Benjamin Stearns

First Circuit Affirms Denial of Vacatur of Arbitration Award, Rejects Arguments That Parties Opted Out of FAA and Arbitrator Erred

September 5, 2019 by Benjamin Stearns

The First Circuit recently denied an appeal from the District of Puerto Rico’s refusal to vacate an arbitration award. The dispute centered on a management services agreement containing an arbitration agreement that required binding arbitration of any disputes under the rules of the American Health Lawyers Association (AHLA). The court disagreed with each of the appellant’s asserted bases for vacatur, which included “two main baskets” of arguments that the court divided as: (1) the Puerto Rico Arbitration Act (PRAA) should have governed the arbitration, rather than the FAA alone; and (2) the arbitrator engaged in misconduct, exceeded his powers, and manifestly disregarded the law.

Regarding the PRAA, the appellant argued that the agreement’s choice-of-law provision selecting Puerto Rican substantive law constituted an explicit agreement to proceed under the PRAA. The First Circuit disagreed, citing precedent holding that “a generic choice-of-law clause, standing alone, is insufficient to support a finding that contracting parties intended to opt out of the FAA’s default regime for vacatur of arbitral awards.”

Regarding the purported errors by the arbitrator, the court quoted cases describing arbitration awards as “nearly impervious to judicial oversight.” The court determined that the alleged misconduct by the arbitrator consisted of his treatment of certain evidence. The court held that the appellant not only failed to make the required showing that the arbitrator’s alleged refusal to hear the evidence resulted in the deprivation of a fair hearing, but it was “clear from the arbitrator’s extensive and detailed findings of fact” that much of the evidence was heard and considered by the arbitrator. The court concluded that the appellant simply did not agree with the weight the arbitrator gave to the evidence, which does not justify vacatur.

The court also rejected the appellant’s contention that the arbitrator exceeded his powers by awarding attorneys’ fees and prejudgment interest in violation of Puerto Rican law. The court explained that it would harmonize the parties’ arbitration agreement and the choice-of-law provision by finding that the choice-of-law provision governed the parties’ substantive rights and duties, but did not limit the arbitrator’s authority under the arbitration rules of the AHLA, which authorized the fee and interest award.

Finally, the court turned to the appellant’s last argument that the arbitrator manifestly disregarded the law, which the court explained is based on common law, not the FAA. The court noted that the appellant bears the burden of demonstrating that the arbitrator was confronted with the correct law and then ignored it. Although the appellant presented the arbitrator with “a boatload of legal theories,” the court found that the arbitrator simply rejected those arguments, “and rejection is not ignoring” within the meaning of the manifest disregard doctrine.

Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., No. 17-2014 (1st Cir. Aug. 1, 2019).

Fifth Circuit Determines That Louisiana Nonresident Attachment Statute Allows for Attachment in Aid of Arbitration

August 14, 2019 by Benjamin Stearns

On second rehearing and after submitting a question to the Louisiana Supreme Court, the Fifth Circuit determined that the Louisiana nonresident attachment statute allows for attachment in aid of arbitration. The underlying case involved competing claims from creditors for the pig iron on board a ship anchored in New Orleans. The Louisiana Supreme Court answered the certified question by stating that the statute “allows for attachment in aid of arbitration if the origin of the underlying arbitration claim is one pursuing money damages and the arbitral party has satisfied the statutory requirements necessary to obtain a writ of attachment.”

Louisiana’s attachment statute permits a writ of attachment to be obtained “in any action for a money judgment, whether against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount, and whether it is liquidated or unliquidated.” The Fifth Circuit found the underlying action seeking to compel arbitration to be an “action for a money judgment” as the plaintiff had “made it clear from the outset” that it was pursuing a money judgment. “The ‘nature, character, or origin of the claim’ just happens to be arbitration.” Since the plaintiff had brought an action for a money judgment (in this case, an arbitration), the statute permitted the issuance of a writ of attachment, and therefore the requirements of the nonresident attachment statute had also been met, per the Louisiana Supreme Court’s guidance.

Stemcor USA Inc. v. Cia Siderurgica do Para Cosipar, No. 16-30984 (5th Cir. June 25, 2019).

Court Refuses to Treat Unopposed Petition to Confirm Arbitration Award as a Motion for Default Judgment, Reviews the Merits of the Petition, and Enters Order Confirming the Award and Legal Fees

July 24, 2019 by Benjamin Stearns

The case involved an AAA arbitration centering on the lack of performance under an exclusive distributorship agreement (EDA) that a medical supplier signed with a product manufacturer. The supplier failed to order sufficient amounts of the product under the EDA, but contended that the manufacturer fraudulently induced the supplier to enter into the EDA by making representations that the product was unique. The EDA, however, included an integration clause stating that the agreement constituted the entire agreement between the parties. The arbitrator ruled in favor of the manufacturer, finding that the supplier was barred by the parol evidence rule from asserting that it was fraudulently induced into signing the EDA.

The manufacturer then filed a petition with a district court to confirm the award. Although the supplier failed to file a response to the manufacturer’s petition, the court refused to simply enter a default judgment, holding that a default is not appropriate on a petition to confirm an arbitration award. The court then found that the evidence and the law showed that the arbitrator’s decision was more than “colorable” and confirmed the award. Included in the award was an award of attorneys’ fees. On review, the court found that the manufacturer’s attorneys complied with evidentiary requirements, including submission of an affidavit describing their experience, rate, amount of time spent on the case, and a statement that the requested rates are reasonable in their community. As a result, the district court confirmed the requested amount of fees in their entirety, noting specifically that the supplier had not presented any evidence to the contrary.

Intellisystem, LLC v. McHenry, No. 2:19-cv-01359 (E.D. Pa. June 26, 2019).

Court Compels Arbitration Under the New York Convention and Dismisses Case in Windstorm Insurance Claim Dispute

July 1, 2019 by Benjamin Stearns

The underlying insurance policy was issued by Certain Underwriters at Lloyd’s London and contained an arbitration clause. The court applied the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) under the FAA. The court found that all four requirements under the Convention were met. The court easily determined that there was a written agreement and that the agreement arose out of a commercial relationship. With respect to the requirement that the agreement provide for arbitration in the territory of a signatory of the Convention, the court found that the requirement was met where the insurance policy (although separate from the arbitration clause), provided that “any action brought against [the insurer] must be in the United States of America, ‘in a court having proper jurisdiction.'” And regarding the final requirement of the Convention, that a party to the agreement is not an American citizen or that the commercial relationship has a reasonable relation with a foreign state, the court found it was met because a portion of the insurance policy was subscribed to by Lloyd’s Syndicate 2001, which is wholly owned by a company that is organized and principally based in the United Kingdom.

Although Section 3 of the FAA states that district courts “shall” stay proceedings pending arbitration upon the motion of a party, the court found that it is appropriate to dismiss the lawsuit where all of the issues presented are arbitrable and the plaintiff has not requested a stay. The complaint only raised one claim, which the court found subject to arbitration, and the plaintiff did not respond to the motion to compel or otherwise request a stay. As a result, the court dismissed the complaint with prejudice.

German Int’l Sch. of Fort Lauderdale, LLC v. Certain Underwriters at Lloyd’s, London, No. 0:19-cv-60741 (S.D. Fla. May 14, 2019).

Confidential Reinsurance Agreement Made Public After Party Failed to Show Good Cause for Maintaining Confidentiality

June 11, 2019 by Benjamin Stearns

A reinsurance agreement and attachments filed in a court proceeding and purportedly containing “all manner of confidential and proprietary business information,” including “product design,” “service standards,” “pricing,” and “acquisition expenses and claim administration expenses,” were made public after the filing party failed to demonstrate “good cause” for keeping the documents secret.

“The court’s operation is of ‘utmost public concern.'” “Its business is ‘presumptively public.'” Furthermore, the public has both a limited First Amendment right of access to civil trial proceedings and a separate common law right to inspect and copy judicial records. While material filed with discovery motions is not subject to the common law right of access, material filed in conjunction with pretrial motions that require judicial resolution is subject to the common law right. In addition, the existence of a protective order does not automatically override the public’s right of access. Rather, the party seeking to maintain secrecy of the documents “must establish good cause for continued protection under Rule 26.” “An agreed or stipulated protective order merely postpones the need to litigate good cause document by document.”

To maintain confidentiality, a movant must “make a particularized showing of ‘good cause’ and a specific demonstration of fact by affidavit or testimony of a witness with personal knowledge, of the specific harm that would result from disclosure or loss of confidentiality; generalities, conclusory statements, and unsupported contentions do not suffice.” In this case, the movant “provided no specific explanations, evidence, or declarations that demonstrate why the exhibits should be sealed.” Instead, the movant only made “general, unsupported contentions” that the documents were confidential and that their disclosure would be harmful. Because there was no “particularized showing of good cause,” the court denied the motion to uphold confidentiality.

Theriot v. Nw. Mut. Life Ins. Co., No. 2:18-cv-00688 (M.D. Ala. May 17, 2019).