Court Opinion

ID: 9494166
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:30:58.67887+00
Date Added: 2024-06-11T17:56:15.412203
License: Public Domain

AMBRO, Circuit Judge,
Concurring:
I concur in the outcome reached by my colleagues. I agree that the arbitrator in this case exceeded his authority in making the award in favor of Mr. Kayser against Roadway Package System, Inc. (“RPS”). In arriving at this result, I agree that the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 1 et seq., permits parties by private agreement to contract around the FAA’s standards by which arbitrators’ awards are vacated. I also agree that whether the parties have contracted out of the FAA’s vacatur of awards standard is a matter of contract construction.1 But I disagree with my colleagues’ conclusion that, as a matter of contract construction, the parties’ choice of Pennsylvania law to govern the Linehaul Contractor Operating Agreement (the “LCOA”) requires that the FAA, and not Pennsylvania law, provide the standard of judicial review to be applied to that contract’s arbitration provision (which makes no mention of a governing law). In determining that the FAA requires that the LCOA contain a “clear intent” to have Pennsylvania law govern its arbitration provision, or else by default the FAA applies, my colleagues, I believe, misapply our Supreme Court’s decision in Mastrobuono v. Shearson Lehman Hut*303ton, Inc., 514 U.S. 52, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995), and disregard custom and practice among the drafters of agreements.
A. The FAA
The issue of the FAA’s preemption of state arbitration law is a subject of considerable debate. See, e.g., id. at 52, 56, 115 S.Ct. 1212; Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 472, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989); Maj. Op. at 296 n. 4. Interestingly, the FAA was enacted in 1925 for the purpose of “overcoming] courts’ refusals to enforce agreements to arbitrate.” Allied—Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). But this obvious pro-arbitration policy does not operate without regard to the intent of the parties to an agreement to arbitrate. Parties may choose that their arbitration be governed by rules other than those supplied by the FAA, Volt, 489 U.S. at 479, 109 S.Ct. 1248, and the FAA “simply requires courts to enforce [those] privately negotiated agreements ... in accordance with their terms.” Id. at 478, 109 S.Ct. 1248.
B. Supreme Court Jurisprudence— Volt and Mastrobuono
Our Supreme Court has twice within the last twelve years dealt with the deceptively difficult issue of whether the FAA impliedly governs an agreement to arbitrate within a contract specifically chosen by the parties to be governed by state law. See Mastrobuono, 514 U.S. at 52, 115 S.Ct. 1212; Volt, 489 U.S. at 468, 109 S.Ct. 1248. In Volt, the Supreme Court held that the FAA did not preempt a contract’s super-generic2 choice of “the law of the place where the Project is located” (in that case, California). Ruling that “where the parties have agreed that their arbitration agreement will be governed by the law of California,” a California court, pursuant to its state arbitration law, could stay the arbitration pending the results of related litigation involving third parties, something the FAA does not contemplate and thus would not permit if it governed. Volt, 489 U.S. at 470, 109 S.Ct. 1248. “Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the [FAA] would otherwise permit it to go forward.” Id. at 479, 109 S.Ct. 1248. That is because “[a]rbitration under the[FAA] is a matter of consent, not coercion.” Id. Understood this way, where parties have a generic choice-of-law provision governing their contract, they must affirmatively choose to have their agreement to arbitrate governed by the FAA. The only exception would be if the state rule chosen “would undermine the goals and policies of the FAA.” Id. at 478, 109 S.Ct. 1248.
Mastrobuono, decided only six years after Volt, held, in the context of a form contract containing a generic New York choice-of-law provision and a separate arbitration provision, that the FAA (which permitted punitive damages awards by arbitrators) preempted New York law (which did not). The Supreme Court determined that New York law would govern substantive principles of the agreement but could not provide, by the use of generic choice-of-law language alone, “special rules limit*304ing the authority of the arbitrator.” Mastrobuono, 514 U.S. at 64, 115 S.Ct. 1212. Mastrobuono did not purport to reverse or even limit Volt. Instead, the Court distinguished Volt in a footnote:
In Volt ... we deferred to the California court’s construction of its own state’s law_ In the present case, by contrast, we review a federal court’s interpretation of this contract, and our interpretation accords with that of the only decision-maker arguably entitled to deference — the arbitrator.3
Id. at 60 n. 4, 115 S.Ct. 1212.
Underlying the Court’s decision in Mastrobuono is that “the wishes of the contracting parties” prevail, id. at 57, 115 S.Ct. 1212 (citing Volt, 489 U.S. at 468, 109 S.Ct. 1248), even if those wishes contravene the FAA by “an unequivocal exclusion of punitive damages claims.” Id. at 60, 115 S.Ct. 1212. In ascertaining those wishes, Mastrobuono instructs a court to take into account three principles of contract construction and interpretation. The first (which is in line with Volt, 489 U.S. at 478, 109 S.Ct. 1248) is that the application of the law chosen would not under mine (absent express agreement) the goals and policies of the FAA. Id. at 56, 115 S.Ct. 1212 (“New York’s prohibition against arbitral awards of punitive damages ... is a vestige of the ‘ancient’ judicial hostility to arbitration.”). The second principle is that, by placing in its contract a generic choice of law and an arbitration provision without a specific choice of law, Shearson Lehman “drafted an ambiguous contract, and ... cannot now claim the benefit of the doubt.” Id. at 63, 115 S.Ct. 1212. Finally, “a document should be read to give effect to all its provisions and to render them consistent with each other.” Id. Each of these principles is discussed below in the context of this case.
The difference between Volt and Mas-trobuono, “while there, is difficult to grasp.” Lanier v. Old Republic Ins. Co., 936 F.Supp. 839, 844 (M.D.Ala.1996). But these cases can, I believe, be reconciled. Taken together, they require that a substantive state arbitration rule (such as New York’s barring of arbitrators awarding punitive damages) is superseded by the FAA where there is a conflict between the FAA and the state rule, though even that *305conflict can be overcome if dealt with explicitly in the contract. On the other hand, the FAA defers to procedural state arbitration rules (such as the California rule delaying an arbitration pending resolution of another matter in litigation), even when the FAA is in conflict. See Mastrobuono, 514 U.S. at 63-64, 115 S.Ct. 1212 (“We think that 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’ [in the choice-of-law provision] to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators.”); Volt, 489 U.S. at 479, 109 S.Ct. 1248 (“Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the [FAA] would otherwise permit it to go forward.”); Thomas A. Diamond, Choice of Law Clauses and Their Preemptive Effect on the Federal Arbitration Act: Reconciling the Supreme Court with Itself, 39 Ariz. L.Rev. 35, 60-65 (1997) (hereinafter “Diamond”).
C. Our Case
Applied to our case, the issue is this: in a contract containing an arbitration provision making no mention of the FAA, is the affirmative choice of Pennsylvania law in a general choice-of-law clause enough to govern that entire contract, or does the FAA further require that the arbitration section of that contract explicitly choose Pennsylvania law again for its (and not the FAA’s) arbitration procedures to apply? More specifically, the conflict is whether the FAA or the Pennsylvania Uniform Arbitration Act (the “PUAA”)4 governs the parties’ arbitration. This issue is easily resolved in favor of the PUAA if only Volt applies. But Mastrobuono creates the complexity. Consequently, I analyze our issue based on my reading of the principles of Volt and Mastrobuono.
1. Application of the Principles of Volt and Mastrobuono
a. Law Chosen to Govern LCOA (Pennsylvania) Does Not Undermine FAA
In applying Volt and Mastrobuono to our case, the initial question is whether the application of Pennsylvania law to the arbitration section of the LCOA undermines the FAA. This requires, in my view, preliminary consideration of whether vacating an arbitrator’s award because the arbitrator exceeded his authority is procedural or substantive. If the former, the generic choice of Pennsylvania law to govern the LCOA means that the PUAA governs all aspects of arbitration. If substantive, we then must address whether the PUAA is in conflict with the FAA, for only then does the FAA preempt in our case.
I believe that vacating an arbitrator’s award because the arbitrator exceeded his authority is procedural, see Hade v. Nationwide Ins. Co., 349 Pa.Super. 541, 503 A.2d 980, 982 (1986), overruled on other grounds by Ostroff v. Keystone Ins. Co., 357 Pa.Super. 109, 515 A.2d 584 (1986) (“ ‘Irregularity’ refers not to the award itself, but to the process used in arriving at this award.”); Diamond, 39 Ariz. L.Rev. at 62 & n. 223, and thus the FAA defers to the generic choice of state law to govern such matters. But even if the vacatur of arbitrators’ awards is substantive, Penn*306sylvania law is not in conflict with the FAA, for both the FAA and common law arbitration under the PUAA permit vacating or modifying arbitral awards in circumstances where the arbitrator exceeds his or her authority. Compare 9 U.S.C. § 10(a)(1) (allowing courts to vacate arbitrators’ awards where “procured by corruption, fraud, or undue means”), and id. § 10(a)(4) (allowing vacatur where the arbitrator “exceeded [his or her] powers”), with 42 Pa. Cons.Stat. § 7341 (authorizing vacatur where “fraud, misconduct, corruption or other irregularity caused ... an unjust [or] inequitable ... award”) (emphasis added). An “irregularity” under Pennsylvania common law arbitration can include that the arbitrator considered issues beyond the scope of the arbitration clause. See Hade, 503 A.2d at 983 (“Admittedly, a finding that the panel considered an issue beyond the scope of the arbitration clause would support a modification of the award on appeal.”). Thus, unlike my colleagues, I do not believe that judicial power under Pennsylvania common law arbitration to vacate awards is “so much narrower than the FAA’s” vacatur standards. Maj. Op. at 291-92 n. 2. In any event, any differences that may exist do not determine the outcome of this case, and thus the PUAA does not undermine the goals and policies of the FAA in this instance.
b. LCOA Is Ambiguous and Must be Construed Against its Drafter (RPS)
Following the further teaching of Mas-trobuono, a generic choice-of-law provision, coupled with an arbitration provision not electing any specific law in the same agreement, is ambiguous.5 Mastrobuono, 514 U.S. at 62-63, 115 S.Ct. 1212. Under the rule of contra proferentum, drafters (such as Shearson Lehman in Mastrobuono) “cannot now claim the benefit of the doubt” with respect to that ambiguity. Id. at 63, 115 S.Ct. 1212. RPS is in the same boat rowing with the same oars. It alone drafted the LCOA and in it chose Pennsylvania law without mentioning the FAA in the arbitration section of that contract. It cannot now argue that what Mastrobuono found to be ambiguous should be interpreted in RPS’s favor by applying the FAA to the vacatur of the arbitrator’s award.
My colleagues find, in disregard of Mas-trobuono (and, I believe, counterintuitively), that the choice of Pennsylvania law in the LCOA, coupled with a general arbitration provision that does not select a set of state arbitration rules, is by default a “not legally ambiguous” choice of the FAA to govern the arbitration section. Maj. Op. at 298 n. 6. But even their own words belie this conclusion.
Because the presence of a generic choice-of-law clause tells us little (if anything) about whether contracting parties intended to opt out of the FAA’s default standards and incorporate one borrowed from state law, we need to establish a default rule, and the one we adopt is that a generic choice-of-law clause, standing alone, is insufficient to support a finding that contracting parties intend*307ed to opt out of the FAA’s default standards.
Maj. Op. at 296. If a generic choice-of-law clause in an agreement “tells us little if anything” about whether the parties opted out of the FAA, then the plain words of the agreement are unclear. Where something is unclear or incapable of one possible meaning, it is ipso facto ambiguous. Websters’ Third New International Dictionary of the English Language Unabridged 66 (1971); accord Sumitomo Mach. Corp. of Am. v. AlliedSignal, Inc., 81 F.3d 328, 332 (3d Cir.1996) (an agreement is ambiguous if it is “susceptible of more than one meaning”). To argue that unclear is, by default, “not legally ambiguous,” Maj. Op. at 298 n. 6, is, at best, interestingly ironic.
My colleagues’ attempt to answer this irony is that “a generic choice-of-law clause is insufficient as a matter of law to show that the contracting parties intended to displace the FAA’s default rules.6 As a result, the contract is not legally ambiguous, and contra proferentum is inapplicable.” Id.
I do not understand this statement. Mastrobuono nowhere states that a generic choice of law is insufficient as a matter of law to show that the parties intended to displace the FAA. The Supreme Court’s position is more subtle. When an agreement involving interstate commerce is affected, the FAA applies to enforce arbitration. If the agreement containing an arbitration provision has no choice of law, the FAA by default supplies the rules of arbitration. By contrast, if the agreement contains an arbitration section with no choice of law but a generic choice of state law for the entire agreement, that state law choice supplies (a) the procedural rules for arbitration even if the FAA is in conflict (the teaching of Volt) and (b) the substantive rules for the arbitration unless the FAA is in conflict and the agreement does not explicitly choose the conflicting substantive rule (the teaching of Mastrobuono).7
Thus, I do not agree with my colleagues that my approach “unduly complicate[s] the law in this area.” Maj. Op. at 299. Rather, it comports with the Supreme Court’s rulings in Volt and Mastrobuono.
c. Reading LCOA’s Choice-of-Law and Arbitration Sections as Consistent
Finally, Mastrobuono counsels “that a document should be read to give effect to all its provisions and to render them consistent with each other.” Mastrobuono, 514 U.S. at 63, 115 S.Ct. 1212. It is hardly internally inconsistent to determine that the choice of Pennsylvania law to govern the LCOA also governs its section on arbi*308tration when that choice implicates a rule (which I believe is procedural and in no event inconsistent with the FAA) relating to the standard for reviewing an arbitrator’s award.
2. Custom and Practice Among Drafters of Agreements Support the Determination that Pennsylvania Law Governs the LCOA
Custom and practice among the drafters of agreements support my belief that the choice of Pennsylvania law in the LCOA governs the entire contract (including its arbitration provisions). In practice, choice-of-law provisions are often highly contested. They are almost always negotiated in only one provision of the agreement and usually at (as in the LCOA) or near the end of that agreement. The choice of law almost invariably is meant to encompass the entire agreement. Usually no thought is given to having a bifurcated choice of law, but if it is, the bifurcated choice of law is set forth in the choice-of-law provision itself.
If RPS had intended that the FAA apply to the arbitration section of the LCOA, it would have so stated. Moreover, to require within the arbitration section of the LCOA the redundant choice of Pennsylvania law leads logically to the conclusion that other provisions of the LCOA may also need to contain that redundant choice, e.g., provisions treating indemnification rights or termination events in contracts involving the interstate transportation of products. Thus, absent express preemption by the FAA,81 believe that Pennsylvania law governs the LCOA’s arbitration section.
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Where does this leave us? We all agree that the intentions of contracting parties prevail over the FAA. I believe that the generic choice of state law to govern a contract also governs the arbitration provision within that contract when arbitration procedure is affected. The FAA preempts when substantive law is affected and the state law chosen conflicts with the FAA absent explicit agreement to override that preemption. The standard to be applied when vacating or modifying an arbitrator’s award is, I submit, a procedural matter. Notwithstanding, the Pennsylvania law for vacating arbitrators’ awards does not conflict with the FAA. Therefore the PUAA. should apply to the LCOA’s arbitration provision. This result comports with Volt and Mastrobuono. Moreover, under Mas-trobuono the contractual provisions here are ambiguous and must be construed against RPS, the drafter of the LCOA that chose only Pennsylvania law to govern it and now argues for the FAA as governing arbitration. Following this approach leaves the LCOA consistent internally.
One thing is certain to me. No default rule is called for by which an unclear intent (as my colleagues find) becomes transmogrified as legally unambiguous. In any event, when all analysis is done, the result is the same whether under Pennsylvania law or the FAA — the arbitrator’s award is vacated. Thus, I concur with the Court’s judgment but not, in part, my colleagues’ reasoning.

. My colleagues use "contract construction” instead of "contract interpretation,” and I presume they do so deliberately. Under contract construction a court construes the effect of an agreement under applicable law. Contract interpretation is the attempt by a court to ascertain the intent of the parties to an agreement by the words they use to express that agreement. The former is a matter of law, the latter one of fact. See John F. Harkins Co., Inc. v. Waldinger Corp., 796 F.2d 657, 659-60 (3d Cir.1986); Ram Const. Co. v. Am. States Ins. Co., 749 F.2d 1049, 1052-53 (3d Cir.1984); see generally Edwin W. Patterson, The Interpretation and Construction of Contracts, 64 Colum. L.Rev. 833, 835 (1964); 3 Corbin on Contracts § 534, at 9 (1960).

. My colleagues refer to a generic choice of law as an agreement that states that it will be governed by the laws of a particular jurisdiction (in this case, Pennsylvania). In Volt, no particular jurisdiction was listed in the agreement under review. Thus, if our case involves a generic choice of law, Volt pertains to a super-generic choice of law.

. Ironically, the Supreme Court pointed out in Mastrobuono that it would decide the case "the same under either a de novo or a deferential standard.” Mastrobuono, 514 U.S. at 55 n. 1, 115 S.Ct. 1212. Moreover, Mastrobuono's effort to distinguish Volt has received strong criticism. See Thomas A. Diamond, Choice of Law Clauses and Their Preemptive Effect on the Federal Arbitration Act: Reconciling the Supreme Court with Itself, 39 Ariz. L.Rev. 35, 56-58 (1997) (“This would suggest that Mastrobuono is applicable only when the choice of law clause’s intended meaning is resolved in federal court. State courts would remain free to ignore Mastrobuono while federal courts would be obligated to honor it. When the Supreme Court held in Southland Corp. v. Keating [465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984)] that the provisions of the FAA must be honored by state courts as well as federal courts, it did so to assure uniformity of law irrespective of the selected forum. To hold otherwise would 'encourage and reward forum shopping.... Furthermore, the Court's premise that a state court’s interpretation of a choice of law clause is entitled to deference while a federal court's interpretation is subject to de novo review is insupportable.”) (citations omitted); see also Heather J. Haase, Note, In Defense of Parties’ Rights to Limit Arbitral Awards Under the Federal Arbitration Act: Mastrobuono v. Shearson Lehman Hutton, Inc., 31 Wake Forest L.Rev. 309, 331-32 (1996) ("Although purporting to follow Volt, the Supreme Court has ignored its own mandate in Volt to enforce 'contractual rights and expectations of the parties,’ and has instead distorted the meaning of the federal policy in order to reach the conclusion that punitive damages should be allowed in arbitration.”) (citations omitted); Joshua M. Barrett, Note, Federal Arbitration Policy After Mastrobuono v. Shearson Lehman Hutton, Inc., 32 Willamette L.Rev. 517, 534 (1996).

. Under the PUAA, three types of arbitration are provided: (1) statutory, 42 Pa. Cons.Stat. §§ 7301-7320; (2) common law, 42 Pa. Cons. Stat. §§ 7341-7342; and (3) judicial, 42 Pa. Cons.Stat. §§ 7361-7362. My colleagues and I agree that common law arbitration would be applicable if Pennsylvania law were to apply. See Maj. Op. at 291-92 n. 2.

. My colleagues conclude that Mastrobuono merely contains “a discussion that is premised on the assumption that the presence of a choice-of-law clause can render a contract ambiguous as to whether the parties intended to incorporate state arbitration rules into their agreement.'' Maj. Op. at 298; see also Maj. Op. at 298 n. 6 ("[A]s we explained, the Mastrobuono Court assumed without deciding that the agreement was ambiguous.”). What they ignore is the following Shermanesque statement of Mastrobuono: "Respondents [Shearson Lehman, et al.] drafted an ambiguous document, and they cannot now claim the benefit of the doubt.” Mastrobuono, 514 U.S. at 63, 115 S.Ct. 1212.

. My colleagues never state what the FAA’s default rules are. Instead, they posit by ukase what they determine to be the default rule for a generic choice of law in an agreement containing an arbitration provision not electing its own internal choice of law. Their default rule is that, absent a "clear intent” to choose state law to govern an agreement's arbitration provision, the FAA applies. Maj. Op. at 288, 293-94.
This default rule brings into focus where my colleagues and I part. They read the FAA, presumably by some preemptive principle (though they deny that this is a case of preemption, Maj. Op. at 294), as requiring "clear intent” to displace it. But, as I note in this concurring opinion, I believe that Mastrobuo-no takes a more nuanced approach.

. My colleagues write that any attempt to reconcile Volt and Mastrobuono is a "false premise,” Maj. Op. at 298, and that I "craft a rule based on the assumption that the Supreme Court was wrong." Id. To the contrary, I believe that the Supreme Court itself supplies the reconciliation between these two cases. I would suggest, however, that in light of the Circuit split on this issue, see Maj. Op. at 298 n. 7, the Supreme Court may wish to clarify its holding in Mastrobuono.

. There is none. Volt, 489 U.S. at 469, 109 S.Ct. 1248 ("The FAA contains no express preemptive provision.”).