Arbitration Process Issues

CASE REMANDED TO NEW ARBITRATION PANEL IN LIGHT OF PRIOR PANEL’S MANIFEST DISREGARD OF LAW

August 25, 2010 by Carlton Fields

After a second trip to the First Circuit, a district court has held that remand to a new panel of arbitrators is appropriate where the panel’s vacated award was earlier held to be in manifest disregard of the law. The case involved a storied procedural history involving multiple appeals to the First Circuit. The plaintiff sought confirmation of a NASD/FINRA arbitration award, which the district court granted. After the First Circuit vacated the award as manifestly disregarding the law, and remanded the case to the district court, the district court ordered a remand of the matter to FINRA for rehearing. The defendants appealed again, arguing that the district court’s remand order “tacitly adopted” the plaintiff’s allegedly erroneous assertion that the First Circuit had condoned remand to the original arbitration panel. Although it affirmed the order remanding the case to FINRA, the First Circuit directed the district court to determine whether a new arbitration panel should be constituted, the original arbitration panel should be reconstituted, or FINRA should decide the issue in the first instance. The district court found that remand to a new panel was “most appropriate” because of the First Circuit’s earlier finding that the arbitrators had acted in manifest disregard of the law. Kashner Davidson Securities Corp. v. Mscisz, Case No. 05- 11433 (USDC D. Mass. June 25, 2010).

This post written by Brian Perryman.

THIRD CIRCUIT HOLDS THAT A PARTY CANNOT “OPT OUT” OF THE FEDERAL ARBITRATION ACT IN ITS ENTIRETY

August 23, 2010 by Carlton Fields

The Third Circuit has affirmed a judgment in favor of several foreign reinsurers confirming arbitration awards against the statutory liquidator (the Pennsylvania Insurance Commissioner) for two insolvent insurance companies, but reversed a sanctions award against the Commissioner. Following an arbitration award rescinding three of the four reinsurance treaties at issue, the Commissioner filed a motion in state court to confirm in part, and to vacate in part, the award as part of the liquidation proceedings. The reinsurers removed the case to the District Court for the Eastern District of Pennsylvania pursuant to the Federal Arbitration Act’s removal provision in 9 U.S.C. § 205, and filed a motion to confirm the award. The Commissioner moved to remand the case, arguing that the parties had selected the Pennsylvania Uniform Arbitration Act to govern the arbitration and, thus, that the parties had opted out of the FAA. The district court denied the remand motion and confirmed the award, concluding that the FAA’s vacatur standards applied, not the PUAA’s standards. The district court also sanctioned the Commissioner for filing what the court perceived to be a frivolous remand motion.

On appeal, the Third Circuit initially concluded that removal was proper. That court rejected the Commissioner’s arguments that, first, the parties opted out of the FAA and, second, even if the FAA applies, the arbitration provisions at issue clearly expressed an intent to opt out of the removal provision in § 205. As a matter of law, parties cannot “opt out” of the FAA in its entirety “because it is the FAA itself that authorizes parties to choose different rules in the first place,” and the parties did not agree to waive the right of removal. Not only did the treaties’ arbitration provisions not make any mention of removal, the only provision referring to removal, a service-of-suit provision, stated that nothing in it should be understood to constitute a waiver of the reinsurers’ removal rights.

The Third Circuit next concluded that the FAA supplied the vacatur standards. In the absence of clear intent to the contrary, the FAA’s standards apply to an arbitral award rendered in favor of a foreign party and enforced in the United States. In addition, there was no clear intent to apply the PUAA vacatur standards. Although the treaties stated that “the arbitration shall be in accordance with the rules and procedures established by the [PUAA],” the service-of-suit provision specifically referred to enforcement of the arbitration award in federal courts. The award was thus confirmable under the FAA’s limited vacatur standards.

Finally, the Third Circuit reversed the order granting sanctions for the remand motion, in part because there was no basis in existing law for the district court to conclude that parties could not opt out of § 205 and divest a federal court of jurisdiction. Ario v. The Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, No. 09-1921 (3d Cir. Aug. 18, 2010).

This post written by Brian Perryman.

FIFTH CIRCUIT HOLDS DEFENDANT WAIVED RIGHT TO ARBITRATE BY FILING MOTIONS TO DISMISS

August 19, 2010 by Carlton Fields

In In re Mirant Corporation, the Fifth Circuit affirmed the lower court’s finding that the defendant waived its right to arbitrate. The defendant had filed multiple motions to dismiss based, in part, on waiver and estoppel, over a span of eighteen months. The court held that whether a motion to dismiss constitutes a waiver of arbitration as an invocation of the judicial process is a case-by-case determination. Here, the court explained, the defendant’s multiple motions invoked the judicial process by seeking a decision on the merits and a dismissal with prejudice for failure to state a claim. The court was also persuaded by the fact that the defendant did not file its motions to dismiss as an alternative to arbitration, but instead filed them prior to seeking arbitration as a “backup plan.” Lastly, the court held that the plaintiff was prejudiced both legally and financially by the defendant’s tactics. In re Mirant Corp., No. 09-10451 (5th Cir. August 2, 2010).

This post written by Michael Wolgin.

TENTH CIRCUIT HOLDS POST-JUDGMENT INTEREST RATE IN “BROAD” ARBITRATION PROVISION TRUMPS STATUTORY RATE

August 17, 2010 by Carlton Fields

On November 17, 2008, we reported on a Colorado district court’s decision in a reinsurance dispute to alter the post-judgment interest rate provided in the arbitration panel’s final award and replace it with a statutory rate.

Earlier this month, however, the Tenth Circuit reversed the district court, holding that the post-judgment interest entitlement and rate decided by the arbitration panel should govern. The court reasoned that parties are permitted to set their own rate of post-judgment interest through contract, and the arbitration provision at issue in this case was a “broad” provision. The court further held that “the parties’ intent is a quintessential fact question, and we see no reason why an arbitration panel with authority to decide a contractual dispute cannot also determine whether the contract in question includes language clearly, unambiguously, and unequivocally stating the parties’ intent to bypass § 1961[, the post-judgment interest statute].” Newmont USA LTD v. Ins. Co. of N. Am., Nos. 08-1347 & 08-1370 (10th Cir. Aug. 11, 2010).

This post written by Michael Wolgin.

TEXAS SUPREME COURT GRANTS MANDAMUS RELIEF TO STAY LITIGATION PENDING ARBITRATION

August 11, 2010 by Carlton Fields

The Texas high court has held that a trial court abused its discretion by refusing to stay the litigation related to one corporation, MetroPCS Communications, Inc. (Communications), until the identical claims of its corporate affiliate, MetroPCS Wireless, Inc. (Wireless), were decided by arbitration or until Wireless became a member of a certified class action. The petitioner moved the trial court to compel arbitration and requested a stay of all litigation. The trial court denied the motion to compel arbitration because of a clause excluding arbitration where a signatory was a class member, but stayed Wireless’s claims until a class certification decision was rendered in a consolidated class action against the petitioner, of which Wireless was a putative member. The trial court declined to stay the related Communications litigation, which involved claims identical to the Wireless litigation. Directing that the Communications litigation also be stayed, the Supreme Court stated that the class action exclusion clause does not provide “a signatory with sanctuary from arbitration while a non-signatory affiliate simultaneously conducts discovery and chips away at the same issues in litigation.” In re Merrill Lynch & Co., Case No. 09-0161 (Tex. June 25, 2010).

This post written by Brian Perryman.