In 1997, DDT Trucking of North America (“DDT NA”) entered into a distributorship agreement with DDT Holding’s predecessor. That agreement contained an arbitration agreement and stated that if DDT Holdings was sold, it should simultaneously terminate the distributorship agreement and compensate DDT NA. In 1999, the parties terminated the agreement. A dispute arose as to whether this nullified the agreement, such that DDT Holdings did not have to provide any compensation to DDT NA and as to whether this nullified the agreement to arbitrate. Relying on Section 7 of the Arbitration Act of 1996 as well as English precedent, Justice Cooke concluded that the right to compensation and arbitration does not end when the underlying contract is terminated. DDT Trucks of North America Ltd. and DDT Holdings Ltd., [2007] EWHC 1542 [Comm], Eng. Comm., QBD (June 29, 2007).
Arbitration Process Issues
INSURER NOT PERMITTED TO CHALLENGE ENGLISH ARBITRATION AWARD IN U.S. COURT
A dispute arose between “C” and its insurer “D,” both U.S. corporations. The insurance policy was governed by New York state law, but provided for disputed to be settled in England under the provisions of the English Arbitration Act. The parties agreed to arbitrate in England, and the panel issued a partial award in favor of “C.” “D” threatened to apply to a U.S. court to set aside the award on the basis that it was based on a “manifest disregard of the law.” “C” obtained an interim anti-suit injunction restraining “D” from commencing proceedings in a U.S. court. At the final hearing, Justice Cooke held that because the parties chose England as the seat of arbitration, they must submit any challenge to the eventual award to an English court under English law, regardless of the governing law of the contract. C and D, [2007] EWHC 1541, [Comm], Eng. Comm., QBD (June 28, 2007).
STATE SUPREME COURT REJECTS PLEA TO ADD PREJUDGMENT INTEREST TO ARBITRATION AWARD
The Washington Supreme Court recently held that an arbitration award does not transform an unliquidated claim into a fully liquidated sum entitling the prevailing party to prejudgment interest. The underlying dispute arose out of a building contract between the Department of Corrections and Fluor Daniels (“Fluor”). The parties agreed to resolve the dispute in binding arbitration. The dispute proceeded to arbitration and the arbitrator found in favor of Flour Daniels for $5,997,645. Three weeks later, Fluor reduced the award to judgment and sought prejudgment interest from the date of the arbitration until judgment.
The court held that an arbitration decision generally does not convert unliquidated damages into liquidated damages and does not entitle the winner to prejudgment interest between the date of the arbitration decision and entry of judgment. Rather, unliquidated damages accrue interest from the date of judgment, not the date of an arbitration award. State of Washington Department of Corrections v. Fluor Daniel and Fireman’s Fund Ins. Co., Case No. 78290-3 (Wash. July 6, 2007).
Court Finds Dispute As To Payment Of Claim Is Arbitrable
A reinsurance contract had what is termed a narrow arbitration provision, requiring arbitration only of disputes relating to the interpretation of the contracts. The service of suit clause provided for the resolution by a court of the failure to pay an amount claimed to be due. A dispute arose as to a claim submitted under the contract, specifically whether payment should be made to the insolvent claimant or its liquidator. A US District Court has determined that since the resolution of that question requires interpreting provisions of the reinsurance contract, the dispute is arbitrable. Railroad Insurance Underwriters v. Certain Underwriters at Lloyd’s London, Case No. 07-3071 (USDC S.D.N.Y. June 4, 2007).
Arbitration Awards – Part I
There have been a large number of Court of Appeal and District Court opinions recently relating to arbitrations awards. This week, we present a two-part post to present these opinions. Today's post concerns evident partiality and venue, while tomorrow's will address the scope of arbitrators' authority and manifest disregard of law.
- In a potentially important opinion, the Second Circuit has issued a fairly detailed analysis of a situation in which an arbitrator came to be aware of a business relationship between his company and the parent company of one of the parties to the arbitration. Rather than investigate, he walled himself off with a “Chinese Wall” in an attempt to remain ignorant, and did not disclose his lack of investigation of the potential conflict. The District Court held that this constituted evident partiality, and vacated the arbitration award. The Court of Appeals affirmed. This case contains a good discussion of the legal principles relating to evident partiality. Applied Industrial Materians Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., Case No. 06-3297 (USCA 2d Cir. July 9, 2007).
- In Toroyan v. Barrett, Case No. 06-4422 (USDC SD N.Y. July 10, 2007), the court confirmed an arbitration award over objections of evident partiality and manifest disregard of law. The evident partiality claim was based on the fact that parties to the arbitration had contributed to maintaining an endowed chair in a different school of the University where the arbitrator was a professor. The court rejected the evident partiality claim for three reasons: (1) there was no indication that the arbitrator knew of the relationship; (2) the relationship was immaterial; and (3) the objector should have known about the issue and raised it prior to losing the arbitration.
- In The Ridge at Red Hawk, LLC v. Schneider, Case No. 06-4162 (USCA 10th Cir. July 9, 2007), the 10th Circuit affirmed a venue decision by an arbitration panel. This case is intersting in part because it involves parallel proceedings in a Texas state court and a Utah federal court, with Rooker-Feldman Doctrine implications. The courts concluded that a somewhat unique arbitration provision in the contract underlying the dispute allowed an appeal of the venue issue only if the determination was strictly legal in nature, and the arbitration award indicated that the venue determination was a combination of a legal and factual determination. Therefore, the courts dismissed the federal court challenge to the arbitration award.
- In ReliaStar Life Ins. Co. v. Certain Underwriters at Lloyd's London, Case No. 06-3845 (USDC D Minn. Feb. 1, 2007), the court confirmed an arbitration award by agreement of the parties. The Stipulation filed with the court includes a copy of the award.