Morgan Keegan & Company, Inc. v. William Hamilton Smythe, III

IN THE SUPREME COURT OF TENNESSEE

AT JACKSON

November 8, 2012 Session at Memphis

MORGAN KEEGAN & COMPANY, INC. v. WILLIAM HAMILTON

SMYTHE III ET AL.

Appeal by Permission from the Court of Appeals, Western Section

Chancery Court for Shelby County

No. CH092353 Walter L. Evans, Chancellor

No. W2010-01339-SC-R11-CV - Filed April 25, 2013

This case requires us to decide whether Tennessee’s appellate courts possess subject matter

jurisdiction to review a trial court’s order that vacates an arbitration award and remands the

dispute to a new arbitration panel without expressly declining to confirm the award. An

investor pursued a claim against an investment company over losses he incurred due to the

failure of some of the company’s bond funds. After a Financial Industry Regulatory

Authority arbitration panel ruled in the investor’s favor, the investment company petitioned

the Chancery Court for Shelby County to vacate the award based on its belief that two

members of the arbitration panel were biased. The trial court, without expressly declining

to confirm the award, vacated the award and remanded the case for a second arbitration

before a new panel. The investor appealed. The Court of Appeals, on its own motion,

dismissed the appeal on the ground that it lacked subject matter jurisdiction. Morgan Keegan

& Co. v. Smythe, No. W2010-01339-COA-R3-CV, 2011 WL 5517036, at *8 (Tenn. Ct. App.

Nov. 14, 2011). We granted the investor’s application for permission to appeal and now

reverse the judgment of the Court of Appeals because the trial court’s order is, in fact, an

appealable order “denying confirmation of an award” under Tenn. Code Ann. § 29-5-

319(a)(3) (2012).

Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals

Reversed and Remanded

W ILLIAM C. K OCH, J R., J., delivered the opinion of the Court, in which G ARY R. W ADE, C.J.,

C ORNELIA A. C LARK, and S HARON G. L EE, JJ., joined. J ANICE M. H OLDER, J., not

participating.

Jef Feibelman, David E. Goodman, Jr., and Mary C. Hamm; Christopher S. Campbell, and

Laura S. Martin, Memphis, Tennessee; Dale Ledbetter, Fort Lauderdale, Florida, for the

appellants, William Hamilton Smythe III, William H. Smythe IV Trust, and Smythe

Children’s Trust.

John S. Golwen, William G. Whitman, and Annie T. Christoff, Memphis, Tennessee, for the

appellee, Morgan Keegan & Company, Inc.

OPINION

I.

The sole issue in this case focuses on the subject matter jurisdiction of the Court of

Appeals. Even though we are not concerned with the merits of the underlying substantive

dispute between the parties, we provide the following facts in order to frame the

jurisdictional discussion.

William Smythe III owned various investment accounts at Morgan Keegan &

Company, Inc. (“Morgan Keegan”), including several accounts for which he served as trustee

for other members of his family. The documents creating these accounts contained

provisions requiring that disputes between Mr. Smythe and Morgan Keegan be resolved

using arbitration procedures established by the Financial Industry Regulatory Authority

(“FINRA”).1

A portion of Mr. Smythe’s portfolio included investments in Morgan Keegan’s

“Regions Morgan Keegan” (“RMK”) family of funds. These funds invested in “junk bonds”

– below investment grade securities that offered the potential of high rates of return but with

a higher degree of risk. According to expert testimony presented during the arbitration

proceeding, these funds “collapsed spectacularly in 2007,” thus living up to their name and

costing investors billions of dollars. The failure of its RMK funds has generated a substantial

amount of litigation for Morgan Keegan.2

On April 30, 2008, Mr. Smythe initiated a FINRA arbitration proceeding against

Morgan Keegan. This procedure was conducted in accordance with FINRA’s Code of

1

FINRA is an independent, non-governmental organization established by the securities industry to

self-regulate securities firms doing business in the United States. See FINRA, About the Financial Industry

Regulatory Authority, FINRA.ORG, http://www.finra.org/AboutFINRA (last visited Apr. 9, 2013).

2

To date, there have been over 170 FINRA arbitrations concerning Morgan Keegan’s RMK funds.

See FINRA, FINRA Arbitration Awards Online, FINRA.ORG, http://finraawardsonline.finra.org/search.aspx

(search “RMK” and accept terms of use) (last visited Apr. 9, 2013).

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Arbitration Procedure for Customer Disputes (“FINRA Code”).3 A crucial step in the

process was the selection of the members of the arbitration panel.4 For disputes exceeding

$100,000, the panel is composed of three members: a “non-public” arbitrator, a public

arbitrator, and a chairperson who is an experienced public arbitrator.5 Non-public arbitrators

are industry insiders with professional experience in securities, commodities, or futures.6

Public arbitrators are persons who lack recent professional experience in the investments

industry and who have no immediate family members in that industry.7

FINRA supplies each party with a list of ten randomly generated arbitrators for each

position on the panel.8 Each party may strike up to four potential arbitrators from each list,

and each party must rank the remaining arbitrators in order of preference.9 FINRA then

combines the ranked arbitrator lists and populates the panel with the highest-ranked available

arbitrator from the combined list.10

In order to assist the parties in their decisions regarding the exclusion of potential

arbitrators and in ranking the remaining arbiters, the FINRA Code requires disclosure of

biographical information for each potential arbitrator, including potential conflicts of interest

and other relevant disclosures.11 The dispute in this case centers on the alleged failure of two

3

See FINRA Code of Arbitration Procedure for Customer Disputes, FINRA.ORG,

http://www.finra.org/ArbitrationAndMediation/Arbitration/Rules/CodeofArbitrationProcedure/index.htm

(last visited Apr. 9, 2013).

4

See FINRA Code §§ 12400-12410.

5

See FINRA Code §§ 12401(c), 12403.

6

See FINRA Code § 12100(p).

7

See FINRA Code § 12100(u).

8

See FINRA Code § 12403(c).

9

See FINRA Code § 12403(c)(3).

10

See FINRA Code § 12403(c)(4) & (5).

11

See FINRA Code § 12405. The FINRA Code provides that before arbitrators are appointed to a

panel, FINRA alerts them to the nature of the dispute and the identities of the parties. Potential arbitrators

have a duty to investigate and disclose to FINRA “any circumstances which might preclude the arbitrator

from rendering an objective and impartial determination.” Such circumstances include, among other things,

any financial or personal interest in the dispute, and any current or past relationship with any party, any

party’s representative, or any potential witness in the proceeding. FINRA Code § 12405(a). This obligation

to disclose “interests, relationships, or circumstances” that might taint the arbitrator’s objectivity is a

(continued...)

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arbitrators to disclose potential conflicts of interest under FINRA Code § 12405(a) and to

recuse themselves under FINRA Code § 12406 or FINRA’s failure to remove them under

FINRA Code § 12407.

After Mr. Smythe filed his arbitration claim against Morgan Keegan, both parties

participated in the arbitration selection procedure. A three-arbitrator panel was assembled

on October 2, 2008; however, FINRA replaced the chairperson of the panel on February 19,

2009. On August 10, 2009, the non-public member of the panel supplemented his disclosure

report to Mr. Smythe and Morgan Keegan. This information enabled Morgan Keegan to

discover that this panel member was a broker for a firm that was also suing Morgan Keegan

over the RMK funds and that the firm was being represented by the same lawyer who was

representing Mr. Smythe.

In October 2009, Morgan Keegan requested that the non-public arbitrator recuse

himself and alternatively asked FINRA’s director to remove this arbitrator from the panel.

By this time, the non-public arbitrator had served on two other FINRA arbitration panels

involving Morgan Keegan’s RMK funds that had awarded damages against Morgan Keegan.

In both of these proceedings, the non-public arbitrator had heard expert testimony to the

effect that the RMK funds were fundamentally flawed and unfit for any investor. Thus, by

the time Mr. Smythe’s claim was ready to be heard, the non-public arbitrator had already

received damaging information about the RMK funds in two previous arbitrations and had

ruled against Morgan Keegan in both. Morgan Keegan’s requests for recusal and removal

of the non-public arbitrator were denied.

Morgan Keegan also objected to the panel’s chairperson. The chairperson had

previously chaired an arbitration proceeding involving RMK funds in which the panel made

the rare move of imposing punitive damages against Morgan Keegan. This was the only

arbitration involving RMK funds that resulted in a punitive damages award. Morgan

Keegan’s request for the removal of the chairperson was also denied.

The FINRA arbitration regarding Mr. Smythe’s complaint against Morgan Keegan

was conducted from November 2 through November 6, 2009. On November 11, 2009, the

arbitration panel awarded Mr. Smythe $697,000 in compensatory damages, as well as

$195,160 in attorneys’ fees and $20,000 in witness fees.

11

(...continued)

“continuing duty” that requires arbitrators to disclose to FINRA any potential conflicts that come to light

after the arbitrator is assigned to the panel. FINRA Code § 12405(b). FINRA then shares the disclosed

information with the parties. FINRA Code § 12405(c).

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On November 25, 2009, Morgan Keegan filed a petition in the Chancery Court for

Shelby County, asserting that the arbitration award to Mr. Smythe should be vacated because

of the “evident partiality” of the non-public arbitrator and the chairperson of the arbitration

panel.12 Mr. Smythe did not file a petition to confirm the award, as permitted by Tenn. Code

Ann. § 29-5-312 (2012). However, on February 11, 2010, he filed a written response to

Morgan Keegan’s petition in which he requested not only that the trial court deny Morgan

Keegan’s petition, but also “that the Award, rendered on November 11, 2009, by FINRA

Dispute Resolution be confirmed in accordance with Tenn. Code Ann. § 29-5-313(a).” 13

During oral argument before the trial court on February 25, 2010, Mr. Smythe’s attorney

again urged that the “award for the Smythes . . . should be upheld.”

The trial court ruled from the bench at the conclusion of the February 25, 2010

hearing. The trial court concluded that the non-public arbitrator was “draped with the cloak

of bias and prejudice” against Morgan Keegan and that “a reasonable person” would

conclude that the panel’s chairperson and the non-public arbitrator would be unfairly

“predisposed to view any acts in the light most damaging to [Morgan Keegan] because of

their previous hearing and conclusions [in] other matters involving Morgan Keegan.” Thus,

the trial court held that “the process should be replayed.”

The trial court confirmed its bench ruling in a written order filed on March 16, 2010.

The order, drafted by Morgan Keegan’s lawyer and approved by Mr. Smythe’s counsel,

found that “there was evident partiality” by the non-public arbitrator and the chairperson of

the panel and that the award in Mr. Smythe’s favor “should be and is vacated and is

remanded back to FINRA for a new hearing for all of those specific reasons that [Morgan

Keegan] raised as constituting bias and prejudice, all of which this Court hereby finds and

adopts.”

Mr. Smythe appealed. On March 24, 2011, the Court of Appeals, on its own motion

and apparently without additional briefing, filed an opinion dismissing the appeal on the

ground that the court lacked subject matter jurisdiction under the Tennessee Uniform

12

9 U.S.C.A. § 10(a)(2) (West 2009) and Tenn. Code Ann. § 29-5-313(a)(1)(B) (2012) authorize the

court to vacate an arbitration award upon proof of the “evident partiality” of the arbitrator.

13

Mr. Smythe’s reference to Tenn. Code Ann. § 29-5-313(a) as authority to confirm his arbitration

award is abstruse. Tenn. Code Ann. § 29-5-313 governs the vacatur of awards. Confirmation of arbitration

awards is governed by Tenn. Code Ann. § 29-5-312 (2012).

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Arbitration Act14 to adjudicate Mr. Smythe’s appeal.15 Mr. Smythe filed a petition for

rehearing, arguing that the appeal provisions of the Federal Arbitration Act16 preempted

inconsistent appeal provisions in the Tennessee Uniform Arbitration Act and that the Federal

Arbitration Act provided a broader basis for jurisdiction than the Tennessee Uniform

Arbitration Act. The Court of Appeals withdrew its original opinion on May 19, 2011, and

accepted additional briefs from both parties on the jurisdictional issue.

In a second opinion issued on November 14, 2011, the Court of Appeals again decided

that it lacked subject matter jurisdiction over Mr. Smythe’s appeal. Morgan Keegan & Co.

v. Smythe, No. W2010-01339-COA-R3-CV, 2011 WL 5517036 (Tenn. Ct. App. Nov. 14,

2011). The court first decided that it lacked jurisdiction under Tenn. Code Ann. § 29-5-

319(a)(3)17 because the trial court’s March 16, 2010 order did not expressly confirm or deny

the arbitration award. Morgan Keegan & Co. v. Smythe, 2011 WL 5517036, at *8. The court

also decided that it lacked jurisdiction under Tenn. Code Ann. § 29-5-319(a)(5)18 because the

trial court ordered a rehearing of the arbitration. Morgan Keegan & Co. v. Smythe, 2011 WL

5517036, at *9-10.

In addition to these statutory grounds, the Court of Appeals decided that the Federal

Arbitration Act applied to the proceeding because the underlying transaction involved

interstate commerce. The court also held that the appeal provisions in the Tennessee

Uniform Arbitration Act were not preempted by the Federal Arbitration Act because they

were procedural rather than substantive. Morgan Keegan & Co. v. Smythe, 2011 WL

5517036, at *11-17. The court also declined to find the trial court’s order appealable on the

basis of Tenn. R. App. P. 2’s “good cause” provision. Morgan Keegan & Co. v. Smythe,

2011 WL 5517036, at *18. The parties have not joined issue with regard to this final holding

in this appeal.

We accepted Mr. Smythe’s appeal. Because we determine that Tenn. Code Ann. § 29-

5-319(a)(3) confers appellate jurisdiction on the Court of Appeals in this case, we reverse the

14

Tenn. Code Ann. §§ 29-5-301 to -320 (2012).

15

Courts have the responsibility to address their own subject matter jurisdiction, even when the

parties have not raised the issue. Tenn. R. App. P. 13(b).

16

9 U.S.C.A. §§ 1-16 (West 2009).

17

Tenn. Code Ann. § 29-5-319(a)(3) authorizes appeals from orders “confirming or denying

confirmation of an award.”

18

Tenn. Code Ann. § 29-5-319(a)(5) authorizes appeals from orders “vacating an award without

directing a re-hearing.”

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decision of the Court of Appeals and remand the case to the Court of Appeals to address the

substantive merits of the issues properly raised by the parties.

II.

Whether a court has subject matter jurisdiction over a case is a question of law that

we review de novo with no presumption of correctness. Word v. Metro Air Servs., Inc., 377

S.W.3d 671, 674 (Tenn. 2012) (citing Northland Ins. Co. v. State, 33 S.W.3d 727, 729 (Tenn.

2000)). Likewise, whether a state statute or common-law cause of action is preempted by

federal law is a question of law that we review de novo. Leggett v. Duke Energy Corp., 308

S.W.3d 843, 851 (Tenn. 2010).

The appellate courts’ subject matter jurisdiction over this appeal is governed by a

statute, and

our role in construing a statute is to ascertain and give effect to

the legislative intent without unduly restricting or expanding a

statute’s coverage beyond its intended scope. To do this, we

focus initially on the statute’s words, giving these words their

natural and ordinary meaning in light of their statutory context.

We avoid any forced or subtle construction that would limit or

extend the meaning of the language. Every word in a statute is

presumed to have meaning and purpose. If the statutory

language is clear and unambiguous, we apply the statute’s plain

language in its normal and accepted use. We need look no

further than the statute itself, enforcing it just as it is written.

Keen v. State, No. W2011-00789-SC-R11-PD, __ S.W.3d __, __, 2012 WL 6631245, at *12

(Tenn. Dec. 20, 2012) (internal citations and quotation marks omitted); see also Eastman

Chem. Co. v. Johnson, 151 S.W.3d 503, 507 (Tenn. 2004). When a statute is ambiguous,

however, we may refer to the broader statutory scheme, the history of the legislation, or other

sources to discern its meaning. Leggett v. Duke Energy Corp., 308 S.W.3d at 851-52 (citing

Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 836 (Tenn. 2008)).

III.

Until relatively recent times, American courts have been reluctant to recognize the

validity of arbitration agreements in private contracts. See Buraczynski v. Eyring, 919

S.W.2d 314, 317 (Tenn. 1996); Cavalier Ins. Corp. v. Osment, 538 S.W.2d 399, 403 (Tenn.

1976). However, this Court has now acknowledged that both the Federal Arbitration Act and

the Tennessee Uniform Arbitration Act were adopted (1) “to promote private settlement of

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disputes,” Pugh’s Lawn Landscape Co. v. Jaycon Dev. Corp., 320 S.W.3d 252, 257 (Tenn.

2010) (quoting Arnold v. Morgan Keegan & Co., 914 S.W.2d 445, 448 n.2 (Tenn. 1996)),

and (2) to ensure the enforceability of private agreements to arbitrate. Taylor v. Butler, 142

S.W.3d 277, 281 (Tenn. 2004). Accordingly, arbitration agreements in private contracts are

now favored in Tennessee both by statute and existing caselaw. Benton v. Vanderbilt Univ.,

137 S.W.3d 614, 617 (Tenn. 2004).

Because arbitration agreements in private contracts are favored, the courts “play only

a limited role in reviewing the decisions of arbitrators.” Williams Holding Co. v. Willis, 166

S.W.3d 707, 710 (Tenn. 2005) (quoting Arnold v. Morgan Keegan & Co., 914 S.W.2d at

448). The purpose of the Tennessee Uniform Arbitration Act, like the Federal Arbitration

Act, is to “make the arbitration process effective, provide necessary safeguards, and provide

an efficient procedure when judicial assistance is necessary.” Uniform Arbitration Act

(1956), Prefatory Note, 7 U.L.A. 100 (2009).19

Both the Federal Arbitration Act and the Tennessee Uniform Arbitration Act contain

provisions governing the judicial review of arbitration awards. More particularly, they

contain provisions with regard to the manner in which the parties to an arbitration may obtain

appellate review of a trial court’s order either confirming or vacating an arbitration award.

The differences in the language of the Federal Arbitration Act and the Tennessee Uniform

Arbitration Act regarding appellate review of a trial court’s order have given rise to the

current dispute between Mr. Smythe and Morgan Keegan.

The Federal Arbitration Act contains a list of appealable trial court orders, as well as

a list of unappealable orders. Among the orders appealable under the Federal Arbitration Act

are orders “confirming or denying confirmation of an award or partial award” and orders

“modifying, correcting, or vacating an award.” See 9 U.S.C.A. § 16(a)(1)(D), (E).20 In

contrast, the appeal provision in the Tennessee Uniform Arbitration Act provides that:

19

The Tennessee Uniform Arbitration Act, which was enacted in 1983, is based on the version of the

Uniform Arbitration Act adopted in 1956. See Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142, 149

(Tenn. Ct. App. 2001). In 2000, the National Conference of Commissioners on Uniform State Laws

published the Revised Uniform Arbitration Act. Tennessee has not adopted the revised act.

20

The original Federal Arbitration Act lacked an appeal provision. See Act of July 30, 1947, Pub.

L. No. 80-282, 61 Stat. 669. Section 16, originally designated as Section 15, was added as part of the Judicial

Improvements and Access to Justice Act of 1988. Pub. L. No. 100-702, § 1019, 102 Stat. 4642, 4670-71

(1988). In 1990, Congress renumbered this provision from Section 15 to Section 16. Judicial Improvements

Act of 1990, Pub. L. No. 101-650, § 325(a)(1), 104 Stat. 5089, 5120 (1990). Thus, while the Federal

Arbitration Act predates the Uniform Arbitration Act, the appeal provisions of the Uniform Arbitration Act

(and the Tennessee Uniform Arbitration Act) actually predate the more artfully drafted appeal provisions in

the Federal Arbitration Act.

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(a) An appeal may be taken from:

(1) An order denying an application to compel arbitration

made under § 29-5-303;

(2) An order granting an application to stay arbitration

made under § 29-5-303(b);

(3) An order confirming or denying confirmation of an

award;

(4) An order modifying or correcting an award;

(5) An order vacating an award without directing a

re-hearing; and

(6) A judgment or decree entered pursuant to this part.

(b) The appeal shall be taken in the manner and to the same

extent as from orders or judgments in a civil action.

Tenn. Code Ann. § 29-5-319 (2012).

In the case before us, the trial court’s March 16, 2010 order vacated the arbitration

award and remanded the dispute for a new arbitration proceeding without expressly “denying

confirmation.” This order would clearly be appealable under the Federal Arbitration Act

because Section 16(a)(1)(E) of the Act provides than an appeal may be taken from an order

“modifying, correcting, or vacating an award.”

The appealability of the March 16, 2010 order under the Tennessee Uniform

Arbitration Act is another question. While the Tennessee Uniform Arbitration Act permits

appellate review of a trial court’s order vacating an arbitration award, Tenn. Code Ann. § 29-

5-319(a)(5) limits appellate review to orders “vacating an award without directing a re-

hearing.” The March 16, 2010 order directed a rehearing.

Accordingly, we are confronted with two questions. First, we must decide whether

the appeal in this case is governed by Tenn. Code Ann. § 29-5-319 or by Section 16 of the

Federal Arbitration Act. If we determine that the appeal is governed by Tenn. Code Ann. §

29-5-319, then we must determine whether the March 16, 2010 order qualifies as an

appealable order under Tenn. Code Ann. § 29-5-319.

IV.

We turn now to the question regarding the application of the Federal Arbitration Act

and the Tennessee Uniform Arbitration Act to this case. We find that the Federal Arbitration

Act is applicable to this dispute. However, we also find that the subject matter jurisdiction

of the appellate courts to review the orders of a trial court reviewing an arbitration award is

governed by Tenn. Code Ann. § 29-5-319.

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A.

Morgan Keegan now suggests that we ought not consider the Federal Arbitration Act

because Mr. Smythe failed to demonstrate that his investments in its RMK funds are

transactions “involving [interstate] commerce” for the purpose of 9 U.S.C.A. § 2. We find

no merit in this argument.

Most courts that have confronted this question have held that every securities contract

is “a contract evidencing a transaction involving commerce” for the purpose of 9 U.S.C.A.

§ 2. The United States Supreme Court has held that the term “involving commerce,” like the

phrase “affecting commerce,” encompasses “the broadest permissible exercise of Congress’

Commerce Clause power.” Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (per

curiam). This power “may be exercised in individual cases without showing any specific

effect upon interstate commerce if in the aggregate the economic activity in question would

represent a general practice . . . subject to federal control.” Citizens Bank v. Alafabco, Inc.,

539 U.S. at 56-57 (internal quotation marks omitted). As one court aptly explained, it is now

“axiomatic that the purchase and sale of securities relates to interstate commerce.”

Prudential Sec. Inc. v. Hornsby, 865 F. Supp. 447, 449 (N.D. Ill. 1994); see also

Wattenbarger v. A.G. Edwards & Sons, Inc., 246 P.3d 961, 968-69 (Idaho 2010).

Furthermore, as Morgan Keegan itself noted in its original brief to the Court of

Appeals, the Federal Arbitration Act is “applicable here because this matter involves an

arbitration proceeding in which the underlying transactions involved interstate commerce,”

and that “[s]ecurities transactions involve interstate commerce.” Comparing the two

arguments, Morgan Keegan had it right the first time.

B.

Because this is a FINRA securities case being heard in Tennessee courts, both the

Federal Arbitration Act and the Tennessee Uniform Arbitration Act apply. The fact that both

state and federal law apply in this case implicates the doctrine of preemption under the

Supremacy Clause of the United States Constitution.

Article VI, Clause 2 of the United States Constitution states:

This Constitution, and the Laws of the United States which shall

be made in Pursuance thereof; and all Treaties made, or which

shall be made, under the Authority of the United States, shall be

the supreme Law of the Land; and the Judges in every State

shall be bound thereby, any Thing in the Constitution or Laws

of any State to the Contrary notwithstanding.

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As “the supreme law of the land,” federal law sometimes preempts, or supplants, otherwise

permissible state laws, rendering them inert and ineffectual. The scope of this preemption

is a federal question, and thus the boundaries of the preemption doctrine are prescribed by

United States Supreme Court precedent. Leggett v. Duke Energy Corp., 308 S.W.3d at 852-

54.

Courts recognize both “express preemption” and “implied preemption.” Express

preemption occurs when Congress explicitly defines the extent to which its enactments

preempt state law. Implied preemption typically falls into one of three categories: direct

conflict preemption; “purposes and objectives” conflict preemption; and field preemption.

Conflict preemption is based on the principle that state law is preempted to the extent that

it actually conflicts with federal law. Leggett v. Duke Energy Corp., 308 S.W.3d at 853.

Even when there is no direct contradiction, state law may be preempted by federal law when

it “stands as an obstacle to the accomplishment and execution of the full purposes and

objectives of Congress.” Leggett v. Duke Energy Corp., 308 S.W.3d at 853-54 (quoting

Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).

In analyzing whether federal law preempts a state statute, the courts should never

assume that Congress has derogated state regulation. Instead, courts should start with the

presumption that Congress does not intend to supplant state law and that the historic police

powers of the states are not superseded by the federal act unless preemption was the clear and

manifest purpose of Congress. New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 654-55 (1995); see also Altria Grp., Inc. v. Good,

555 U.S. 70, 77 (2008). This anti-preemption presumption erects a “high threshold;” implied

preemption analysis requires much more than a “freewheeling judicial inquiry into whether

a state statute is in tension with federal objectives.” Chamber of Commerce of U.S. v.

Whiting, 563 U.S. ___, ___, 131 S. Ct. 1968, 1985 (2011) (quoting Gade v. National Solid

Wastes Mgmt. Ass’n, 505 U.S. 88, 111 (1992) (Kennedy, J., concurring in part and

concurring in judgment)).

The United States Supreme Court has observed that “[t]here is no federal policy

favoring arbitration under a certain set of procedural rules” and that “the federal policy is

simply to ensure the enforceability . . . of private agreements to arbitrate.” Volt Info.

Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476

(1989). Noting that the Federal Arbitration Act contains no express preemption provision,

the Court has also recognized that Congress did not intend to preempt the entire field of

arbitration when it enacted the Federal Arbitration Act. Volt, 489 U.S. at 477.

The Federal Arbitration Act contains federal substantive law requiring the parties and

the courts to honor arbitration agreements. See Southland Corp. v. Keating, 465 U.S. 1, 15

n.9 (1984). However, the Act does not prevent “the enforcement of agreements to arbitrate

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under different rules than those set forth in the Act itself.” Volt, 489 U.S. at 479. State

arbitration rules may nevertheless be preempted to the extent that they “stand[] as an obstacle

to the accomplishment and execution of the full purposes and objectives of Congress.” Volt,

489 U.S. at 477 (quoting Hines v. Davidowitz, 312 U.S. at 67).

Most courts that have addressed this issue have held that the Federal Arbitration Act’s

appeal provisions do not preempt state appeal provisions consistent with the Uniform

Arbitration Act. These courts generally reason (1) that the Uniform Arbitration Act’s appeal

provisions are procedural rather than substantive, (2) that procedural provisions should not

be preempted unless they stand as an obstacle to the full purposes and objectives of

Congress, and (3) that the Uniform Arbitration Act’s appeal provisions do not impede the

Federal Arbitration Act’s stated objective of ensuring the enforceability of arbitration

agreements in private contracts. See, e.g., Southern Cal. Edison Co. v. Peabody W. Coal Co.,

977 P.2d 769, 774-75 (Ariz. 1999); Cronus Invs., Inc. v. Concierge Servs., 107 P.3d 217, 226

(Cal. 2005); American Gen. Fin. Servs. v. Vereen, 639 S.E.2d 598, 601 (Ga. Ct. App. 2006);

Saavedra v. Dealmaker Devs., LLC, 2008-1239, p. 5 (La. App. 4 Cir. 3/18/09); 8 So. 3d 758,

762; Wells v. Chevy Chase Bank, F.S.B., 768 A.2d 620, 628-29 (Md. 2001); Weston Sec.

Corp. v. Aykanian, 703 N.E.2d 1185, 1188-89 (Mass. App. Ct. 1998); Whitney v. Alltel

Commc’ns, Inc., 173 S.W.3d 300, 306-07 (Mo. Ct. App. 2005); Kremer v. Rural Cmty. Ins.

Co., 788 N.W.2d 538, 545-47 (Neb. 2010); Toler’s Cove Homeowners Ass’n v. Trident

Constr. Co., 586 S.E.2d 581, 584 (S.C. 2003); Batton v. Green, 801 S.W.2d 923, 927-28

(Tex. App. 1990); see also Hubert v. Turnberry Homes, LLC, No. M2005-00955-COA-R3-

CV, 2006 WL 2843449, at *3-4 (Tenn. Ct. App. Oct. 4, 2006) (No Tenn. R. App. P. 11

application filed) (noting that, while 9 U.S.C. § 16 “establishes procedures for interlocutory

appeals of federal court orders,” the Tennessee Uniform Arbitration Act was enacted “to

provide procedures for the enforcement of arbitration agreements in state court”).21

Morgan Keegan points out that these cases involve appeals from trial court orders that

preceded an arbitration hearing. While that observation is correct, Morgan Keegan has not

explained why pre-arbitration appeals should be treated differently than post-arbitration

appeals. We have determined that the statutes governing post-arbitration appeals are equally

procedural in nature and, therefore, that the same analysis applies to the rules governing post-

arbitration appeals as applies to pre-arbitration appeals.

21

In contrast, some states have applied the Federal Arbitration Act’s appeal provisions without any

discussion of the corresponding state law. See Pre-Paid Legal Servs., Inc. v. Anderson, 2004-CA-01293-SCT

(¶ 1), 918 So. 2d 634, 634 (Miss. 2005); Carpenter v. Brooks, 534 S.E.2d 641, 645 (N.C. Ct. App. 2000);

Dakota Wesleyan Univ. v. HPG Int’l, Inc., 1997 SD 30, ¶¶ 6-12, 560 N.W.2d 921, 922-24.

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We agree with the Court of Appeals that the majority view on this point is correct.

As the Court of Appeals noted, the purpose of the Federal Arbitration Act is to overrule the

judiciary’s long-standing refusal to enforce arbitration agreements according to their terms,

and to place arbitration agreements on “the same footing as other contracts.” Morgan

Keegan & Co. v. Smythe, 2011 WL 5517036, at *16 (quoting Volt, 489 U.S. at 478). More

specifically, the purpose of the Federal Arbitration Act’s appeal provision is “to promote

appeals from orders barring arbitration and limit appeals from orders directing arbitration.”

Morgan Keegan & Co. v. Smythe, 2011 WL 5517036, at *16 (quoting Spell v. Labelle, No.

W2003-00821-COA-R3-CV, 2004 WL 892534, at *2 (Tenn. Ct. App. Apr. 22, 2004) (No

Tenn. R. App. P. 11 application filed)). Although some cases may exist in which a trial court

order would be appealable under the Federal Arbitration Act but not the Tennessee Uniform

Arbitration Act, this hypothetical difference does not undermine the Federal Arbitration

Act’s objectives so seriously that it warrants preemption. Thus, if Tennessee’s appellate

courts have subject matter jurisdiction to hear appeals from orders such as the trial court’s

March 16, 2010 order, the grant of jurisdiction must be found in the Tennessee Uniform

Arbitration Act, not the Federal Arbitration Act.

V.

We now address whether the trial court’s March 16, 2010 order vacating Mr.

Smythe’s arbitration award qualifies as an appealable order under Tenn. Code Ann. § 29-5-

319(a). We hold that the order is an appealable order under Tenn. Code Ann. § 29-5-

319(a)(3). To hold otherwise would be to elevate form over substance and would enable trial

courts to shield their orders vacating arbitration awards from timely appellate review.

Neither of these results is required by the Tennessee Uniform Arbitration Act.

A.

At the outset, we will address the necessity of filing a separate petition to confirm an

arbitration award when another party has already filed a petition to vacate the same award.

While Tenn. Code Ann. § 29-5-312 authorizes a party to apply for an order confirming an

arbitration award, it does not necessarily require such an application. Mr. Smythe did not file

a separate petition to confirm the arbitration award in this case. However, in both his written

response to Morgan Keegan’s petition to vacate the award and his arguments to the court, he

requested that the trial court confirm the award.

No provision of the Tennessee Uniform Arbitration Act requires parties to file

competing petitions. To the contrary, Tenn. Code Ann. section 29-5-312 indicates that

separate petitions need not be filed. The procedure under the statute is analogous to that

specified in Tenn. R. App. P. 13. Once one party has perfected an appeal or has filed an

application for permission to appeal, the other party or parties in the case are not required to

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file cross-appeals, separate appeals, or separate applications for permission to appeal. Tenn.

R. App. P. 13(a). The parties who have not perfected an appeal or filed a Tenn. R. App. P.

11 application may raise additional issues and seek relief on their own. Tenn. R. App. P.

27(b); Hodge v. Craig, 382 S.W.3d 325, 335 (Tenn. 2012).

Thus, when the party dissatisfied with the arbitration award acts first by petitioning

to vacate the award in accordance with Tenn. Code Ann. § 29-5-313, we do not construe the

Tennessee Uniform Arbitration Act to require the party who prevailed in the arbitration to

file a separate petition to confirm. In this scenario, it is entirely appropriate for the prevailing

party to include its request to confirm the award in its response to the dissatisfied party’s

petition to vacate. This is precisely what Mr. Smythe did in this case.

B.

We turn next to the significance, if any, of the fact that the trial court’s March 16,

2010 order does not explicitly deny confirmation of the arbitration award. Morgan Keegan

insists that the lack of explicit language denying confirmation of the award necessarily means

that the order cannot be considered “an order . . . denying confirmation of an award” for the

purpose of Tenn. Code Ann. § 29-5-319(a)(3). This interpretation not only elevates form

over substance, it throws a monkey wrench into the traditional principles of appealability.

Trial courts, as a general matter, speak through their orders and judgments. In re

Adoption of E.N.R., 42 S.W.3d 26, 31 (Tenn. 2001). Like other written instruments, orders

and judgments should be interpreted and enforced according to their plain meaning.

Konvalinka v. Chattanooga-Hamilton Cnty. Hosp. Auth., 249 S.W.3d 346, 359 (Tenn. 2008).

When an order or judgment permits more than one interpretation, it should be construed with

reference to the issues it was meant to decide, In re Langenfeld, 993 A.2d 232, 236 (N.H.

2010), and should be interpreted in light of the context in which it was entered, as well as the

other parts of the record, including the pleadings, motions, issues before the court, and

arguments of counsel. Kiefer v. Rust-Oleum Corp., 916 N.E.2d 22, 29 (Ill. App. Ct. 2009);

see also Los Angeles Local Joint Exec. Bd. of Culinary Workers v. Stan’s Drive-Ins, Inc., 288

P.2d 286, 290 (Cal. Ct. App. 1955) (“The rule with respect to orders and judgments is that

the entire record may be examined to determine their scope and effect. . . .”).

Court orders and judgments, like other documents, often speak as clearly through

implication as they do through express statements. Accordingly, when construing orders and

judgments, effect must be given to that which is clearly implied, as well as to that which is

expressly stated. Sosin v. Sosin, 14 A.3d 307, 316 (Conn. 2011); Dairyland, Inc. v. Jenison,

207 N.W.2d 753, 754 (Iowa 1973); State ex rel. State Farm Mut. Auto. Ins. Co. v. Bedell, 719

S.E.2d 722, 737 (W. Va. 2011). Here, there can be no doubt that the trial court’s March 16,

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2010 order necessarily denied Mr. Smythe’s request for confirmation when it granted

Morgan Keegan’s petition to vacate the award.

This conclusion is buttressed by Tenn. Code Ann. § 29-5-313(d), which states that

“[i]f the application to vacate is denied . . . the court shall confirm the award.” We see no

reason to conclude that Tenn. Code Ann. § 29-5-313(d) operates only when the party who

prevailed in the arbitration separately cross-petitions for confirmation. See Hogue v. Popham

Haik Schnobrich & Kaufman Ltd., 753 A.2d 1014, 1017-18 (D.C. 2000) (explaining that,

under the Uniform Arbitration Act, “the denial of a motion to vacate the award is the

functional equivalent of an entry of the judgment,” even when the trial court’s order does not

explicitly confirm the award). If a denial of vacatur automatically results in confirmation of

the award, the converse must also be true – a grant of vacatur necessarily results in a denial

of confirmation.

Furthermore, we are not persuaded that when the General Assembly enacted Tenn.

Code Ann. § 29-5-319, it intended to enable trial judges to shield their orders from appellate

review. Were we to adopt Morgan Keegan’s proposed interpretation, a trial court could

frustrate appellate review of its order vacating an arbitration award and directing a rehearing

under Tenn. Code Ann. § 29-5-319(a)(3) simply by omitting any mention that it has denied

the prevailing party’s request to confirm the award. See East Tex. Salt Water Disposal Co.

v. Werline, 307 S.W.3d 267, 282 (Tex. 2010) (Jefferson, C.J., dissenting) (“Appellate

jurisdiction should not hinge on whether the trial court, in conjunction with an order vacating

an award and directing rehearing, denies rather than dismisses as moot a motion to

confirm.”).

C.

We turn next to the relationship between appeals under Tenn. Code Ann. § 29-5-

319(a)(3) and appeals under Tenn. Code Ann. § 29-5-319(a)(5). Morgan Keegan, arguing

for a narrow construction of Tenn. Code Ann. § 29-5-319(a), insists that Tenn. Code Ann.

§ 29-5-319(a)(5) effectively trumps Tenn. Code Ann. § 29-5-319(a)(3) when an order

denying confirmation of an award also vacates the award and directs a rehearing. We decline

to construe the six subsections of Tenn. Code Ann. § 29-5-319(a) in a way that gives one

subsection priority over another. Even if an order is not appealable under one subsection,

it may be appealable under another. Thus, the fact that the trial court’s March 16, 2010 order

may not be appealable under Tenn. Code Ann. § 29-5-319(a)(5) does not mean that it is not

appealable under Tenn. Code Ann. § 29-5-319(a)(3).

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D.

As a final matter, we address the parties’ contentions that their construction of Tenn.

Code Ann. § 29-5-319 is more consistent with the policies underlying the Federal Arbitration

Act and the Uniform Arbitration Act than their adversary’s. In his Practice Commentary on

the Federal Arbitration Act, Professor David Siegel explains that 9 U.S.C.A. § 16, which

governs appellate review of trial court orders reviewing arbitration proceedings, is

a pro-arbitration statute designed to prevent the appellate aspect

of the litigation process from impeding the expeditious

disposition of an arbitration. Its inherent acknowledgment is

that arbitration is a form of dispute resolution designed to save

the parties time, money, and effort by substituting for the

litigation process the advantages of speed, simplicity, and

economy associated with arbitration. Its theme is that judicial

involvement in the process should be kept to the barest

minimum to avoid undermining those goals.

David D. Siegel, Practice Commentary: Appeals from Arbitrability Determinations, 9

U.S.C.A. § 16, at 747. These observations also apply to the Tennessee Uniform Arbitration

Act. See Arnold v. Morgan Keegan & Co., 914 S.W.2d at 448 n.2 (“[T]he purpose of the

Federal and Uniform Arbitration Act is the same: to promote private settlement of disputes,

thereby bypassing the courts.”).

Morgan Keegan asserts that had this dispute proceeded to the second arbitration panel

as ordered by the trial court, the matter would have been resolved quickly and inexpensively

and the delay and expense of this appeal would have been avoided. For his part, Mr. Smythe

insists that Morgan Keegan would have been unable to participate expeditiously in a second

arbitration because the company’s lawyers were overburdened by the tidal wave of RMK

fund arbitrations. Mr. Smythe also points out that a second arbitration would have delayed

appellate review of the trial court’s order vacating the first arbitration decision, and that the

second arbitration proceeding could ultimately prove to be a waste of time and resources

should an appellate court ultimately find that the trial court’s March 16, 2010 order was

erroneous.22

In our view, neither party’s arguments decisively advance the interests of “speed,

simplicity, and economy” more than the other’s. In addition to these interests, we are

concerned about the uncertainty regarding Mr. Smythe’s ability to seek appellate review of

22

See East Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d at 275-76 (Willett, J., concurring)

(describing the possible expense and delay of a do-over arbitration).

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the trial court’s March 16, 2010 order were this appeal denied and a second arbitration held.

Significant questions arise. Should Mr. Smythe obtain a smaller award following the second

arbitration, may he petition a court to vacate the second award? If so, could he also challenge

the trial court’s March 16, 2010 order and move to reinstate the original award? Would these

motions be heard by the same trial judge who entered the March 16, 2010 order? If Mr.

Smythe lost at the second arbitration, could he appeal and seek review of the March 16, 2010

order as part of his petition to vacate the second arbitration award? These procedural

scenarios would launch this case into uncharted waters that the Tennessee Uniform

Arbitration Act simply does not contemplate.

Our interpretation of Tenn. Code Ann. § 29-5-319(a) permits Mr. Smythe to appeal

prior to a second arbitration proceeding. It charts a more appropriate course that avoids the

possibility that an erroneous decision to vacate an arbitration award and order a do-over

arbitration will evade appellate review entirely or will be reviewed and set aside only after

the parties have invested time and resources in a second arbitration proceeding.

We note that our interpretation of Tenn. Code Ann. § 29-5-319(a) is consistent with

an earlier decision by the Court of Appeals in which the appellate court reviewed a trial court

order that vacated an arbitration award and ordered a second arbitration. Boyle v. Thomas,

No. 02A01-9601-CV-00022, 1997 WL 710912 (Tenn. Ct. App. Nov. 17, 1997) (No Tenn.

R. App. P. 11 application filed).23 Without explicitly addressing the issue of subject matter

jurisdiction, the Court of Appeals reversed the trial court and confirmed the arbitrator’s

award. Boyle v. Thomas, 1997 WL 710912, at *4. We also note that our interpretation of

Tenn. Code Ann. § 29-5-319(a) places the appeal provisions of the Tennessee Uniform

Arbitration Act in harmony with the appeal provisions in the Federal Arbitration Act.

Mindful that Tenn. Code Ann. § 29-5-320 (2012) prompts us to interpret the

Tennessee Uniform Arbitration Act in a manner consistent with the other states that have

adopted the Uniform Arbitration Act, we have compared our construction of Tenn. Code

Ann. § 29-5-319 with similar appeal provisions in other states. In a case raising many of the

same issues presented in this case, the Texas Supreme Court recently held that its counterpart

to Tenn. Code Ann. § 29-5-319(a)(3)24 permitted an appeal from an order vacating an

23

In that case, Mr. Boyle moved to vacate the arbitration decision, while Mr. Thomas moved to

confirm it. Boyle v. Thomas, 1997 WL 710912, at *2. We have already held in this case that even though

Mr. Smythe did not file a separate petition to confirm the arbitration, he appropriately requested confirmation

in his response to Morgan Keegan’s petition to vacate the arbitration award. Thus, the fact that Mr. Thomas

separately requested confirmation while Mr. Smythe did not does not provide a basis for distinguishing Boyle

v. Thomas from this case.

24

See Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(3) (West 2011). In this regard, we place no

(continued...)

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arbitration award and ordering a second arbitration before a new arbitrator. East Tex. Salt

Water Disposal Co v. Werline, 307 S.W.3d at 274.25 In its decision, the Texas Supreme

Court held, as we have, that Texas’s counterpart to Tenn. Code Ann. § 29-5-319(a)(5) is not

an exception to its counterpart to Tenn. Code Ann. § 29-5-319(a)(3). East Tex. Salt Water

Disposal Co. v. Werline, 307 S.W.3d at 270-71.

In addition, the Texas Supreme Court squarely addressed the argument being made

by Morgan Keegan in this case that a trial court’s order vacating an arbitration award and

ordering a second arbitration should not be appealable for the same reasons that a trial court’s

decision to grant a new trial is not appealable. The Texas Supreme Court found this analogy

inapt because, in the context of appeals from arbitration awards under the Uniform

Arbitration Act, trial courts are acting as appellate courts. East Tex. Salt Water Disposal Co.

v. Werline, 307 S.W.3d at 271-72.

We concur with this conclusion. While trial courts retain broad discretion with regard

to granting new trials, see Ali v. Fisher, 145 S.W.3d 557, 564-65 (Tenn. 2004), the discretion

of a trial court reviewing an arbitration award is severely circumscribed by statute. Parties

who agree to arbitrate relinquish their right to obtain a judicial decision on the merits of their

claim, and an arbitration award may be set aside only on the “very unusual circumstances”

that fit within Tenn. Code Ann. § 29-5-313(a). Arnold v. Morgan Keegan & Co., 914

S.W.2d at 448 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995)).

Because a trial court reviewing an arbitration award functions more like an appellate body

subject to an extremely narrow standard of review, we decline to equate an order vacating

an arbitration award and ordering a new arbitration to an order granting a new trial.

We are mindful that our construction of Tenn. Code Ann. § 29-5-319(a), like the

Texas Supreme Court’s construction of Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(3),

may be a minority position. Compare East Tex. Salt Water Disposal Co. v. Werline, 307

S.W.3d at 272-74 (concluding that the decisions in other relevant jurisdictions “appear about

evenly divided on the issue”), with East Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d

at 277-80 (Jefferson, C.J., dissenting) (“[I]t is accurate to say that the majority of states . . .

have concluded that there is no appeal from an order that vacates an award, directs a

rehearing, and denies confirmation.”). We do not construe Tenn. Code Ann. § 29-5-320 as

24

(...continued)

legal significance on the fact that the Texas statute uses “or” to connect each appealable order, while Tenn.

Code Ann. § 29-5-319(a) uses “and.”

25

In that case, Mr. Werline, like Mr. Thomas in Boyle v. Thomas, expressly petitioned the trial court

to confirm the award. As we did with regard to Boyle v. Thomas, we do not find the fact that Mr. Werline

filed a separate petition to confirm the award while Mr. Smythe included his request for confirmation in his

response to Morgan Keegan’s petition to vacate the arbitration award to be legally significant.

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an inexorable command to make up a scorecard of the states that have accepted and rejected

a particular interpretation of a provision of the Uniform Arbitration Act and then to follow

the majority view without further discussion or analysis.

Rather, we have carefully considered the controlling statute in this case – Tenn. Code

Ann. § 29-5-319(a)(3). We have determined that the plain language of this statute confers

on Tennessee’s appellate courts the subject matter jurisdiction over appeals such as this. An

order that vacates an arbitration award and orders a second arbitration is an order “denying

confirmation of an award” for the purposes of Tenn. Code Ann. § 29-5-319(a)(3), regardless

of whether the party opposing the petition to vacate the award filed a separate cross-petition

for confirmation under Tenn. Code Ann. § 29-5-312 or whether the trial court has expressly

denied confirmation in its written order.

VI.

Accordingly, we reverse the judgment of the Court of Appeals and find that the trial

court’s March 16, 2010 order is an appealable order “denying confirmation” of an arbitration

award under Tenn. Code Ann. § 29-5-319(a)(3). We, therefore, remand the case to the Court

of Appeals to consider the substantive merits of the issues properly raised by the parties. We

tax the costs of this appeal to Morgan Keegan & Co., Inc., for which execution, if necessary,

may issue.

______________________________

WILLIAM C. KOCH, JR., JUSTICE

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