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Confirmation / Vacation of Arbitration Awards

Federal Court Declines to Vacate Arbitration Award Absent Public Policy Against Requiring Reinstatement of Terminated Employee

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The plaintiff, ITT Engineered Valves LLC, sought to vacate an arbitration award finding it had improperly terminated its employee, Douglas Wood, and ordering that Wood be reinstated. While recognizing the general presumption in favor of enforcing arbitration awards, ITT claimed an exception to that rule applied here: “well-defined and dominant” public policies would be violated if the award were to be enforced. Specifically, it pointed to public policies against (1) racial/national origin harassment and discrimination and (2) threats of workplace violence. Wood’s labor union, the defendant in the action, argued that the so-called public policy exception is exceedingly narrow and did not warrant vacatur. The court agreed with the union.

The court explained that applying the public policy exception requires a two-step analysis. First, can a “well-defined and dominant” public policy be identified? If so, would enforcing the award violate that policy? The court noted that the exception is available only when the award creates an “explicit conflict with an explicit public policy.” Even assuming the public policies identified by ITT were “well-defined and dominant,” the court found enforcing the award would not thwart the purpose of either policy. As an initial matter, the court found ITT failed to demonstrate that any public policies required the discharge of an employee who engaged in discrimination or harassment and/or made threats of violence. The court also accepted the arbitrator’s conclusion that Wood’s conduct was neither discriminatory nor harassing and did not constitute a threat of violence in the first instance. Thus, while sympathizing with ITT’s desire to maintain a safe workplace, the court denied its motion for summary judgment and granted the union’s cross-motion.

ITT Engineered Valves, LLC v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union, No. 5:21-cv-00205 (E.D. Pa. Aug. 3, 2021).

Chinese Arbitration Award Confirmed Despite US Company’s Claim of Unfair Treatment Stemming From US-China Trade War

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The Northern District of New York confirmed this month an arbitration award made in June 2018 by the China International Economic and Trade Arbitration Commission (CIETAC) in favor of two Chinese companies and against a U.S. tool manufacturer. The Chinese companies had contracted to purchase and import machine tools used in the manufacture of automobile engines and other machine parts from New Monarch Machine Tool Inc., a company based in Cortland, New York. New Monarch allegedly defaulted on its delivery and installation obligations under the parties’ sales contracts, which required arbitration of any disputes to take place in Beijing before CIETAC.

The CIETAC panel ultimately awarded the Chinese companies approximately $2.4 million, plus interest, payable within 30 days. When New Monarch failed to pay, a petition for confirmation of the award was filed. New Monarch argued that the award should not be confirmed because the arbitration was not conducted per CIETAC’s own rules and that the award was against the public policy of the United States.

The New York Convention governs the enforcement of arbitral awards stemming from disputes that are commercial and not entirely between citizens of the United States. Article V of the convention provides the grounds for refusing to recognize or enforce a foreign arbitral award, which include the grounds raised by New Monarch. However, the party opposing enforcement of an arbitral award under the convention has the “heavy” burden of proving that one of the grounds applies.

New Monarch failed to meet that burden. It argued that CIETAC failed to follow its own rules by taking more than a year to render a decision despite the rules imposing a six-month deadline. The court noted that the rules permit the deadline to be extended if the panel receives permission from the president of the arbitration court, which the panel did in this case.

New Monarch also argued that the deterioration of U.S.-Chinese trade relations during the yearlong delay made it “impossible for an American company like New Monarch to get a fair shake before the Chinese-based CIETAC.” The court rejected this argument, noting that the public policy defense must be “construed very narrowly to encompass only those circumstances where enforcement would violate our most basic notions of morality and justice.” The court “boil[ed] down” this argument to an “assertion that the confirmation of a foreign arbitral award somehow hinges on the current state of trade relations between signatories to the New York Convention.” The court stated that such a finding would be contrary to the goals and purpose of the New York Convention, which is “to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.”

Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. Aug. 3, 2021).

Sixth Circuit Agrees Farmer Must Reimburse Crop Insurer for Overpayments Received Due to Farmer’s Poor Record-Keeping

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The Sixth Circuit Court of Appeals affirmed a Michigan district court order confirming an arbitration award for Farmers Mutual Hail Insurance Company of Iowa. The award ordered Edgar Miller to return the extra payments he received from Farmers Mutual after it was discovered that, due to Miller’s poor record-keeping, Farmers Mutual had overpaid him under his crop insurance policy. After the award was rendered in favor of Farmers Mutual, the parties had the overpayment issue considered by the Federal Crop Insurance Corp. (FCIC), a body created by Congress to establish and regulate rules for crop insurance coverage. The FCIC determined that Farmers Mutual was permitted to seek reimbursement from Miller, and Farmers Mutual subsequently filed a petition to confirm the arbitration award in Michigan federal court.

Where, as here, the FCIC provides an interpretation after the arbitrator has acted, the award must be reviewed to determine if it is consistent with the FCIC’s view. The award must be nullified if it is determined that any inconsistency materially affected the award. Here, the district court ruled, and the Sixth Circuit agreed, that the award was not inconsistent with the FCIC’s determination that a crop insurer may reject a claim for coverage based on poor record-keeping alone and may obtain retroactive reimbursement for an overpaid claim on that basis. The Sixth Circuit rejected Miller’s argument that the arbitrator nonetheless exceeded its authority by placing the burden of proof on him with respect to reimbursement. The court also rejected Miller’s claim preclusion argument, finding there had been neither a final decision on the merits nor an identical claim raised in two lawsuits.

Farmers Mutual Hail Insurance Co. of Iowa v. Miller, No. 20-1978 (6th Cir. July 20, 2021).

Third Circuit Affirms Dismissal of Petition to Confirm “Sham” Arbitration Award

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A pro se plaintiff had sought to confirm a $116,313 award by “Sitcomm Arbitration Association,” which had allegedly ruled that TD Auto Finance LLC was liable for breach of contract. TD Auto Finance contested the petition by moving to dismiss, contending that the award was a “sham” related to the repossession of the plaintiff’s car and that it had never agreed to participate in an arbitration. The district court agreed with TD Auto Finance and dismissed the petition, finding that the plaintiff failed to submit a valid agreement to arbitrate and noting that the purported award was incomprehensible, lacked factual findings and legal conclusions, and did not support the existence of an agreement between the parties.

On appeal, the Third Circuit Court of Appeals rejected the plaintiff’s argument that TD Auto Finance was barred from challenging the award because it had not moved to vacate it within the three-month statutory time period. The court ruled that it was unnecessary to consider this issue, where, as here, the district court properly denied a petition to confirm that lacked “evidence of a genuine arbitration award and an agreement between the parties.”

Pena v. TD Auto Finance LLC, No. 21-1670 (3d Cir. July 15, 2021).

Eleventh Circuit Denies Petition to Vacate Arbitration Award Based on Alleged Bias Where Arbitrator’s Prior Employment by Opposing Law Firm Was Disclosed

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A pro se litigant sought to vacate an adverse summary judgment in arbitration that rejected her wrongfully termination claim. At the outset of the arbitration proceeding, the parties agreed on the selection of the proposed arbitrator, even though his curriculum vitae showed that he had previously served as the managing shareholder of an office of the law firm representing the employer adverse to the pro se litigant. This fact was further mentioned by the law firm in an email to the pro se litigant, and again by the arbitrator himself in another email to the parties.

After the arbitrator entered judgment for the employer, the pro se litigant sought to vacate the award, alleging that the arbitrator had failed to disclose his friendship with one of the lawyers representing the employer. The pro se litigant based her argument in part on the discovery of a photograph of the arbitrator and opposing counsel “standing arm in arm in celebration of [the arbitrator’s] 50th birthday” and further that this “undisclosed relationship and their friendship demonstrates bias.”

The Eleventh Circuit found these arguments insufficient to demonstrate the requisite bias. The court noted that the arbitrator’s prior employment by the law firm had been disclosed and stated that “it follows necessarily from this disclosure that he likely has friendships with many of [the firm’s] employees.” Further, to the extent the alleged friendship “should have been separately disclosed, we have explained that standing alone, the fact that an arbitrator had previous contacts with counsel for one of the parties does not suggest evident partiality.” To demonstrate bias, the pro se litigant had to produce some additional basis, such as “financial incentives” or “concurrent representations” involving opposing counsel that “might give a reasonable impression of partiality.” The evidence that was presented offered “mere speculation of unfair bias … which is too remote, uncertain and speculative to create a reasonable impression of partiality.”

Perez v. Cigna Health & Life Insurance Co., No. 20-12730 (11th Cir. July 13, 2021).