Arbitration Process Issues

Massachusetts District Court Appoints Arbitrator in Light of Parties Inability to Do So

February 10, 2020 by Nora Valenza-Frost

When two parties in an arbitration were unable to select a “mutually agreeable” arbitrator, the Massachusetts district court stepped in to handle the selection. The parties’ arbitration agreement provided that the parties would select a “mutually agreeable single arbitration with experience in commodity futures contracts for coffee, to preside over the arbitration.” While both parties proposed candidates, they were unable to agree on the arbitrator.

The Massachusetts Appeals Court has stated that, while Massachusetts General Laws chapter 251, section 3 permits the courts to enforce arbitrator selection clauses, it “only requires the court to appoint an arbitrator if the arbitration agreement at issues fails to specify a method for doing so.” The arbitration agreement at issue had a mechanism for arbitrator selection — it was the parties who could not find a “mutually agreeable” arbitrator. The court found that section 3 permits a court to appoint an arbitrator in such circumstances when “the arbitrator selection method set forth [in the] contract has ‘failed.'” Additional support for the court’s interpretation of Massachusetts law is found in section 5 of the Federal Arbitration Act and cases interpreting the statute.

Green Valley Trading Co. v. Olam Americas, Inc., No. 1:19-cv-11524 (D. Mass. Jan. 7, 2020).

Eighth Circuit Reinstates Arbitration Award Stemming From Federal Crop Insurance Policy

January 28, 2020 by Benjamin Stearns

The Eighth Circuit reversed a district court decision vacating an arbitration award relating to a federal crop insurance policy issued through a standard reinsurance agreement with the Federal Crop Insurance Corp. (FCIC). The district court had ruled that the arbitrator exceeded his powers under the arbitration agreement by interpreting the crop insurance policy. Pursuant to FCIC regulations, the policy included a provision prohibiting the arbitrator from interpreting either the policy or FCIC procedures, and instead requiring the parties to obtain such an interpretation from the FCIC itself.

The Eighth Circuit found that the question whether the arbitrator was required to interpret the policy was not raised by either party until after the award had already been issued. Emphasizing that the courts are to “accord an extraordinary level of deference” to the arbitrator’s decision, the Eighth Circuit stated that an “arbitrator has not exceeded his powers where neither party suggested that a term of the policy was subject to interpretation, but the interpretation dispute instead arose after the arbitration proceedings.” The Eighth Circuit reversed and remanded, directing the district court to enter an order confirming the arbitration award.

Balvin v. Rain & Hail, LLC, No. 18-3018 (8th Cir. Dec. 2, 2019).

Court Finds No Manifest Disregard of the Law or Exceeding of Powers in Upholding Arbitration Award Related to Dispute Over Earn-Out Payment

December 18, 2019 by Benjamin Stearns

Markmidco S.àr.l., a Luxembourg company, sold to Zeta Interactive Corp. its interest in a customer relationship management business consisting of several companies that provided to retailers email and text message marketing, database management, and related services. The parties’ agreement called for several earn-out payments to be made upon the determination that the CRM business had surpassed certain revenue thresholds laid out in the contract. Zeta refused to make the first earn-out payment of $4 million, claiming the revenue threshold had not been reached as of the deadline. Markmidco disagreed and referred the parties’ dispute to an arbitrator. The arbitrator agreed with Markmidco and awarded it the earn-out payment.

The parties’ dispute then moved to federal court where Markmidco’s award was confirmed over several arguments from Zeta seeking its vacatur. Zeta argued that the parties’ contract called for a “manifest error” standard of review. However, the court held that the parties “cannot contract for more judicial review than the FAA and Convention grant them.” Zeta next argued that the award should be vacated due to the arbitrator’s manifest disregard of the law, but failed to identify any instance of the arbitrator ignoring the applicable law.

The court also denied Zeta’s claim that the arbitrator exceeded his powers, stating that his findings were reasonable interpretations based on analysis of specific provisions of the purchase agreement. When presented with an argument that an arbitrator has exceeded his powers, the “sole question” for the court is “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” As such, Zeta’s argument failed.

Zeta also argued that the grounds for vacatur stated in the Delaware Uniform Arbitration Act should apply rather than those provided by the Federal Arbitration Act because the parties’ contract included a choice-of-law provision selecting Delaware law. The court held that, under Third Circuit law, state law vacatur standards apply only when the parties express a clear intent to supplant the FAA standards with state law standards. A choice-of-law provision that applied broadly to the parties’ contract was not a sufficiently clear expression of the parties’ intent to opt out of the FAA scheme.

Lastly, Zeta argued that enforcement of the award was premature because other proceedings between the two parties were ongoing. The court held that Zeta’s claims in the collateral proceeding did not overlap with the issues submitted by the parties to the arbitrator. The court also held that issuing a stay or denying enforcement of the award at this time “would transform a summary proceeding into a protracted dispute,” contrary to the “basic purpose” of arbitration. The court ordered enforcement of the arbitration award.

Markdutcho 1 B.V. v. Zeta Interactive Corp., No. 1:17-cv-01420 (D. Del. Nov. 12, 2019).

Court Denies Motion to Set Aside Confirmation of Arbitration Award, Rejecting Arguments of Excusable Neglect, Manifest Disregard of the Law, and Exceeding Powers

November 25, 2019 by Benjamin Stearns

The case involved a dispute over an automobile equipment supply contract. The parties’ disagreement was arbitrated, and the prevailing party filed in federal court for confirmation of the award. The supplier, after losing the arbitration, failed to timely respond to the petition for confirmation due to the unexpected death of the husband of the firm’s paralegal. The death “caused unexpected disruptions in the paralegal and legal assistant’s schedules, leading to the [supplier’s] inadvertent failure to meet the award confirmation response deadline.”

The court noted that “the Sixth Circuit has considered excusable neglect in different contexts and repeatedly underscored that it is a difficult standard to satisfy.” The standard is so high that it is “met only in extraordinary cases.” In this case, the court found that the supplier acted in good faith but held that all three of the other factors weighed against a finding of excusable neglect. “Respondent must demonstrate more than just good faith to establish excusable neglect, and it has not done so here.”

Although the court had already determined the supplier had not met the standard to set aside the judgment for excusable neglect, it nevertheless went on to consider the grounds the supplier advanced for vacation of the arbitration award. The court rejected the supplier’s argument that the arbitrator manifestly disregarded the law by, among other things, failing to apply the Uniform Commercial Code and prohibiting the introduction of parol evidence allegedly showing that the supplier did not anticipatorily breach the contract at issue. The court found that the “arbitrator made clear that the contract was unambiguous and fully integrated as written, eliminating the need for parol evidence under the UCC.” The court also rejected the supplier’s argument that the arbitrator exceeded his powers when the arbitrator found that the supplier did not meet the standard to allege fraudulent misrepresentations outside the contract. The court explained that the arbitrator cited the exact case upon which the respondent was relying before the arbitrator had made his ruling. The court further found no basis for the supplier’s argument that “the award [was] not well-reasoned.”

Thyssenkrupp Presta Danville, LLC v. TFW Indus. Supply & CNC Machine, LLC, No. 2:19-mc-50863 (E.D. Mich. Oct. 31, 2019).

Fifth Circuit Affirms Confirmation of Arbitration Ruling in Favor of Ameriprise Financial

November 7, 2019 by Benjamin Stearns

The Fifth Circuit affirmed the confirmation of an arbitration ruling in favor of Ameriprise Financial Services Inc. In 2015, Ameriprise sought a temporary restraining order against Jeremy Walker, a former employee of an Ameriprise franchisee, to prevent him from using confidential customer information. The matter was referred to a FINRA arbitration panel, which resulted in an award against Walker and in favor of Ameriprise for injunctive relief, compensatory damages, and attorneys’ fees.

In 2017, Walker filed a FINRA arbitration against Ameriprise, primarily alleging that he was improperly enjoined by the 2015 arbitration. Ameriprise moved to dismiss under FINRA Code of Arbitration Procedure for Industry Disputes Rule 13504(a)(6)(C), which provides that dismissal may be granted when the “non-moving party previously brought a claim regarding the same dispute against the same party that was fully and finally adjudicated on the merits and memorialized in an order, judgment, award, or decision.” The 2017 arbitration panel found the 2015 arbitration and award met the requirements of Rule 13504(a)(6)(C) and unanimously dismissed the arbitration. Walker filed a motion to vacate arguing that the 2017 panel was “guilty of misconduct” under 9 U.S.C. § 10(a)(3) and “exceeded its powers” under 9 U.S.C. § 10(a)(4). The district court disagreed, denied Walker’s motion to vacate, and granted Ameriprise’s motion to confirm.

On appeal, the Fifth Circuit affirmed. Walker grounded his argument for vacatur under § 10(a)(3) upon the panel’s supposed failure to allow him to present evidence and testimony. However, the Fifth Circuit found that Walker was not prevented from presenting either. With regard to Walker’s argument that the panel exceeded its powers under § 10(a)(4), Walker argued that the panel erred in determining that the elements of Rule 13504(a)(6) had been met. However, this argument was insufficient under the § 10(a)(4) standard for vacatur, which requires a finding that the arbitration panel “acts contrary to express contractual provisions.” Even if Walker were correct that the panel had made a legal error, such errors “lie far outside the category of conduct embraced by § 10(a)(4).”

Walker v. Ameriprise Fin. Servs., Inc., No. 18-11641 (5th Cir. Oct. 9, 2019).