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Benjamin Stearns

Court Confirms Arbitration Award Against Parties Who Failed to Attend Arbitration

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The Northern District of Texas has confirmed an arbitration award for Wells Fargo against Energy Product Co. and Energy Transport and Logistic LLC. Neither Energy Product nor Energy Transport participated in the arbitration or filed a response to the motion to confirm. Unanswered motions to confirm an arbitration award are treated as unopposed motions for summary judgment and do not result in a default judgment. Therefore, the movant must demonstrate that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.

Wells Fargo demonstrated that there was no factual dispute here and that it was entitled to judgment. Wells Fargo was required to show that, as required by the Federal Arbitration Act, the proceedings were not “fundamentally unfair.” A “fundamentally fair hearing requires only notice, opportunity to be heard and to present relevant and material evidence before the decision-makers, and that the decision-makers are not infected with bias.” After reviewing the record, the court determined that standard was met in this case, despite that neither Energy Product nor Energy Transport attended the arbitration hearing. The court found that they had both received fair notice of the hearing but simply chose not to attend. While all parties to an arbitration proceeding are entitled to notice and an opportunity to be heard, “due process is not violated if the hearing proceeds in the absence of one of the parties when that party’s absence is the result of his decision not to attend.”

Wells Fargo Bank, N.A. v. Energy Prod. Co., No. 3:19-cv-02014 (N.D. Tex. Mar. 26, 2020).

Second Circuit Upholds Injunction Against Arbitration Based on Prior Singaporean Judgment

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Big Port Service DMCC and China Shipping Container Lines Co. Ltd. (CSCL) litigated in Singapore a dispute regarding a supply of marine fuel oil for a CSCL vessel. CSCL subsequently filed suit in the Southern District of New York seeking a permanent injunction against arbitration. The Singapore litigation decided issues related to damages alleged by Big Port Service as well as whether the parties had entered into an arbitration agreement. The Singaporean court determined that CSCL could not be forced to arbitrate because there was no binding arbitration agreement between the parties. The Southern District of New York accorded that decision preclusive effect and entered a permanent injunction against arbitration.

On appeal, Big Port Service first argued that the district court lacked subject-matter jurisdiction, but the court rejected that argument. The court next held that it was proper to recognize the Singaporean judgment under principles of international comity. The Singapore judgment “was a full decision addressing the existence of the arbitration agreement,” which was the relevant issue before the Southern District of New York, and the liberal federal policy favoring arbitration did not require Big Port Service to get a “second hearing” regarding whether an agreement to arbitrate existed.

The court also held that it was proper to give preclusive effect to the Singaporean court’s determination regarding the existence of an arbitration agreement. To accord a foreign court’s determination preclusive effect, the American court must find that there is an “identity of issues” addressed by both courts, meaning that “the legal standards … must … be identical.” The foreign court need not consider or apply American law, in particular, to be accorded preclusive effect. Here, the legal standards applied to the dispute were “substantively the same” and the agency principles applied were “in accord with New York agency law.” As such, the court found there was a sufficient “identity of issues.” The court determined that Big Port Service had an opportunity to “fully and fairly litigate” the question of arbitrability in the Singapore action and that this issue was “necessary to the judgment,” which also supported the grant of preclusive effect.

Lastly, the court found that it was proper to enter a permanent injunction against arbitration, as “[f]ederal courts generally have remedial power to stay arbitration,” including in situations in which the court determines “that the parties have not entered into a valid and binding arbitration agreement.” As such, the district court had the authority to issue the permanent injunction and it was proper to do so.

China Shipping Container Lines Co. Ltd. v. Big Port Service DMCC, No. 19-1111 (2d Cir. Mar. 5, 2020).

“Grossly Excessive” Arbitration Award Overturned Due to “Evident Material Miscalculation”

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An arbitration award rendered pursuant to section 301 of the Labor Management Relations Act (LMRA) was overturned upon a finding that the award was “grossly excessive” and based on an “evident material miscalculation.” The award stemmed from a collective bargaining agreement that required an employer to submit to audits to determine whether the employer had made required contributions to certain ERISA funds. Upon the employer’s alleged failure to submit to the audits, the CBA assumed the employer to be delinquent and provided a procedure for estimating the amount of the deficiency.

The prescribed calculation estimated the employer’s deficiency at approximately $1.7 million, which ultimately yielded an arbitration award of approximately $2.3 million when interest, liquidated damages, and fees were included. After the union filed a motion to confirm the arbitration award, the parties notified the court that they were working together to perform the audit of the employer’s books that had initially triggered the dispute. Upon completion of the audit, the parties expected to settle based on the audit amount. The audit then revealed the employer’s actual deficiency to be $116,369.60, approximately 6.7% of the estimated deficiency ($1.7 million) and just 5% of the total arbitration award ($2.3 million).

The court’s analysis of the petition began by noting that the case was brought under the LMRA and, as such, the Federal Arbitration Act (FAA) did not apply. Judicial review under the LMRA is “very limited,” and courts are “not authorized to review the arbitrator’s decision on the merits despite allegations that the decision rests on factual errors or misinterprets the parties’ agreement.” Further, under the LMRA, “unless the award is procured through fraud or dishonesty, a reviewing court is bound by the arbitrator’s factual findings, interpretation of the contract, and suggested remedies.”

However, the court also noted that “federal courts have often looked to the FAA for guidance in labor arbitration cases.” Section 11 of the FAA permits modification of an arbitration award to “effect the intent” of the award and “promote justice between the parties” when there is an “evident miscalculation of figures.” Although the court did not find any mistake related to the application of the arbitration agreement’s prescribed method of calculating the employer’s deficiency, the court nevertheless found that the huge disparity between the actual deficiency and the estimated amount demonstrated that the award suffered from “an evident material miscalculation.” “The difference is striking, and it is clear that the estimated deficiency cannot be considered an approximation because it is roughly fifteen times the actual deficiency.”

Therefore, despite the strictures applied to judicial review under the LMRA, the court denied the petition to confirm and remanded the case to the arbitrator. In so doing, the court relied in part on the union’s statements that it would “agree to vacate the arbitration award upon completion of the new audit” and the parties’ multiple representations that they intended to settle based on the audit amount. The court also found that remand furthered the LMRA’s policy of “promoting industrial stabilization” by “discouraging awards that parties agree are obviously erroneous in light of objectively ascertainable facts.”

Trustees of the New York City District Council of Carpenters Pension Fund v. Carolina Trim LLC, No. 1:17-cv-06485 (S.D.N.Y. Feb. 26, 2020).

Former Employees Not Bound by Their Former Union’s Arbitration Agreement

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The former employees of a waste management company sued their former employer for violations of various federal and state labor laws. The company sought to compel arbitration and dismiss the complaint, relying on an arbitration agreement into which the former employees’ union had entered with the company more than 10 months after the former employees had left the company and commenced litigation. The court found that the determination regarding whether the employees were parties to the agreement was a “threshold inquiry [and] is the type usually decided by a court unless the parties have ‘clearly and unmistakably’ agreed to arbitrate that issue.” Finding no clear agreement to consign such threshold inquiries to the arbitrator, the court went on to hold that the arbitration agreement applied only to “present and future employees,” not past employees, and therefore did not bind the plaintiffs. The court distinguished Raymond v. Mid-Bronx Haulage Corp., No. 1:15-cv-05803 (S.D.N.Y. Nov. 2, 2017), in which the court held that a union contract may require past employees to submit their claims to arbitration. Raymond‘s holding was conditioned on the employee still being a member of the union. In addition, the arbitration agreement in Raymond explicitly applied to “past employees.” Here, no such explicit language was included in the arbitration agreement, nor were the past employees still members of the union. As such, they were not parties to, and therefore not bound by, the agreement to arbitrate. The court therefore denied the motion to compel arbitration.

Orlando v. Liberty Ashes, Inc., No. 1:15-cv-09434 (S.D.N.Y. Jan. 15, 2020).

Eighth Circuit Reinstates Arbitration Award Stemming From Federal Crop Insurance Policy

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The Eighth Circuit reversed a district court decision vacating an arbitration award relating to a federal crop insurance policy issued through a standard reinsurance agreement with the Federal Crop Insurance Corp. (FCIC). The district court had ruled that the arbitrator exceeded his powers under the arbitration agreement by interpreting the crop insurance policy. Pursuant to FCIC regulations, the policy included a provision prohibiting the arbitrator from interpreting either the policy or FCIC procedures, and instead requiring the parties to obtain such an interpretation from the FCIC itself.

The Eighth Circuit found that the question whether the arbitrator was required to interpret the policy was not raised by either party until after the award had already been issued. Emphasizing that the courts are to “accord an extraordinary level of deference” to the arbitrator’s decision, the Eighth Circuit stated that an “arbitrator has not exceeded his powers where neither party suggested that a term of the policy was subject to interpretation, but the interpretation dispute instead arose after the arbitration proceedings.” The Eighth Circuit reversed and remanded, directing the district court to enter an order confirming the arbitration award.

Balvin v. Rain & Hail, LLC, No. 18-3018 (8th Cir. Dec. 2, 2019).