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Confirmation / Vacation of Arbitration Awards

COURT CONFIRMS ARBITRATION AWARD

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A district court has confirmed an arbitration award, finding that a pro se challenge to the award merely questioned the correctness of the award, and that there was no evidence to sustain a challenge to the award on the bases permitted by the Federal Arbitration Act. The challenges to the award included the failure of the arbitrators to allow a late amendment to the claims, the exclusion of unlawfully intercepted audiotapes (where questioning about the subject matter of the intercepted discussion was permitted) and the suggestion that a witness committed perjury because he disagreed with the movant. Martin v. Scott & Stringfellow, Inc., Case No. 06-207 (USDC E.D. Va. Mar. 13, 2008).

This post written by Rollie Goss.

COURT VACATES ARBITRATION AWARDS AGAINST FEDERAL CROP INSURANCE CORPORATION

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The plaintiff farmers brought an action in federal district court to enforce two arbitration awards against the Federal Crop Insurance Corporation (“FCIC”), a division of the United States Department of Agriculture. FCIC is a reinsurer of crop insurance policies issued by private insurance companies. It issues cooperative financial agreements with the private insurers that are referred to as “standard reinsurance agreements.” Plaintiffs purchased policies with American Growers Insurance Company (“AGIC”). In turn, AGIC entered into standard reinsurance agreements with FCIC. Plaintiffs filed arbitration demands against AGIC, but in 2005, the State of Nebraska liquidated AGIC. On the order of liquidation, FCIC notified plaintiffs that it would review their claims. The arbitration proceeded, however, over FCIC’s objections that it was not a party to the arbitration agreement, and that it would not submit to the arbitrator’s jurisdiction. Eventually, the arbitrator granted awards against FCIC.

When plaintiffs sought to enforce the awards in the United States District Court for the Eastern District of Washington, the court ruled against them on cross-motions for summary judgment. The court found that FCIC had not agreed to submit to arbitration, being neither a party to the crop insurance policies at issue nor otherwise in privity of contract with plaintiffs. Among other things, FCIC was found to be a reinsurer, not a “substituted insurer,” i.e., an entity that assumes direct liability to the policyholder. Accordingly, the arbitrator lacked jurisdiction to preside over any dispute between FCIC and plaintiffs. The district court, therefore, vacated the awards. Olsen v. United States, Case No. CV-06-5020-FVS (USDC E.D. Wash. Mar. 8, 2008).

This post written by Brian Perryman.

SUPREME COURT RULES THAT PARTIES MAY NOT CONTRACT FOR BASES FOR JUDICIAL REVIEW OF ARBITRATION AWARDS

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The United States Supreme Court has held that the grounds for vacating or modifying arbitration awards set out in the Federal Arbitration Act are the exclusive grounds for such action, and can not be “supplemented” by contractual agreement. This ruling will end the practice of contracting for the judicial review of arbitration awards on grounds similar to those for the appeal of final judgments of courts after trials, in order to avoid the restrictive judicial review provisions of the FAA. In discussing the FAA’s judicial review provisions, the Court mentioned the manifest disregard of law basis for reviewing awards, noting that this theory is not explicitly mentioned in the FAA, but is implied from the FAA’s provisions. Some courts may take this mention as a criticism of the legitimacy of the manifest disregard of law theory, and it will be interesting to see how courts respond to this portion of the opinion. Given the clear trend in court opinions over the past 16 months or so of substantially restricting the scope of the manifest disregard theory, however, this portion of the opinion may have limited impact, no matter how it is interpreted. Hall Street Assoc. LLC v. Mattel, Inc., No. 06-989 (US Mar. 25, 2008).

This post written by Rollie Goss.

CASE UPDATE: UK COURT REJECTS LATEST CHALLENGE TO ENFORCEMENT OF $88 MILLION GAZPROM ARBITRATION AWARD

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On June 14, 2007 and November 27, 2007, we reported on a $88 million arbitration award rendered in Russia involving energy giant Gazprom, and efforts to enforce the award in the United States and the United Kingdon pursuant to the New York Convention, the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the UK’s Arbitration Act of 1996. In a last attempt to avoid the arbitration award, it was contended to the UK Commercial Court that the award should not be enforced because it was contrary to public policy due to fraud in the underlying arbitration proceeding and the underlying reinsurance transactions, which appeared not to transfer any risk. The Commercial Court has rejected the presentation, concluding that the award had been confirmed through the Russian courts and that the alleged irregularities were insufficient to warrant a refusal to enforce the award. Gater Assets Limited v. Nak Naftogaz Ukrainiy [2008] EWHC 237 (Comm. Feb. 15, 2008).

This post written by Rollie Goss.

ARBITRATION AWARDS UPHELD OVER CHALLENGES TO ARBITRATOR

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Two recent decisions addressed requests to vacate arbitration awards due to concerns over arbitrator qualifications and bias. In Woods v. P.A.M. Transport, Inc., Case No. 07-605 (USDC N.D. Tex. Feb. 8, 2008), a motion was filed to vacate an arbitration award on the basis that the arbitrator failed to disclose that he had been removed from the American Arbitration Association's list of approved arbitrators. The court held that insufficient evidence was presented that the arbitrator was not sanctioned by the AAA, or that such facts, if true, justified vacation of the award under the FAA. The court also held that the moving party had not demonstrated that the award was in manifest disregard of law. In In re Aviles v. Allstate Ins. Co., Case No. 2007-6808 (N.Y. Sup. Ct. App. Div.), the court reversed an Order vacating an arbitration award on the basis that the arbitrator was biased. There was no transcript of the arbitration hearing available, and a clearly insufficient record to support a determination that the arbitrator was biased.

This post written by Rollie Goss.