A Belated Judicial Determination Regarding Whether a Party Is Bound By An Arbitration Agreement Requires a “De Novo” Proceeding
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Typically, the issue of whether a party is bound by an arbitration agreement is raised in a judicial motion to compel under Section 4 of the Federal Arbitration Act (9 U.S.C. § 4). The issue also may be raised in a judicial application to stay an arbitration, as to which the Section 4 procedure applies as well. Occasionally, however, the issue is decided by an arbitrator in the first instance. When the matter eventually reaches a court — e.g., in the context of a post-arbitration motion to confirm or to vacate an award (FAA §§ 9, 10) — and the arbitrator’s decision regarding party arbitrability is to be reviewed, that facet of the judicial proceeding is likely to resemble one for an application under FAA § 4. That is, the judicial review will be de novo, the Section 4 procedure will likely be adopted, and the court will not be restricted to the record before the arbitrator — additional evidence will be permitted.
The 2017 decision in iPayment, Inc. v. 1st Americard, Inc., 2017 U.S. Dist. LEXIS 25625 (S.D.N.Y. Feb. 23, 2017), is illustrative. iPayment had petitioned to confirm an arbitration award against two non-signatories of the underlying arbitration agreement — (i) the sole shareholder and former president (KG) and (ii) the former CEO (GG), of 1st Americard. Ultimately, whether the award should be confirmed against the two individuals turned on whether corporate veil piercing was warranted so as to deem them bound by their company’s arbitration agreement. Id. at *1, *4. The arbitrator evidently had determined that veil piercing was warranted, and thereupon issued an award against those individuals.
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