Confirmation / Vacation of Arbitration Awards

ARBITRATION AWARDS SHOULD NOT HAVE BEEN VACATED FOR LACK OF NOTICE, NEW JERSEY COURT RULES

June 26, 2008 by Carlton Fields

A trial court had no basis to vacate arbitration awards, the New Jersey Appellate Division has held. An insurer, Selective, sued a bus company, Coach, in a subrogation action, but subsequently offered to pursue the dispute in an arbitral forum. The attorney for Coach agreed and the litigation was voluntarily dismissed on stipulation of the parties specifying the particular forum to be used. Shortly before the stipulation was filed, Coach’s attorney indicated to Selective’s attorney that it was self-insured, and that Sedgwick Claims Management served as its third-party administrator of claims made against it. The arbitration was later filed, and Sedgwick was served by Selective in accordance with the rules of the arbitral forum. Neither Coach nor Sedgwick appeared at the arbitration hearing, and the arbitrator issued two awards in Selective’s favor. Selective then sought the awards’ confirmation. The trial court initially confirmed the awards, and entered a default judgment against Coach for failure to answer. However, the trial court later vacated both the default judgment and the arbitration awards, concluding that there had not been due process notice of the arbitration to Coach, which the trial court determined had not designated Sedgwick as its “local representative” to handle the claim in accordance with the arbitral rules.

On appeal, Selective argued that the trial court erred because it had served Coach in accordance with the rules. Coach countered that the awards were properly vacated for lack of notice of the arbitration, that it provided a timely defense to the awards after receiving actual notice, and that it was never a proper party to any subrogation action. The appellate court first determined that the awards should be enforced. The stipulation of voluntary dismissal expressly acknowledged that the parties would arbitrate in the forum designated. Moreover, it was undisputed that Coach’s counsel furnished the name and address of a Sedgwick adjuster as the person to whom Selective should direct any questions or inquiries. Adequate notice of the arbitration was thus given to Coach. Next, the court determined that the default judgment was properly vacated because, although Coach had failed to answer in a timely fashion, it nonetheless moved to vacate the entry of default two days after the entry of judgment. However, Coach was estopped to present any defense that it was not a proper party to a subrogation action, since the statute it relied on, N.J.S.A. 39:6A-9.1, was not a defense to an arbitration award and, in any event, applied to self-insureds, which Coach had admitted it was. Selective Insurance Co. v. Coach Leasing, Inc., Case No. A-4007-06T2 (N.J. App. Div. June 16, 2008).

This post written by Brian Perryman.

NEW JERSEY SUPREME COURT AFFIRMS VAILIDITY OF CONTRACTUAL BAR TO JUDICIAL REVIEW OF ARBITRATION AWARDS, WITH ONE EXCEPTION

June 24, 2008 by Carlton Fields

In an opinion that runs just over one page long, the New Jersey Supreme Court has affirmed the decision of the Appellate Division that upheld a provision of an arbitration agreement entered into by two “sophisticated business parties” which foreclosed appellate court review of the decision of an arbitrator, but finding the provision invalid to the extent that it foreclosed the right to initial judicial review, which would have deprived a court of the ability to vacate the award if it violated public policy. The contractual provision stated that the arbitrator’s decision would be “final, binding and conclusive” and “not subject to an appeal to any authority in any forum.” “Additionally, the parties forswore any legal action other than one to confirm or enforce (but not to vacate) the arbitration award.” After an award was entered, a trial court judge confirmed the award, and an appeal was filed. A motion to dismiss the appeal was filed, on the basis that the parties had expressly waived any right to appeal. The Appellate Division panel denied the motion to dismiss, and entered an opinion examining the award and upholding its validity, finding the absence of any grounds under the New Jersey Arbitration Act for vacating an award on the basis of public policy. In a single sentence, the Court mentioned that the “rare circumstances” that might justify an appellate court in vacating an arbitration award on public policy grounds might include bias or misconduct of the trial judge or unconscionability in the formation of the contract, and that none of these bases were present. The Court affirmed “substantially for the reasons expressed in” Appellate Division’s opinion. Van Duren v. Rzasa-Ormes, No. A-52-07 (N.J. June 19, 2008).

This post written by Rollie Goss.

COURTS ARE OBLIGED TO DEFER TO ARBITRATOR’S FACTUAL FINDINGS EVEN WHEN EVALUATING AN AWARD FOR VIOLATION OF PUBLIC POLICY

June 23, 2008 by Carlton Fields

In a published opinion issued on June 16, the Ninth Circuit reversed a district court that had vacated an arbitral award as contrary to public policy. The circumstances leading to the arbitration stemmed from a “no-match” letter sent by the Social Security Administration to the plaintiff, Aramark, indicating that information for 48 of Aramark’s employees did not match the Administration’s database. Suspecting immigration violations, Aramark gave the employees three days to prove they had begun an application for a new Social Security card, and fired 33 of the employees who did not timely comply. The defendant labor union filed a grievance on behalf of the employees, alleging violations of the governing collective bargaining agreement. The arbitrator ruled for the union, and awarded back pay and reinstatement to the employees. Thereafter, Aramark successfully moved in district court to vacate the arbitration award on public policy grounds, arguing that the “no-match” letter put it on constructive notice that it was employing illegal workers, and that the award would force it to violate immigration law. On appeal, however, the Ninth Circuit independently determined that Aramark had not established constructive knowledge of immigration law violations and that, in any event, it was obliged to defer to the arbitrator’s factual findings. It reversed the district court’s judgment and confirmed the award. Aramark Facility Services v. Service Employees International Union, Local 1877, AFL CIO CLC, No. 06-56662 (9th Cir. June 16, 2008).

This post written by Brian Perryman.

COURT REVIEWS ARBITRAL AWARD UNDER BOTH NEW YORK CONVENTION AND FAA RULES

June 19, 2008 by Carlton Fields

In 1990, Anthony LaPine, founder of a California disk drive company called LaPine Technology Corporation (“LTC”), filed an arbitration proceeding against Kyocera, a Japanese corporation, and Prudential accusing them of destroying the value of LTC. The arbitration was stayed pending the resolution of a related arbitration. Shortly after the arbitration resumed in 2007, the arbitration panel dismissed all of LaPine’s claims, concluding that his fraud claims were barred by the statute of limitations, he lacked standing to raise the contract and corporate mismanagement claims, and, as an additional basis for dismissal, that his claims were barred by the doctrines of waiver and estoppel. LaPine brought this action against Kyocera asking the court to vacate the arbitration award.

The Court denied LaPine’s request and confirmed the arbitration award. Having concluded that the arbitration agreement and arbitral award fell under the New York Convention, the Court addressed the heart of the parties’ dispute, namely whether the grounds for review enumerated in Article V of the Convention were exclusive, or whether the award could also be reviewed under the standards set forth in the FAA. The court concluded (in the absence of guidance from the Ninth Circuit) that the appropriate standard of review was under both Article V of the Convention and the FAA. The court analyzed LaPine’s arguments under both sets of rules, but found no grounds to overturn the panel’s award. LaPine v. Kyocera Corp., No. C 07-06132 (USDC N.D. Cal. May 23, 2008).

This post written by Lynn Hawkins.

COURT OF APPEAL DECLINES TO ADDRESS WHETHER MANIFEST DISREGARD OF LAW DOCTRINE SURVIVES HALL STREET V. MATTEL

June 16, 2008 by Carlton Fields

In Rogers v. KBR Technical Services Inc., No. 08-20036 (5th Cir. June 9, 2008), the Fifth Circuit was presented with the applicability of the manifest disregard of law standard for vacating arbitration awards after the Supreme Court’s decision of Hall Street Associates v. Mattel (see March 28, 2008 post on Mattel, and the Special Focus posting of April 28, 2008 relating to the future of the manifest disregard of law doctrine after the Mattel decision). The court declined to rule on the issue, instead confirming the award on other grounds. This pro se case involved a claim for benefits by Rogers, an employee of Halliburton, arising out of his provision of services in Afghanistan. His lawsuit was stayed pending arbitration pursuant to a process contained in his employment agreement.

After an award was issued in his favor in the amount of only $252.84, Rogers moved to vacate the award, Halliburton moved to confirm, and after the award was confirmed, Rogers filed a FRCP 59 post-trial motion to alter or amend the final judgment. Some of the bases for the Rule 59 motion alleged that the arbitrator had manifestly disregarded the law, raising the issue of whether the manifest disregard of law doctrine survived Mattel. The court confirmed the arbitration award, finding that the arbitrator’s decision could be reasonably inferred from the provisions of the employment agreement. The court held that “because we affirm the district court and hold that the arbitration award is confirmed, there is no need in the instant case to determine whether those non-statutory grounds for vacatur of an arbitration award remain good law after Mattel.” The court essentially rejected the substance of the manifest disregard arguments on the basis that the actions of the arbitrator were rationally based upon the specific provisions of the employment agreement and the rules applicable to the arbitration.

Since the briefs are not available on PACER or Westlaw in this unreported, pro se case, it is not possible to determine the extent to which the continuing viability of the manifest disregard of law doctrine was briefed. The Mattel decision was issued after the Appellant filed his initial brief, but prior to the opposition and reply briefs being filed. It is unlikely that the Appellee would have raised the issue, and if the issue was raised for the first time in Appellant’s reply brief, the court likely would have permitted a supplemental response from the Appellee. According to the docket sheet, no supplemental briefing was submitted, and the case was decided less than four months after the briefing notice was issued, without oral argument.

Although not addressing the issue of the impact of Mattel on the manifest disregard of law doctrine, this decision does indicate that Mattel brings into question the continued viability of the manifest disregard of law doctrine. Expect further developments in this area.

This post written by Rollie Goss.