Rob DiUbaldo

SIXTH CIRCUIT AFFIRMS ARBITRATOR’S DECISION IN ENVIRONMENTAL REMEDIATION MATTER

August 15, 2017 by Rob DiUbaldo

The Sixth Circuit has affirmed an order confirming an arbitration award regarding indemnification obligations for environmental cleanup owed by William Farley toward the Eaton Corporation arising out of the 1986 sale of an industrial property. Farley argued that the remediation in question was not covered by the relevant indemnification provision and that the arbitrator improperly ignored that provision’s unambiguous language. Applying the extreme deference given to arbitrator’s decisions, the Sixth Circuit disagreed.

Eaton purchased the property from Condec Corporation in 1986, and Condec agreed to indemnify Eaton for expenses “resulting from non-compliance prior to August 8, 1986 by [Condec], with any applicable laws, regulations, orders, or other requirements of any governmental authorities existing on or before August 8, 1986.” While a state environmental regulator had issued a Letter of Deficiency in 1982 and a Notice of Violation in 1984, both related to the environmental contamination that later needed to be remediated, and Condec was not ordered to clean it up until after the sale. After Condec’s successor entity went bankrupt, Farley assumed Condec’s indemnification obligations under a new agreement with materially identical terms.

After numerous indemnification payments were made to Eaton, Farley filed a claim against it contesting the validity of some of these payments, and Eaton counterclaimed for additional remediation costs. Farley argued that Eaton’s remediation costs were not covered by the indemnification provisions in the operative agreements, because Eaton was not ordered to clean up the site until after August 8, 1986. The arbitrator disagreed, finding that the intent of the agreement was to indemnify Eaton for the cleanup of contamination existing prior to the 1986 sale, and the arbitrator awarded Eaton over $175,000 in damages and over $1 million in attorneys’ fees and costs.

Challenging this award, Farley argued that the arbitrator had disregarded the explicit language of the indemnification provision and read an intent into that provision that was not supported by its language. The Sixth Circuit, noting that it could not overturn the decision of the arbitrator “[s]o long as the arbitrator is arguably construing or applying the contract and acting within the scope of his authority,” even if the court were “convinced that he committed serious errors,” found that Farley’s arguments were insufficient, and it upheld the arbitrator’s decision.

Farley v. Eaton Corp., Case No. 16-3893 (6th Cir. July 20, 2017)

This post written by Jason Brost.

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IN DECIDING WHETHER TO VACATE CONFIRMATION OF ARBITRAL AWARD SUBSEQUENTLY VACATED BY PRIMARY JURISDICTION, SECOND CIRCUIT CONSIDERS NORMAL RULE 60(B)(5) FACTORS PLUS INTERNATIONAL COMITY

August 14, 2017 by Rob DiUbaldo

The Second Circuit recently affirmed a lower court’s decision to vacate its earlier judgment enforcing a Malaysian-based arbitration award against the government of Laos where a Malaysian court subsequently set aside the award. After a dispute between a Thai company and its Laotian subsidiary (“TLL”) against the Laotian government over mining contracts, an arbitration panel in Malaysia found Laos in breach and awarded TLL $57 million. Once the period for challenging the award under Malaysian law passed, TLL pursued enforcement actions against Laos in the U.S., U.K., and France. In late 2010, nine months after the operative deadline, Laos moved for an extension of time to challenge the award, which the Malaysian court granted. While a U.S. district court issued relief enforcing the award in 2011, the Malaysian court then set aside the award in 2012. The present appeal arose from the district court’s 2014 decision granting Laos’ Rule 60(b)(5) motion to vacate its previous confirmation order to give effect to the Malaysian court’s set-aside judgment and two subsequent orders.

First, the court held that Rule 60(b)(5) applies to motions to vacate judgments confirming arbitral awards that are subsequently set aside by the primary jurisdiction. Reviewing the New York Convention and FAA texts, it found the Convention’s requirement of enforcing arbitral awards in accordance with the secondary jurisdiction’s procedural rules includes post-judgment procedures like Rule 60(b). Further, the FAA provision subjecting judgments to the “provisions of law relating to” judgments in an action extends to the Federal Rules of Civil Procedure.

Next, the court discussed what a district court’s Rule 60(b)(5) analysis should entail in this context. It found that a district court should take into consideration the Convention’s concern for international comity as well as the “full range of Rule 60(b) considerations.” In the present case, the Second Circuit concluded that the lower court did not exceed its discretion in applying Rule 60(b)(5). The lower court did not explicitly lay out its Rule 60(b) analysis, but the appellate court reviewed the record and found all the circumstances potentially influencing the Rule 60(b) motion did not bar the district court from vacating its prior judgment. The Second Circuit observed that throughout the proceedings the lower court explicitly considered the interests of justice, appropriately declined to find Laos acted inequitably, and the interests of finality did not weigh against the lower court’s decision. The court concluded that had the lower court expressly reviewed the relevant conduct in context of Laos’s Rule 60(b)(5) motion, it would not have enforced the annulled award.

Finally, the Second Circuit found no abuse of discretion in two other district court decisions rejecting TLL’s request for a security bond and refusing to enforce the English judgment. It noted the English judgment’s strong connection (and reliance upon) the district court’s original confirmation award which had since been vacated and rejected TLL’s other arguments on that order.

Thai-Lao Lignite (Thailand) Co. v. Gov’t of the Lao People’s Democratic Republic, Nos. 14-597, 14-1052, 14-1497 (2d Cir. July 20, 2017).

This post written by Thaddeus Ewald .

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COURT COMPELS ARBITRATION OF NON-SIGNATORY PARTY SEEKING TO RECOUP DAMAGES FLOWING FROM CONTRACT CONTAINING ARBITRATION CLAUSE

July 27, 2017 by Rob DiUbaldo

A federal district court has required Scottsdale Insurance Company to arbitrate a claim against Kinsale Insurance Company based on an arbitration clause in a contract between Kinsale and its insured – a contract to which Scottsdale was not a party – based on the doctrine of equitable estoppel, because “Scottsdale’s claims are entirely dependent on Kinsale’s obligations to provide insurance coverage” under the contract containing the arbitration clause.

The case arose because Scottsdale paid to defend and then settle a personal injury claim against its insured, P. Tamburri Steel, LLC, which resulted from a construction project. AJA Services, Inc. had agreed to indemnify Tamburri for any personal injury claims that resulted from that project. Another entity, AJA Skies the Limit, Inc., was insured by Kinsale under a policy containing a broad arbitration provision. In another matter, Tamburri had sought and received an order reforming its subcontract with AJA Services to name AJA Skies the Limit as the actual party, making the Kinsale policy available to pay Tamburri’s claim against AJA Services. Scottsdale then sued Kinsale in federal court to recover the sums it paid to settle and defend the personal injury case.

Kinsale moved to compel arbitration pursuant to the arbitration clause in its contract with AJA Skies the Limit. While it was undisputed that Scottsdale was not a party to that contract, Kinsale argued that Scottsdale was bound to arbitrate under the theory of equitable estoppel, because Scottsdale’s claims relied upon certain terms of the insurance policy. Scottsdale argued that it was not seeking to enforce any right under the insurance contract, but was instead seeking to enforce “the equitable right to recover amounts that should have been paid by Kinsale.” However, the court found that “Scottsdale’s claims depend almost entirely on the scope of Kinsale’s policy and the coverage Kinsale owes Tamburri under that policy,” as that the policy “is what provides Tamburri with (and Scottsdale, as subrogee) the defense and indemnity that Scottsdale ultimately seeks”. Thus, the court granted Kinsale’s motion to compel arbitration.

Scottsdale Inc. Co. v. Kinsale Inc. Co., No. 17-0350 (E.D. Penn. May 26, 2017).

This post written by Gail Jankowski.

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TENTH CIRCUIT UPHOLDS CONFIRMATION OF ARBITRAL AWARD IN LLC DISSOLUTION DISPUTE

July 26, 2017 by Rob DiUbaldo

The Tenth Circuit recently affirmed a district court’s confirmation of an arbitration award in a dispute regarding the dissolution of Knowledge Strategy Solutions, LLC (“KSS”). KSS was a partnership between the professional corporations of Anne Kershaw (“Kershaw”) and Shannon Spangler (“Spangler”). On less than amicable terms, the two negotiated a withdrawal from KSS effective June 30, 2014, but Kershaw filed the necessary paperwork terminating the corporation four days early without Spangler’s knowledge. Kershaw did not tender to Spangler PC its share of KSS’s capital account or other assets, and instead created a new LLC (“KSS-New York”) and placed KSS’s assets into that company, prompting Spangler to file suit.

Kershaw moved to compel arbitration, which a Missouri state court ordered for some of the claims regarding the alleged breach of KSS’s operating agreement and breach of fiduciary duties, but retained jurisdiction over other counts. Arbitration was temporarily delayed when KSS-New York filed for bankruptcy and a bankruptcy court issued an automatic stay, but after the stay was lifted the arbitrator issued an award in Spangler’s favor. The award encompassed Spangler’s share of KSS’s capital account, but did not include any award for KSS’s intangible assets which were then in possession of KSS-New York in bankruptcy. A district court confirmed the arbitral award, and Kershaw appealed.

On appeal, the Tenth Circuit affirmed the district court’s confirmation over Kershaw’s three objections: that the district court’s decision demonstrated (1) disregard for the bankruptcy court’s order, (2) disregard for the Missouri state court’s order, and (3) disregard of a Missouri statute.

First, the appeals court upheld the lower court’s finding that the arbitrator did not exceed the scope of his arbitral authority by awarding Spangler its value of KSS’s capital account upon termination. Despite Kershaw’s argument that the capital account money was transferred to KSS-New York and thus subject to bankruptcy protection, the court explained that money is fungible and Kershaw retained liability for the undistributed capital account even though it transferred the actual money to KSS-New York. Unlike money, however, KSS’s intangible assets now in KSS-New York’s possession were not fungible and the arbitrator thus appropriately refrained from awarding any part of those assets subject to bankruptcy protection. The Tenth Circuit specifically noted that this differential treatment of monetary and intangible assets demonstrated the arbitrator was aware of the limits of his authority imposed by the bankruptcy proceeding and fastidiously adhered to those limits.

Second, the court rejected Kershaw’s argument that the arbitrator disregarded the state court’s order compelling arbitration by improperly including compensation in the arbitral award. Inclusion of compensation via revenue, Kershaw argued, encroached upon the Missouri court’s retention of jurisdiction over compensation-based claims, which were excluded from the arbitration provision. The Tenth Circuit affirmed the district court’s holding that this argument impermissibly challenged the arbitrator’s legal conclusions and factual findings.

Third, the appeals court declined to decide whether Kershaw’s argument that the omission of a statute’s complete language in a quotation by the district court was manifest disregard of the law. The court noted that the lower court’s statutory analysis was an alternative finding, and thus even a favorable ruling for Kershaw would not require reversal of the award’s confirmation, because the lower court’s primary holding is undisturbed.

A. Kershaw, P.C. v. Shannon L. Spangler, P.C., No. 16-1483 (10th Cir. July 10, 2017).

This post written by Thaddeus Ewald .

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NINTH CIRCUIT FINDS INCORPORATION OF ICC RULES INTO ARBITRATION AGREEMENT CONSTITUTES CLEAR AND UNMISTAKABLE EVIDENCE OF DELEGATION OF ARBITRABILITY TO ARBITRATOR

July 25, 2017 by Rob DiUbaldo

In a case involving three related contracts, only one of which contained an arbitration agreement, the Ninth Circuit has held that incorporation of the rules of the International Chamber of Commerce (ICC) into an arbitration agreement constitutes clear and unmistakable evidence of delegation of arbitrability to the arbitrator. The first contract was one between Portland General Electric Company (PGE) and a contractor to build a power plant. It required the contractor to obtain a performance bond, which was issued by two insurers (the Sureties). Neither the construction contract nor the bond contained arbitration provisions. The construction contract also required the contractor to obtain a guaranty of performance from Abengoa S.A. Abengoa issued a guaranty to PGE, under which Abengoa and PGE agreed to submit any disputes to arbitration conducted by and under the rules of the ICC. The guaranty further stated that once arbitration commenced, either party could implead or raise any claim against any other entity, provided the claim arose out of or in connection with an agreement with a subcontractor or the guaranty.

Subsequently, PGE declared the contractor in default and terminated the construction contract, prompting Abengoa to file a request for arbitration with the ICC, naming PGE as respondent and the contractor as an impleaded party. Abengoa then moved to join the Sureties in the arbitration. The Sureties denied liability under the performance bond, and PGE sued them in federal court and moved to enjoin them from arbitrating their claims against PGE. The Sureties argued that PGE had expressly agreed in the guaranty that the ICC tribunal would decide whether Abengoa could join the Sureties and for what purposes, but the court granted PGE’s request for a preliminary injunction and refused to stay the litigation.

On appeal, the Ninth Circuit disagreed, finding that the parties, by agreeing to arbitration under the ICC Rules, had delegated the authority to decide the “gateway” questions of arbitrability at issue because the ICC rules expressly vest arbitrators “with the authority to determine questions of arbitrability.” The Ninth Circuit thus vacated the District Court’s order, concluding that the litigation must be stayed while the tribunal determined whether PGE was required to arbitrate its claims against the Sureties.

Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., No. 16-35628 (9th Cir. July 10, 2017)

This post written by Gail Jankowski.

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