Alex Silverman

Federal Court Declines to Vacate Arbitration Award Absent Public Policy Against Requiring Reinstatement of Terminated Employee

September 7, 2021 by Alex Silverman

The plaintiff, ITT Engineered Valves LLC, sought to vacate an arbitration award finding it had improperly terminated its employee, Douglas Wood, and ordering that Wood be reinstated. While recognizing the general presumption in favor of enforcing arbitration awards, ITT claimed an exception to that rule applied here: “well-defined and dominant” public policies would be violated if the award were to be enforced. Specifically, it pointed to public policies against (1) racial/national origin harassment and discrimination and (2) threats of workplace violence. Wood’s labor union, the defendant in the action, argued that the so-called public policy exception is exceedingly narrow and did not warrant vacatur. The court agreed with the union.

The court explained that applying the public policy exception requires a two-step analysis. First, can a “well-defined and dominant” public policy be identified? If so, would enforcing the award violate that policy? The court noted that the exception is available only when the award creates an “explicit conflict with an explicit public policy.” Even assuming the public policies identified by ITT were “well-defined and dominant,” the court found enforcing the award would not thwart the purpose of either policy. As an initial matter, the court found ITT failed to demonstrate that any public policies required the discharge of an employee who engaged in discrimination or harassment and/or made threats of violence. The court also accepted the arbitrator’s conclusion that Wood’s conduct was neither discriminatory nor harassing and did not constitute a threat of violence in the first instance. Thus, while sympathizing with ITT’s desire to maintain a safe workplace, the court denied its motion for summary judgment and granted the union’s cross-motion.

ITT Engineered Valves, LLC v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union, No. 5:21-cv-00205 (E.D. Pa. Aug. 3, 2021).

Sixth Circuit Agrees Farmer Must Reimburse Crop Insurer for Overpayments Received Due to Farmer’s Poor Record-Keeping

August 18, 2021 by Alex Silverman

The Sixth Circuit Court of Appeals affirmed a Michigan district court order confirming an arbitration award for Farmers Mutual Hail Insurance Company of Iowa. The award ordered Edgar Miller to return the extra payments he received from Farmers Mutual after it was discovered that, due to Miller’s poor record-keeping, Farmers Mutual had overpaid him under his crop insurance policy. After the award was rendered in favor of Farmers Mutual, the parties had the overpayment issue considered by the Federal Crop Insurance Corp. (FCIC), a body created by Congress to establish and regulate rules for crop insurance coverage. The FCIC determined that Farmers Mutual was permitted to seek reimbursement from Miller, and Farmers Mutual subsequently filed a petition to confirm the arbitration award in Michigan federal court.

Where, as here, the FCIC provides an interpretation after the arbitrator has acted, the award must be reviewed to determine if it is consistent with the FCIC’s view. The award must be nullified if it is determined that any inconsistency materially affected the award. Here, the district court ruled, and the Sixth Circuit agreed, that the award was not inconsistent with the FCIC’s determination that a crop insurer may reject a claim for coverage based on poor record-keeping alone and may obtain retroactive reimbursement for an overpaid claim on that basis. The Sixth Circuit rejected Miller’s argument that the arbitrator nonetheless exceeded its authority by placing the burden of proof on him with respect to reimbursement. The court also rejected Miller’s claim preclusion argument, finding there had been neither a final decision on the merits nor an identical claim raised in two lawsuits.

Farmers Mutual Hail Insurance Co. of Iowa v. Miller, No. 20-1978 (6th Cir. July 20, 2021).

Eleventh Circuit Rules FAA Does Not Create Subject Matter Jurisdiction

August 16, 2021 by Alex Silverman

Brett-Andrew Nelson filed a petition to confirm an arbitration award issued by the Sitcomm Arbitration Association. The award purported to award Nelson $500,000 from each of the four defendants based on their breach of an unspecified “contractual agreement.” Nelson claimed the district court had subject matter jurisdiction to confirm the award based solely on 9 U.S.C. § 9. The district court dismissed the petition with prejudice, finding no evidence of a valid contract between the parties. On appeal, the Eleventh Circuit Court of Appeals held sua sponte that the district court lacked subject matter jurisdiction over Nelson’s petition. While the petition claimed jurisdiction based on section 9 of the FAA, the Eleventh Circuit found the FAA does not create jurisdiction on its own; there must instead be an independent jurisdictional foundation. Because Nelson failed to establish subject matter jurisdiction, the court found the district court should have dismissed the petition without prejudice, rather than with prejudice. The matter was thus vacated and remanded for the limited purpose of allowing the district court to dismiss the case without prejudice.

Nelson v. Jackson, No. 21-10440 (11th Cir. Aug. 2, 2021).

Second Circuit Finds International Arbitral Tribunal Formed Under a Bilateral Investment Treaty Constitutes a “Foreign Tribunal” Under 28 U.S.C. § 1782

July 29, 2021 by Alex Silverman

Third-party defendants AlixPartners LLP and Simon Freakley (collectively, “AlixPartners”) appealed from a July 2020 order of the U.S. District Court for the Southern District of New York, which granted an application for discovery assistance pursuant to 28 U.S.C. § 1782. Section 1782 allows federal district courts to compel witness testimony or document production from any person or entity “residing” or otherwise “found” in the judicial district for “use in a proceeding in a foreign or international tribunal.” The Fund for Protection of Investor Rights in Foreign States sought assistance from the district court in seeking discovery from AlixPartners for use in an arbitration proceeding the fund had commenced against the nation of Lithuania. The fund brought the proceeding before an arbitral panel established pursuant to a bilateral investment treaty between Lithuania and Russia. The issues on appeal were: (1) whether an arbitration between a foreign state and an investor, which takes place before an arbitral panel established pursuant to a bilateral investment treaty to which the foreign state is a party, constitutes a “proceeding in a foreign or international tribunal” under section 1782; (2) whether the fund is an “interested person” within the meaning of section 1782; and (3) whether the district court abused its discretion in finding certain factors established by the U.S. Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), weighed in favor of granting the fund’s application.

Reinforcing its decision in In re Application of Hanwei Guo, 965 F.3d 96 (2d Cir. 2020), the Second Circuit held that the arbitration panel here qualified as a “foreign or international tribunal” under section 1782, as it was established in accordance with a bilateral investment treaty between two nations and was governed by the UNCITRAL rules. The court found this conclusion to be consistent with both Guo and legislative intent to broaden the reach of section 1782 to allow for discovery assistance within the context of intergovernmental tribunals. Because the fund was a party to the arbitration for which it sought discovery assistance, the court ruled that the fund was an “interested person” under section 1782. Having also determined that the district court did not err in its weighing of the so-called Intel factors, the Second Circuit affirmed the district court’s ruling granting the fund’s application for discovery assistance.

In re Fund for Protection of Investor Rights in Foreign States v. AlixPartners, LLP, No. 20-2653 (2d Cir. July 15, 2021).

Wisconsin Federal Court Vacates Order Compelling Arbitration and Reopens District Court Case, Finding “Extraordinary Circumstances” Justified Relief Under FRCP 60(b)

July 8, 2021 by Alex Silverman

Marcia Laude filed suit alleging that her late husband was not adequately cared for while residing in a nursing home operated by the defendants. In 2019, a Wisconsin district court granted the defendants’ motion to compel arbitration and dismissed the case without prejudice. Two years later, the plaintiffs sought relief from the order compelling arbitration and requested, under Federal Rule of Civil Procedure 60(b), that they be permitted to pursue their case in federal court. Rule 60(b) allows the court to relieve a party from a final judgment or order for certain specified reasons, or for “any other reason that justifies relief.” Obtaining relief under the “catchall” provision requires proof of “extraordinary circumstances.” Here, the court accepted that extraordinary circumstances existed because the defendants moved to compel arbitration years ago, over the plaintiffs’ objection, and then refused to arbitrate or even communicate with the plaintiffs for 13 months, leaving them without a remedy. The plaintiffs also argued that the defendants impliedly waived their right to arbitrate given their conduct since the 2019 order. The court agreed, and thus granted the plaintiffs’ request to reopen the case in federal court, under Rule 60(b)(6).

Laude v. Azar, No. 2:19-cv-00783 (E.D. Wis. June 15, 2021).