Which Arbitration Rules Apply? The Answer Can Surprise and Lead to a “Redo”

by Lionel M. Schooler, FCIArb
Jackson Walker LLP¹

Introduction. In Employers’ Innovative Network, LLC v. Bridgeport Benefits, Inc., 144 F.4th 571 (4th Cir. 2025), the United States Court of Appeals for the Fourth Circuit addressed the status of arbitral challenges at several stages of the proceedings, pointing out along the way that a lower court’s reliance upon one section of the Federal Arbitration Act (“FAA”) could be misplaced, and ultimately remanding the case for further fact-finding.

Background. A human resources service provider (“Service Provider”) entered into agreements with a health insurer (“Insurer”) to cover a health benefit plan. Two years later, the relationship had deteriorated to the point that the Service Provider sued the Insurer in state court for a variety of claims. The Insurer removed the case to federal court.

The contracts originally signed by the parties establishing their relationship called for arbitration of “any dispute controversy or claim arising out of” their contract in Bermuda, pursuant to Bermudian contract law. The federal court therefore granted a motion to compel arbitration of the dispute, stayed the lawsuit, and directed the parties to arbitrate their disputes.

The arbitration process commenced with the designation of an arbitrator to oversee the dispute, which took some time because of conflicts of interest or other impediments that elongated the selection process. Once the arbitrator was selected, he conducted a hearing and determined that the Service Provider’s claims were without merit.

Thereafter, the Service Provider investigated the Arbitrator and determined that he should be challenged as impermissibly biased against its position. Failing to persuade the Arbitrator through a formal challenge that he should remove himself from the Proceeding because of these issues, the Service Provider formally appealed his refusal to the governing arbitral body in Bermuda, but it sided with the Arbitrator, concluding that the potential undisclosed relationship at issue likely did not give rise to justifiable doubts as to his impartiality and independence.

The Insurer then filed a motion to enforce the Award in the West Virginia District Court pursuant to Chapter 2 of the FAA (9 U.S.C. §§ 201 et seq.), also referred to as the “New York Convention.” The Service Provider argued that the District Court should refuse to recognize the validity of the arbitral award because enforcing the award would go against the public policy of the United States, based upon a defense to enforcement under Article V(2)(b) of the New York Convention.

The District Court rejected this argument and ordered enforcement. The basis for the District Court’s decision was premised upon the fact that there are only seven defenses to enforcement of arbitral awards contained in the New York Convention, including a “public policy” defense, and the public policy defense failed because the Service Provider waived that argument by not appealing the decision on arbitrator impartiality by the Bermuda Arbitration authority to the Bermuda Supreme Court. The district court further opined that even if this defense had not been waived, the allegation did not demonstrate that the Arbitrator was sufficiently biased to justify vacatur of the Award.

The Service Provider appealed this decision to the Fourth Circuit.

Issues Presented. The issues confronting the Fourth Circuit were the following:

(a) Waiver of the right to challenge the Award; and

(b) Propriety of enforcement of the Award under the New York Convention.

Waiver Issue. The Court of Appeals first addressed the issue of waiver, that is, whether the Service Provider’s failure to appeal the Bermuda Arbitration Tribunal’s decision to the Bermuda Supreme Court constituted a waiver of its challenge to the Award.

The Court of Appeals concluded that it did not constitute a waiver of its right to argue against enforcement of the Award. The Court focused upon the fact that exhausting or failing to exhaust any appellate remedies in the arbitral process did not affect the Service Provider’s its ability to object to the Award in this separate and subsequent enforcement process. The Court reached this conclusion on the basis that the Service Provider’s right to appeal its challenge to the Award itself was governed by the FAA, which did not condition the ability to oppose enforcement of an arbitral award on exhaustion.

Which Statute Applies to the Service Provider’s Challenge to the Award? The Court then turned to the question of the appropriate standard by which to measure the legitimacy of the Award itself, and the legitimacy of the challenge to it. In doing so, the Court acknowledged that neither party had raised this issue, but found that it had the independent power to do so, given its mandate to interpret and apply applicable law.

Therefore confronting this issue, the Court first described the scope of the three pertinent chapters of the FAA (excluding Section 4, which pertains solely to the non-arbitrability of sexual harassment claims):

(a) Section 1’s coverage of arbitrations emanating from commercial disputes, including issues like appointment of arbitrators;

(b) Section 2’s coverage exists in three sub-parts, scope of coverage, a carveout (for disputes solely between citizens of the United States) and an exception to the carveout, for situations where American citizens are fighting over property located outside the U.S.; and

(c) Section 3’s coverage which, similar to Section 2’s coverage, encompasses the boundaries of an international arbitration treaty adopted in 1975 that focuses upon the Panama Canal. The Court detailed the complex structure of the FAA, explaining how the three chapters interact and when each applies.

From that content analysis, the Court then acknowledged that they overlapped, and that some of this overlap created inconsistent rules which conflict with one another. Detecting this conflict, the Court went on to indicate that these Sections provide a road map to selecting the proper Section for consideration of an arbitration award.

The Court explained that different chapters of the FAA provide different defenses against enforcement of arbitral awards. Chapter 1 explicitly includes “evident partiality” as a defense, while Chapters 2 and 3 do not. The Court therefore determined that the arbitration falls within Chapter 1’s scope, but could not determine whether it also falls within Chapter 2’s scope due to insufficient facts about the citizenship of one of the parties and the overall nature of the parties’ relationship. The Court explained that if Chapter 2 applies, its rules would supplant conflicting Chapter 1 rules, potentially affecting the available defenses against enforcement.

From there, the Court explained that it was exploring the characteristics of each of these three Sections of Title 9 to highlight the fact that deciding the issues in this case may differ depending upon which Section applies. That is, given the basis upon which the Service Provider was challenging the award, the alleged bias of the Arbitrator, analyzing this issue could have different results depending upon which Section applied.

The Court noted, for example, that Section 1 specifically provides a basis for vacatur in 9 U.S.C. §10 which includes “evident partiality or corruption in the arbitrators.” It contrasted this direct language with its reading of Sections 2 and 3, which draw applicable defenses from the treaties they implement, see 9 U.S.C. §§ 207; 302, but do not include an “evident partiality” defense. The Court did recognize that the Service Provider invoked the New York Convention to support its position by contending that the existence of alleged bias by the Arbitrator would mean that enforcement of his Award would run “contrary to public policy,” the standard in Chapter 2.

In assaying the competing Sections, the Court acknowledged that Section 1, 9 U.S.C. §§101 et seq., clearly would apply to the issue at hand, whereas Section 3, 9 U.S.C. §§301 et seq., clearly would not apply, given that Bermuda has not ratified or acceded to the Panama Convention. It found a roadblock when it tried to assess the applicability of Section 2, however, given the sparse record before it, and the lack of an identity of all of the parties involved vis-à-vis their relationship to the United States.

As a result, the Court vacated the District Court’s decision and remanded to that Court, directing it to undertake further fact-finding to upon obtaining sufficient information to ascertain which Section of Title 9 applies and, in the wake of that determination, the impact of the Service Provider’s bias claim.

Conclusion. This decision highlights the hazards to District Courts and practitioners of failing to review carefully the structure and applicability of arbitration statutes, and their companion impact upon the evaluation of a challenge to an arbitral award.

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¹ Mr. Schooler is a former member of the Board of the CIArb North America Branch, and the immediate Past Chair of the Texas Chapter.