Arbitration Process Issues

ARBITRATION AWARD NOT SUBJECT TO REVIEW WHILE REMEDY ISSUE IS PENDING

August 20, 2009 by Carlton Fields

Prior to the parties remanding the case for the determination of a remedy, the American Postal Workers’ Union (“APWU”) filed a complaint in federal court alleging that the United States Postal Service (“USPS”) had not unequivocally stated it would comply with the award, which constituted a breach of the collective bargaining agreement. The USPS moved to dismiss for lack of jurisdiction, which the district court granted, reasoning that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. The court also stated that the APWU has not shown the exhaustion of remedies to be unworkable. American Postal Workers’ Union v. United States Postal Serv., Case No. 08-2200 (USDC D.D.C. July 14, 2009).

This post written by Dan Crisp.

NINTH CIRCUIT ADDRESSES DOCTRINE OF FUNCTUS OFFICIO

August 11, 2009 by Carlton Fields

Last month, the Ninth Circuit Court of Appeals reviewed an arbitration panel’s awards against Leonard Bosack and Sandy Lerner, founders of Cisco Systems. The panel issued a series of preliminary and final awards. Bosack and Lerner challenged the panel’s awards in favor of their former financial manager David Soward on three primary bases: (1) the panel violated Rule 46 of the Commercial Arbitration Rules and the common law functus officio doctrine (forbidding an arbitrator from redetermining an issue which he has already decided); (2) the panel manifestly disregarded the law; and (3) the awards were “irrational.”

The Court ruled against Bosack and Lerner on all accounts. First, as a matter of first impression for the Ninth Circuit, the Court applied the Eighth Circuit’s rule that the functus officio doctrine applies only to “final” awards, and does not bar revisiting an issue addressed in a preliminary award, which the arbitrators did not intend to be their final word on the subject. Applying this standard, the Ninth Circuit held that only one of the five arbitration awards should be considered “final” for purposes of the doctrine, and the sole final award was not in violation of functus officio or Rule 46. Further, the Court concluded that in reaching the award, the panel neither acted irrationally or in manifest disregard of the law. The Court explained that Bosack and Lerner accepted the risk that goes along with arbitration, and could not avail themselves of expanded judicial review simply because the awards were unfavorable. Bosack v. Soward, Case No. 08-35248 (9th Cir. July 23, 2009).

This post written by John Black.

ARBITRATOR REAPPOINTED TO PANEL AFTER RECOVERING FROM ILLNESS

August 3, 2009 by Carlton Fields

Six months after the Petitioners’ party-appointed arbitrator resigned from the three-person panel due to a cancer diagnosis requiring immediate and intensive treatment, the district court issued an Opinion and Order (the “Order”) applying the Second Circuit’s general rule that, when an arbitrator dies in the middle of a proceeding, the arbitration must commence anew. Unknown to the court and the Respondent, one month prior the Order, the arbitrator attended an arbitration conference, which the Petitioners’ legal counsel also attended. One month after the Order, the Respondent learned that the arbitrator’s health improved and that the arbitrator actively sought employment as an arbitrator. The Respondent subsequently moved for relief from the Order pursuant to Rule 60(b)(2). The district court granted the motion for relief, holding that the Respondent met each of the preconditions to relief from the Order on the basis of the newly discovered evidence of the arbitrator’s recovery. The court then reappointed the arbitrator to the panel, reasoning that the court was permitted to do so because the arbitration agreement was silent as to the procedure to fill a panel vacancy created by the death or resignation of an arbitrator. Ins. Co. of N. Am. v. Pub. Serv. Mut. Ins. Co., Case No. 08-7003 (USDC S.D.N.Y. June 29, 2009).

This post written by Dan Crisp.

REACH OUT AND SUE SOMEONE – STOLEN CELL PHONES SPUR ARBITRATION

July 27, 2009 by Carlton Fields

Litigation was stayed pending concurrent arbitration in a dispute arising out of the theft of cell phones during international shipping. The complaint sought over $804,000 for the subrogated loss of approximately 15,000 cell phones. One of the defendants – companies involved in the phones’ shipping – moved to dismiss or, in the alternative, to stay on the basis of an arbitration clause between itself and the plaintiff’s subrogor. The court found that the litigation was intended to hold the defendants liable on the contract, which governed the parties’ relationship with respect to the transportation and delivery of cargo. Noting a strong bias in favor of international arbitration, the court found that the dispute should proceed through nonappealable arbitration in Peru. The court also denied another defendant’s motion to dismiss under the doctrine of forum non conveniens or, in the alternative, to transfer venue, holding that no factors “strongly” favored forcing the plaintiff to re-file elsewhere; there was no significant burden on the parties, nor were than any witnesses who would be inconvenienced. Rimac Internacional Cia. de Seguros y Reaseguros, S.A. v. Exel Global Logistics, Inc., Case No. 08-3915 (USDC S.D.N.Y. June 29, 2009).

This post written by Brian Perryman.

ARBITRATION OF NON-ARBITRABLE CLAIM ORDERED SINCE IT WAS COLLATERAL TO AN UNPLEADED ARBITRABLE CLAIM ASSERTED AS A SET OFF

July 23, 2009 by Carlton Fields

OrbitCom, Inc. (“OrbitCom”) brought suit against Qwest Communications Corp. (“Qwest”) seeking the recovery of telecommunications access fees. This claim was not independently arbitrable. Qwest refused to pay later charges under an agreement that contained an arbitration clause, essentially asserting a set off or right of recoupment with respect to the prior “overcharges.” Qwest then filed this Motion to Stay Proceedings and Petition to Compel Arbitration, arguing that even though not pleaded as a counterclaim, its refusal to pay amounted to a counterclaim, which arose out of or related to the contract, and that arbitration should be compelled of all claims, because the non-arbitrable claim was collateral to an arbitrable claim. Noting that the arbitration clause was a “broad clause,” which resulted in a presumption of arbitrability, the court granted Qwest’s motion, following Tenth Circuit precedent which requires the arbitration of claims that are collateral to an arbitrable claim. The court also concluded that OrbitCom had not overcome the presumption of arbitration. OrbitCom, Inc. v. Qwest Comm’ns Corp., Case No. 09-00181 (USDC D. Colo. June 25, 2009).

This post written by Dan Crisp.