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Arbitration Process Issues

Ninth Circuit Court of Appeals Notes That Review of Arbitration Awards Under the MPPAA is “Notably Less Deferential” than under the FAA

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The Ninth Circuit Court of Appeals recently affirmed in part and reversed in part a district court’s order confirming an arbitration award under the Multiemployer Pension Plan Amendments Act of 1980, noting in the process that judicial review of such awards is “notably less deferential” than review of awards pursuant to the Federal Arbitration Act.

The MPPAA imposes liability on employers who withdraw — partially or completely — from multiemployer pension funds. MNG Enterprises, Inc. withdrew in 2014 from GCIU-Employer Retirement Fund, a multiemployer pension plan. The MPPAA imposes “withdrawal liability” on employers that withdraw from pension plans to cover the employer’s proportionate share of the plan’s unfunded vested benefits and to ensure that such pension plans remain viable.  After MNG’s withdrawal from the fund, GCIU’s actuary calculated its withdrawal liability. MNG disputed the actuary’s calculation and initiated arbitration pursuant to the dispute resolution requirements of the MPPAA.

The arbitrator agreed with MNG on two points but ruled for GCIU on the third. Both parties sought judicial review in the federal court for the Central District of California. The district court affirmed the arbitration award except for the interest rate it utilized, because the judge believed the arbitrator made a typographical error. Both parties appealed again, this time to the Ninth Circuit Court of Appeals.

The Ninth Circuit stated that “the standard of review for MPPAA arbitrations is notably less deferential than under the Federal Arbitration Act.” The court presumed that findings of fact made by the arbitrator were correct unless rebutted by a clear preponderance of the evidence, and further, reviewed the arbitrator’s conclusions of law de novo and applications of equitable relief for an abuse of discretion. Applying these standards of review, the Ninth Circuit affirmed in part and vacated in part the district court’s rulings. The court remanded for further consideration as to whether MNG, as a purchaser of earlier withdrawn participants in the GCIU, could have been liable as a successor as a matter of equity, and whether GCIU correctly applied the contribution histories at the time of the relevant asset sales.

GCIU-Employer Retirement Fund v. MNG Enterprises, Inc, Nos. 21-55864, 21-55923 (9th Cir. Oct. 28, 2022).

Georgia Court of Appeals Confirms Arbitration Award Holding That Arbitrator Did Not Manifestly Disregard Law or Overstep Authority

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Concluding that the arbitrator did not manifestly disregard contract law or overstep his authority, the Georgia Court of Appeals confirmed the arbitrator’s award and remanded the matter for consideration of an award of attorneys’ fees and post-award interest.

Claimants Southern Mountain Adventures LLC and Adventure Motorsports Reinsurance Ltd. entered into an arbitration agreement with Interstate National Dealer Services Inc. (INDS) to resolve their claims that INDS overcharged Southern Mountain Adventures. The limited facts included in the court’s decision confirm that the dispute between the claimants and INDS involved “payments collected by INDS pursuant to motorsport vehicle service contracts sold to customers by [Southern Mountain Adventures] and administered by INDS” and claims by the claimants that “INDS overcharged [Southern Mountain Adventures].” After the arbitrator found in favor of the claimants, INDS challenged the confirmation of the arbitration award. The Georgia Court of Appeals reversed the confirmation of the award, finding that the arbitrator manifestly disregarded the law. The Court of Appeals based its decision, in part, on the finding that “INDS charged an amount of money agreed to by the parties in a Rate Card” and that “the parties did not depart from the Rate Card structure.” Thereafter, the Supreme Court of Georgia reversed the holding of the Court of Appeals, holding that the arbitrator had not manifestly disregarded the law. The Supreme Court noted that “an arbitrator who incorrectly interprets the law has not manifestly disregarded it. The arbitrator has simply made a legal mistake,” and the legal standard for manifestly disregarding the law has not been met. The Supreme Court then remanded the case to the Court of Appeals.

On remand, the Court of Appeals confirmed the arbitrator’s award, concluding that the arbitrator did not manifestly disregard contract law. The court adopted the reasoning of the Supreme Court that the arbitrator had fashioned a remedy that he deemed “just and equitable within the scope of the agreements of the parties.” The Court of Appeals also considered INDS’ argument that the arbitrator overstepped his authority under Georgia’s arbitration statute, concluding that overstepping “like the other grounds for vacating arbitration awards is very limited in scope” and involves “addressing issues not properly before the arbitrator,” which the court concluded did not occur in this case. Finally, the court addressed the claimants’ argument that they were entitled to attorneys’ fees and post-award interest. The court held that “[b]ecause the court never addressed these issues, we remand for consideration of the appropriateness of awarding attorney fees arising out of the arbitration requested in the Claimant’s motion to confirm the award, attorney fees arising out of collection efforts as stated in the arbitration award, and post-award interest as stated in the arbitration award.”

Adventure Motor Sports Reinsurance, Ltd. v. Interstate National Dealer Services, Inc., No. A20A0036, A20A0037 (Ga. Ct. App. Oct. 18, 2022).

Second Circuit Affirms Order Confirming Arbitration Award Finding No Partiality Related to Arbitrator’s (Attenuated) Personal and Business Relations

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An individual appealed from an order confirming an arbitration award. The appellant argued that the district court erred in refusing to vacate the arbitration award on grounds of “evident partiality.” The appellant contended that this basis for vacatur existed because the arbitrator’s law clerk was the father-in-law of one of the petitioners’ brothers, and the arbitrator had a separate business relationship with the law clerk. The Second Circuit was not convinced. Under the FAA, evident partiality may be found only “where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.” Similarly, under applicable New York state law, partiality exists if “the arbitrator and the party or witness have some ongoing relationship” and it is shown that the losing party suffered “prejudice to its rights as a result.” The Second Circuit agreed with the district court that the arbitrator’s relationship to the underlying petitioners was not shown to have “crossed the line.” The court noted that this relationship was “far more attenuated than situations where this Court and New York courts have vacated awards for evident partiality.” And even assuming that the appellant had established partiality, which he had not, the Second Circuit agreed with the district court that, because the appellant had knowledge of the relationship in question during the arbitration proceedings, the “evident partiality” objection was waived.

Magid v. Waldman, No. 20-3216 (2d Cir. Feb. 25, 2022).

Second Circuit Rejects Arbitration-Ordered Procedure for Determining Religious Exemptions to Vaccines in Favor of Title VII Standards

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The Second Circuit Court of Appeals recently invalidated an arbitrator’s procedure for determining whether New York City Department of Education employees would receive religious accommodations to a vaccine mandate after finding that the arbitrator’s procedure failed to pass constitutional muster.

In August 2021, New York City’s commissioner of health and mental hygiene adopted a vaccine mandate for most New York City employees who work in New York City’s public schools.

The United Federation of Teachers objected to the mandate on the ground that it did not provide for medical or religious accommodations. That objection led to arbitration, where an arbitrator issued an award providing a process for employees to seek religious accommodations.

The arbitrator’s procedure required covered employees to submit a request that was “documented in writing by a religious official (e.g., clergy).” The procedure then provided that requests would be “denied where the leader of the religious organization has spoken publicly in favor of the vaccine, where the documentation [(apparently, documentation from the religious organization supporting the vaccine)] is readily available (e.g., from online sources), or where the objection is personal, political, or philosophical in nature.” The city’s department of education made an initial determination regarding an accommodation. That decision was subject to appeal to a panel of arbitrators. Employees who were granted an accommodation would remain on the payroll but would not be allowed to enter school buildings. The arbitration award also provided a series of deadlines and allowed the city to place unvaccinated employees who were denied an accommodation on unpaid leave by a certain date and allowed employees on unpaid leave to voluntarily resign from their positions, provided they waived their right to challenge their resignation. Employees who resigned would maintain health insurance but would not be paid.

A group of teachers and administrators challenged the vaccine mandate and the arbitrator’s procedures. They claimed the mandate was unconstitutional on its face and as applied to them through the arbitrator’s procedures. The district court denied the plaintiffs’ request for a preliminary injunction and the plaintiffs appealed to the Second Circuit. A motions panel at the Second Circuit heard oral argument on a request by the plaintiffs for interim relief. At that oral argument, the city conceded that the arbitrator’s process was “constitutionally suspect.” The motions panel subsequently granted the plaintiffs partial interim relief, which among other things and in accordance with a proposal from the city, allowed the plaintiffs to receive renewed consideration of their accommodation requests by a citywide panel that applied Title VII’s standards for religious accommodations. The motions panel also stayed the deadlines for resignation and provided that plaintiffs whose requests were granted would receive back pay.

The Second Circuit then addressed the merits of the plaintiffs’ claims, albeit in the context of the plaintiffs’ request for a preliminary injunction. The court first found that the plaintiffs were not likely to succeed on their claim that the vaccine mandate was facially unconstitutional. On its face, the mandate was neutral and generally applicable and therefore subject to rational basis review. The mandate satisfied that standard and the plaintiffs’ facial claim failed.

The court then turned to the arbitrator’s procedure, however, which it noted the city’s defense of was “half-hearted at best.” The court found that, unlike the mandate on its face, that process was neither neutral nor generally applicable. The procedure impermissibly determined an employee’s entitlement to a religious accommodation by reference to another person’s (e.g., a clergy person’s) beliefs. The plaintiffs also submitted evidence that the arbitrators who reviewed decisions under the process had substantial discretion that seemed to result in varying standards and seemingly inconsistent results. The court therefore applied strict scrutiny, which the process failed because “whether an applicant can produce a letter from a religious official … is not narrowly tailored to serve the government’s interest in preventing the spread of COVID-19.”

As a result of its decision, the Second Circuit vacated the district court’s ruling and remanded for further proceedings while leaving the relief ordered by its motion panel in place and refusing to order additional injunctive relief requested by the plaintiffs.

Kane De Blasio, No. 21-2711 (2d Cir. Nov. 28, 2021).

SDNY Confirms $500M Arbitration Award, Rejects Claim of Arbitrator Impartiality

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Petitioner Andes Petroleum Ecuador Ltd. moved to confirm a $500 million arbitration award arising from a contract dispute involving hydrocarbon development in the Ecuadorian Amazon. The respondent, Occidental Exploration and Production Co., moved to vacate the award, citing the alleged impartiality of its own party-appointed arbitrator, Robert Smit. During the selection process, Smit disclosed that he knew Andres Petroleum’s lead counsel, Laurence Shore, from attending arbitration conferences. Occidental took issue with Smit’s failure to disclose that he and Shore were also appointed to serve on the same panel of the International Chamber of Commerce. Noting that a court’s review of an arbitration award is “severely limited,” the district court found no basis for Occidental’s claim of impartiality. The court found no evidence to suggest that any arbitrator acted fraudulently by virtue of his incomplete or nondisclosures. In addition, the court held that there was no indication of arbitrator misconduct or impartiality by virtue of Smit’s professional relationship with Shore, noting that the Federal Arbitration Act “does not proscribe all personal or business relationships between arbitrators and the parties.” Absent evidence that the arbitral proceedings themselves lacked fundamental fairness, the court granted Andres Petroleum’s petition to confirm the award and denied Occidental’s cross-motion to vacate.

 Andes Petroleum Ecuador Ltd. v. Occidental Exploration & Production Co., No. 1:21-cv-03930 (S.D.N.Y. Nov. 15, 2021).