Arbitration award is ‘delivered’ when mailed

Listen to this article

A Nov. 2 opinion by the Seventh Circuit clarifies a number of issues related to the three-month statute of limitations for moving to vacate an arbitration award.

The key holdings are:

• The statute of limitations begins to run on the date the award is mailed; and
• The statute of limitations is not tolled until the defendant is served with a copy of the motion to vacate.

In discussions incidental to the main holdings, the court also cautioned that a motion to vacate an arbitration award should not be labeled a “complaint,” and a motion to enforce the award should not be labeled a “motion to dismiss” a complaint. The decision also contains dicta regarding whether an arbitration award may be delivered to a party via e-mail. Background

In the case, A.T. Kearney, Inc. hired David M. Webster as general counsel in 1994. The following year, Electronic Data Systems Corp. (EDS) acquired A.T. Kearney.

After working for the new entity for a number of years, Webster lost his job when A.T. Kearney’s legal department was eliminated. He brought claims against EDS for age discrimination and breach of his 1995 employment agreement.

The agreement contained a mandatory arbitration provision, and an arbitration hearing was held.

The arbitrator issued the award on Jan. 4, 2006. The same day, the award was placed in the mail and also distributed to both parties’ counsel via e-mail.

Webster’s attorney, Norman Lerum, first opened the e-mail on Jan. 5, and the post office delivered the mail on Jan. 9.

On April 3, Lerum moved to vacate the award in federal court in Illinois, but EDS was not served with the motion until April 5.

Court Finds Action Untimely

EDS moved to dismiss the action as untimely, and the district court granted the motion.

Webster appealed, but the court of appeals affirmed in a decision by Judge Ilana Diamond Rovner.

The court began by chastising counsel for improperly classifying their motions. Counsel for Webster had labeled the motion to vacate the award a “complaint,” and EDS labeled its motion to enforce a “motion to dismiss” the complaint.

However, actions to challenge arbitration awards proceed outside the rules of civil procedure, unless the Federal Arbitration Act (FAA) is silent, and there is no “complaint” under the FAA.

Turning to the merits, the court concluded that the motion to vacate the arbitration award was untimely.

The court first concluded that the relevant date for calculating whether service on the defendants was timely is April 5 (when it was served), rather than April 3 (the date the motion was filed).

Filing Versus Service

Section 12 of the FAA provides that the statute of limitations is tolled when notice of a motion to vacate is “served upon the opposing party or his attorney.”

Webster argued that the April 3 filing provided the relevant date, because pursuant to Fed. R. Civ. Proc. 3, “A civil action is commenced by filing a complaint with the court.”

Iterating its earlier discussion that a complaint is not the proper vehicle to enforce or vacate an arbitration award, the court concluded the rules of civil procedure were irrelevant, and that the statute of limitations unambiguously did not terminate until the defendants were served with Webster’s motion on April 5.

The court acknowledged that, in previous cases, it has suggested that the statute of limitations is tolled upon the filing of a motion to vacate: Olson v. Wexford Clearing Servs. Corp., 397 F.3d 488, 492 (7th Cir. 2005; and Papapetropoulous v. Milwaukee Transp. Servs., Inc., 795 F.2d 591, 598 n.8 (7th Cir. 1986).

However, in neither of those cases was the precise end date of relevance to the decision. Accordingly, the court wrote, “To the extent that our use of the term ‘filing’ in those cases is misleading, we clarify now and for purposes of future cases that service of a motion to vacate is the act that stops the three-month statute of limitations.”

Starting Time

Turning to when the statute of limitations began to run, the court concluded it was Jan. 4, when the award was placed in the mail and e-mailed to Webster’s counsel.

In the underlying employment agreement, the parties agreed to arbitration pursuant to AAA procedures. Under those procedures, parties agree to “accept as legal delivery of the award the placing of the award or a true copy thereof in the mail.”

Thus, by entering into the employment agreement, Webster agreed that delivery of an award is complete upon mailing (Jan. 4 in this case).

The court acknowledged that the only other federal appellate court to interpret “delivery” reached a contrary conclusion. Sargent v. Paine Webber Jackson & Curtis, Inc., 882 F.2d 529 (D.C. Cir. 1989).

In Sargent, the court held that the date of receipt, not of mailing, was the date of delivery, reasoning that to interpret “delivery” as “mailing” would “hopelessly twist[] the ordinary meaning of the word ‘delivered’” Id. at 531.

The Seventh Circuit agreed that its interpretation was counterintuitive, but, given the AAA’s definition, and the fact that parties are free to agree to a different definition if they choose, the court declined to adopt a different definition on its own.

Accordingly, the court affirmed.

Delivered when Opened?

Before concluding, the court added that Jan. 4 could also be considered the date of delivery, because Webster’s counsel received the e-mail from the arbitrator on that date.

Webster had argued that delivery by e-mail does not occur until it is opened — Jan. 5 in this case — but the court found that this interpretation would allow a party to postpone the statute of limitations indefinitely merely be ignoring the correspondence.

Ultimately, however, the court declined to decide affirmatively when, or even if, electronic delivery is accomplished, because the parties did not explicitly consent to accept delivery of the award by e-mail.

The court wrote, “We will leave that decision for another case, because our conclusions with respect to the mailing of the written award foreclose Webster’s argument that his motion was timely.”