The Seventh Circuit has addressed important issues relating to the commencement of efforts to vacate an arbitration award. The relevant facts are found in the district court's Order. An arbitration award was entered against Webster under the rules of the American Arbitration Association (“AAA”). Under the Federal Arbitration Act (“FAA”), 9 U.S.C. section 12, when a party moves to vacate, confirm or modify an arbitration award, notice “must be served upon the opposing party or his attorney within three moths after the award is filed or delivered.” The district court found Webster's attempt to vacate the award was one day late, and hence barred, and the Seventh Circuit affirmed. The courts held that the award was “filed or delivered” within the meaning of the FAA and the AAA's rules when it was both e-mailed and mailed by the arbitrator to counsel for the parties, regardless of when counsel received the mailed version or opened his e-mail. The court noted that a request to vacate an award is a motion, rather than a new action, under the Federal Rules of Civil Procedure, and the plain language of section 12 of the FAA speaks in terms of “service” rather than “filing.” Since Webster's counsel filed a Complaint seeking to vacate the award one day prior to the three month deadline, but did not serve the action on his opponent until one day after the three month deadline, the request to vacate the award was untimely under the FAA. The Court rejected Webster’s argument that the FAA’s limitation period was tolled with the filing of the action, stating instead that there was “nothing ambiguous about § 12’s provision that the statute of limitations is tolled when notice of a motion to vacate is ‘served upon the opposing party or his attorney.’” (emphasis added). This is a critical principle for parties seeking to vacate or confirm an award under the FAA. Webster v. A.T. Kearney, Inc. & Electronic Data Systems Corp., No. 06-3094 (7th Cir. Nov. 2, 2007).
Arbitration Process Issues
COURT CONFIRMS ARBITRATION AWARD BASED UPON A FAILURE TO CARRY A BURDEN OF PROOF
An arbitration proceeding ensued as a result of a motor vehicle accident. The arbitrator could not decide which party was at fault, and therefore held in favor of the respondent, finding that the Claimant had failed to carry her burden of proof on her affirmative claims. The losing party sought to vacate the award, contending that the arbitrator had improperly presumed her to have been at fault, in manifest disregard of law. The court disagreed, finding that an award based upon a simple failure to sustain one’s burden of proof was appropriate. Beverly v. Collier, Case No. 06-1414 (USDC E.D. Ark. Oct. 12, 2007).
CASE UPDATE: DUTY TO ARBITRATE ARISING FROM RETROCESSION AGREEMENT EXTINGUISHED BY COMMUTATION AGREEMENT
As described in a recent posting to this blog (dated Sept. 10, 2007), Continental Casualty Company (“CCC”) and LaSalle Re are currently engaged in a dispute regarding an Excess of Loss Retrocession agreement and a subsequently executed Commutation and Release Agreement. Last month an Illinois federal court ruled that LaSalle Re’s removal of the case to federal court was proper. Quickly reaching the merits of the dispute, on September 21, the same court granted CCC’s motion to stay arbitration proceedings commenced by LaSalle Re. CCC argued that the arbitration clause contained in the Excess of Loss agreement was extinguished, along with all other obligations, by the subsequent Commutation Agreement.
Applying Illinois contract law and looking to the plain language of the Commutation Agreement, the Court concluded that “it would be difficult to envision a more clear statement of the parties’ intent to extinguish their obligations under the Retrocession Agreement.” Recognizing that the parties could have included an arbitration clause in the Commutation Agreement, but did not choose to do so, the Court concluded that the parties intended to extinguish their duty to arbitrate. Continental Casualty Co. v. LaSalle Re Ltd., Case No. 07-C 4228 (USDC N.D. Ill. Sept. 27, 2007).
COURT OF APPEAL AFFIRMS REFUSAL OF ARBITRATION PANEL TO GIVE OFFENSIVE NON-MUTUAL COLLATERAL ESTOPPEL EFFECT TO PRIOR COURT JUDGMENT
This case presents a very interesting question regarding the use of non-mutual offensive collateral estoppel in arbitrations. Three former employees sued D. R. Horton, Inc. (“Horton”), alleging in two separate lawsuits that Horton had improperly reneged on a promise to include stock in severance packages when their employment ended as a result of a merger agreement. After Horton's motion to consolidate the cases was denied, one of the employees prevailed at a trial, while the other two took their claims to arbitration. The arbitration panel ruled for Horton on the stock issue. The Claimants contended that the panel should have accorded the prior final judgment in favor of the other former employee on this issue preclusive effect based upon the doctrine of offensive collateral estoppel. The panel had declined to so rule since there was not complete mutuality of parties in the prior lawsuit and the arbitration, and since the prior judgment was on appeal.
The district court denied Claimants' motion to vacate the arbitration award on the basis that it was in manifest disregard of law, and the Ninth Circuit Court of Appeals affirmed. The Court concluded that the arbitration panel could not have manifestly disregarded the law because there was no binding precedent on the issue presented; indeed, it was an issue of first impression in the federal courts of appeal. The Court noted that district courts had discretion in deciding whether to apply collateral estoppel offensively where there was a lack of complete mutuality of parties between the two actions, and held that arbitrators should have the same discretion. The panel had stated that it would not apply the collateral estoppel doctrine due to an interesting procedural difference between lawsuits and arbitration. The panel noted that if the second action was a lawsuit, and the prior judgment was reversed on appeal, the losing party in the second lawsuit could then seek to have the application of collateral estoppel reversed on appeal, but that due to the restrictive judicial review of arbitration awards under the Federal Arbitration Act, if the prior judgment was reversed on appeal, the preclusive effect given the prior judgment in a later arbitration proceeding would remain. The possibility of this inequitable result persuaded the panel to hear evidence and decide the issue itself rather than to short-cut the determination of the issue through the application of collateral estoppel. Collins v. D. R. Horton, Inc., No. 05-15737 (USCA 9th Cir. Sept. 24, 2007).
DISTRICT COURT DENIES PRELIMINARY INJUNCTION TO ENJOIN EXCESS INSURANCE COVERAGE ARBITRATION IN UK
A district court has denied a motion for preliminary injunction, which would have enjoined an excess insurer from seeking to arbitrate coverage disputes under an excess insurance policy in London, England, as required by the excess policy. The Court rejected the contention that Arkansas law, which would have voided the arbitration provision, applied to the dispute, given a New York choice of law provision and the applicability of the Convention on the Recognition and Enforcement of Arbitral Awards. Considering the requirements for a preliminary injunction, and the potential application of the McCarran-Ferguson Act, the court held that a preliminary injunction was not warranted, based in part upon principles of international comity. Murphy Oil USA, Inc. v. SR Business Ins. Company Ltd., Case No. 07-1071 (USDC W.D. Ark. Sept. 20, 2007).