Arbitration Process Issues

TEXAS SUPREME COURT ISSUES TWIN DECISIONS ON ARBITRATOR APPOINTMENT DISPUTES

February 1, 2012 by Carlton Fields

The Texas Supreme Court issued two decisions on the same day pertaining to the issue of arbitrator selection where the parties disagree. In the first case, Americo Life Insurance Company sought vacatur of an arbitration award based on a decision by the American Arbitration Association (whose rules the parties agreed to follow) to remove Americo’s selected arbitrator from a tripartite panel because he was not “impartial and independent.” After completing the arbitration under protest, which it lost, Americo moved to vacate. The trial court granted Americo’s motion to vacate, but the intermediate appellate court reversed, finding that Americo’s claims had not been properly preserved. On Americo’s petition, the Supreme Court reversed the Appellate Court and remanded for further consideration by that court, finding that the issues had been adequately preserved, and strongly indicating that the award should be vacated, since Americo’s chosen arbitrator appeared on the face of the record to be “knowledgeable and independent” – the standard the Supreme Court identified as applicable, rather than the impartiality standard urged by the defendant. Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011).

In the other case, the Texas Supreme Court reversed a trial court’s decision appointing an arbitrator on motion of one of the parties, finding that the trial court acted prematurely, because the “impasse” on appointment was only two weeks old (the time when one of the parties filed a motion in court seeking appointment), and that short time frame meant that judicial intervention was not yet warranted (distinguishing it from other cases showing impasse of several months before resort to judicial intervention). In Re Service Corp. Int’l., No. 10-0155 (Tex. Dec. 16, 2011).

This post written by John Pitblado.

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COURT REACHES VARYING DECISIONS ON REQUESTS TO SEAL ARBITRATION RECORDS

January 31, 2012 by Carlton Fields

A federal district court refused a former employee’s request to seal records of an arbitration proceeding in which the arbitrator ordered that he was not entitled to severance pay. William Fine was terminated from his position at Alexandria Real Estate Equities for making disparaging statements about the company. Alexandria obtained an award holding that it did not owe Fine severance pay and moved to have the award confirmed. In the award, the arbitrator explained the reasons for Fine’s termination and quoted the statements that he had made about Alexandria. Fine did not oppose confirmation but moved to seal portions of the arbitration record, including the petition to confirm, a supporting declaration, and the award itself. The court rejected Fine’s request citing the First Amendment presumption in favor of access to judicial documents and proceedings. The court held that, in order to overcome this presumption, Fine had to show that the “requested sealing is narrowly tailored to preserve ‘higher values.’” Such values, according to case law cited by the court, include protecting: the attorney-client privilege, national security, the privacy of innocent third-parties, and the confidentiality of sensitive patient information. The court found that Fine’s purported reason—that if the records remain public, it will be more difficult for him to get hired by potential employers—did not rise to the level of a “higher value.” Alexandria Real Estate Equities, Inc. v. Fair, Case No. 11-3694 (USDC S.D.N.Y. Nov. 30, 2011).

A different judge in the same court granted Century Indemnity Company’s motion to seal portions of its petition to compel arbitration, memorandum of law, and affidavit in support. The court did not offer any reasoning for its decision and the motion to seal and memorandum themselves are sealed. It is not apparent, furthermore, whether the motion to seal was contested. Century Indem. Co. v. Everest Reinsurance Co., Case No. 11-8362 (USDC S.D.N.Y. Nov. 17, 2011).

This post written by Ben Seessel.

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CROSS MOTIONS TO COMPEL ARBITRATION AND APPOINT THIRD ARBITRATOR SPARK DISMISSAL OF TWO APPEALS

January 30, 2012 by Carlton Fields

Various BCBS healthcare plans and BCS Insurance Company became engaged in a coverage dispute pertaining to certain professional liability coverage issued by BCS to member plan administrators. As per applicable contracts containing arbitration provisions, the parties each named arbitrators. According to the contracts’ governing procedure, when those two arbitrators failed to reach agreement, some of the health plans brought an action in Illinois federal court seeking appointment of a neutral third arbitrator. In the course of that proceeding, BCS cross-moved for an order to compel individual arbitration, rather than class arbitration, which it styled as a motion to compel non-consolidated arbitration. The court ruled first on BCS’s cross-motion, finding that decision on that issue should be made by the arbitrator(s), not the court. BCS immediately appealed that decision. The court, finding BCS’s appeal an improper interlocutory appeal, thereafter appointed the neutral third arbitrator as requested by the plans and ordered the parties to continue the arbitration with the panel so constituted. BCS appealed that order as well, arguing that its previous interlocutory appeal deprived the district court of jurisdiction to enter its order. The Seventh Circuit held that the first appeal was an improper attempt to circumvent proper arbitration procedure under the FAA, and dismissed it as interlocutory. It then held that the dismissal of the first appeal mooted the basis for the second appeal, since the trial court had jurisdiction to enter its order appointing an arbitrator. Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., Nos. 11-2343 & 11-2757 (7th Cir. Dec. 16, 2011)

This post written by John Pitblado.

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FEDERAL DISTRICT COURT REFUSES TO CONFIRM ARBITRATOR’S NON-FINAL ORDERS AUTHORIZING CLASS ARBITRATION AND CERTIFYING CLASS

January 19, 2012 by Carlton Fields

Petitioners filed a motion to confirm an arbitrator’s decision that an arbitration could be conducted on a class-wide basis and a further order granting class certification. The court denied the request on ripeness grounds, finding that it was premature. The court explained that governing case law permits confirmation of non-final orders only in limited circumstances, such as where the failure to grant review would cause hardship to a party. Petitioner’s stated hardship—that one defendant (of many) was seeking declaratory relief from another federal district court that the arbitration agreements did not permit class arbitration—was insufficient because the referenced case was first-filed and, furthermore, only involved one of many defendants. Pryor v. Overseas Admin. Servs., Ltd., et al., Case No. 10-01930 (USDC N.D. Cal. Dec. 7, 2011).

This post written by Ben Seessel.

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COURT ALLOWS REPLACEMENT OF APPOINTED ARBITRATOR, REFUSES TO DISQUALIFY UMPIRE CANDIDATE FOR ALLEGED IMPARTIALITY

January 17, 2012 by Carlton Fields

In a dispute concerning approximately $250 million in coverage obligations under two reinsurance policies issued by National Indemnity Company (“NICO”), IRB-Brasil Resseguros, S.A. (“IRB”) filed a motion to prohibit NICO from changing its party-appointed arbitrator two-years after appointment, and to stay the second of two pending arbitrations until the arbitrators in the first proceeding decided IRB’s motion to consolidate. The federal district court denied IRB’s request to bar NICO from replacing its appointed arbitrator, reasoning that a party is entitled to an arbitrator of its choice to act as a “de facto advocate for its position” and, furthermore, that, notwithstanding the passage of two-years, no action had been taken in the arbitration because a panel had never been fully constituted. The court granted the motion to stay that later-filed arbitration pending the arbitrators’ decision on the motion to consolidate. The court also denied a motion by NICO to disqualify IRB’s neutral umpire candidate due to alleged impartiality, finding that such challenges cannot be brought under the FAA until after an award is rendered. IRB-Brasil Resseguros, S.A. v. National Indem. Co., Case No. 11-1965 (USDC S.D.N.Y. Nov. 29, 2011).

This post written by Ben Seessel.

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