Arbitration Process Issues

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).

Court Orders Stay of New Arbitration Over Disputed Reinsurance Billings and Compels Parties to Proceed Before a Predecessor Arbitration Panel

November 5, 2019 by Michael Wolgin

The case involved a “second layer special casualty excess agreement of reinsurance” under which reinsurers General Reinsurance Corp. and SCOR Reinsurance Co. agreed to cover a certain amount in excess of Chicago Insurance Co.’s $1 million per occurrence retention. An arbitration ensued after the reinsurers disputed reinsurance billings from Chicago Insurance arising out of certain asbestos insurance liability. The arbitration panel rejected Chicago Insurance’s attempt to bill its losses on the basis that each site where the insured had operated constituted an “occurrence” under the reinsurance agreement, and issued an award for the reinsurers. The award expressly retained the panel’s jurisdiction to “resolve any dispute arising out of [the] Final Award.”

Subsequent to the award, Chicago Insurance submitted a new billing to the reinsurers, which stated that the “loss allocation was prepared in accordance with the Award’s protocols.” The reinsurers disputed the new billing and alerted the prior arbitration panel. The umpire confirmed that it had retained jurisdiction but noted that Chicago Insurance’s appointed arbitrator disagreed and would not participate in the new dispute. Chicago Insurance then initiated a new separate arbitration, in which the reinsurers refused to participate, and filed a petition to compel the reinsurers’ participation and to stay the original arbitration. The reinsurers responded by filing a cross-petition to stay the new arbitration and for a declaration that the prior panel had jurisdiction to resolve the dispute.

The court denied Chicago Insurance’s petition and granted the reinsurers’ cross-petition to stay the new arbitration. The court rejected Chicago Insurance’s argument that the prior panel was functus officio by fully exercising their authority to adjudicate the issue submitted to them. The court found that the prior panel retained jurisdiction to resolve any dispute arising out of the prior award and that Chicago Insurance had consented to that by failing to dispute the award. The court also found that Chicago Insurance “repeatedly claimed that the new bill that it sent to the Reinsurers was offered pursuant to the ‘protocols’ set forth by” the prior award, and therefore, consistent with what the majority of the original panel determined, the current dispute “clearly” fell within the original arbitration jurisdiction. The court, therefore, ruled that the prior panel retained jurisdiction to adjudicate whether the new bill comported with its prior award.

Chicago Ins. Co. v. Gen. Reinsurance Corp., No. 1:18-cv-10450 (S.D.N.Y. Oct. 22, 2019).

Court Confirms Arbitration Award Under FAA’s Strong Presumption in Favor of Such Awards

October 21, 2019 by Carlton Fields

This case arises from a dispute over the parties’ obligations under several oil and gas leases. The parties engaged in an arbitration pursuant to an arbitration agreement. The arbitration panel entered awards in favor of defendants Alan Larson and others. Northeast Natural Energy LLC filed a complaint in the U.S. District Court for the Western District of Pennsylvania. Under the Federal Arbitration Act, there is a strong presumption in favor of an arbitration award and a court must grant an order confirming an arbitration award, except in few enumerated instances. One ground for vacating an award includes “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court may also vacate an arbitration award when the arbitrators displayed a “manifest disregard” of the law. This means there must be “absolutely no support at all in the record justifying the arbitrator’s determinations.”

The court denied Northeast Energy’s motion to vacate the arbitration award and held that the panel did not exceed its powers and did not manifestly disregard the law. The court explained that there was nothing in the record to support that the panel exceeded its powers by rewriting the leases and failing to interpret the leases as written. The court further explained that the panel did not remove a provision from the leases, and the record supported the panel’s interpretation. The court found that the panel’s application of the parol evidence rule was not “completely irrational” as it cited appropriate legal authority and did not misapply Pennsylvania law. Lastly, the court held that the panel did not manifestly disregard the law in making awards to non-testifying defendants because the record revealed that the panel had sufficient information to make such findings.

Ne. Natural Energy LLC v. Larson, No. 3:18-cv-00240 (W.D. Penn. Sept. 20, 2019).

District of Idaho Rejects Challenges to Arbitration Award

October 9, 2019 by Nora Valenza-Frost

The defendant sought to vacate an arbitration award on the basis of arbitrator misconduct and manifest disregard of the law or, in the alternative, modification of the award.

The defendant argued that the arbitrator committed misconduct by denying its motions to compel, failing to postpone or extend the hearing, excluding testimony from its non-retained experts, and disregarding the defendant’s evidence. The court rejected this argument, stating, “Unless a discovery mandate is found in a statute, contract provision, or the adopted rules, a party to arbitration has no legal right to prehearing discovery.” Pursuant to the parties’ agreements, limited discovery was permitted, but the defendant faulted the arbitrator for failing to compel supplemental discovery when the plaintiff’s discovery responses and 30(b)(6) deponent “purportedly fell short.” Moreover, a denial of discovery is not a basis for vacatur under the Federal Arbitration Act. The court dismissed the remainder of the defendant’s arguments because the arbitrator had acted in accordance with the parties’ agreement and Idaho law.

The defendant next argued that the arbitration award was “so fundamentally flawed in its manifest disregard of the law that it cannot be construed as final, mutual and definite.” The court did not find, nor did the defendant point to, any evidence in the record or the arbitration award to suggest that the arbitrator was “aware of the law and intentionally disregarded it” or that the arbitrator exceeded her powers in how she determined to award attorneys’ fees.

The defendant, in the alternative to vacatur, argued that the arbitration award should be remanded for clarification and modification pursuant to 9 U.S.C. § 11 because it was “incomplete, ambiguous and contradictory.” The court stated that while it certainly understood the defendant’s “desire for a more thorough opinion,” the defendant had not demonstrated that a remand for clarification or modification was warranted. The arbitration award was confirmed.

Twin Falls NSC, LLC v. S. Idaho Ambulatory Surgery Ctr., LLC, No. 1:19-cv-00009 (D. Idaho Sept. 23, 2019).