Carlton Fields

New York Federal Court Finds Vacatur of Arbitration Award Not Warranted

May 28, 2019 by Carlton Fields

Michael Miller (“Miller”) filed a petition to vacate an arbitration award against UBS Financial Services Inc. and UBS Credit Corp. (collectively “UBS”) claiming that “the award is unsound because two of the three arbitrators on the panel that issued the award failed to properly disclose relevant information during the arbitrator selection process.” Miller is a former employee of UBS. He received six loans from UBS, which were immediately due upon his termination from the company. Miller agreed to submit any disputes regarding the loans to arbitration. When Miller resigned, UBS filed a statement of claim against Miller in connection with the outstanding loan balance and proceeded with arbitration. The arbitration panel found in favor of UBS.

The court held that vacatur was not warranted under FAA § 10(a)(2) because the arbitrators did not exceed their powers. The court concluded that Miller failed to demonstrate a violation of FINRA Rule 13408, which governs the disclosures required of arbitrators in advance of arbitration and “thus failed to establish on these grounds that the arbitrators acted in excess of their powers in issuing the arbitration award.” Further, with respect to an alleged deficient disclosure on the Oath of Arbitration form regarding an arbitrator’s interest in UBS, the court explained that Miller waived the right to object on this basis. The court explained that the arbitrator’s affirmative answer on the Oath of Arbitration form gave Miller notice of a possible objection and “[w]here a party has knowledge of facts possibly indicating bias or partiality on the part of an arbitrator he cannot remain silent and later object to the award of the arbitrators on that ground.” The court also held that vacatur under FAA § 10(a)(2) on the basis of “evident partiality or corruption in the arbitrators” was not warranted because “the first two allegedly deficient disclosures identified [were] not suggestive of any bias on the part of the arbitrators, and because any objection premised on the third disclosure was waived.”

Miller v. UBS Financial Services, Inc., et. al., No. 18-CV-8415 (JPO)(S.D.N.Y. May 5, 2019)

Supreme Court’s Lamp Plus Brings Ambiguity in Classwide Arbitration to Light

May 9, 2019 by Carlton Fields

In 2016, a hacker tricked an employee of petitioner Lamps Plus Inc. into disclosing tax information of about 1,300 company employees. After a fraudulent federal income tax return was filed in the name of respondent Frank Varela, a Lamps Plus employee, Varela filed a putative class action against Lamps Plus in federal district court on behalf of employees whose information had been compromised. Relying on the arbitration agreement in Varela’s employment contract, Lamps Plus sought to compel arbitration — on an individual rather than a classwide basis — and to dismiss the suit. The district court rejected the individual arbitration request, but authorized class arbitration and dismissed Varela’s claims. Lamps Plus appealed, arguing that the district court erred by compelling class arbitration, but the Ninth Circuit affirmed.

The U.S. Supreme Court granted cert on the issue of whether the Federal Arbitration Act (FAA) bars an order requiring class arbitration when an agreement is not silent, but rather “ambiguous,” about the availability of such arbitration. First, the Court held that it had jurisdiction because an order that both compels arbitration and dismisses the underlying claims qualifies as “a final decision with respect to an arbitration” within the meaning of 9 U.S.C. §16(a)(3). Next, the Court held that under the FAA, an ambiguous agreement cannot provide a contractual basis for concluding that the parties agreed to submit to arbitration. The Court explained that pursuant to the FAA, arbitration is a matter of consent. Previously, the Supreme Court held that “courts may not infer consent to participate in class arbitration absent an affirmative contractual basis for concluding that the party agreed to do so,” and that silence is not enough. The Court explained that this reasoning controlled here and, like silence, ambiguity does not provide a sufficient basis to conclude that parties consented to arbitration.

Lamps Plus, Inc. v. Varela, No. 17-988, 2019 WL 1780275 (2019)

Court Holds That Arbitration Award Was Final and Definite and Arbitrator Did Not Manifestly Disregard the Law

May 8, 2019 by Carlton Fields

In Ballinasmalla Holdings Ltd. v. FCStone Merchant Services, LLC, petitioners Ballinasmalla Holdings Ltd. (BHL) and Corrib Oil Biofuels LLC (Corrib Oil) brought an action seeking vacatur of a final arbitration award (“Final Award”) issued in favor of the respondents for approximately $5 million. The respondents, FCStone Merchant Services LLC (FCStone) and INTL FCStone Markets LLC (INTL FCStone), counter-claimed for confirmation of the Final Award and an earlier Partial Final Award.

Corrib Oil is a company that distributes and manufactures oil and petrol products. Corrib Oil entered into a contract with FCStone to purchase soybean oil. BHL agreed to act as a guarantor for Corrib Oil on the contract. BHL also acted as a guarantor on payments owed by Corrib Oil Company Ltd. (Corrib Ltd.), who was not a party to the litigation, to INTL FCStone on swap transactions pursuant to an International Swap Dealers Association (ISDA) agreement. Both contracts had arbitration clauses. FCStone and INTL FCStone demanded arbitration after a dispute over soybean deliveries and payment on the ISDA agreement. INTL FCStone concurrently filed an action in New York state court against Corrib Ltd. seeking to collect on the debt from its ISDA agreement.

The arbitrator granted a partial award on the soybean contract dispute and dismissed the ISDA guaranty claim. FCStone and INTL FCStone asked the arbitrator to reinstate their ISDA guaranty claim and hold a hearing, and the arbitrator agreed. The arbitrator thereafter issued the Final Award, and the petitioners then filed their petition to vacate.

The court denied the petitioners’ motion to vacate the Final Award and granted the respondents’ motion to confirm. The court held that the arbitration award was final and definite. The court explained that for an arbitration award to be final and definite “the arbitrators must have decided not only the issue of liability … but also the issue of damages.” This was true here, despite the related case that was on appeal in the New York state court regarding a separate entity. The court also held that the arbitrator did not manifestly disregard the law governing stays. The court explained that a decision to stay the arbitration is a procedural matter governed under the procedural rules of the arbitration, i.e., the Commercial Rules of the AAA, and BHL did not make an argument that the arbitrator applied the wrong procedural rules or did so intentionally. Further, the court held that the petitioners did not demonstrate that the arbitrator acted in manifest disregard of the law on attorneys’ fees. There was no assertion that the arbitrator knew of a governing legal principle and refused to apply it or intentionally ignored it. Last, the court held that post-award statutory interest, costs, and fees were warranted.

Ballinasmalla Holdings Ltd. v. FCStone Merch. Servs., LLC, No. 1:18-cv-12254-PKC, 2019 WL 1569802 (S.D.N.Y. Apr. 11, 2019)

Fourth Circuit Holds That Arbitrator Exceeded Powers

April 19, 2019 by Carlton Fields

Williamson Farm challenged the district court’s decision to vacate an arbitration award that Williamson won against Diversified Crop Insurance, a private insurance company that sold a federal crop insurance policy to Williamson. Federal crop insurance policies are sold pursuant to the Federal Crop Insurance Act (FCIA). The FCIA established the FCIC, a government corporation that administers the federal crop insurance program. The FCIC relies on approved insurance providers, such as Diversified Crop, to issue federal crop insurance policies to farmers. The FCIC reinsures the approved insurance providers’ losses and reimburses their administrative and operating costs. The approved insurance providers must comply with FCIA and other regulations.

In this instance, Williamson made two separate claims under its policy for crop loss and prevention of planting, both of which were denied by Diversified Crop. Williamson then sought arbitration pursuant to the policy. After the arbitrator issued its award, Williamson filed a motion to confirm the award in the U.S. District Court for the Eastern District of North Carolina. Diversified Crop simultaneously filed a motion to vacate the award. The district court granted Diversified Crop’s motion to vacate the award and denied Williamson’s motion to confirm the award. The Fourth Circuit affirmed the district court’s decision, holding that the arbitrator exceeded her powers by: (1) impermissibly interpreting the policy rather than obtaining an interpretation from the FCIC; and (2) awarding extracontractual damages. The court explained that both the policy and FCIC regulations provide that only the FCIC, and not the arbitrator, may interpret the policy, and therefore the arbitrator exceeded her powers by interpreting the policy herself without obtaining an FCIC interpretation for the disputed policy provisions. Further, the court explained that the FCIC has conclusively stated in multiple final agency determinations that extracontractual damages cannot be awarded in arbitration and can only be sought through judicial review and therefore, by awarding extra-contractual damages, she exceeded her powers.

Williamson Farm v. Diversified Crop Ins. Servs., No. 18-1463 (4th Cir. Feb. 27, 2019)

Connecticut Superior Court Holds That Consolidation Is a Procedural Question to Be Considered by an Arbitrator

April 18, 2019 by Carlton Fields

The Hartford and Employers Insurance Co. of Wausau entered into a Non-Obligatory Casualty Excess of Loss Reinsurance Agreement (the “Agreement”). The Agreement contained an arbitration provision that provides that the arbitration panel should consist of three arbitrators, one chosen by each party and then the third chosen by the two chosen.

Hartford demanded arbitration under the Agreement and 18 other contracts arising out of eight different reinsurance programs between Wausau and four subsidiaries of Hartford. Wausau responded to the arbitration demand arguing that each contract required separate arbitrators and to avoid this Wausau proposed consolidating the arbitrations into three separate proceedings against Hartford and its subsidiaries. Hartford would not proceed with Wausau’s proposal, arguing that any consolidation was for the arbitrators to determine, not the parties.

Wausau filed a summons with the Connecticut Superior Court demanding that Hartford appoint an arbitrator under the Agreement, and Hartford responded by filing a cross-motion to compel arbitration in this action. The court explained that if the parties have an agreement to arbitrate and one of the parties refuses to submit to arbitration, the party seeking arbitration may petition a court for an order compelling arbitration. Whether a dispute is subject to arbitration is a question for the court; however, “procedural questions which grow out of the [parties’] dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.” Further, whether an arbitration proceeding should be consolidated with one or more other arbitration proceedings is a question for the arbitrator.

In this case, the parties did not dispute that they entered into a valid arbitration agreement and that their dispute fell within the scope of the agreement. Therefore, the court held that the procedural question of consolidation is for the arbitrators and not for the court to decide.

Employers Ins. Co. of Wausau v. The Hartford, No. HHD CV 18 6099158 S (Conn. Super. Ct. Feb. 13, 2019)