Filed: Jun. 17, 2015
Latest Update: Mar. 02, 2020
Summary: of contract., Because Farnsworth's challenge to the validity of the, arbitration clause simply came too late, we need not decide the, extent to which courts may (or must) take into account timely, allegations outside the complaint in determining whether a given, dispute is subject to arbitration.
United States Court of Appeals
For the First Circuit
No. 14-1903
RODNEY FARNSWORTH, III,
Plaintiff, Appellant,
v.
TOWBOAT NANTUCKET SOUND, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor, IV, U.S. District Judge]
Before
Howard, Chief Judge,
Selya and Lynch, Circuit Judges.
J. Patrick Yerby, with whom Brian Keane and The Kaplan/Bond
Group were on brief, for appellant.
David S. Smith, with whom Robert P. Snell, Amy Maher Rogers,
Law Offices of Steven B. Stein, and Farrell McAleer & Smith LLP
were on brief, for appellee.
June 17, 2015
LYNCH, Circuit Judge. Out of this maritime case come
useful lessons for those who seek to challenge the validity of
arbitration clauses in contracts they have signed.
Plaintiff Rodney Farnsworth, III, entered into a salvage
contract with defendant Towboat Nantucket Sound, Inc. ("TNS"), to
obtain help when Farnsworth's boat went aground on rocks one night
near the Weepeckett Islands in Buzzards Bay. Farnsworth later
tried to rescind the whole contract, claiming that he had signed
it under duress, and disputed the sum owed to TNS.
The chronology of events is important. The parties by
agreement submitted the dispute to a panel of three arbitrators
pursuant to a binding arbitration clause in the salvage contract.
After the arbitration proceeding had started, Farnsworth chose to
file this lawsuit, seeking a preliminary injunction against the
arbitration and a declaration that the salvage contract was
unenforceable because Farnsworth had entered into it under duress.
His complaint drew no distinction between the obligation to
arbitrate and the merits issue of what payment was owed to TNS.
The district court denied the motion for injunctive relief and
stayed the case pending the outcome of the arbitration. The
arbitration panel found in favor of TNS and ordered Farnsworth to
pay a salvage award of $60,306.85. The district court confirmed
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that award over Farnsworth's objection.
Farnsworth appeals, arguing that the district court
erred in confirming the arbitration award without first addressing
his duress claim as to the arbitration clause. We hold that,
because Farnsworth did not challenge the validity of the
arbitration clause specifically in his complaint (or indeed at any
time before the conclusion of the arbitration proceedings),1 the
district court correctly found that the duress claim in all its
aspects was for the arbitrator to resolve. Essentially, Farnsworth
did too little, too late. We affirm.
I.
On the evening of July 28, 2012, Farnsworth was anchoring
his boat, the M/Y AURORA, in the Weepecket Island anchorage in
Buzzards Bay. The boat's depth sounder malfunctioned and
Farnsworth inadvertently allowed the vessel to drift aground.
1
Even if Farnsworth had specifically challenged the
validity of the arbitration clause in his verified complaint, he
might still be vulnerable to the argument that he waived his right
to judicial review by first consenting to and participating in
arbitration. See Opals on Ice Lingerie v. Bodylines Inc., 320
F.3d 362, 368 (2d Cir. 2003) ("[I]f a party participates in
arbitration proceedings without making a timely objection to the
submission of the dispute to arbitration, that party may be found
to have waived its right to object to the arbitration."); ConnTech
Dev. Co. v. Univ. of Conn. Educ. Props., Inc., 102 F.3d 677, 685
(2d Cir. 1996) (collecting cases). However, TNS has not pressed
a waiver argument, and so we do not address the issue.
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Farnsworth requested a tow over his marine radio, and TNS's vessel
the NORTHPOINT responded to his call. Farnsworth also made contact
with the Coast Guard, which instructed him that, if he had any
problems, he should "make the appropriate hail" and the Coast Guard
would assist.
The merits issue in this case turns on whether the
contract which ensued was a towage or a salvage contract. The
difference between the two is important under maritime law because
towage is compensated at a contract rate, whereas a salvor is
entitled to an equitable award equal to a portion of the value of
the salvaged property. 2 T.J. Schoenbaum, Admiralty and Maritime
Law § 16-1 (5th ed. 2014); see also Faneuil Advisors, Inc. v. O/S
Sea Hawk, 50 F.3d 88, 92 (1st Cir. 1995) (describing the law of
salvage). Salvage service generally "commands a larger award,"
and a salvage contract creates a preferred maritime lien. Evanow
v. M/V Neptune,
163 F.3d 1108, 1114 (9th Cir. 1998).2
The parties sharply differ over what happened in the
2
"The existence of a marine peril distinguishes a salvage
contract from one for towage." Evanow, 163 F.3d at 1114; accord
Schoenbaum, supra, § 16-1. That is, towage is undertaken "from
considerations of convenience," whereas salvage is aimed at saving
a vessel that is "disabled, and in need of assistance."
Evanow,
163 F.3d at 1114 (quoting The Flottbeck,
118 F. 954, 960 (9th Cir.
1902)); see also Lloyd's Syndicate 1861 v. Crosby Tugs, L.L.C.,
No. 13-5551,
2014 WL 3587375, at *3 (E.D. La. July 21, 2014)
(collecting authorities).
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hours after Farnsworth made contact with the NORTHPOINT.
Farnsworth's complaint alleges that the NORTHPOINT crew members
"attempt[ed] to create a salvage" by taking various actions
designed to make the AURORA's situation appear worse than it
actually was. The complaint maintains that the "AURORA was
undamaged, completely buoyant, and watertight," and needed only a
tow, rather than a salvage. The complaint alleges that when
Farnsworth resisted TNS's efforts to create a salvage, the
NORTHPOINT intentionally pulled the AURORA onto charted rocks,
damaging her hull; next ordered Farnsworth to drop anchor in
dangerous, unprotected waters; and then sent two large men on board
the AURORA to coerce Farnsworth to sign a contract giving TNS the
rights to a salvage award for towing the AURORA. The complaint
alleges that Farnsworth "attempted to refuse to sign the salvage
contract three times," but finally relented "because he was alone
aboard the vessel with two [TNS] employees, in a remote location,
without hope of assistance, at a late hour (03:30 A.M.)," and
because "[t]he employees indicated that they would not leave
without the signed contract."
During arbitration, John Mark Brown, one of the "large
[TNS] employees" who Farnsworth says coerced him to sign the
salvage contract, gave a starkly different account of the
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encounter. Brown recounted that the AURORA was in serious danger.
The area in which the AURORA was stranded, Brown said, was
"littered with rocks," a danger compounded by the severe weather
conditions in the area that night. Brown called Farnsworth on his
cell phone and told him that, in light of those circumstances,
TNS's services would not be covered under Farnsworth's towing
policy; instead, Farnsworth would have to sign a "no cure, no pay"
salvage contract.3 Brown said Farnsworth initially agreed to
accept salvage services during the phone conversation, but later
balked at the arrangement when Brown boarded the AURORA, and then
relented when Brown reminded him of his earlier agreement to a
salvage contract. Brown also vigorously disputed Farnsworth's
allegations that he and his partner threatened Farnsworth. Brown
noted that Farnsworth had earlier spoken to the Coast Guard but
"never attempted to contact the Coast Guard after we left."
The contract executed by the parties is a standard form
"no cure, no pay" marine salvage agreement. Farnsworth wrote by
hand the following addendum to the form contract: "Aurora was hard
aground, Tow Boat prevented the Boat from going further aground,
3
Under the "no cure, no pay" principle, "a prerequisite
of a salvage award is that at least some of the property must be
saved." Schoenbaum, supra, § 16-1 (noting that the policy
underlying this principle "is that in 'pure' salvage, the reward
is made out of the property that is spared from destruction").
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and towed the boat when the Tide floated it off."4
The contract contains an arbitration clause:
Read Carefully -- Arbitration Provision -- In
the event of any dispute arising out of this
Contract including any dispute regarding this
salvage or concerning the reasonableness of
any fees or charges due hereunder, all parties
agree to binding arbitration in the United
States in accordance with the Rules for
Recreational and Small Commercial Vessel
Salvage Arbitration of the Society of Maritime
Arbitrators, Inc. Arbitrators shall be
familiar with maritime salvage. Any award
hereunder shall include interest, attorneys'
fees and costs, and arbitration administration
expenses and shall be final and binding. For
the purpose of enforcement, the Award may be
entered for judgment in any court of competent
jurisdiction.
Farnsworth's buyers' remorse set in quickly.
Approximately five days later, on August 3, 2012, Farnsworth sent
a letter to TNS purporting to rescind the salvage contract,
demanding that TNS preserve evidence relating to "the prospective
litigation," and intimating that TNS had engaged in illegal
business practices. Farnsworth sent another letter to TNS on
August 11 advising TNS of his belief that TNS had no salvage claim
4
Farnsworth contends that he wanted to "include
handwritten language on the form to indicate his objection to
signing it" but that "Brown refused to let [him] write what [he]
wanted and insisted that the additional language include a
reference to being 'hard aground.'"
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and threatening to "fight to preserve [his] family tradition of
venerable maritime activities."
He sent yet another letter on August 20, this time to
TNS's counsel, again demanding the preservation of evidence and
stating his belief that Dan Carpenter, a TNS representative, had
engaged in "spoliation of evidence" by selectively editing the
recordings of Farnsworth's radio conversations on the night of the
incident.
On August 24, TNS's counsel wrote to Farnsworth with an
invoice for payment of $95,546 due under the salvage contract.
That amount represented TNS's estimate of a fair salvage award
given the value of the salvaged property and principles of salvage
law. Farnsworth did not pay the invoice.
Approximately a month later, TNS's counsel again wrote
to Farnsworth, this time demanding arbitration pursuant to the
arbitration clause of the salvage contract and nominating an
arbitrator. Farnsworth replied on October 5, alleging that TNS
had violated Massachusetts' unfair trade practices statute and yet
again demanding the preservation of evidence. Although Farnsworth
initially made a passing suggestion that the arbitration clause
was void, he subsequently nominated, through his counsel, an
arbitrator a little over a month later, in November 2012. After
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a period of discussions, the parties agreed that "all issues
arising out of the events that took place on the evening in
question must be heard by arbitrators."
The parties submitted their respective claims to the
arbitration panel in April 2013. Farnsworth's statement of his
counterclaims included allegations that he had signed the salvage
contract "under duress, . . . alone, without hope of assistance,
in the middle of the night."
On May 15, 2013, Farnsworth filed a verified complaint
in federal court, seeking a declaratory judgment that (1) the
salvage contract was void because it was procured by duress; (2)
the parties were not required to arbitrate the dispute; and (3)
TNS was entitled to compensation only for towage, not for salvage.
He also sought a preliminary injunction to stop the arbitration
proceedings. Farnsworth's purported justification for filing the
lawsuit after he had already agreed to and commenced arbitration
was that, after he reviewed recordings of his radio conversations
produced by TNS, he "believe[d] [TNS] withheld, edited, or deleted
unfavorable conversations pertaining to towing."
On May 17, 2013, the district court denied Farnsworth's
request for a preliminary injunction after a hearing and granted
TNS's motion to stay the case pending the outcome of the
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arbitration proceeding. The arbitration went forward.
On November 15, 2013, the arbitration panel issued a
decision rejecting Farnsworth's duress defense and finding that
the salvage contract was valid. The panel ordered Farnsworth to
pay $60,306.85 (a $50,000 salvage award plus interest) to TNS and
dismissed Farnsworth's counterclaims.5 This was a unanimous
decision, with Farnsworth's arbitrator joining.
TNS then filed a motion in the district court to confirm
the panel's award and dismiss Farnsworth's lawsuit. Farnsworth
filed a lengthy opposition brief, requesting that the court vacate
the arbitration award because the arbitrators lacked the authority
to decide the dispute. In that brief, Farnsworth for the first
time argued to the court that he had been coerced to agree to the
arbitration clause specifically, as opposed to the contract as a
whole.
The district court granted TNS's motion to confirm the
arbitration award, rejecting Farnsworth's argument that the court,
rather than the arbitrators, should have decided the duress as to
arbitration issue. The court reasoned that Farnsworth had failed
5
The arbitration panel did "not award attorneys' fees to
either side as it consider[ed] that both parties needlessly engaged
in a war of attrition over what should have been a relatively
simple salvage dispute."
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to challenge the validity of the arbitration clause specifically
in his complaint, as he was required to do in order to obtain court
review of his duress challenge, and that the arbitration clause in
the salvage contract was sufficiently broad to encompass the
dispute about the validity of the contract.6 This appeal followed.
II.
A. Legal Principles
The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.,
"reflects the fundamental principle that arbitration is a matter
of contract." Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67
(2010). Under the FAA, courts must treat arbitration agreements
in the same way as other contracts and "enforce them according to
their terms."
Id. Section 2 of the Act provides in relevant part
as follows:
A written provision in any maritime
transaction or a contract . . . to settle by
arbitration a controversy thereafter arising
out of such contract or transaction, . . .
shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in
equity for the revocation of any contract.
9 U.S.C. § 2.
The Supreme Court has differentiated between two types
6 Farnsworth does not dispute this latter holding on
appeal.
- 11 -
of challenges to the validity of arbitration agreements: (1)
challenges to the validity of an entire contract which contains an
arbitration clause, and (2) challenges to the validity of the
specific agreement to resolve the dispute through arbitration.
Rent-A-Center, 561 U.S. at 70; Buckeye Check Cashing, Inc. v.
Cardegna,
546 U.S. 440, 444 (2006). In a line of cases beginning
with Prima Paint Corp. v. Flood & Conklin Manufacturing Co.,
388
U.S. 395 (1967), the Court has held that challenges of the first
type are for the arbitrator to decide, whereas challenges of the
second type are for the courts to decide, if timely and properly
made. See, e.g.,
Rent-A-Center, 561 U.S. at 70-71; Buckeye
Check,
546 U.S. at 444-45; Prima
Paint, 388 U.S. at 402-04; see also
Dialysis Access Ctr., LLC v. RMS Lifeline, Inc.,
638 F.3d 367,
376-77, 383 (1st Cir. 2011).
This rule reflects two basic principles of arbitration
law. The first is that, because "arbitration is a matter of
contract[,] . . . a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit."
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)
(citation and internal quotation marks omitted). The second is
that, under § 2, a written arbitration agreement "is 'valid,
irrevocable, and enforceable' without mention of the validity of
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the contract in which it is contained." Rent-A-Center, 561 U.S.
at 70 (quoting 9 U.S.C. § 2). The first principle means that if
a party challenges the validity of the arbitration clause itself,
a court must determine the challenge, "[f]or one must enter into
the system somewhere." A.S. Rau, Everything You Really Need to
Know About "Separability" in Seventeen Simple Propositions, 14 Am.
Rev. Int'l Arb. 1, 5 (2003). The second principle means that, if
a party fails to challenge the validity of the arbitration clause
itself, the agreement to arbitrate is enforceable and any dispute
about the validity of the contract as a whole goes to the
arbitrator.
Rent-A-Center, 561 U.S. at 70-72.
Another way to frame this analysis is to say, as the
Supreme Court has, that "an arbitration provision is severable
from the remainder of the contract." Buckeye Check, 546 U.S. at
445; see also Dialysis Access
Ctr., 638 F.3d at 383. That
severability is an issue of federal law. As the Supreme Court
said in Buckeye Check, its cases establish that "as a matter of
substantive federal arbitration law, an arbitration provision is
severable from the remainder of the contract" and that, "unless
the challenge is to the arbitration clause itself, the issue of
the contract's validity is considered by the arbitrator in the
first
instance." 546 U.S. at 445-46. Or, as the Court put it in
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Rent-A-Center, "even where . . . the alleged fraud that induced
the whole contract equally induced the agreement to arbitrate which
was part of that contract[,] we nonetheless require the basis of
challenge to be directed specifically to the agreement to arbitrate
before the court will intervene." 561 U.S. at 71.
It is also important in this analysis to distinguish
between the issue of whether a contract containing an arbitration
clause is valid and the issue of whether the contract was ever
actually formed. See Buckeye Check, 546 U.S. at 444 n.1. The
severability doctrine addresses only the former circumstance. See
Rent-A-Center, 561 U.S. at 70 n.2.7
B. Application
This case does implicate the severability doctrine
because, as the district court correctly held (and Farnsworth does
not now dispute), the issue here is the contract's validity, not
its formation. Cf. 28 Williston on Contracts § 71:8 (4th ed.)
(noting that duress usually renders a contract voidable by the
7
Our case does not implicate the latter circumstance. As
to that circumstance, some courts have held that, if a party argues
that no contract was consummated, a court must resolve that issue,
since the party is claiming that there is no agreement as to
anything at all, arbitration included. See, e.g., Sphere Drake
Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 590-91 (7th Cir. 2001)
(Easterbrook, J.) (collecting cases); see also Buckeye
Check, 546
U.S. at 444 n.1 (collecting cases);
Rau, supra, at 14-15.
- 14 -
victim, rather than void, but that "in the relatively rare case
where one person physically compels another to give apparent
assent" there is no acceptance and hence no contract).8 Farnsworth
alleges that he was induced to sign the contract by an improper
threat on the part of TNS. That duress allegation, if true, would
make the contract invalid, but it would not mean that no contract
was ever formed. See SBRMCOA, LLC v. Bayside Resort, Inc., 707
F.3d 267, 273-74 (3d Cir. 2013); see also Simula, Inc. v. Autoliv,
Inc.,
175 F.3d 716, 726 (9th Cir. 1999) (holding that duress
challenge to a contract was for the arbitrator).
Farnsworth nevertheless argues that the district court
erred in confirming the arbitration award for two reasons. First,
he notes that he specifically challenged the arbitration clause in
the salvage contract in his opposition to TNS's motion to confirm
the arbitration award, and contends that the district court should
have resolved that challenge under Prima Paint and its progeny.
Second, he argues that his allegation of duress in the complaint
logically went to the validity both of the salvage contract as a
whole and of the arbitration clause contained within the salvage
8
To the extent Farnsworth does make an argument that no
contract was formed because his signature was the product of
"physical duress," the argument is entirely cursory and so waived.
See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
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contract, and so the district court should have resolved the duress
issue even had Farnsworth not raised the validity of the
arbitration clause specifically in his opposition brief.
The second argument is a nonstarter under Supreme Court
precedent. Under the Prima Paint line of cases, a party must claim
that the arbitration clause itself is invalid in order to obtain
court resolution of the duress issue. Farnsworth protests that
this "analytical framework does not facilitate precision when
analyzing a contractual defense such as physical duress . . . where
the defense cannot easily be applied to some clauses at the
exclusion of others." The Supreme Court has unequivocally rejected
this argument, explaining that even where the claimed basis for
invalidity of the contract is logically applicable to the entire
contract, courts "nonetheless require the basis of challenge to be
directed specifically to the agreement to arbitrate before the
court will intervene." Rent-A-Center, 561 U.S. at 71. Thus,
Farnsworth's general claim of duress in his complaint -- even if
it did, as he asserts, "naturally appl[y] to every clause in the
Salvage Contract specifically as well as the Salvage Contract as
a whole" -- was not used to support a direct challenge to the
arbitration provision and so was not specific enough to permit
court adjudication of the duress as to arbitration clause claim.
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This brings us to Farnsworth's challenge to the validity
of the arbitration clause in his opposition brief to TNS's motion
to confirm the arbitration award. On appeal, Farnsworth, relying
on the general principle that a party has the right to "refine and
clarify general allegations made in a complaint," argues that the
district court erred in "ignor[ing]" that challenge.
That general principle does not help Farnsworth here.
Farnsworth had ample opportunity to refine and clarify the general
allegations made in his complaint so as to comply with the
severability principle. He simply failed to avail himself of it.
Indeed, TNS pointed out in its opposition to Farnsworth's motion
for a preliminary injunction staying the arbitration proceedings
that the complaint alleged only a general challenge to the validity
of the Salvage Contract, not a specific challenge to the validity
of the arbitration clause. The district court then held a hearing
on the motion, and there is no indication in the record that
Farnsworth sought to amend his complaint or contest TNS's position
regarding that proposition. Farnsworth's challenge to the
validity of the arbitration clause itself came only after TNS moved
to confirm the panel's award, which went against him. That was
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far too late.9
"Under the FAA, courts may vacate an arbitrator's
decision 'only in very unusual circumstances.'" Oxford Health
Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (quoting First
Options of Chi., Inc. v. Kaplan,
514 U.S. 938, 942 (1995)).
Judicial review of binding arbitration awards is necessarily
limited so as to "'maintain[] arbitration's essential virtue of
resolving disputes straightaway.'"
Id. (quoting Hall Street
Assocs., L.L.C. v. Mattel, Inc.,
552 U.S. 576, 588 (2008)); see
also Booth v. Hume Pub., Inc.,
902 F.2d 925, 932 (11th Cir. 1990)
(characterizing § 9 confirmation proceedings as "summary" and
noting that the FAA "expresses a presumption that arbitration
9
This case is readily distinguishable from Bridge Fund
Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir.
2010), the case upon which Farnsworth primarily relies. There,
the plaintiff filed a lawsuit before arbitration was even
contemplated, and the defendant, wishing to go to an arbitral forum
instead, filed a motion to stay the lawsuit pending arbitration.
The plaintiff contested the validity of the arbitration clause in
motion papers opposing the defendant's motion. See
id. at 999,
1001-02. The challenge to the arbitration clause thus came before
arbitration started.
Because Farnsworth's challenge to the validity of the
arbitration clause simply came too late, we need not decide the
extent to which courts may (or must) take into account timely
allegations outside the complaint in determining whether a given
dispute is subject to arbitration. Cf. Escobar-Noble v. Luxury
Hotels Int'l of P.R., Inc., 680 F.3d 118, 121-22 (1st Cir. 2012)
(noting that a court's review "centers on the factual allegations
of the complaint" (citing Dialysis Access
Ctr., 638 F.3d at 378)).
- 18 -
awards will be confirmed"). After the arbitration panel renders
its decision, upon application by one party to a court to confirm
the award, "the court must grant such an order unless the award is
vacated, modified, or corrected as prescribed in" 9 U.S.C. § 10
and § 11. See 9 U.S.C. § 9 (emphasis added); accord Hall Street,
552 U.S. at 590 ("[Sections] 10 and 11 provide exclusive regimes
for the review provided by the statute . . . ."); FleetBoston Fin.
Corp. v. Alt, 638 F.3d 70, 78 n.8 (1st Cir. 2011) (noting that the
Supreme Court has "made clear that, absent vacating or modifying
an award under those provisions, an arbitral award must be
enforced"). None of the circumstances listed in § 10 or § 11 is
present here, and Farnsworth does not argue otherwise.
Accordingly, the district court had no proper basis on which to
refuse to confirm the arbitration panel's award. Farnsworth's
belated attempt to press his duress claim in another forum by
advancing allegations that he should have made when he sought to
enjoin the arbitration provided no reason not to confirm.10 Cf.
10
Farnsworth argues in his reply brief that his challenge
to the validity of the arbitration clause should have been resolved
"regardless of the restrictions in section 10." But the cases he
cites in support do not support his argument. In Seacoast Motors
of Salisbury, Inc. v. DaimlerChrysler Motors Corp., 271 F.3d 6
(1st Cir. 2001), we expressly declined to decide whether a party
could move to vacate under § 10 on non-enumerated grounds. See
id. at 8-9. In MCI Telecommunications Corp. v. Exalon Industries,
Inc.,
138 F.3d 426 (1st Cir. 1998), we held only that the
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Rent-A-Center, 561 U.S. at 75-76 (declining to consider challenge
to validity of specific arbitration clause that had not been raised
below).
III.
We affirm the judgment of the district court. Costs are
awarded against Farnsworth.
"enforcement provisions of the FAA[] do not come into play unless
there is a written agreement to arbitrate." Id. at 430. There
was concededly an agreement to arbitrate here; the question is
whether it was valid.
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