In Advanced Bodycare Solutions, LLC v. Thione International, Inc., No. 07-12309 (11th Cir. April 21, 2008), the Eleventh Circuit ruled that the Federal Arbitration Act could not be used to enforce the parties’ agreement to resolve disputes using mediation or nonbinding arbitration. The Court noted that while the FAA does not define “arbitration”, classic arbitration is characterized by submitting a dispute to a third party for a binding decision. Moreover, the Court said, the “FAA clearly presumes that arbitration will result in an ‘award’ declaring the rights and duties of the parties.” Thus, a dispute resolution procedure that does not result in an award is not arbitration “within the scope of the FAA.”
The Eleventh Circuit’s decision is right on the money and consistent with the overwhelming majority of courts who now understand the difference between mediation and arbitration. When parties do not agree to submit their dispute to a third party for resolution, they have not agreed to arbitrate and should not be entitled to use the FAA as a basis for obtaining enforcement of their agreement.
I’m sorry to be so slow in responding to this case. I have no problem with the 11th Circuit’s conclusion that mediation is not arbitration…duh. I do question their interpretation of the contract provision itself (which I won’t comment on here) and how they used that interpretation to avoid deciding on whether the FAA can be used to enforce non-binding arbitration. Certainly the court in AMF Inc. v. Brunswick Corp., 621 F. Supp. 456 (D.C.N.Y.,1985), thought so. NAF’s blog entry for Thursday, May 08, 2008, seems to think that Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S.Ct. 1396 (2008), undermines AMF. What do you think? Check out the opening phrase of section 9 of the FAA on confirmation which clearly implies parties can have arbitration clauses that are not to be confirmed.
It’s great to see that the courts are beginning to officially clarify the distinctions between these two very different ADR methods.