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Rob DiUbaldo

UK COURT REFUSES TO REMOVE ARBITRATOR FOR ALLEGED BIAS

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A court in the United Kingdom refused to remove an arbitrator for perceived bias where the arbitrator was appointed to arbitrate multiple disputes arising from the same underlying incident triggering insurance coverage. A company (“H”) was adjudged in a US proceeding to be liable and subsequently settled the claims before judgment. A Bermudan insurance company (“L”) wrote the top layer of H’s liability insurance and refused H’s claim for the full coverage of its layer, on the grounds that the settlement was not reasonable and L had reasonably not consented to it. The dispute was subject to arbitration in London, and the instant opinion addressed H’s arguments that the third, neutral arbitrator appointed (“M”) was partial and biased, warranting removal.

The claims of partiality concerned the revelation that M had accepted arbitral appointments in two other cases arising out of the same underlying incident and another party (“R”)’s disputes with its excess liability insurers—including a claim by R against L. H made three arguments regarding M’s conduct allegedly demonstrating bias: M’s acceptance of the R arbitral appointments, M’s failure to disclose those appointments, and M’s response to H’s challenge to his impartiality.

The court rejected the first argument, finding that no fair-minded or informed observer would doubt M’s impartiality because it was receiving remuneration for arbitrating other disputes involving L and that overlapping subject matter was a regular feature of international arbitration in London. The court rejected the second argument because—already having found the other arbitral appointments were not problematic—there was no reason to disclose the appointments; alternatively, the court found even if M should have disclosed the appointments, the failure to do so did not give rise to a real possibility of apparent bias. Finally, the court rejected the third argument, holding that if an arbitrator were biased merely because a party had challenged his impartiality, any party would be able to self-select neutral arbitrators by unjustifiably challenging disfavored arbitrator’s impartiality.

H v. L [2017] EWHIC 137 (Comm) (Mar. 3, 2017).

This post written by Thaddeus Ewald .

See our disclaimer.

DISTRICT COURT FIND NO FEDERAL QUESTION JURISDICTION IN ACTION CHALLENGING ARBITRATION AWARD BASED ON ARBITRATOR BIAS

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A federal court has rejected the attempt of the losing party in an arbitration to engage in discovery regarding the potential bias of the arbitrator, finding that it had no jurisdiction over the matter because it did not involve a question of federal law and that it was not appropriate to allow discovery on this issue based solely on speculation.
The arbitration arose out of a dispute over allegedly defective work performed by a building contractor, BCI Construction, Inc., resulting in an award of approximately $586,000 in damages and attorney’s fees to 797 Broadway Group, LLC. BCI filed an action to vacate the award in federal court on the basis that the arbitrator was biased and moved to compel the arbitrator’s deposition.

The district court began with the question of it jurisdiction over the matter, repeating the well-established rule that the Federal Arbitration Act does not create an independent basis for jurisdiction in federal court. BCI argued that it was premature to consider the jurisdictional question because the court had “not had the opportunity look through the pleadings and conduct an analysis of the underlying dispute to determine if jurisdiction is appropriate.” The court disagreed, finding that there was no apparent federal question in the underlying dispute and that it would not allow BCI to depose the arbitrator “in hopes that an underlying federal question will present itself.” Having found no basis for federal jurisdiction, the court dismissed the matter. The court also awarded 797 Broadway’s motion for costs and an attorney’s fees, finding that BCI had failed to “articulate[] a colorable reason why the parties’ underlying dispute presented a federal question.” BCI Construction, Inc. v. 797 Broadway Group, LLC, Case No. 1:16-cv-1077 (FJS) (N.D.N.Y. March 15, 2017)

This post written by Jason Brost.

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NEW JERSEY STATE COURT REFUSES TO BIND PLAINTIFFS TO A BERMUDA COURT JUDGMENT WHERE THEY WERE NOT PARTIES TO THAT ACTION

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A New Jersey state court recently held that the former shareholders of an insurance holding company suing its E&O insurers were not bound by a Bermuda court’s prior judgment where they were not parties to the suit in which the judgment was issued.

Raydon Underwriting Management Company (“Raydon”), as a managing general agent, purportedly gave bad advice to two operating companies (“Clarendon”) held by Lion Holding, Inc. Plaintiffs were former shareholders of Lion Holding. Plaintiffs sued Raydon in a Bermuda court for the allegedly bad advice that led to millions in losses. Shortly before the Bermuda court issued a judgment in that case, Travelers and ERSIC—Raydon’s E&O insurers—informed plaintiffs that they would not be covering the claims against Raydon. Thereafter, the E&O insurers filed suit in Bermuda against Raydon seeking a declaration that the E&O policy were void, and prevailed on that suit.

Plaintiffs filed the present action against the E&O insurers regarding the E&O insurance coverage, and the E&O insurers defended the suit by claiming plaintiffs were bound by the judgment in the Bermuda action. The court disagreed, holding that the Bermuda judgment was not binding against the plaintiffs because they were not made parties to the suit. The court applied the general rule that a party cannot be bound by a judgment in a case in which it was not a party, finding none of the six exceptions laid out in Taylor v. Sturgell applicable. It noted that the plaintiffs’ interests were not adequately represented in the Bermuda case and in fact were inimical to the E&O insurers’ interests in that case.

Furthermore, the court refused to apply the doctrine of collateral estoppel to plaintiffs’ claims because the issues were not identical. In the Bermuda case, the issue was whether the E&O coverage was procured by fraud in the inducement. In this case, the issue was whether Travelers should be compelled to provide coverage.

Lastly, the court refused to decline jurisdiction under forum non conveniens, finding that the lower court had erroneously weighed the factors based on the assumption that the Bermuda judgment was binding on plaintiffs. The factors were split, but there was no basis for finding New Jersey a demonstrably inappropriate venue.

Ferguson v. Travelers Indem. Co., Case No. A-0028-15T1 (N.J. Super. Ct. App. Div. Mar. 10, 2017)

This post written by Thaddeus Ewald .

See our disclaimer.

FEDERAL COURT RESOLVES ARBITRATION CHALLENGES TO DISSOLUTION OF LAWYER AND NON-LAWYER PARTNERSHIP

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A federal court recently decided a host of different motions related to an arbitration dissolving the now-defunct Beltway Law Group (“BLG”), a firm that operated websites and other marketing efforts to attract clients on behalf of unaffiliated trial law firms. The arbitrator had previously resolved the primary dispute between the parties—non-lawyer partners who provided marketing services and the lawyer-partner—by ordering the dissolution of the firm. The opinion discussed herein arose from the parties’ various motions challenging or supporting an arbitrator’s resolution of the secondary disputes between the parties: attorneys’ fees and costs (awarded to the lawyer-partner), motions to vacate and to confirm, and supervision of the winding down process.

The non-lawyer partners sought to vacate the arbitration award under each of the four statutory bases recognized by the Federal Arbitration Act, as well as for manifest disregard of the law. In turn, the court rejected each of these challenges and upheld the arbitral award. First, the court rejected vacatur based on “undue means” because the challenging partners did not present clear and convincing evidence of fraudulent conduct or undue means that denied them a “fundamentally fair hearing.” Second, the court rejected vacatur based on “evident partiality” because the challenging party failed to meet the “heavy burden” of showing that the circumstances indicated any improper motives on behalf of the arbitrator. Third, the court rejected vacatur based on “”misconduct” by the arbitrator because the arbitrator’s refusal to stay the proceedings and allow one of the non-lawyer partners more discovery was not unreasonable nor an abuse of discretion. Fourth, the court addressed the challenging parties’ contention that the arbitrator acted with “manifest disregard” of the law—the legal viability of which as a basis to vacate an arbitration award remains uncertain. The court declined to resolve that issue by finding that the challenging parties’ failed to meet the manifest disregard standard (even assuming it is viable) – that the arbitrator knowingly refused to apply a governing legal principle that was well defined and clearly applicable.

Proceeding to the other pending motions before it, the court next granted the lawyer-partner’s motion to confirm the arbitral award because there was no valid basis to vacate it. It further denied the non-lawyer partners’ motion to appoint a receiver to facilitate the winding down of BLG because appointment of a receiver must be ancillary to primary relief—not primary relief itself—and because the issue of receivership was already adjudicated in the underlying arbitration. Finally, the court rejected the lawyer-partner’s motion seeking sanctions against the non-lawyer partners because their positions were not frivolous or deceptive.

Ray v. Chafetz, Case No. 16-428 (USDC D.D.C. Feb. 17, 2017)

This post written by Thaddeus Ewald .

See our disclaimer.

FEDERAL CIRCUIT UPHOLDS $455 MILLION INTERNATIONAL ARBITRATION AWARD, BUT FINDS THAT FEDERAL STATUTORY INTEREST RATE, RATHER THAN HIGHER RATE SPECIFIED BY ARBITRATIONS TRIBUNAL, APPLIES POST-JUDGMENT

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The Federal Circuit has upheld a district court’s confirmation of a $455 million award by an international arbitration tribunal, but modified the judgment to clarify that, after the date of the district court’s judgment confirming the award, interest will accrue at the federal statutory rate rather than the tribunal’s higher post-award rate.

The case involved patent infringement and breach of contract claims regarding technologies related to genes that provide resistance to certain herbicides. The Federal Circuit found that it had jurisdiction over the appeal as the matter arose under the patent laws of the United States. Because the case involved an international arbitration, enforcement of the award was regulated by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which, like the Federal Arbitration Act, requires that courts apply a highly deferential standard of review when evaluating challenges to the decisions of arbitrators. In this case, the Federal Circuit found that appellants failed to show that the tribunal’s decision was contrary to public policy, reflected a manifest disregard for the law, or was otherwise reversible under these deferential standards.

However, the Federal Circuit found that the district court erred by denying a motion to amend its judgment to use the federal statutory rate for post-judgment interest, rather than the higher rate that the tribunal stated would apply “from the date of this Award until full payment.” The Federal Circuit emphasized the distinction between post-award interest (i.e., after the date of the arbitration award) and post-judgment interest (i.e., after the date of district court’s order confirming that award), and noted that it was undisputed that the tribunal’s attention was not called to this distinction. Citing precedent holding that the statutory rate applies to post-judgment interest unless the parties or arbitrators “unambiguously express their intent to replace the federal rate for the post-judgment period,” the Federal Circuit found that there was no such unambiguously expressed intent and, therefore, the federal statutory rate would apply to that period.

Bayer CropScience AG v. Dow Agrosciences LLC, 2016-1530 (Fed. Cir. Mar. 1, 2017)

This post written by Jason Brost.

See our disclaimer.