.W.2d 205 (2008). See MBNA Am. v. Lang, 2009 WL (Neb. Ct. App. 2009). See also Tracy Broad. Corp. v. Telemetrix, Inc., 17 Neb. App. 112, , 756 N.W.2d 742, (Neb. Ct. App. 2008) (clarifying Kramer v. Eagle Eye Home Inspections, 14 Neb. App. 691, 716 N.W.2d 749 (Neb. Ct. App. 2006)). 86. NEBRASKA SUPREME COURT COMMITTEE ON PRACTICE AND PROCEDURE, NJI2d Civ. 280 ( ). 87. Miller v. Kingsley, 194 Neb. 123, 124, 230 N.W.2d 472, 474 (1975) (but giving full faith and credit to Kansas judgments awarding punitive damages); see, e.g., Abel v. Conover, 170 Neb. 926, 929, 104 N.W.2d 684, 688 (1960) ("This rule is so well settled that we dispose of it merely by the citation of cases so holding."); Distinctive Printing and Packaging Co. v. Cox, 232 Neb. 846, 857, 443 N.W.2d 566, 574 (1989) ("[P]unitive, vindictive, or exemplary damages contravene Neb. Const. art. VII, 5, and thus are not allowed in this jurisdiction."). 88. Vincent M. Powers, Punitive Damages in Nebraska, THE NEBRASKA LAWYER 18 (June 2003). The court in Abel v. Conover also relied peripherally on Art. I, 3, the Due Process Clause, of the Nebraska Constitution. Abel v. Conover, 170 Neb. 926, , 104 N.W.2d 684, (1960). 89. State ex rel. Cherry v. Burns, 258 Neb. 216, 227, 602 N.W.2d 477, 484 (1999) (by virtue of the Supremacy Clause).

16 CREIGHTON LAW REVIEW [Vol. 43 the "most significant relationship" test of the Restatement (Second) Conflict of Laws choice of law analysis and apply the punitive damages law of another state. 90 Nebraska's interest in not awarding punitive damages may seem relatively slight in terms of choice of law comparisons. It is not fully a policy against punitive damages but, rather, is stated in terms that they be paid to a public agency. The public policies of other states in awarding punitive damages in a particular situation may appear stronger in that they are intended to deter wrongful conduct in that state which would be a violation of that state's public policy. No Nebraska Supreme Court decisions to date so categorically reject punitive damages as to constitute "such grounds as exist at law or in equity for the revocation of any contract." 9 1 Despite the uncertainty about Nebraska state law, FAA section 2 provides substantive contractual authority for arbitration rules allowing punitive damages. The holdings and policies of the Supreme Court of the United States decisions in Mastrobuono v. Shearson Lehman Hutton, Inc. 9 2 and Preston v. Ferrer 93 firmly establish that result under FAA section The FAA provides for enforcement of the arbitration arrangements agreed to by the parties. Perhaps under current law, a court would enforce a Nebraska arbitration agreement under FAA section 2 expressly allowing an arbitrator to award punitive damages. G. 'WRITTEN PROVISION" OR "WRITTEN CONTRACT" With respect to an existing controversy, Federal Arbitration Act section 2 requires "an agreement in writing" and Nebraska Uniform Arbitration Act section (a) requires a "written agreement." For future disputes provisions, however, there is a more significant difference in the phraseology of the two Acts. FAA section 2 refers to a "written provision in any...contract... to settle by arbitration a controversy thereafter arising...." Nebraska UAA section See Fanselow v. Rice, 213 F. Supp. 2d 1077 (D. Neb. 2002); Jones v. Willis Shaw Express, Inc., No. 8:04CV271 (D. Neb., Document # 141, Order filed Feb. 28, 2006); Patrick J. Borchers, Nebraska Choice of Law: A Synthesis, 39 CREIGHTON L. REV. 1, (2005). 91. For an egregious misstatement of Nebraska law, see John M. Gradwohl, Current Dimensions of the Federal Arbitration Act in Nebraska, 74 NEB. L. REV. 304, 320 (1995) ("On the other hand, Nebraska has an unequivocal public policy against punitive damages and Nebraska law invalidates punitive damage provisions in 'any contract.'") U.S. 52 (1995) S. Ct. 978 (2008). 94. Mastrobuono v. Shearson Lehman Hutton is factually distinguishable in that a New York judge, but not an arbitrator, could award punitive damages. This result would also mean that private parties could purposefully structure the arrangement to provide for punitive damages, not otherwise enforceable in Nebraska courts, but allowable for an arbitrator by virtue of the FAA.

17 20091 ARBITRATION (b) refers to a "provision in a written contract to submit to arbitration any controversy thereafter arising...." The essence of the FAA requirement is that the provisions for arbitration of future disputes must be in writing and agreed to by the parties. FAA section 2 does not require a written contract containing arbitration provisions or that the agreement concerning arbitration be signed by the parties. 9 5 To the extent the Nebraska UAA future disputes requirement or Nebraska state contract law may be more stringent than the FAA, it would be preempted in a transaction to which the FAA applies. Moreover, with respect to formation of an arbitration contract for purposes of the FAA, it is Nebraska general contract law, rather than special provisions relating to arbitration agreements, which is applicable. 96 H. PERSONAL INJURY BASED ON TORT Several limitations in the Nebraska Uniform Arbitration Act apply only to agreements to arbitrate future disputes. 9 7 The limitations cannot be waived by the parties. 98 They are subject to preemption by the Federal Arbitration Act because they relate only to arbitration and are not a part of Nebraska's law applicable to "any contract." 99 Further, they apply only to a portion of arbitration agreements, those for "any controversy thereafter arising." Nebraska UAA section (f)(1) excludes statutory authority for future dispute agreements for arbitration of a "claim arising out of personal injury based on tort." If the arrangement is 95. For discussions in cases where dispute resolution policies containing arbitration provisions were separately distributed to employees by their employers, see Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, (11th Cir. 2005), cert. denied, 547 U.S (2006); Seawright v. American Gen. Fin. Services, Inc., 507 F.3d 967, (6th Cir. 2007). 96. See discussion in text at Part VI, notes 297 and and accompanying text. Cf. Chilson v. Retalix USA, Inc., No. 8:07CV101, 2007 WL (D. Neb. 2007) (erroneously looking to Nebraska UAA provisions applicable only to arbitration agreements, rather than Nebraska general contract law, to determine that an arbitration agreement subject to the FAA need not be signed). 97. Nebraska UAA (b) applies to "any controversy thereafter arising between the parties." Nebraska UAA (f) states that subsection (b) does not apply to certain specified subjects. Subsection (f) does not limit the arbitrability of those specified subjects under subsection (a) if they relate to an "existing controversy." 98. Nebraska UAA (d) states that "[clontract provisions agreed to by the parties to a contract control over contrary provisions of the act other than subsections (e) and (W) of this section." Subsection (e) excludes claims for workers' compensation from both existing controversy and future disputes arbitration. 99. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995).

18 CREIGHTON LAW REVIEW [Vol. 43 otherwise subject to the FAA, this Nebraska limitation on arbitrability would be preempted I. NEBRASKA FAIR EMPLOYMENT PRACTICE ACT Nebraska Uniform Arbitration Act section (f)(2) excludes statutory authority for future dispute agreements for arbitration of a "claim under the Nebraska Fair Employment Practice Act." Like a "claim arising out of personal injury based on tort," if the arrangement is otherwise subject to the Federal Arbitration Act this Nebraska limitation on arbitrability would be preempted. J. VOLUNTARILY AND WILLINGLY The future dispute provisions in Nebraska Uniform Arbitration Act section (b) for "any controversy thereafter arising between the parties" contains an additional requirement, "if the provision is entered into voluntarily and willingly." It is not clear whether this statutory requirement of "voluntarily and willingly" is more extensive than Nebraska contract law applicable to "any contract" within the meaning of Federal Arbritration Act section 2. If it imposes a special standard of "voluntarily and willingly" only for future dispute arbitration provisions, it would be preempted by the FAA The requirement would also be subject to preemption by FAA section 2 to the extent it is more rigorous than what is necessary to enter into an agreement relating to an "existing controversy." The 1996 amendment of the Nebraska Constitution enabling the Legislature to provide for binding arbitration and other forms of dispute resolution contains the added clause "which are entered into voluntarily The same section in the Nebraska Constitution was preempted before the 1996 amendment by FAA section 2 for its denial of judicial enforceability of future dispute arbitration provisions If "which are entered into voluntarily" is interpreted to be more extensive than Nebraska law 100. See Cornhusker Int'l Trucks, Inc. v. Thomas Built Buses, Inc., 263 Neb. 10, 18, 637 N.W.2d 876, 883 (2002). This carefully crafted decision held that FAA 2 preempted the Nebraska UAA (f)(3) exemption for parties covered by the motor vehicle industry licensing statutes, but, conspicuously, did not cite the preempted subsection of the Nebraska UAA. Id Doctor's Assocs, Inc., 517 U.S. at 681; Allied-Bruce Terminix Cos., 513 U.S. at 282 (O'Connor, J., concurring) ("The reading of 2 adopted today will displace many state statutes carefully calibrated to protect consumers... and state procedural requirements aimed at ensuring knowing and voluntary consent NEB. CONST. art. I, 13:... the Legislature may provide for the enforcement of mediation, binding arbitration agreements, and other forms of dispute resolution which are entered into voluntarily and which are not revocable other than upon such grounds as exist at law or in equity for the revocation of any contract Dowd v. First Omaha Sec. Corp., 242 Neb. 347, 495 N.W.2d 36 (1993).

19 2009] ARBITRATION applicable to "any contract," the language in the Nebraska Constitution would also be preempted by the FAA. III. FAA AND NEBRASKA UAA IN TANDEM A. IN GENERAL The Nebraska Supreme Court has "acknowledged that the FAA created a body of federal substantive law which applies to any arbitration agreement within the coverage of the FAA." However, only FAA section 2 constitutes a body of federal substantive law that "is equally binding on state and federal courts." It is a gross oversimplification to state that "[a]rbitration in Nebraska is governed by the Federal Arbitration Act if it arises from a contract involving interstate commerce; otherwise, it is governed by Nebraska's Uniform Arbitration Act." '10 6 There are important facets of arbitration law where the FAA and Nebraska UAA each have significant applications. Both the Supreme Court of the United States 10 7 and the Nebraska Supreme Court' 0 8 have identified aspects of arbitration law and policy where the FAA and Nebraska UAA work together. Further, since the FAA does not automatically confer subject matter jurisdiction of federal courts, "state courts have a prominent role to play as enforcers of agreements to arbitrate." Cornhusker Int'l Trucks, Inc., 263 Neb. at 18, 637 N.W.2d at 883 (2002) Vaden v. Discover Bank, 129 S. Ct. 1262, 1271 (2009) State v. Henderson, 277 Neb. 240, 243, 762 N.W.2d 1, 4 (2009), cert. denied, 129 S. Ct (2009) See, e.g., Vaden, 129 S. Ct. at (discussing motions to compel arbitration and to stay litigation); Hall Street Assocs, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1406 (2008) (vacating, confirming and modifying arbitration awards) See, e.g., Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, 316, 746 N.W.2d 672, 678 (2008) (discussing appealable orders) Vaden, 129 S. Ct. at See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983): The Arbitration Act is something of an anomally in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C (1976 ed., Supp. IV) or otherwise. Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue. E.g., Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d 264, (5th Cir. 1978), and cases cited. Section 3 likewise limits the federal courts to the extent that a federal court cannot stay a suit pending before it unless there is such a suit in existence. Nevertheless, although enforcement of the Act is left in large part to the state courts, it nevertheless represents federal policy to be vindicated by the federal courts where otherwise appropriate.

20 CREIGHTON LAW REVIEW [Vol. 43 B. MOTIONS TO COMPEL ARBITRATION AND STAY LITIGATION The Federal Arbitration Act and Nebraska Uniform Arbitration Act both have provisions for compelling arbitration and staying litigation. The Supreme Court of the United States has expressly declined to rule on whether or not FAA sections 3 and 4 are directly applicable in state courts It rejected a claim of federal jurisdiction to enforce an arbitration agreement grounded on an argument that Maryland had held FAA sections 3 and 4 applicable only to federal court procedures "and, therefore, do not bind the state courts." It reasoned that "Maryland, like many other States, provides a statutory remedy nearly identical to 4."112 The Court stated that FAA section 2 "'carries with it duties [to credit and enforce arbitration agreements] indistinguishable from those imposed on federal courts by FAA 3 and 4.'"113 The substance of Nebraska UAA section appears "indistinguishable" from FAA sections 3 and 4 and Maryland law if it applies to arbitration agreements enforceable under the FAA in Nebraska state courts. Nebraska UAA section (a) requires that "[o]n application of a party showing an agreement described in section and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration... '-114 Reference to "an agreement described in section " should be interpreted to include an arbitration agreement whose enforceability stems from the FAA or other legal authority and is not limited to agreements whose enforceability relies exclusively upon Section That interpretation comports with the substance of what the 110. Vaden, 129 S. Ct. at 1279 n.20 ("This Court has not decided whether 3 and 4 apply to proceedings in state courts... and we do not do so here."). The Nebraska Supreme Court has not stated expressly whether the FAA 3 and 4 or Nebraska UAA applies to motions to compel arbitration or stay litigation in Nebraska courts in transactions covered by the FAA. See Nebraska ex rel. Bruning v. R. J. Reynolds Tobacco Co., 275 Neb. 310, 746 N.W.2d 672 (2008) Vaden, 129 S. Ct. at Id. Nebraska UAA is comparable to Md. Cts. & Jud. Proc. Code Ann (Lexis 2006) Id. (brackets in original text) (quoting 1 LN R. MACNEIL, RICHARD E. SPEIDEL & THOMAS J. STIPANOWICH, FEDERAL ARBITRATION LAw , at 10:77 (1995)) Section (a) adds: "but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order for the moving party, otherwise, the application shall be denied." FAA 4 states: "The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." It adds: "If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof." Both statutes appear to provide for a jury trial of contested issues. See discussion in Omaha Cold Storage Terminals, Inc. v. Patterson, 15 Neb. App. 548, 733 N.W.2d 219 (Neb. Ct. App. 2007).

21 2009] ARBITRATION Supreme Court of the United States has stated FAA section 2 carries into state courts It also fills a void in Nebraska law since prior to the Nebraska constitutional amendment in 1996, future dispute arbitration agreements were not enforceable by common law or by statute. 116 Further, the 1996 Nebraska constitutional amendment provides that "the Legislature may provide for the enforcement of... binding arbitration agreements," 1 7 which reflects a public policy warranting an expansive interpretation of the Nebraska UAA favoring enforcement of arbitration agreements. Kelley v. Benchmark Homes, Inc. l l8 was the second decision in which the Nebraska Supreme Court applied the FAA. The case was decided in 1996, six months before the Nebraska Constitution was amended to allow the Legislature to provide for binding arbitration of future disputes. The Kelleys asserted four claims against Benchmark, a developer of homes: trespass, breach of implied warranty, breach of express warranty, and damages for latent defects. Only the express warranty contained arbitration provisions and that arbitration was nonbinding. Benchmark's motion to stay the judicial proceedings pending nonbinding arbitration of the express warranty claim was denied in the lower court. The Nebraska Supreme Court reversed, holding (1) nonbinding arbitration is covered by the FAA; (2) "courts inherently possess the power to stay proceedings when required by the interests of justice, and the decision of whether to grant a motion to stay is vested in the discretion of the trial court;"' 19 and (3) "[B]ecause the BSS Home Buyers Warranty is subject to nonbinding arbitration, the interests of judicial economy require that the Kelleys' remaining causes of action be stayed pending the results of the arbitration of the BSS Home Buyers Warranty claim." 120 The decision did not involve a motion to compel arbitration. Implicitly, the Nebraska Supreme Court treated the matter as specific performance of the "contract clause agreed to by the Kelleys," stating that "The [F]AA requires that this contract provision be given the same effect as any other contract provision." Similarly, the Nebraska Supreme Court has looked to the language and policy of FAA 3 in determining an issue pertaining to FAA 2. See Good Samaritan Coffee Co. v. LaRue Distrib., Inc., 275 Neb. 674, 682, 748 N.W.2d 367, 374 (2008) See State v. Nebraska Ass'n of Pub. Employees, 239 Neb. 653, 477 N.W.2d 577 (1991) NEB. CONST. art. I, Neb. 367, 550 N.W.2d 640 (1996) Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 376, 550 N.W.2d 640, Kelley, 250 Neb. at 376, 550 N.W.2d at 646 ("Allowing the remaining causes of action to continue could result in an unnecessary duplication of litigation.") Id. at 374, 550 N.W.2d at 645.

22 CREIGHTON LAW REVIEW [Vol. 43 Especially now that the Nebraska UAA has been amended to validate future dispute arrangements, Nebraska courts, like Maryland courts, should apply Nebraska UAA section procedurally to claims enforceable under the FAA. It will provide a single set of statutory procedures and methodology for making decisions relating to arbitrability and the relationship of arbitration to judicial determination of the issues involved. It will also minimize appealable order issues through linkage to the special statutory appeal provisions of the Nebraska UAA which apply only to denial of applications to compel arbitration and to granting applications to stay arbitration under "section "122 C. SUBPOENAS AND DISCOVERY Federal Arbitration Act section 7 contains general authority for an arbitrator to summon persons and documents for an arbitration hearing. Nebraska Uniform Arbitration Act section sets out powers of an arbitrator to issue subpoenas for witnesses, depositions and production of documents. These statutes are narrow in their coverage, relate primarily to producing evidence at an arbitration hearing, and present logistical problems if court orders are required to enforce compliance with their terms. Considering that FAA section 2 is intended to provide preemptive substantive arbitration law but the remainder of the FAA operates in tandem with state arbitration law, both FAA section 7 and Nebraska UAA section should be applicable where there is jurisdiction to enforce the action of the arbitrator. Nebraska UAA section broadens the authority of an arbitrator to issue a subpoena for taking depositions from that of the official version of the Uniform Arbitration Act of Meaningful discovery in arbitration is regulated primarily by an arbitrator pursuant to the applicable rules of procedure. The objectives are to achieve a timely and cost-effective process that will result in a fair hearing and decision in accord with the agreement of the parties. 124 An arbitrator bears a primary responsibility to attain an efficient arbitration discovery process. The underlying pre-hearing discovery requirement of the FAA is that the parties have "a fair op Nebraska UAA (a)(1)&(2) contain references to "section " 123. See Arbitration Act (1956), 7, 7 (Part I) U.L.A (2005 ed) The current Revised Uniform Arbitration Act (2000) provides: An arbitrator may permit such discovery as the arbitrator decides is appropriate in the circumstances, taking into account the needs of the parties to the arbitration proceeding and other affected persons and the desirability of making the proceeding fair, expeditious, and cost effective. RUAA 17(c), 7 (Part I) U.L.A. 57 (2005 ed.).

23 2009] ARBITRATION portunity to present their claims." 12 5 The Supreme Court of the United States stated: "Although those procedures might not be as extensive as in the federal courts, by agreeing to arbitrate, a party 'trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration."' 12 6 As far as parties to the arbitration are concerned, discovery relies almost exclusively on their cooperation and whatever persuasive or semi-coercive effects the arbitrator can achieve. In addition to deciding the merits of claims and the appropriate remedies, an arbitrator may be able to draw inferences from the failure of a party to comply with a discovery order; deny the use of a document except to impeach; allocate costs and fees; and, in flagrant situations of a failure to comply with a procedural order, impose sanctions. 127 Despite the fact that discovery in domestic United States arbitrations does not ordinarily present a major obstacle in the procedure, there are important issues to be dealt with in some situations. Both FAA section 10(a)(3) and Nebraska UAA section (a)(4) allow a court to vacate an arbitration award if the arbitrator refused to hear evidence material to the controversy. Summonses and subpoenas of an arbitrator are enforceable only by judicial order against a recalcitrant person. With respect to persons who are not parties to the arbitration proceeding, contested enforcement is almost impossible outside of the jurisdiction where an arbitration hearing is held. There are divergent views among United States Circuit Courts of Appeals concerning the scope of FAA section 7 with respect to nonparties to the arbitration. The Court of Appeals for the Eighth Circuit held "that implicit in an arbitration panel's power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the 125. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991) Gilmer, 500 U.S. at 31 (quoting Mitsubishi Motors Corp. v. Soler Chrysler- Plymouth, Inc., 473 U.S. 614, 628 (1985)) ("Indeed, an important counterweight to the reduced discovery in NYSE arbitration is that arbitrators are not bound by the rules of evidence") See, e.g., Life Receivables Trust v. Syndicate 102 at Lloyd's of London, 549 F.3d 210, 217 (2d Cir. 2008) ("An arbitrator can enforce his or her discovery order through, among other things, drawing a negative inference from a party's refusal to produce... and, ultimately, through rendering a judgment enforceable in federal court."); Nat'l Cas. Co. v. First State Ins. Group, 430 F.3d 492, 498 (1st Cir. 2005) ("The arbitrators ruled that as a result of First State's refusal to produce the requested documents, they would draw inferences against First State as to what those documents would show. This is a routine remedy, well within the arbitrator's powers."); ReliaStar Life Ins. Co. of N.Y. v. EMC Nat'l Life Co., 564 F.3d 81, 86 (2d Cir. 2009) (quoting 1 MARTIN DOMKE, COMMERciAL ARBITRATION 35:1 (3d ed. 2008)) ("Limited only by the broad concepts of equity and justice, the arbitrator has a plethora of remedies, both legal and equitable, to choose from in structuring a remedy" [for a party's bad faith conduct during the arbitration proceeding].).

24 CREIGHTON LAW REVIEW [Vol. 43 hearing." 12s The Court of Appeals for the Fourth Circuit interprets FAA section 7 to allow pre-arbitration hearing discovery only "upon a showing of special need or hardship," reasoning that "in a complex case such as this one, the much-lauded efficiency of arbitration will be degraded if the parties are unable to review and digest relevant evidence prior to the arbitration hearing." 129 The Courts of Appeals for the Third Circuit 130 and Second Circuit 13 1 "hold that section 7 does not enable arbitrators to issue pre-hearing document subpoenas to entities not parties to the arbitration proceeding." The Third Circuit 13 2 and Second Circuit 13 3 do allow an arbitrator to hold a hearing prior to the primary hearing on the merits of the claim at which a non-party can be compelled to testify and produce documents. Nebraska UAA section provides broader authority for an arbitrator to issue subpoenas for taking depositions than either the FAA or the Uniform Arbitration Act of When the legislation was introduced in the Nebraska Legislature in 1987, the section on witnesses, subpoenas and depositions followed the official text of the Uniform Arbitration Act of Paragraph (b) stated that "[o]n application of a party and for use as evidence, the arbitrators may permit a deposition to be taken...of a witness who cannot be subpoenaed or is unable to attend the hearing." 135 This provision was later enacted as Nebraska UAA section (b). A committee amend In re Sec. Life Ins. Co. of Am., 228 F.3d 865, (8th Cir. 2000) ("Although the efficient resolution of disputes through arbitration necessarily entails a limited discovery process, we believe this interest in efficiency is furthered by permitting a party to review and digest relevant documentary evidence prior to the arbitration hearing."). Upholding service in California of a subpoena issued in Minnesota, the Court added: "we do not believe an order for the production of documents requires compliance with [Federal Rule of Civil Procedure] Rule 45(b)(2)'s territorial limit. This is because the burden of producing documents need not increase appreciably with an increase in the distance those documents must travel." Id. at COMSAT Corp. v. Nat'l Sci. Found., 190 F.3d 269, 276 (4th Cir. 1999) Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, (3d Cir. 2004) (Alito, J.): We disagree with this power-by-implication analysis. By conferring the power to compel a non-party witness to bring items to an arbitration proceeding while saying nothing about the power simply to compel the production of items without summoning the custodian to testify, the FAA implicitly withholds the latter power. If the FAA had been meant to confer the latter, broader power, we believe that the drafters would have said so, and they would have then had no need to spell out the more limited power to compel a non-party witness to bring items with him to an arbitration proceeding Life Receivables Trust v. Syndicate 102 at Lloyd's of London, 549 F.3d 210, 212 (2d Cir. 2008) Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 411, (3d Cir. 2004) (Chertoff, J., concurring); See In re Nat'l Fin. Partners Corp., No. 09-mc JF, 2009 WL (E.D. Pa. 2009) Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, (2d Cir. 2005) L.B. 71, 8, 90th Leg, 1st Sess. (January 8, 1987) L.B. 71, 8(b), p.6, 90th Leg, 1st Sess. (January 8, 1987).

25 20091 ARBITRATION ment added to the first sentence of Paragraph (a) further language "for the taking of depositions" 13 6 so that the sentence in Nebraska UAA section (a) now reads: "The arbitrators may issue or cause to be issued subpoenas for the attendance of witnesses, for the taking of depositions, and for the production of books, records, documents, and other evidence and shall have the power to administer oaths." The Committee Statement reporting the Bill to the floor of the Legislature stated simply: "the amendment empowers the arbitrators to order the taking of depositions." When the committee amendment was adopted by the Legislature, the Committee Chairman similarly explained: "this provision makes it clear that an arbitrator has the authority to authorize either party to take depositions." 138 This legislative history strongly supports an interpretation that for arbitrations in Nebraska, Nebraska UAA section (a) authorizes an arbitrator to issue a subpoena for taking depositions for discovery objectives and of non-parties to the arbitration. These subpoenas are enforceable in Nebraska district courts. 139 It would seem that in addition to the ordinary objections to enforcement of a subpoena, a district court could determine that its enforcement, especially as to a nonparty to the arbitration, would in the circumstances "undermine the goals and policies of the FAA," an overarching standard for the operation of the FAA and Nebraska UAA in tandem. Presumably, Nebraska would apply its rule of comity for the taking of a deposition in Nebraska pursuant to the laws of another state for use in proceedings there. 140 A subpoena issued under Nebraska section might be enforceable in another state under that state's practices. D. LABOR AND EMPLOYMENT Section 301 of the federal Labor Management Relations Act ("LMRA") governs private sector collective bargaining labor contract arbitrations Individual employment arbitration arrangements are subject to the Federal Arbitration Act Nebraska Uniform Arbitra Neb. Legis. J. (Feb. 11, 1987), p. 603, lines Committee Statement of the Judiciary Committee on L.B. 71, hearing date February 5, 1987, p. 1 (on file in the Office of the Clerk of the Nebraska Legislature) Statement of Senator Jerry Chizek, March 3, 1987, Transcript of Nebraska Legislative Floor Discussion, p (1987) (on file in the Office of the Clerk of the Nebraska Legislature) See NEB. REV. STAT , (a), (Reissue 2008) NEB. CT. R. Disc (e) (2009) (governing depositions for use in foreign jurisdictions) U.S.C. 185 (2006); Textile Workers Union of America v. Lincoln Mills of Alabama, 353 U.S. 448 (1957) Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). A Union's authority as statutory exclusive bargaining representative under the National Labor Relations Act entitles the Union to agree on behalf of employees that individual claims

26 CREIGHTON LAW REVIEW [Vol. 43 tion Act section (c) covers both collective bargaining agreements and individual employment agreements in its application to "arbitration agreements between employers and employees or between their respective representatives." Concepts of federalism under the Commerce Clause preclude or limit the applicability of the FAA to state public employment agreements The National Labor Relations Act does not apply to "any State or political subdivision thereof " 14 4 and section 301 of the LMRA applies only to "contracts between an employer and a labor organization representing employees in an industry affecting commerce This leaves negotiated arbitration provisions 14 6 in Nebraska public employment collective bargaining agreements covered exclusively by the Nebraska UAA. Whereas the FAA and Nebraska UAA are at least fragmentary statutory schemes, "the substantive [arbitration] law to apply under [LMRA section] 301(a) is federal law, which the courts must fashion from the policy of our national labor laws." 14 7 Nevertheless, decisions of the Supreme Court of the United States under the LMRA, as well as the FAA, can serve as important precedents for the Nebraska Supreme Court in public employment arbitration cases under the Nebraska UAA. 148 FAA section 1 excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The Supreme Court of the United States has interpreted this exclusion to apply only to contracts of employment of transportation workers and not to other employments The category of exempted transportation workers has effectively been limited to persons engaged in the actual movement of persons or goods in commerce. 150 Choice of applicable state arbitration law is important for arising from the employment but apart from the provisions of the collective bargaining agreement are subject to arbitration. See 14 Penn Plaza LLC v. Pyett, 129 S. Ct (2009) (prompting a presently unanswerable question whether the arbitration will take place under the authority of the LMRA, FAA, or other law chosen by the parties) See infra and accompanying text U.S.C. 152(2) (2006) U.S.C. 185 (2006) The Nebraska Commission of Industrial Relations does not have authority to compel the State or any political or governmental subdivision "to enter into any contract or agreement, written or otherwise, with any labor organization concerning grievances...." NEB. REV. STAT (Reissue 2004) Textile Workers Union of America v. Lincoln Mills of Ala., 353 U.S. 448, (1957) ("It is not uncommon for federal courts to fashion federal law where federal rights are concerned.") See, e.g., State of Nebraska v. Henderson, 277 Neb. 240, 762 N.W.2d 1 (2009), cert. denied, 129 S. Ct (2009) See Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) See Lenz v. Yellow Transp., Inc., 431 F.3d 348, 352 (8th Cir. 2005) (customer service representative for trucking company was not an exempt transportation worker

27 20091 ARBITRATION individual employment contracts of transportation workers. For example, the Nebraska UAA covers the group exempted from the FAA, but the Iowa statute excludes arbitration of a future controversy in a "contract between employers and employees." 15 1 This means that Nebraska would enforce individual arbitration agreements of transportation workers excluded under FAA section 1, but Iowa would not enforce future disputes arbitration provisions of transportation workers covered by Iowa law E. VACATING AND CONFIRMING AWARDS Federal Arbitration Act section 10(a) and Nebraska Uniform Arbitration Act section (a) enumerate statutory grounds for vacating arbitration awards. FAA sections 9, 10 and 11 are "exclusive regimes" for judicial review of arbitration awards in federal courts The FAA substantiates "a national policy favoring arbitration with just the limited review needed to maintain arbitration's essential virtue of resolving disputes straightaway." 154 But the FAA does not "exclude more searching review based on authority outside the statute as well." 155 Review of arbitration awards is a situation where the FAA and Nebraska UAA can work effectively in tandem. The Nebraska UAA may provide a "more searching review" than that of the FAA, even for arbitration agreements subject to the FAA. The Nebraska UAA is likely to provide distinct common law grounds for vacating awards of manifest disregard of the law and violation of Nebraska public policy, and Nebraska may possibly enforce contractual arrangements for expanded judicial review. In State v. Henderson,1 56 the Nebraska Supreme Court vacated an arbitrator's award, which ordered reinstatement of a Nebraska under FAA 1); McNamara v. Yellow Transp., Inc., 570 F.3d 950, (8th Cir. 2009) (customer relations manager was not exempt transportation worker under FAA) Iowa Code 679A.1(2)b (1998) See Lenz v. Yellow Transp., Inc., 352 F. Supp. 2d 903, 909 (S.D. Iowa 2005) ("Since Plaintiff is included in the FAA section 1 exclusion, Iowa's laws disfavoring arbitration in the employment context are not pre-empted."), rev'd, 431 F.3d 348 (8th Cir. 2005); Pennsylvania Life Ins. Co. v. Simoni, 641 N.W.2d 807 (Iowa 2002) Hall Street Assoc., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1406 (2008) Hall Street Assoc., L.L.C., 128 S. Ct. at Id. at 1406: The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable. But here we speak only to the scope of the expeditious judicial review under 9, 10, and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards Neb. 240, 762 N.W.2d 1 (2009) (4-2 decision), cert. denied, 129 S. Ct (2009).

28 CREIGHTON LAW REVIEW [Vol. 43 State Patrol Officer who had been a member of "a Ku Klux Klan-affiliated organization,"' 5 7 on public policy grounds. After the appeal had initially been argued, the Nebraska Supreme Court, on its own motion, entered an Order For Reargument and Supplemental Briefing on four issues The decision in the case appears to be a mechanically haphazard analysis and application of relevant law considerations. Because of this, the decision can cause substantial confusion concerning the scope of review of arbitrators' awards under, or in addition to, the Nebraska UAA. No claim was asserted that the collective bargaining agreement between the Nebraska State Patrol and the State Law Enforcement Bargaining Council was a "contract evidencing a transaction involving commerce" under FAA section That would appear to be a correct assessment of the applicability of the FAA to some contracts of state governments based on concepts of federalism under the Commerce Clause. It does not mean that factually interstate commerce is not affected by the Nebraska State Patrol; of course, factually its actions do very significantly affect interstate commerce. The Supreme Court of the United States has found it difficult or impossible to articulate a clear standard of the limitations on Congress' power under the Commerce Clause with respect to state entities. 160 While the collective bargaining agreement between the Nebraska State Patrol and its employee Bargaining Council would appear to be within state regulatory immunity under the Commerce Clause, when the State of Nebraska 157. Id. at 241, 762 N.W.2d at Order For Reargument and Supplemental Briefing in State v. Henderson, No. S (May 29, 2008): 1. Can judicial review of public policy or constitutional questions be limited or eliminated by a collective bargaining agreement involving a governmental employer? 2. Does public policy forbid the enforcement of a contract which would submit to arbitration whether a membership in a white supremacist organization with ties to the Ku Klux Klan constitutes [sic.] just cause for discharge from the Nebraska State Patrol? 3. Is the public policy exception recognized in W.R. Grace & Co. v. Local Union 759 [citation omitted]; United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc. [citation omitted]; and Eastern Assoc. Coal Corp. v. United Mine Workers [citation omitted] applicable where an arbitrator determines that a public employee has been discharged in violation of his constitutional rights and orders his reinstatement? 4. If the public policy exception is applicable, what is the significance of employment as a law enforcement officer on the determination of public policy? 159. State of Nebraska v. Henderson, 277 Neb. 240, 243, 762 N.W.2d 1, 4 ("In this case, there is no claim that the transaction involved interstate commerce, so Nebraska law applies.") See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, (1985) ("These cases do not require us to identify or define what affirmative limits the constitutional structure might impose on federal action affecting the States under the Commerce Clause."), overruling Nat'l League of Cities v. Usery, 426 U.S. 833 (1976).

29 2009] ARBITRATION becomes a participant in the ordinary commercial marketplace, the transaction should be subject to Congressional authority under the Commerce Clause, and the FAA should be applicable The Nebraska Supreme Court stated, however, that "because the applicable provisions of the [Nebraska] Uniform Arbitration Act and the Federal Arbitration Act are similar, we look to federal case law explaining the scope of judicial review of arbitration awards." Yet there was no mention of the recent landmark decision of the Supreme Court of the United States in Hall Street Associates v. Mattel' 6 3 in which the Court held there is no authority under the FAA for review in federal courts of an arbitration award other than on those grounds specified in FAA sections 9, 10, and 11. The Court remanded Hall Street Associates v. Mattel to determine whether, on the specific facts involved, there was authority apart from the FAA for a United States District Court to participate in an arbitration arrangement of the parties within its managerial authority under Federal Rule of Civil Procedure Hall Street Associates v. Mattel is subject to an interpretation that the common law ground of manifest disregard of the law either "does not survive" or has been "reconceptualized as a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA." 165 The status of a public policy exception under the FAA is also presently unclear. State v. Henderson noted that none "of the statutory bases under the [Nebraska] Uniform Arbitration Act for vacating an arbitration award are applicable in this case." 1 66 The Court did not examine the text of the Nebraska UAA or similar enactments in other states and, 161. See Johnson Controls, Inc. v. City of Cedar Rapids, Iowa, 713 F.2d 370 (8th Cir. 1983) Henderson, 277 Neb. at 243, 762 N.W.2d at 4. See Jones v. Summit Ltd. P'ship Five, 262 Neb. 793, 635 N.W.2d 267 (2001) (FAA and Uniform Arbitration Acts of other states examined to determine issue under Nebraska UAA relating to modification of arbitration award for "miscalculation") Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct (2008) (rejecting authority to enforce agreement of the parties for expanded judicial review of factual determinations and legal conclusions) Hall Street Assocs., L.L.C., 128 S. Ct. at Stolt-Nielsen SAv. Animalfeeds Int'l Corp., 548 F.3d 85, 94 (2d Cir. 2008), cert. granted, 129 S. Ct (2009) (and cases cited); see Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1281 (9th Cir. 2009), cert. denied, 2009 W.L (Oct. 5, 2009) ("[I]n this circuit, an arbitrator's manifest disregard of the law remains a valid ground for vacatur of an arbitration award under 10(a)(4) of the Federal Arbitration Act."); Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) ("We conclude that... manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA."); see also Wachovia Sec., Inc., v. Bonebrake, No. Doc No. 455, 2009 WL (Neb. Dist. Ct. 2009) ("From these cases, it seems clear that manifest disregard of the law no longer exists as an extrastatutory ground for vacating an arbitration award.") Henderson, 277 Neb. at , 762 N.W.2d at 5.

30 CREIGHTON LAW REVIEW [Vol. 43 indeed, the Uniform Arbitration Act (1956), Revised Uniform Arbitration Act (2000) and, generally, the current laws of other states do not contain express statutory provisions covering manifest disregard of the law or public policy grounds for vacating or modifying arbitration awards. State v. Henderson considered the issue on a common law basis whether reinstating "Henderson as a sworn officer of the Nebraska State Patrol would violate this state's explicit, well-defined, dominant public policy" or whether, stated slightly differently,' "reinstating Henderson to the State Patrol would be contrary to public policy." 1 69 In fashioning a standard for articulating a public policy upon which an arbitrator's award might be vacated, the Nebraska Supreme Court looked primarily to three decisions of the Supreme Court of the United States under the LMRA: W.R. Grace & Co. v. Local Union 759,170 United Paperworkers Int'l Union v. Misco, Inc., 1 71 and Eastern Associated Coal Corp. v. United Mine Workers of America, Dist It is appropriate that the Nebraska Supreme Court relied upon decisions of the Supreme Court of the United States under the federal LMRA in ascertaining a standard for reviewing the arbitration award in State u. Henderson on public policy grounds. Factually, the case involved review of an arbitrator's award under a collective bargaining agreement. The LMRA, which is applicable to collective bargaining agreements under federal labor law, contains no statutory grounds for vacating an arbitration award, but "is federal law, which the courts must fashion from the policy of our national labor laws." Similarly, the Court fashioned a Nebraska common law exception for a public policy ground under, or apart from, the Nebraska UAA. The FAA is in no way offended by state law grounds for vacating arbitration awards which are broader or different than those provided by the FAA Hall Street Associates v. Mattel recognized that "[t]he FAA is not the 167. Id. at 241, 762 N.W.2d at The arbitration award contained the following provision: Nothing in this Award shall prevent the Nebraska State Patrol from reassigning [Henderson] in the future, if necessary to maintain the good order and efficiency of the Agency, or to eliminate/mitigate actual civil disruptions that may occur as a result of the public becoming aware of [Henderson's] association with the Knight's [sic] Party, Christian Concepts, the Ku Klux Klan, or any other such group[.] Id. at 273, 762 N.W.2d at 23 (Stephan, J., dissenting) (brackets in text of Opinion) Id. at 245, 762 N.W.2d at 5 (majority opinion) U.S. 757 (1983) U.S. 29 (1987) U.S. 57 (2000) Textile Workers Union of America v. Lincoln Mills of Alabama, 353 U.S. 448, (1957) ("It is not uncommon for federal courts to fashion federal law where federal rights are concerned.") See further discussion in text at Part V, Section E, at notes

31 20091 ARBITRATION only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable." 175 Decisions of the Supreme Court of the United States under the FAA and LMRA are sometimes cited interchangeably as precedents 176 but they have not been cited interchangeably on issues related to vacating arbitration awards. 177 Utilizing Supreme Court of the United States LMRA decisions to fashion a public policy exception under the Nebraska UAA can lead to the development of a solid blending of the law and policies of the FAA and Nebraska UAA concerning vacating arbitration awards. Neither the majority opinion nor the dissenting opinion in State v. Henderson gives the Supreme Court of the United States decision in Eastern Associated Coal Corp. v. United Mine Workers of America, Dist the special primacy as precedent that it deserves. The majority opinion treats Eastern Associated Coal merely as a reaffirmance of the two earlier decisions of the Court dealing with vacating arbitration awards under the LMRA on public policy grounds The dissent cites Eastern Associated Coal peripherally twice. Eastern Associated Coal was the most recent decision of the the Court on the issue and presented a new, or at least a much more highly developed, matrix by which a Court should consider the vacation of an arbitration award on public policy grounds. The Supreme Court of the United States granted certiorari in Eastern Associated Coal because Courts of Appeals had differed under the earlier Supreme Court decisions on whether or not public policy precluded an arbitrator from "reinstatement of employees who have used illegal drugs in the past."' 8 0 The Court was unanimous in setting out the standard by which the arbitrator's award should be examined: In considering this claim, we must assume that the collectivebargaining agreement itself calls for Smith's reinstatement. That is because both employer and union have granted to the 175. Hall Street Assoc., L.L.C., 128 S. Ct. at See, e.g., Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) None of the three LMRA decisions relied upon in State v. Henderson cited authorities under the FAA on issues related to vacating awards U.S. 57 (2000) State of Nebraska v. Henderson, 277 Neb. 240, 249, 762 N.W.2d 1, 8 (2009) Eastern Associated Coal Corp v. United Mine Workers of America, Dist. 17, 531 U.S. 57, 61, 121 S. Ct. 462, 466 (2000).

32 CREIGHTON LAW REVIEW [Vol. 43 arbitrator the authority to interpret the meaning of their contract's language, including such words as "just cause." 18 Eastern Associated Coal then cited United Paperworkers Int'l Union v. Misco, Inc. for ground rules that "an arbitrator's award 'must draw its essence from the contract and cannot simply reflect the arbitrator's own notions of industrial justice"' and "'as long as [an honest] arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,' the fact that 'a court is convinced he committed serious error does not suffice to overturn his decision." 1 82 Noting that there was no claim the arbitrator had acted outside of these ground rules, the Court stated significantly: Hence we must treat the arbitrator's award as if it represented an agreement between Eastern and the union as to the proper meaning of the contract's words "just cause." See St. Antoine, Judicial Review of Labor Arbitration Awards: A Second Look at Enterprise Wheel and Its Progeny, 75 Mich. L. Rev. 1137, 1155 (1977). For present purposes, the award is not distinguishable from the contractual agreement The Nebraska Supreme Court did not recite or apply this standard in State v. Henderson. The decision does not "treat the arbitrator's award as if it represented an agreement between" the Nebraska State Patrol and the Union. There is no indication in the decision that a voluntary contract of employment of Henderson by the State Patrol would have been invalid and unenforceable on public policy grounds. The Nebraska Supreme Court noted that Henderson might have a separate civil rights claim "for any alleged violation of Henderson's constitutional rights." 18 4 More significantly, the Nebraska Supreme Court indicates that Henderson may have an enforceable breach of contract claim against the Nebraska State Patrol. 8 5 Citing the 1983 Supreme Court of the United States decision in W.R. Grace v. Local Union 759, the Nebraska Supreme Court in State v. Henderson advised: "[w]e note that compensatory damages might be available to a plaintiff injured by a breach of contract even when specific performance of the contract would violate public policy." Eastern Associated Coal Corp, 531 U.S. at ('They have 'bargained for' the 'arbitrator's construction' of their agreement."). Two Justices concurred separately in the judgment because they objected to the statement in the seven Justice Opinion of the Court that "'[w]e agree, in principle, that the courts' authority to invoke the public policy exception is not limited solely to instances where the arbitration award itself violates positive law.'" Id. at 67-68, 121 S. Ct. at 469 (Scalia, J., concurring) Id. at 62, 121 S. Ct. at (majority opinion) (quoting United Paperworkers International Union v. Misco, Inc., 484 U.S. 29, 38 (1987)) (brackets in original text) Id. at Henderson, 277 Neb. at 245, 762 N.W.2d at Id. at 245, 762 N.W.2d at Id.

33 2009] ARBITRATION The Supreme Court of the United States refined and applied the rationale of W.R. Grace concerning vacation of arbitration awards on public policy grounds in 1987 in United Paperworkers v. Misco. The decision in United Paperworkers expressly left open the question whether "a court may refuse to enforce an award on public policy grounds only when the award itself violates a statute, regulation, or other manifestation of positive law, or compels conduct by the employer that would violate such a law." 18 7 Eastern Associated Coal is a seven to two decision of the Supreme Court of the United States applying the holdings of W.R. Grace and United Paperworkers that "courts' authority to invoke the public policy exception is not limited solely to instances where the arbitration award itself violates positive law." 8 8 The Court was unanimous in Eastern Associated Coal, however, in adopting a new standard by which to judge public policy considerations with respect to vacating an arbitration award. Based upon the major 1977 St. Antoine Michigan Law Review article cited in the quotation above, and not upon prior judicial precedent, the Court framed the issue as whether or not a voluntary contractual agreement to reinstate the employee would be unenforceable on public policy grounds.' 8 9 The Nebraska Supreme Court failed to examine the arbitrator's award as if it were a "voluntary contractual agreement to reinstate the employee." Instead, the Nebraska Supreme Court focused upon reinstatement rather than the underlying agreement and stated only that "...Henderson's return to duty would involuntarily associate the State Patrol with the Ku Klux Klan...."190 Viewed as a contract by the Nebraska State Patrol to hire Henderson on the conditions contained in the arbitrator's award, the agreement would not appear to violate Nebraska public policy. The hiring may not have reflected desirable public policy concerning law enforcement, but it would have been what the parties agreed to, and courts would in all likelihood have carried out the agreement of the parties. If the Nebraska Supreme Court had examined the arbitrator's award in terms of what the parties, themselves, had agreed to in the collective bargaining agreement, more analysis may have been given to the terms of the order for reinstatement of employment. In both 187. United Paperworkers v. Misco, 484 U.S. 29, 45 n.12 (1987) Eastern Associated Coal Corp. v. United Mine Workers of America, District 17, 531 U.S. 57, 63 (2000) Id. at Henderson, 277 Neb. at 265, 762 N.W.2d at 18.

34 CREIGHTON LAW REVIEW [Vol. 43 United Paperworkers Int'l Union v. Misco, Inc and Eastern Associated Coal Corp. v. United Mine Workers of America,192 the Supreme Court of the United States pointed out that the arbitrator's award did not order reinstatement to a position for which the employee was not qualified. The majority opinion in State v. Henderson recites: "[t]he arbitrator ordered that Henderson be reinstated to his previous duties," which were as a "sworn officer" of the Nebraska State Patrol. 193 The dissenting opinion notes, however, that the arbitrator's award also states that "[niothing in this Award shall prevent the Nebraska State Patrol from reassigning [Henderson] in the future, if necessary to maintain the good order and efficiency of the Agency..,,194 The dissenting opinion also noted that at oral argument, Henderson acknowledged that:... the State Patrol "could assign him to the supply division. They could [assign] him to communications. They could have him cleaning out desks for the next three or four years if they wished to do that." 195 The decision in State v. Henderson did not consider the arbitrator's award in terms of a hypothetical agreement by the parties to hire Henderson for work in the supply division, for communications work, or cleaning out desks. If that employment contract would have been enforceable, then the Nebraska Supreme Court should have confirmed the arbitrator's award. By vacating the award of an arbitrator whose decision the parties have negotiated for and agreed to, the Nebraska Supreme Court was, in effect, changing the provisions of a valid collective bargaining agreement. The Nebraska Supreme Court vacated the arbitrator's award because of "Henderson's knowing and willing affiliation with the Ku Klux Klan" which it termed "behavior of the gravest nature." 196 There is no indication that his previous work record was in any way unsatis U.S. 29, 45 (1987) ("In this connection it should also be noted that the award ordered Cooper to be reinstated in his old job or in an equivalent one for which he was qualified,") U.S. 57, 66 (2000) ("[The award] is consistent with DOT rules requiring completion of substance-abuse treatment before returning to work... for it does not preclude Eastern from assigning Smith to a non-safety-sensitive position until Smith completes the prescribed treatment program."); see MidAmerican Energy Co. v. International Brotherhood of Electrical Workers Local 499, 345 F.3d 616, 620 (8th Cir. 2003) ("[T]he arbitrator's decision in this case is fundamentally different from those awards that have been struck down for it does not require that Turner be reinstated into his sensitive position.") Henderson, 277 Neb. at 242, 762 N.W.2d at Id. at 273, 762 N.W.2d at 23 (Stephan, J. dissenting). See supra note 168 for a more complete text of this provision Henderson, 277 Neb. at 273, 762 N.W.2d at Id. at , 762 N.W.2d at 17.

35 2009] ARBITRATION factory or that his affiliation with the Ku Klux Klan had affected the actual performance of his job as a State Trooper The Nebraska public policy applied by the Nebraska Supreme Court was that reinstatement of Henderson as a "sworn officer" would undermine public perception of the fairness of the Nebraska State Patrol: [W]e hold that Nebraska public policy precludes an individual from being reinstated to serve as a sworn officer in a law enforcement agency if that individual's service would severely undermine reasonable public perception that the agency is uniformly committed to the equal enforcement of the law and that each citizen of Nebraska can depend on law enforcement officers to enforce the law without regard to race 198 It remains to be determined how significant "public perception," or the methodology for determining "public perception," will become as a factor for setting aside an otherwise proper arbitration award. At present, it is clear that there is a separate common law public policy ground for vacating an award under the Nebraska UAA. From the general approach of the Nebraska Supreme Court in State v. Henderson, it seems very likely that there is also a common law ground for manifest disregard of the law. Stemming from decisions under the previous Nebraska constitutional provision on "open courts" or otherwise, it is also possible that the Nebraska Supreme Court would enforce contractual arrangements for an expanded judicial review of an arbitrator's factual determinations and legal conclusions of the type rejected by the Supreme Court of the United States in Hall Street Associates v. Mattel under the FAA but potentially available under state law rules. After all, state courts can make (or, rather, "find") common law whereas the Supreme Court of the United States no longer purports to enforce a non-statutory federal common law. 199 For vacating or confirming arbitrators' awards under agreements subject to the FAA in the future, Nebraska courts will first need to ascertain whether the award is subject to review, 20 0 and, if so, 197. See Id. at 267, 762 N.W.2d at 19 (Stephan, J. dissenting) Id. at , 762 N.W.2d at Cf Justice Scalia concurring in the judgment of Eastern Assoc. Coal Corp. v. United Mine Workers of America, Dist. 17, 531 U.S. 57, 68 (2000): There is not a single decision, since this Court washed its hands of general common-lawmaking authority, see Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed (1938), in which we have refused to enforce on "public policy" grounds an agreement that did not violate, or provide for the violation of, some positive law FAA 12 requires that notice of a motion to vacate an award must be served within three months after the award is issued. Nebraska UAA (b) allows 90 days "except that if predicated upon corruption, fraud, or other undue means, it shall be made within ninety days after such grounds are known or should have been known." FAA 9 allows an application to confirm an award to be made "within one year after the award is made." Nebraska UAA does not specify a time limit for filing an

36 CREIGHTON LAW REVIEW [Vol. 43 whether the award is subject to review in Nebraska courts. Boilerplate language such as "judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof 20 1 should be sufficient to provide jurisdiction in Nebraska state courts Next is an important choice of law issue whether the standard of review is that of the FAA, Nebraska UAA, or some other standard made applicable by the agreement of the parties or application of other choice of law rules The Nebraska UAA can provide a broader scope of review than the FAA sections 9, 10, and 11. The breadth of that review beyond the public policy exception applied in State v. Henderson remains to be developed through future judicial decisions or by legislation. F. APPEALABLE ORDERS Federal Arbitration Act section 16 and Nebraska Uniform Arbitration Act section contain rules on appealable orders that are intended to facilitate arbitration, especially determinations of whether to arbitrate or litigate. The relatively early Nebraska Supreme Court decision in Kelley v. Benchmark Homes, Inc began: "[t]his matter is before the court as an interlocutory appeal pursuant to the federal Arbitration Act, 9 U.S.C. 1 through "205 The Nebraska Supreme Court reversed the lower court's denial of a stay of the litigation pending nonbinding arbitration of one of the four claims Webb v. American Employers Group 20 7 reconsidered and application to confirm an arbitration award, but requires a court to act within sixty days of the application unless a timely motion to vacate has been filed See American Arbitration Association, (last visited Aug. 21, 2009). Forms of the American Arbitration Association are available at adr.org/ See Cable Connection, Inc. v. DIRECTV, 44 Cal. 4th 1334, 190 P.3d 586 (2008) See discussion infra Part V, Section E, and accompanying notes Neb. 367, 550 N.W.2d 640 (1996). The decision applied the FAA as substantive law enforceable in Nebraska courts at a time when the Nebraska Constitution (which was amended six months later) invalidated judicial enforcement of agreements to arbitrate future disputes Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 368, 550 N.W.2d 640, 642 (1996). FAA 16(a)(1)(A) provides that an appeal may be taken from an order "refusing a stay of any action under section 3," but Nebraska UAA contains no express counterpart Home buyers asserted four claims against the developer: breach of express warranty, breach of implied warranty, trespass, and strict liability for latent defects. Only the express warranty contained an arbitration agreement. The Nebraska Supreme Court stayed litigation of the express warranty claim on the basis of FAA 2 and the other three claims under the inherent power of courts "to stay proceedings when required by the interests ofjustice." Kelley, 250 Neb. at , 550 N.W.2d at Neb. 473, 684 N.W.2d 33 (2004).

37 2009] ARBITRATION expressly disapproved the statement made in the Kelley decision. 20 Webb authoritatively determined that: There is no federal policy favoring arbitration under a certain set of procedural rules and the federal policy is simply to ensure the enforceability of private agreements to arbitrate... [Wie must first apply our state procedural rules to determine if the order is final for purposes of appeal and then determine whether the result of that inquiry would undermine the goals and policies of the FAA Webb v. American Employers Group, also made a significant error by failing to take into account the provisions of the Nebraska UAA. The Court looked only to general rules of civil procedure and not first to the special rules concerning appeals in Nebraska UAA section Nebraska UAA section (a)(1), similar to FAA section 16(a)(1)(B), allows an appeal from an "order denying an application to compel arbitration," which is precisely the type of order American Employers Group was seeking to appeal. Nebraska UAA section (b) adds that "[Tihe appeal shall be taken in the manner and to the same extent as from orders or judgments in a civil action." The reasoning in the Webb decision went directly from the applicability of the FAA (which, itself, was an erroneous conclusion 2 10 ) to the general Nebraska rules of civil procedure concerning final orders. It should have looked first to Nebraska UAA section to determine the appealability of the order denying American Employer Group's motion to compel arbitration. This omission may prompt others to fail to take into account the special appeal provisions of Nebraska UAA section FAA section 16(b)(2) provides that an order compelling arbitration is not ordinarily appealable. The Supreme Court of the United States has held that an order compelling arbitration and also dismissing the lawsuit is a "final decision" appealable under FAA section 208. Webb v. American Employers Group, 268 Neb. 473, , 684 N.W.2d 33, (2004) Webb, 268 Neb. at 481, 684 N.W.2d at See Vaden v. Discover Bank, 129 S. Ct. 1262, (2009) The Webb decision failed to take into account the "reverse preemption" provisions of the McCarran-Ferguson Act and ERISA with respect to insurance and the statutory exclusion for future dispute insurance arbitration agreements in the Nebraska UAA See, e.g., Tracy Broad. Corp. v. Telemetrix, Inc., 17 Neb. App. 112, 117, 756 N.W.2d 742, 747 (Neb. Ct. App. 2008) ("We begin by noting that denial of a motion to compel arbitration is a final, appealable order under Nebraska law because it affects a substantial right and is made in a special proceeding."). But see State ex rel. Wagner v. Kay, 15 Neb. App. 85, 722 N.W.2d 348 (Neb. Ct. App. 2006) (an appeal taken under Nebraska UAA (a)(1) in a case to which the FAA was applicable).

38 CREIGHTON LAW REVIEW [Vol (a)(3) Nebraska UAA section does not mention an order granting an application to compel arbitration and lists as appealable "a judgment or decree entered pursuant to the provisions of the Uniform Arbitration Act." Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co held that a Nebraska court order compelling arbitration, coupled with a dismissal of the declaratory judgment suit to which it was related, was a final order under the general Nebraska rules of civil procedure. Following Webb, it also determined that the result "does not undermine the goals and policies of the FAA." 21 4 There is a strong inference, if not an express holding, in Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co. that an order compelling arbitration alone is not an appealable order in Nebraska state courts The FAA contains provisions that an order "granting a stay of any action" is not appealable 216 but "refusing a stay of any action" is an appealable order The subject of stays, other than "granting an application to stay arbitration," 2 18 is not dealt with in Nebraska UAA section Thus, Nebraska will need to "first apply our state procedural rules to determine if the order [granting or refusing a stay of any action] is final for purposes of appeal and then determine whether the result of that inquiry would undermine the goals and policies of the FAA." 2 19 IV. LIMITATIONS ON ARBITRABLE SUBJECTS A. INSURANCE (MCCARRAN-FERGUSON ACT AND ERISA) The McCarran-Ferguson Act and Employee Retirement Income Security Act ("ERISA") contain "reverse preemption" provisions allowing states to regulate the business of insurance. Settling policyholder claims is part of the risk spreading business of insurance 212. Green Tree Fin. Corp. -Alabama v. Randolph, 531 U.S. 79, 121 S. Ct. 513 (2000) Neb. 310, 746 N.W.2d 672 (2008) Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, , 746 N.W.2d 672, (2008) Bruning, 275 Neb. at 316, 746 N.W.2d at FAA 16(b)(1) FAA 16(a)(1)(A). See Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1903 (2009) ("We hold that the Sixth Circuit had jurisdiction to review the denial of petitioners' request for a 3 stay and that a litigant who was not a party to the relevant arbitration agreement may invoke 3 if the relevant state contract law allows him to enforce the agreement.") Nebraska UAA (2) ("order granting an application to stay arbitration" is appealable). FAA 16(a)(2) allows an appeal from an "order granting, continuing, or modifying an injunction against an arbitration." 219. Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, 316, 746 N.W.2d 672, 678 (2008), quoting Webb v. American Employers Group, 268 Neb. 473, 481, 684 N.W.2d 33, 41 (2004).

39 20091 ARBITRATION subject to state regulation. State laws vary on whether or not agreements to arbitrate future disputes under an insurance policy are enforceable. The Nebraska Uniform Arbitration Act contains a limitation on the enforceability of future dispute provisions for policyholder claims which the Nebraska Supreme Court has not yet cited or applied. The McCarran-Ferguson Act provides that "[N]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance...unless such Act specifically relates to the business of insurance." 220 The United States Court of Appeals for the Eighth Circuit held that the insurance contract exclusion in the Missouri Arbitration Act was covered by the McCarran-Ferguson Act and not subject to preemption by the Federal Arbitration Act since it regulated the processing of claims, and processing claims is at the core of the "business of insurance." ERISA section 514(b)(2)(A) states that "[N]othing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking or securities." 22 2 The ERISA "reverse preemption" standard differs in some respects from that of the McCarran-Ferguson Act ERISA involves two factors: (1) "the state law must be specifically directed toward entities engaged in insurance," and (2) "the state law must substantially affect the risk pooling arrangement between the insurer and the insured." 224 As a general proposition, state laws relating to the arbitration of insurance claims would appear to be covered by this provision The Nebraska UAA excludes from its coverage arbitration of future disputes (but not existing controversies) in "any agreement concerning or relating to an insurance policy other than a contract between insurance companies including a reinsurance contract." U.S.C. 1012(b) (2006) Standard Sec. Life Ins. Co. of N.Y. v. West, 267 F.3d 821 (8th Cir. 2001). See McKnight v. Chicago Title Ins. Co., Inc., 358 F.3d 854 (11th Cir. 2004); Mutual Reinsurance Bureau v. Great Plains Mut. Ins. Co., Inc., 969 F.2d 931 (10th Cir. 1992) U.S.C. 1144(b)(2)(A) (2006) For a comparative analysis of the language of the two statutes, see Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, (2003) Kentucky Ass'n Health Plans, Inc., 538 U.S. at See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002); Aetna Health Inc. v. Davila, 542 U.S. 200, (2004) NEB. REV. STAT (f)(4) (Reissue 2008) (applicable to subsection (b) but not to subsection (a)). Note that the statute refers to "an insurance policy" and not simply to "insurance." Cf. Love v. Money Tree, Inc., 279 Ga. 476, 614 S.E.2d 47 (2005) (automobile club memberships).

40 CREIGHTON LAW REVIEW [Vol. 43 The decision in Webb v. American Employers Group 22 7 is an aberration because it indicates that future dispute arbitration provisions in a Nebraska group health insurance policy were subject to the FAA It is also an aberration in stating that "claims arising under ERISA have generally been held to be arbitrable under the FAA," 22 9 but failing to consider the "reverse preemption" for insurance in ERISA section 514(b)(2)(A). Webb was covered by his employer's group health insurance with AEG. When Webb sued for medical expenses associated with shoulder surgery, AEG filed a motion to compel arbitration and dismiss the suit. The trial court denied the motion to compel arbitration on the basis that AEG had waived the arbitration provisions in the group health insurance policy There was no appeal from that order, and the court found for Webb on the merits fourteen months later. AEG contended on appeal that the lower court erred in "failing to compel arbitration as provided for in the policy." AEG's Brief cited the general ERISA preemption subsection (29 U.S.C. section 1144(a)) for a rule that the Nebraska UAA was preempted but omitted the insurance "reverse preemption" language in the following federal statutory subsection (29 U.S.C. section 1144(b)(2)(A)) Omitting references to the McCarran-Ferguson Act or to the specific subsection of the Nebraska UAA dealing with insurance, the Brief referred to Nebraska's adoption of the national policy favoring arbitration under the FAA At oral argument, AEG relied upon the FAA as authority for compelling arbitration Webb's Brief dealt simply with the lower court holding that AEG had waived its right to arbitration Neb. 473, 684 N.W.2d 33 (2004) Webb v. American Employers Group, 268 Neb. 473, 479, 684 N.W.2d 33, 39 (2004) Webb, 268 Neb. at 479, 684 N.W.2d at Id. at 476, 684 N.W.2d at 38. AEG wrote Webb that he "should file a civil lawsuit to determine whether the surgery was covered." 231. Id. at 477, 684 N.W.2d at Brief of American Employers Group, at 12-13, Webb v. American Employers Group, 268 Neb. 473, 684 N.W.2d 33 (2004) (No. S ), 2003 WL (Nov. 5, 2003) Id. at Webb, 268 Neb. at 478, 684 N.W.2d at 39: Although AEG's motion to compel arbitration did not identify the statutory authority upon which it sought to enforce the arbitration provision of the policy, its counsel stated during oral argument of the appeal that the federal Arbitration Act (FAA), 9 U.S.C. 1 et seq. (2000), provides the enforcement mechanism Brief of Jerry J. Webb, at 12-14, Webb v. American Employers Group, 268 Neb. 473, 684 N.W.2d 33 (2004) (No. S ), 2004 WL (Jan. 22, 2004).

41 20091 ARBITRATION Using a more restrictive standard than necessary for determining that "a transaction involving commerce" was present, 236 the Nebraska Supreme Court determined that whether or not the motion to compel arbitration should have been granted was a question of federal law and that ERISA claims "have generally been held to be arbitrable under the FAA." 23 7 The Court then found that an appeal from the order denying arbitration was a matter of Nebraska state law, rather than FAA section 16 as had been relied upon in a prior Nebraska decision The prior judicial statement was withdrawn, denial of the motion to compel arbitration was held to be a final order in this instance under Nebraska general civil procedure law (rather than an appealable order under the Nebraska UAA 23 9 ), and AEG's appeal of that issue was out of time. The Nebraska Supreme Court affirmed the lower court's decision for Webb on the merits of the claim. Fortunately, the Nebraska Supreme Court stated expressly, "we do not reach AEG's contention that the district court erred in denying its motion to compel arbitration because no timely appeal was taken from that final, appealable order." 2 40 The statement should preclude bad precedent from having been established with respect to the statutory future dispute insurance exclusion in the Nebraska UAA. A better result would have been achieved by simply applying the exclusion to support the lower court's denial of the motion to compel arbitration B. WORKERS' COMPENSATION The Nebraska workers' compensation statutes provide that "[aill disputed claims for workers compensation shall be submitted to the Nebraska Workers' Compensation Court for a finding, award, order, or judgment." 24 2 The parties and insurer generally have a right to 236. See discussion supra Part II, Section B, and accompanying notes Webb, 268 Neb. at 479, 684 N.W.2d at See Simon v. Pfizer Inc., 398 F.3d 765, 774 (6th Cir. 2005) ("the majority of courts considering this issue have held that disputes arising under ERISA, including COBRA claims, are subject to arbitration under the FAA") See discussion supra Part III, Section F, and accompanying notes Webb, 268 Neb. at , 684 N.W.2d at Nebraska UAA (a)(1) states: "An appeal may be taken from... [a]n order denying an application to compel arbitration made under section " 240. Webb, 268 Neb. at 485, 684 N.W.2d at The lower court in Webb should have considered the motion to compel arbitration under Nebraska UAA It should then have applied the "reverse preemptions" in the McCarran-Ferguson Act and ERISA, together with the Nebraska future insurance dispute exclusion in Nebraska UAA (f)(4), to deny the motion. The Nebraska Supreme Court should have considered the order appealable under Nebraska UAA (a)(1) NEB. REV. STAT (Reissue 2004).

42 CREIGHTON LAW REVIEW [Vol. 43 settle workers' compensation matters between themselves "in accordance with the Nebraska Workers' Compensation Act," but "no such settlement shall be binding unless the settlement is in accordance with such act." 2 43 Some types of settlements require approval by the Nebraska Workers' Compensation Court The exclusive jurisdiction of the Nebraska Workers' Compensation Court applicable to all claims under the statutes is distinguishable from primary (but not exclusive) jurisdiction of the California Labor Commissioner in Preston v. Ferrer 24 5 or the special statutory dispute resolution requirements enforced by the Nebraska Motor Vehicle Industry Licensing Board in Cornhusker Int'l Trucks v. Thomas Built Buses, Inc. Thus, claims for workers' compensation under the Nebraska statutes should fall within the Federal Arbitration Act section 2 exclusion applicable to "any contract." 2 47 Nebraska Uniform Arbitration Act section (e) expressly provides that the statutory authorization for arbitration of existing controversies and future disputes "do not apply to a claim for workers' compensation." That provision is a reflection of the exclusion of workers' compensation from the FAA by virtue of the exclusive nature of the workers' compensation statutes, themselves, which apply to "any contract." There are strong state and federal policies grounded in the continuing nature of workers' compensation against resolving claims through arbitration rather than a public tribunal. Issues can arise in the future under state statutes for "changed circumstances" after the initial determination. There is an ongoing interest at the federal level for coordination with Medicare, especially as to Medicare set aside arrangements. These continuing issues can be handled advantageously under processes involving a permanent public workers' compensation agency rather than an arbitrator. The 2006 Nebraska Legislature directed the Workers' Compensation Court to establish procedures for binding arbitration of disputes regarding medical, surgical, or hospital fees payable under the stat NEB. REV. STAT , as amended by L.B. 630, 4, 101st Legis., 1st Sess. (2009) NEB. REV. STAT to (lump sum settlements), as amended by L.B. 630, 5-8, 101st Legis., 1st Sess. (2009), (claim for legal services), (payment of present value to trustee) (Reissue 2004) S. Ct. 978, 987 (2008) ("When parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.") Neb 10, 637 N.W.2d 876 (2002) See Doctor's Assocs, Inc. v. Casarotto, 517 U.S. 681 (1996); Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265 (1995). Nebraska UAA (e) effectively places arbitration "upon the same footing as other contracts."

43 20091 ARBITRATION utes by an "attorney staff member for the court." 2 48 That provision lapsed by "sunset" on January 1, and was repealed in C. MOTOR VEHICLE FRANCHISE CONTRACTS The future dispute exclusion for agreements between parties covered by Nebraska motor vehicle industry licensing law 25 1 was held to be preempted by the Federal Arbitration Act in Cornhusker Int'l Trucks v. Thomas Built Buses, Inc in Congress responded later that year by limiting arbitrability arising out of or relating to motor vehicle franchise contracts only if all parties consent to arbitration after the controversy arises The federal statute also requires the arbitrator to "provide the parties to such contract with a written explanation of the factual and legal basis for the award." 2 54 D. OTHER LIMITATIONS Other federal statutes limit the enforceability of arbitration. It is unlawful to require an armed forces active duty member or a dependent of the active duty member to agree to arbitration provisions in a consumer credit transaction The comprehensive 2008 Farm Bill contains provisions applicable to livestock and poultry contracts that allow a producer or grower to decline arbitration prior to entering the contract, require conspicuous notice of that right in the contract, and allow the Secretary of Agriculture to establish criteria for determining whether the arbitration process "provides a meaningful opportunity for the grower or producer to participate fully in the arbitration process." 25 6 Although it has proven difficult to redesign the Federal Arbitration Act enactment of 1925, it is more politically feasible for Congress to place modifications of arbitration law in statutes outside of the FAA provisions L.B. 489, 34, 99th Legis., 2d Sess. (2006) NEB. REV. STAT (2)(b) (Cum. Supp. 2008) L.B. 630, 10, 101st Legis., 1st Sess. (2009) (also deleting other references to 'arbitration" and substituting authority for the Compensation Court to order mediation) Nebraska UAA (f)(3) (referring to NEB. REV. STAT to )) Neb. 10, 637 N.W.2d 876 (2002) U.S.C. 1226(a)(2) (2006) U.S.C. 1226(a)(3) (2006) U.S.C. 987(e)(3), (f)(4), and (i)(1) and (2) (Supp. 2009) Pub. L. No , 210, 122 Stat (to be codified at 7 U.S.C. 197c). Crop insurance policies reinsured under provisions of the Federal Crop Insurance Act preempt the Nebraska UAA. See Svancara v. Rain and Hail, LLC, 2009 WL (D. Neb. 2009)

44 CREIGHTON LAW REVIEW [Vol. 43 V. CHOICE OF LAW ISSUES A. SEPARABILITY It should be first noted that "as a matter of federal substantive arbitration law, an arbitration provision is severable from the remainder of the contract." 257 The severability required by Federal Arbitration Act section 2 is applicable in state courts as a matter of preemption rather than choice of law One practical consequence of severability, however, is that contract law and policies of different states may be applicable to determinations relating to the arbitration provisions and the other portions of the agreement-either by operation of law or by design of the parties. 259 Another consequence is that "unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance." 260 B. ARBITRATION AGREEMENT FORMATION State law, not federal law, regulates contract formation. Apart from the rest of the transaction, the arbitration provisions must be examined under the law of a specific state to determine whether an agreement was formed 261 and whether it complies with the general contract law of that State Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) ("We rejected the view that the question of 'severability' was one of state law, so that if state law held the arbitration provision not to be severable a challenge to the contract as a whole would be decided by the court.") Buckeye Check Cashing, Inc., 546 U.S. at 445. See Restatement (Second) of Conflict of Laws 2 cmt. c (1971) Restatement (Second) of Conflict of Laws 218 cmt. b (1971): Situations will arise where the state of most significant relationship with respect to the issue of arbitration is not the same state of most significant relationship with respect to other issues relating to the contract. A possible example is where a contract whose principal elements are located in state X provides for arbitration in state Y. Here it may be that, although X is the state of most significant relationship with respect to most of the issues relating to the contract, Y is the state of most significant relationship with respect to the issue of arbitration Buckeye Check Cashing, Inc., 546 U.S. at (rejecting a distinction between void and voidable contracts in making this determination) See Koricic v. Beverly Enterprises-Nebraska Inc., 278 Neb. 713, 773 N.W.2d 145 (2009) See, e.g., Douglas v. United States District Court for the Cent. Dist. of Cal., 495 F.3d 1062, 1067 n.2 (9th Cir. 2007), cert. denied, 128 S. Ct (2008), quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), and Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003), cert. denied, 540 U.S (2004): Under the Federal Arbitration Act (FAA), 2, "[alrbitration agreements... [deletion in quoted text] are subject to all defenses to enforcement that apply to contracts generally."... Thus, "[tlo evaluate the validity of an arbitration agreement, federal courts 'should apply ordinary state-law principles that gov-

45 2009] ARBITRATION For choice of law issues concerning contracts, the Nebraska Supreme Court has expressly "adopted" and relied upon "the approach set forth in" Restatement (Second) of Conflict of Laws section Restatement section 188(2) applies "in the absence of an effective choice of law by the parties" and, therefore, controls issues relating to contract formation. The standard of Restatement section 188 is for a determination "by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties." C. MODIFICATION OF ARBITRATION PROVISIONS Choice of law issues are sometimes determinative when national or multi-state standardized arbitration provisions are modified. Basic state contract laws vary as to notice and procedural matters, 2 65 unconscionability of a substantive nature, 2 66 and state policies applicable to "any contract," such as class action waivers Even if the agreement of the parties contains an otherwise valid choice of state law provision, that choice of state law is not enforceable if: "(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [Restatement] section 188, would be the ern the formation of contracts.'"... Such state-law principles come from the law of a particular state-not federal common law under the FAA Johnson v. United States Fid. and Guar. Co., 269 Neb. 731,743-44, 696 N.W.2d 431, 441 (2005) (insurance policy); Mertz v. Pharmacists Mut. Ins. Co., 261 Neb. 704, 708, 625 N.W.2d 197, 202 (2001) (covenant not to compete); Powell v. American Charter Fed. Sav. & Loan Ass'n, 245 Neb. 551, 557, 514 N.W.2d 326, 332 (1994) (joint will) ("In an effort to present a consistent rule for future [contract] cases involving conflicts of law, we hereby adopt the approach set forth in the Restatement (Second), supra, 188.") The principles for determining the "most significant relationship" are contained in Restatement 6 and 188(2). Restatement 218 states that "[t]he validity of an arbitration agreement, and the rights created thereby, are determined by the law selected by application of the rules of " For an application of these principles by a U.S. district court to determine whether the parties to an electronic transaction entered into an enforceable arbitration arrangement, see Specht v. Netscape Commc'ns Corp, 150 F. Supp. 2d 585, (S.D.N.Y. 2001), affd 306 F.3d 17 (2d Cir. 2002) Compare Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005), cert. denied, 547 U.S (2006) (Georgia state law), with Campbell v. General Dynamics Gov't Sys. Corp., 407 F.3d 546 (1st Cir. 2005) (Massachusetts state law) See, e.g., Douglas v. United States District Court for the Cent. Dist. of Cal., 495 F.3d 1062 (9th Cir. 2007), cert. denied, 128 S. Ct (2008) (meaningful economic alternative choice of a consumer) See, e.g., Homa v. American Express Co., 558 F.3d 225 (3d Cir. 2009); Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078 (9th Cir. 2008).

46 CREIGHTON LAW REVIEW [Vol. 43 state of the applicable law in the absence of an effective choice of law by the parties." 268 So it is possible that a standardized modification of arbitration provisions for persons throughout several states might be subject to different consequences in the several states because each state employs its own fundamental policy and applicable law despite the previous contractual choice of state law. As with preemption issues generally, the "fundamental policy of a state" applicable to non-recognition of the choice of state law provision cannot "undermine the goals and policies of the Federal Arbitration Act." D. CHOICE OF STATE LAW AND CHOICE OF ARBITRATION RULES Where an arbitration agreement has a choice state law and a choice of arbitration rules that contain potentially conflicting provisions, a court or an arbitrator must determine the "'best way to harmonize' the two clauses." 2 70 Preston v. Ferrer 2 71 involved a choice of California state law and the American Arbitration Association ("AAA") Commercial Arbitration Rules. A California statute called for a determination under the statute involved in the matter by the California Labor Commissioner. The AAA Commercial Arbitration Rules provided for decision by an arbitrator. Mastrobuono v. Shearson Lehman Hutton, Inc.272 involved a choice of New York state law and arbitration rules of the National Association of Securities Dealers ("NASD"). New York state common law authorized a court, but not an arbitrator, to award punitive damages. The NASD rules authorized an arbitrator to award punitive damages. Relying on Mastrobuono v. Shearson Lehman Hutton, Inc., the Supreme Court of the United States in 2008 held in Preston v. Ferrer: Following the guide Mastrobuono provides, the "best way to harmonize" the parties' adoption of the AAA rules and their selection of California law is to read the latter to encompass prescriptions governing the substantive rights and obligations of the parties, but not the State's "special rules limiting the authority of arbitrators." Restatement (Second) of Conflict of Laws 187(2) (1971) See Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, 316, 746 N.W.2d 672, 678 (2008), quoting Webb v. American Employers Group, 268 Neb. 473, 481, 684 N.W.2d 33, 41 (2004) Preston v. Ferrer, 128 S. Ct. 978, (2008), quoting Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, (1995) S. Ct. 978 (2008) U.S. 52 (1995) Preston, 128 S. Ct. at 989, quoting Mastrobuono, Inc., 514 U.S. at

47 2009] ARBITRATION The Court had reasoned in allowing an arbitrator to award punitive damages in Mastrobuono v. Shearson Lehman Hutton, Inc. despite the New York limitation on the authority of an arbitrator: We think the best way to harmonize the choice-of-law provision with the arbitration provision is to read "the laws of the State of New York" to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators. Thus, the choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration; neither sentence intrudes upon the other. In contrast, respondents' reading sets up the two clauses in conflict with one another: one foreclosing punitive damages, the other allowing them Previously, the Court had decided Volt Information Sciences v. Board of Trustees of the Leland Stanford Junior University, 2 75 which made clear that part of the substantive arbitration law of the Federal Arbitration Act is "to ensure 'that private agreements to arbitrate are enforced according to their terms."' 27 6 The construction contract at issue between the parties provided that "[tihe Contract shall be governed by the law of the place where the Project is located," which was California Disputes were arbitrable "in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then prevailing." 278 A California statute allowed a court to stay the arbitration pending litigation involving third parties not bound by the arbitration agreement. The FAA and Construction Industry Arbitration Rules called for the arbitration to proceed and the litigation to have been stayed pending arbitration. The Supreme Court of the United States affirmed a California Court of Appeal decision, granting a motion to stay the arbitration based upon the parties' choice of California state law and the authority of the California state statute. The Supreme Court of the United States in Preston v. Ferrer extensively distinguished Volt Information Sciences v. Board of Trustees of the Leland Stanford Junior University and severely reduced its precedential value in situations involving potentially conflicting choice of law and choice of arbitration rules. The Court pointed out 274. Mastrobuono, 514 U.S. at For the authority of an arbitrator to award punitive damages to a private party pursuant to arbitration rules despite Nebraska's limitations on punitive damages in civil actions, see discussion supra Part II, Section F, at notes U.S. 468 (1989) Volt Info. Scis., Inc, v. Board of Trs. Of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989), as quoted in Mastrobuono, 514 U.S. at Id. at Id. at 471.

48 CREIGHTON LAW REVIEW [Vol. 43 that the parties in Volt Information Sciences v. Board of Trustees of the Leland Stanford Junior University stipulated that no contractual provision other than the choice of California law dealt with the priority issue; 2 79 the Supreme Court of the United States relied upon the contract interpretation of the California Court of Appeal; 28 0 the arbitration was stayed to accommodate the interests of third parties not subject to the arbitration provisions and to avoid the possibility of conflicting rulings on common issues; 28 1 and the party seeking arbitration (Volt) did not raise the issue that the American Arbitration Association Rules "trumped the choice-of-law clause contained in the contract." 28 2 Volt Information Sciences v. Board of Trustees of the Leland Stanford Junior University was decided on preemption grounds and did not adjudicate a strict conflict in terms between a choice-oflaw and a choice of arbitration rules. Mastrobuono v. Shearson Lehman Hutton, Inc. "reached that open question while interpreting a contract with both a New York choice-of-law clause and a clause providing for arbitration in accordance with the rules of the National Association of Securities Dealers." 28 3 A choice of arbitration rules will normally "trump" a conflicting choice of state law provision as a means of "harmonizing" the relationship. Still, to the extent potential issues are foreseeable, it would be better to draft the document with greater specificity. E. REVIEW OF ARBITRATION AWARDS Hall Street Associates v. Mattel, Inc held that Federal Arbitration Act sections 10 and 11 provide the exclusive grounds for vacating or modifying an arbitration award under the authority of the FAA in federal courts. It determined that the FAA does not authorize review of an award on the basis of a contractual provision that: "[t]he Court shall vacate, modify or correct any award: (i) where the arbitrator's findings of facts are not supported by substantial evidence, or (ii) where the arbitrator's conclusions of law are erroneous." 28 5 The Supreme Court of the United States stated, however, that it did "not purport to say that they [FAA sections 10 and 11] exclude more searching review based on authority outside the statute as well." 28 6 The Court added that "[t]he FAA is not the only way into court for parties want Preston, 128 S. Ct. at Id. at Id Id Id S. Ct (2008) Hall St. Assocs, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, (2008) Hall St. Assocs, 128 S. Ct. at 1406.

49 2009] ARBITRATION ing review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable." 2 87 Hall Street Associates v. Mattel strongly indicates that a federal court might give broadened review to an arbitration award pursuant to an agreement of the parties and an order of the court under its authority "to manage litigation." 28 8 Lurking further in the future are issues of whether, through diversity jurisdiction, federal courts can give broadened review to arbitration awards under state statutes or common law An important choice of law issue for state courts is whether the standard of review is that of the FAA, state UAA, or some other standard made applicable by agreement of the parties or application of other choice of law rules. The Nebraska Uniform Arbitration Act can provide a broader scope of review than the FAA sections 9, 10, and 11. The broader scope of review under state laws would typically be for manifest disregard of the law, violation of state public policy, and agreements for expanded judicial review. The one reported Nebraska decision to date after Hall Street Associates v. Mattel is a Douglas County District Court decision which applied the limited FAA standard and stated that the FAA provides no separate ground for manifest disregard of the law. 290 Five months after Hall Street Associates v. Mattel, the California Supreme Court authorized broad judicial review under the California arbitration statutes to effectuate an agreement of the parties for review on the merits The agreement stated "any arbitration conducted hereunder shall be governed by the United States Arbitration Act" and "[t]he decision of the arbitrators may be entered and enforced as a final judgment in any court of competent jurisdiction." 2 92 The agreement also provided: "[T]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be va Id. (adding further: "But here we speak only to the scope of the expeditious judicial review under 9, 10, and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards.") Id. at (remanding the case for consideration whether the standard for broadened review of the arbitration award was authorized in this instance under Federal Rule of Civil Procedure 16 or the Alternative Dispute Resolution Act of 1998) Cf Svancara v. Rain and Hail, LLC, 2009 WL (D. Neb. 2009) (holding that regulations under the Federal Crop Insurance Act preempted judicial review of an arbitration award under the Nebraska UAA) Wachovia Sec., Inc., v. Bonebrake, No. Doc No. 455, 2009 WL (Neb. Dist. Ct. 2009) ("From these cases, it seems clear that manifest disregard of the law no longer exists as an extra-statutory ground for vacating an arbitration award.") Cable Connection, Inc. v. DIRECTV, 44 Cal. 4th 1334, 190 P.3d 586 (2008) Cable Connection, 44 Cal. 4th at 1350 n.12, 190 P.3d at 597 n.12.

50 CREIGHTON LAW REVIEW [Vol. 43 cated or corrected on appeal to a court of competent jurisdiction for any such error." 2 93 These cases present clear warnings that an arbitration award may potentially be subject to different standards of review depending upon the jurisdiction in which review is given. Standard boilerplate language such as "judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof '2 94 may add ambiguity by failing to specify a standard of review. It is important that the parties contemplate enforcement of an arbitration award in negotiated agreements and that arbitrators and courts contemplate enforcement issues throughout the entire process, from considering the validity of the purported agreement through statement of the award. VI. ROLES OF NEBRASKA GENERAL CONTRACT LAW UNDER THE FAA Arbitration is "purely a matter of contract" under both the Federal Arbitration Act 295 and the Nebraska Uniform Arbitration Act State contract law has critical roles with respect to FAA arbitration arrangements. State contract law determines whether "a written provision in... a contract... to settle by arbitration" under FAA section 2 has been lawfully created It must determine who are parties to the arbitration agreement, which of multiple dispute resolution provisions may be effective, and whether prior provisions have been terminated. 298 Much of the national litigation to date has involved the modification of existing arbitration or related dispute resolution procedures. FAA section 2 also relies upon state contract law to determine "such grounds as exist at law or in equity for the revocation of any 293. Id. at 1361 n.20, 190 P.3d at 604 n.20 (adding in text: "We do not decide here whether one or the other of these clauses alone, or some different formulation, would be sufficient to confer an expanded scope of review. However, we emphasize that parties seeking to allow judicial review of the merits, and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously.") See American Arbitration Association, visited Aug. 21, 2009) See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995); Cornhusker Int'l Trucks, Inc. v. Thomas Built Buses, Inc., 263 Neb. 10, 13, 637 N.W.2d 876, 880 (2002) See State v. Henderson, 277 Neb. 240, 243, 762 N.W.2d 1, 4 (2009), cert. denied, 129 S. Ct (2009) See Koricic v. Beverly Enterprises-Nebraska Inc., 278 Neb. 713, 773 N.W.2d 145 (2009) See general discussion in Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1902 (2009). See, e.g., MBNA Am. Bank, N.A. v. Boykin, No. A , 2009 WL (Neb. Ct. App. 2009) (credit card agreement).

51 20091 ARBITRATION contract." What this means is that "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening 2."299 Additionally, state contract law applies to the interpretation of provisions relating to arbitration, but requires that "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration" 30 0 and that "any doubts regarding the scope of an arbitration clause be resolved in favor of arbitration." 30 1 The Nebraska Supreme Court has applied this method of analysis, first identifying the agreement to arbitrate, and then applying Nebraska state contract law to the interpretation of those terms noting that "the FAA requires that any doubts regarding the scope of an arbitration clause be resolved in favor of arbitration." 30 2 Only Nebraska general contract law serves these purposes with respect to the FAA. The Supreme Court of the United States has explained that "the text of 2 declares that state law may be applied 'if that law arose to govern issues concerning the validity revocability, and enforceability of contracts generally."' 30 3 It added that courts may not "invalidate arbitration agreements under state laws applicable only to arbitration provisions," explaining that arbitration provisions must be placed "upon the same footing as other contracts." 30 4 The distillation of these rules is that: States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause 'upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. 2 (emphasis added). What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal 'footing,' directly contrary to the Act's language and Congress's intent The word "any" is italicized in the text of Supreme Court opinions but the Court has not attempted to define the parameters of "any." 299. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. 460 U.S. 1, 24 (1983)) Cornhusker Int'l Trucks, Inc., 263 Neb. at 16, 637 N.W.2d at 881. (citing Moses H. Cone Mem'l Hosp. 460 U.S. at 24-25) Nebraska ex rel. Bruning v. R.J. Reynolds Tobacco Co., 275 Neb. 310, 319, 746 N.W.2d 672, 679 (2008) Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, (1996), quoting Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987) Doctor's Assocs., Inc., 517 U.S. at 687 (quoting earlier decisions) Id. at 686 (quoting earlier decisions) (italics in original text).

52 CREIGHTON LAW REVIEW [Vol. 43 Certainly, "any" does not mean "every" contract. The term "any" and the phrase "enforceability of contracts generally" would appear to refer to a significant body of state contract law to which the arbitration agreement relates, such as the state's general commercial code Due to the enforcement of arbitration provisions in federal and state courts, the development of "Nebraska general contract principles" will become a joint undertaking of state and federal courts through decisions involving issues relating to arbitration. In addition to arbitration contract formation and modification issues, federal court cases have, for example, determined that certain cost and fee allocation provisions in arbitration agreements were not unconscionable under Nebraska law, 30 7 requiring a Nebraska resident to arbitrate in Texas was unconscionable under either Nebraska or Texas law, 308 and, as to a Nebraska employment at-will relationship, continued employment after notification of unilaterally changed arbitration conditions "supplies the necessary consideration for the offer." 30 9 The further development and refinement of "Nebraska general contract principles" will thus be heavily influenced by decisions of federal courts. VII. A FINAL NOTE It is premature to submit general conclusions at this time on the interface of the Federal Arbitration Act and Nebraska state law. The FAA is a sparse statute enacted in 1925 without major legislative amendments since then. It has been developed through decisions of the Supreme Court of the United States from serving largely as an authorization for business-to-business arbitrations to a law applicable to all forms of contractual arbitration. Over time, the Supreme Court has enunciated and applied a liberal policy favoring enforcement of arbitration that is equally applicable in federal and state courts. The Nebraska Supreme Court has approached arbitration enthusiastically only since the Nebraska Constitution was amended in 1996 and the Nebraska Uniform Arbitration Act amended in 1997 to mandate a Ne See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997), cert. denied, 522 U.S. 808 (1997) E.E.O.C. v. Woodmen of the World Life Ins. Soc'y, 479 F.3d 561 (8th Cir. 2007); Schreiner v. Credit Advisors, Inc., No. 8:07CV78, 2007 WL (D. Neb. 2007) Hollins v. Debt Relief of Am., 479 F. Supp. 2d 1099 (D. Neb. 2007) Chilson v. Retalix USA, Inc., No. 8:07CV101, 2007 WL (D. Neb. 2007) (relying upon and quoting a 1983 Minnesota Supreme Court decision). Later decisions of the Nebraska Supreme Court have held that when an at-will employee continues working with knowledge of an employer's unilateral change in a condition of employment, the employee acquiesces in that change. See Loves v. World Ins. Co., 276 Neb. 936, 758 N.W.2d 640 (2008); Sack v. Costello, 278 Neb. 156, 768 N.W.2d 429 (2009).

53 2009] ARBITRATION braska public policy favoring arbitration and other forms of alternative dispute resolution. A workable body of substantive federal arbitration law established by FAA section 2 has been developed through Supreme Court of the United States decisions. The Nebraska Supreme Court has applied that body of law effectively in a series of cases, with the exception that it appears reticent to interpret the FAA's triggering criteria "transaction involving commerce" as broadly as the Supreme Court has directed it should be done. The failure of the Nebraska Supreme Court to apply the standard of "affecting commerce" emphatically expressed in Citizens Bank v. Alafabco is a major impediment to proper and expeditious determinations of the applicability of the FAA. The Supreme Court of the United States clearly stated in Citizens Bank v. Alafabco that the broad economic standard of "affecting commerce" is a critical aspect of the FAA, rather than the narrower standard of United States v. Lopez rejected in that decision. The Nebraska Supreme Court should acknowledge and apply Citizens Bank v. Alafabco. The Supreme Court of the United States has given only minimal guidance on the collaborative interface of the FAA with state law other than the preemptive effects of FAA section 2. The Court restated in Vaden v. Discover Bank in 2009 that "[t]his Court has not decided whether 3 and 4 [and anything else other than FAA section 2] apply to proceedings in state courts." State courts are obligated to apply decisions of the Supreme Court of the United States on questions of the enforceability of an arbitration agreement, that is questions of whether to arbitrate or litigate. On other issues, state courts apply state law in a manner that does not undermine the policies of the FAA. There has been mention of this relationship between the FAA and Nebraska law in decisions of the Nebraska Supreme Court. Several decisions, however, have missed opportunities to apply the Nebraska UAA in tandem with the FAA. The Nebraska Supreme Court did not apply the Nebraska UAA provisions on motions to compel arbitration and stay litigation. Similarly, the Nebraska Supreme Court did not invoke the Nebraska UAA pro- isions on appealable orders to coordinate those policies with the underlying policies of the FAA. The Nebraska Supreme Court looked initially to the FAA with respect to appealable orders, then revoked that statement and applied Nebraska's general rules of civil procedure, but has not yet directly relied upon the statutory appealable order provisions of the Nebraska UAA. It is also discouraging that the Nebraska Supreme Court has not properly applied the "reverse preemption" provisions of the Mc- Carran-Ferguson Act and ERISA and the future disputes insurance arbitration subsection of the Nebraska UAA.

54 CREIGHTON LAW REVIEW [Vol. 43 Pre-arbitration hearing discovery is a difficult and controversial topic. One of the leading purposes for arbitration is to reduce and simplify the scope of prehearing fact gathering. There are situations, especially those involving recalcitrant third persons, in which the FAA does not allow sufficient latitude for a party to effectively prepare its arbitration case. The fortuitous amendment of the Nebraska UAA during its enactment in 1987 may provide an arbitrator and the parties with useful pre-hearing deposition authority in situations where the Nebraska UAA can be applied in tandem with the FAA. The Supreme Court of the United States now has authorized judicial review of arbitration awards on a broader basis in state courts than provided by the FAA in federal courts. The Nebraska Supreme Court decision in State v. Henderson was crafted poorly and is a dangerous precedent for establishing a public policy ground for vacating arbitration awards under, or apart from, the Nebraska UAA. The Nebraska Supreme Court set out to compare the Nebraska UAA with the FAA for precedential purposes. That was not possible inasmuch as there is no separate public policy basis for vacating awards under the FAA. The Nebraska Supreme Court examined Supreme Court of the United States decisions under the federal Labor Management Relations Act, which was desirable under the circumstances as the closest arbitration law and policy analogy. However, the Nebraska Supreme Court seriously misread and misapplied the standard established for judicial review on public policy grounds under the LMRA. The test under the federal LMRA decisions is to "treat the arbitrator's award as if it represented an agreement" between the parties. For that purpose, "the award is not distinguishable from the contractual agreement." The Nebraska Supreme Court not only failed to apply that standard but also developed and applied a Nebraska public policy of "a reasonable public perception" that the award would offend an explicit, well defined, and dominant public purpose. Actually, this amounts to the Nebraska Supreme Court's perception of the Nebraska public's perception. If the result in State v. Henderson is different than that had the parties contracted under Nebraska law directly for the arbitrator's award, it is because the Nebraska Supreme Court rewrote the collective bargaining agreement the parties had agreed to. The language and reasoning of the majority opinion in State v. Henderson does not indicate that had the Nebraska State Patrol hired Henderson in a capacity for which he was qualified, the agreement would have been unenforceable under Nebraska law. It is a dangerous precedent for courts to rewrite lawful contracts of the parties.

55 2009] ARBITRATION Relying on a "reasonable public perception" of public policy is also a misapplication of the Supreme Court of the United States decisions under the LMRA defining the nature of public policy upon which arbitrators' awards can be vacated. There are state court decisions allowing for judicial determinations of public policy, even "reasonable public perception" of public policy, as grounds to vacate arbitration awards. From standpoints of arbitral and judicial policies, however, it would have been preferable for the Nebraska Supreme Court in State v. Henderson to have treated the arbitrator's award as if the parties had contracted directly for that result. The most significant developments yet to come affecting the relationships of the FAA and Nebraska state law may be in Nebraska's general contract law. Basic state contract law throughout the United States is jumbled and confusing as applied to the wide variety of situations in which arbitration provisions appear, when such provisions involve current issues of contract formation and modification, standardized forms and standardized provisions, unconscionability, and choice of law. The FAA relies upon state contract law for these purposes but with requirements that it must be general state contract law applicable to "any" contract and place arbitration agreements on "the same footing" as other contracts. Rather than simply being "found" and applied to arbitration agreements, Nebraska's relatively fragmentary general contract law is likely to become much more refined and sophisticated through application to current and future issues concerning arbitration arrangements.