Arbitration Process Issues

COURT OF APPEAL AFFIRMS VACATION OF ARBITRATION AWARD ON GROUNDS OF ARBITRATOR’S EVIDENT PARTIALITY

June 3, 2013 by Carlton Fields

Thomas Kinkade Company’s suit against Nancy and David White was submitted to an arbitration proceeding in which, as the Sixth Circuit noted, “the coincidences all break one way.” During the five-year arbitration, the arbitrator, Mark Kowalsky, defied his role as neutral intermediary in various ways. For example, Kowalsky provided the Whites multiple opportunities to bolster the proofs of their claims. Kowalsky allowed the Whites to submit as evidence 8,800 documents they had deliberately withheld from Kinkade for four years. On a straightforward breach-of-contract claim that went virtually uncontested throughout arbitration, he denied Kinkade any relief. When Kinkade raised objections to Kowalsky’s decisions as an arbitrator, Kowalsky gave no response. Kowalsky additionally awarded the Whites attorney’s fees of nearly $500,000 after the arbitration panel unequivocally denied those fees in the Interim Award. Finally, during arbitration, the Whites and their appointed arbitrator both retained Kowalsky’s law firm in unrelated matters, and Kowalsky made no effort to avoid receiving compensation for such matters. Kinkaid sought to disqualify Kowalsky to no avail. Both the AAA and Kowalsky denied disqualification requests. The arbitration panel entered a Final Award in favor of the Whites in an amount in excess of $1.4 million. The district court granted Kinkade’s motion to vacate due to the arbitrator’s partiality, and the Sixth Circuit affirmed. Thomas Kinkade Company v. White, No. 10-1634 (6th Cir. April 2, 2013).

This post written by Rollie Goss.

See our disclaimer.

INVALID ATTORNEYS FEE PROVISION SEVERED AND ARBITRATION COMPELLED

May 23, 2013 by Carlton Fields

An arbitration provision in an employment agreement provided that the “costs and expenses of the arbitration, including the arbitrator’s fees, shall be borne equally by the parties.” The court held the provision invalid because it would have prevented the plaintiff, if successful, from recovering attorneys fees as provided for in Title VII. However, the court severed the invalid provision and compelled arbitration. Adams v. Republic Parking System, Inc., Case No. 12-1310 (USDC W.D. Okla. April 9, 2013).

This post written by Rollie Goss.

See our disclaimer.

ROUNDUP OF APPELLATE ARBITRATION DECISIONS

May 16, 2013 by Carlton Fields

Confirming Award

Mandell v. Reeve, No. 11-5238 (2d. Cir. Feb. 4, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; denying appellee’s motion for sanctions, finding that the appeal was not frivolous).

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., No. 12-20256 (5th Cir. Apr. 9, 2013) (reversing district court’s decision to vacate an arbitration award with instructions to reinstate the award, holding that the arbitrator’s award of a perpetual license as relief to the prevailing party was not inconsistent with the essence of the parties’ contract).

Data & Development, Inc. v. Infokall, Inc., No. 12-2456 (2d Cir. Mar. 13, 2013) (affirming district court’s decision to confirm arbitration award, holding that the arbitrator did not manifestly disregard New York law in awarding lost profits to the prevailing party on breach of contract claim).

Stonebridge Equity v. China Automotive Systems, Inc., No. 12-1548 (6th Cir. Mar. 26, 2013) (affirming district court’s confirmation of arbitration award, holding that arbitrators did not act in manifest disregard of the law by using extrinsic evidence to interpret the parties’ contract and that the district court’s minor modification of the award to assure compliance was in accordance with the FAA).

Johnson Controls, Inc. v. Edman Controls, Inc., Nos. 12-2308 & 12-2623 (7th Cir. Mar. 18, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; arbitrator had not disregarded the parties’ choice of law nor exceeded his powers in awarding damages and attorneys fees to prevailing party).

Vacating Award

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 12-1850 (6th Cir. Apr. 9, 2013) (affirming district court’s partial vacatur of arbitration award, holding that the district court did not commit clear error in making the factual determination that an entity was not bound by an arbitration clause).

City of Oswego v. Oswego City Firefighters Association, No. 49 (N.Y. Apr. 2, 2013) (reversing order of appellate division; ordering that an arbitration award be vacated because the award would require a municipality to provide a benefit no longer authorized by law and that the final result would conflict with other laws and well-defined policy considerations).

Class Action Waiver and FAA Preemption

McKenzie Check Advance of Florida, LLC v. Betts, No. SC 11-514 (Fla. Apr. 11, 2013) (FAA preemption prevents court from invalidating class action waiver as void against state public policy because waiver would prevent consumers from vindicating rights under state consumer protection laws).

Jurisdiction

Community State Bank v. Knox, No. 12-1304 (4th Cir. Apr. 11, 2013) (affirming district court’s dismissal of petition to compel arbitration holding that that the FAA by itself does not bestow federal jurisdiction and that there was no independent basis for federal jurisdiction).

This post written by Ben Seessel.

See our disclaimer.

COURT ORDERS PARTY THAT MISTAKENLY PAID AWARD TO WRONG ENTITY MUST PAY AGREED UPON INTEREST ON AWARD

May 14, 2013 by Carlton Fields

As we reported on November 1, 2012, a federal court confirmed an arbitration award in favor of AXA Versicherung AG in a long-running reinsurance dispute with New Hampshire Insurance Company and other AIG affiliated entities. The $10 million award provided interest to be paid at 6.5%, compounded annually. AIG asked AXA for an extension on its deadline to pay the award. AXA agreed on the condition that AIG would not challenge the award and, further, that AIG would pay 6.5% interest until the award was paid in full.

AIG mistakenly sent payment to a former AXA affiliate that had been sold to an unrelated third-party. It took six weeks for the money to be returned to AIG. AIG argued that it should only have to pay interest at the lower stautory rate during this six-week period because AXA had not cooperated in obtaining a return of the funds. The court ruled in AXA’s favor, holding that AIG had to pay the 6.5% interest as agreed and, moreover, that it was AIG’s responsibility to make payment to the proper party. AXA Versicherung AG v. New Hampshire Insurance Co., Case No. 1:12-c-06009 (USDC S.D.N.Y. Apr. 22, 2013)

This post written by Ben Seessel.

See our disclaimer.

EIGHTH CIRCUIT: BROAD SERVICE OF SUIT PROVISION IN INSURANCE POLICY ENDORSEMENT PRECLUDES ARBITRATION

May 7, 2013 by Carlton Fields

In a prior post, we reported the district court’s denial of the insurer’s motion to compel arbitration in Union Electric Co. v. Aegis Energy Syndicate 1225. In that decision, the court held that a choice of law and forum selection clause agreeing “to submit to the jurisdiction of the Courts of the state of Missouri” in a policy endorsement, commonly known as a service of suit provision, prevailed over an alternative dispute resolution clause in the policy itself, and foreclosed arbitration. On April 19, 2013, the Eighth Circuit affirmed that decision, holding that the endorsement’s plain language gave Missouri courts jurisdiction over all disputes related to the policy. The court was not persuaded by the insured’s argument that the endorsement granted only personal jurisdiction over the parties for Missouri courts to enforce the ADR provision. This decision is setting up a conflict of opinions on this issue. Union Electric Co. v. Aegis Energy Syndicate 1225, No. 12-3546 (8th Cir. April 19, 2013).

This post written by Michael Wolgin.

See our disclaimer.