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In DMA International, Inc., v. Qwest Communications International Inc.,¹ (DMA International) the US Court of Appeals for the Tenth Circuit (Tenth Circuit) sanctioned lawyers for appealing the confirmation of an arbitral award and ordered those lawyers personally to pay the opposing party's attorneys' fees.

While DMA International involved proceedings to confirm a domestic arbitral award brought under Chapter 1 of the US Federal Arbitration Act (FAA), the decision has clear implications for international arbitral awards (which are subject to Chapters 2 and 3 of the FAA) because the Tenth Circuit did not limit its rationale to Chapter 1 domestic awards. Consequently, DMA International is not restricted to domestic confirmation proceedings brought under the FAA's Chapter 1 but could also apply to international arbitral awards falling under Chapters 2 and 3, which incorporate the New York and Panama Conventions into US law.

Underlying Arbitration

The underlying dispute in DMA International concerned an arbitration claim for breach of a services contract under which Qwest hired DMA to perform database research services. After DMA completed its work, a dispute arose over the amount payable to DMA for the work, with each party advancing diametrically opposed interpretations of the contract’s payment provision. The arbitrator issued a final award in Qwest's favor.

DMA Attempts to Vacate the Award in District Court

DMA then moved in the US district court to vacate the award.²  DMA claimed the award should be vacated on grounds that:

• the award manifestly disregarded the governing law of the contract;
• the award was contrary to public policy;
• the arbitrator was biased; and
• the arbitrator exceeded his powers.

In ruling on those four grounds for vacating the award, the district court first determined that the arbitrator had "stated and applied the correct law governing interpretation of contracts" when issuing the award. Accordingly, the court found that the arbitrator had not manifestly disregarded the governing law of the contract by accepting Qwest's interpretation of the payment provision.³  The court then dismissed DMA’s remaining three grounds for seeking to vacate the award and granted Qwest's cross-motion to confirm the award.

DMA Appeals the District Court Decision to the Tenth Circuit

After losing its application to vacate the award, DMA appealed the district court's decision to the Tenth Circuit.  Qwest then cross-moved in the Tenth Circuit for sanctions against DMA on grounds that DMA had no valid basis for pursuing the appeal.

The Tenth Circuit affirmed the district court's decision to confirm the award, concluding in relevant part that the arbitrator had not manifestly disregarded the law because he had not consciously ignored a law about which he knew.⁴

Moreover, the Tenth Circuit granted Qwest's motion for attorney fees and ordered DMA's lawyers personally to pay those fees because the Tenth Circuit deemed DMA's appeal to be "completely meritless."⁵ In the Tenth Circuit's view, DMA's attorneys had no reasonable basis for believing that their client's case would prevail on appeal.⁶ By appealing the confirmation decision with no reasonable basis for believing the case would prevail, DMA's attorneys had broken the "promise of arbitration"⁷ – speedy and inexpensive dispute resolution.

DMA International Follows B.L. Harbert and Signals a Potential Trend Towards Sanctioning Parties that Pursue Frivolous Appeals in Confirmation Proceedings

In sanctioning DMA's attorneys, the Tenth Circuit emphasized the importance of the US policy favoring arbitration.  The Tenth Circuit explained in DMA International that "only by imposing sanctions in cases like this can we give breath to the 'national policy favoring arbitration.'"⁸

The Tenth Circuit predicated its decision to sanction DMA's attorneys on the 2006 decision from the Eleventh Circuit Court of Appeals (Eleventh Circuit) in B.L. Harbert v. Hercules Steel ("BL Harbert").⁹  In B.L. Harbert, the Eleventh Circuit deemed frivolous an appeal against a decision to confirm an award and considered (but ultimately did not impose) sanctions on the attorneys that brought the appeal.  The Eleventh Circuit predicated its decision to consider sanctions on the policy that courts must ensure arbitration remains an alternative to litigation, rather than a step before appellate review in the courts.  In language that the Tenth Circuit quoted in DMA International, the Eleventh Circuit stated, "[i]f we permit parties who lose in arbitration to freely relitigate their cases in court, arbitration will do nothing to reduce congestion in the judicial system; dispute resolution will be slower instead of faster; and reaching a final decision will cost more instead of less."¹⁰

While both DMA International and B.L. Harbert concerned US domestic awards that were confirmed under Chapter 1 of the FAA, both cases are significant for parties to international arbitration, because neither court restricted its reasoning to only Chapter 1 domestic confirmation proceedings.

Conclusion

DMA International may signal a trend in some courts toward sanctioning parties or their counsel for frivolously seeking to vacate arbitral awards or for appealing decisions to confirm awards.  The courts are strongly aligning with the US policy that recognizes arbitration as a more convenient dispute resolution method than litigation, and are sanctioning parties that seek to relitigate their claims in violation of those policies.  International arbitral practitioners should follow DMA International's subsequent treatment to see if courts sanction parties or their counsel in confirmation proceedings falling under the New York or Panama Conventions.