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Confirmation / Vacation of Arbitration Awards

COURTS ADDRESS ARBITRATION AWARDS

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There have been a number of decisions recently addressing different issues with respect to the confirmation or vacation of arbitration awards:

  • Modifying a final award: There have been two decisions under the functus officio doctrine, which addresses whether an arbitrator exceeds his/her powers by making substantive changes to the merits of an award. In Transtech Industries, Inc,. v. A & Z Septic Clean, No. 05-5246, the Third Circuit held that modifications to an award were permissible since they “clarified” ambiguity resulting from the initial award stating “relatively little” with respect to an issue. In Eastern Seaboard Concrete Constr. Co. v. Gray Constr. Inc., Case No. 08-37 (USDC D. Me. Apr. 18, 2008), a magistrate judge held that an arbitrator exceeded his authority when he modified the substantive portion of an earlier award to address an “additional” issue. The line between clarifying an award that does not address an issue and changing an award to initially address an issue may be a fine line.

  • Scope of arbitration issues: The Third Circuit held in Greenwich Services, Inc. v. District 1199C, No. 06-4951 (3d Cir. Apr. 11, 2008) that an arbitrator has the authority to interpret and determine the scope of the issues in the arbitration, based upon the submissions of the parties and the applicable contract. Finding that the arbitrator's determination drew its essence from the contract, the court affirmed the confirmation of the award.

  • Timing of seeking vacation of award: In Employers Ins. Co. of Wausau v. Paladin Reinsurance Corp., Case No. 08-42 (USDC S.D.N.Y. Feb. 21, 2008), the court confirmed an arbitration award finding that the claims asserted with respect to 19 facultative reinsurance certificates were time barred, when the party seeking to vacate did not make the request within the time allowed by the Federal Arbitration Act. The Petition to Confirm the award sets forth pertinent background facts.

  • Merits of awards: In Delgado v. A. Korenegay Senior House HDFC, Case No. 07-7761 (USDC S.D.N.Y. Mar. 21, 2008), the court affirmed an award over a number of complaints relating to procedure and evidence, finding that the arbitrator had found that the party seeking to vacate the award was not a credible witness, which is not a basis for vacating an award.

This post written by Rollie Goss.

SPECIAL FOCUS: THE MANIFEST DISREGARD OF LAW DOCTRINE: WHAT DOES THE FUTURE HOLD?

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With this post we are expanding the content of Reinsurance Focus to include an occasional article of greater length containing a more detailed analysis of a reinsurance or arbitration-related topic of interest. These posts will be placed in the Special Focus category of our blog, and will consist of a short executive summary of the article linked to the article. We hope that this somewhat more detailed exploration of selected topics adds to our readers’ enjoyment of our blog. Our current intention is to have one such Special Focus post about every other month. Following is the executive summary of our first such article.

The manifest disregard of law doctrine has been referred to as a “judicially created” basis for vacating arbitration awards, which arguably is not expressly provided for in the Federal Arbitration Act (“FAA”). In the recent Hall Street Associates opinion (see the March 28, 2008 post), the United States Supreme Court stated that the grounds for vacating arbitration awards set forth in the FAA are the exclusive grounds for vacating an arbitration award, which may imply that what some courts have described as judicially created bases for vacation, such as the manifest disregard of law doctrine, are not viable. In the accompanying article, we briefly explore the current status of the manifest disregard of law doctrine and whether it has a future after Hall Street Associates. Read the article.

This post written by Rollie Goss.

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.