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Confirmation / Vacation of Arbitration Awards

IMPORTANT DECISIONS ADDRESSING ARBITRATION AWARDS

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During January 2008, five of the US Courts of Appeal addressed issues relating to the vacation of arbitration awards in six different cases, with a district court also entering this arena. This is an unusual concentration of appellate activity in this area, and the cases addressed different bases for vacating arbitration awards:

  • In Long John Silver's v. Cole, No. 06-1259 (USCA 4th Cir. Jan. 28, 2008) the court affirmed a district court decision confirming an arbitration award over objections that the arbitrator had manifestly disregarded controlling legal principles and exceeded his scope of authority. The arbitrator had followed the American Arbitration Associations class action rules to certify an opt-out arbitration class of labor claims, rather than certifying an opt-in class pursuant to the Fair Labor Standards Act.

  • In Howard Univ. v. Metropolitan Campus Police Officer's Union, No. 07-7055 (USCA D.C. Cir. Jan. 18, 2008) the court affirmed a district court decision confirming an award over objections that the arbitrator did not have jurisdiction to resolve the dispute and engaged in misconduct by excluding certain evidence. The court found the jurisdictional objection was waived when it was not raised during the arbitration, and that the evidentiary decision did not prejudice the right of the parties to a fundamentally fair hearing.

  • In Uhl v. Pacific Employer's Ins. Co., No. 07-1044 (USCA 6th Cir. Jan. 9, 2008) the court affirmed the decision of the district court (reported in a January 4, 2007 post to this blog) confirming an award over the objection that the undisclosed fact that one of the arbitrators had served as co-counsel in another matter with counsel for one of the parties in the arbitration, since the objecting party had failed to establish specific facts that indicated improper motives on the part of the arbitrator.

  • In Sherrock Bros., Inc. v. DaimlerChrysler Motors Co., No. 06-4767 (USCA 3d Cir. Jan. 7, 2008), the court affirmed the decision of the district court (reported in a October 31, 2006 post to this blog) confirming an award over two objections: (1) that the arbitration panel's rulings on res judicata, collateral estoppel and waiver were in manifest disregard of the law; and (2) that the use of a summary judgment procedure to dispose of the claims was error.

  • In Truck Drivers Local v. Allied Waste Systems, Inc., No. 06-1572 (USCA 6th Cir. Jan. 4, 2008) the court reversed the decision of a district court (reported in a October 31, 2006 post to this blog) which vacated an award, finding that one of its own recent decisions “refined” the scope of review of labor arbitration awards, such that the arbitrator did not exceed his authority by making an interpretive error, and since the arbitration agreement did not clearly and consistently limit the arbitrator's authority in the manner contended for by the party seeking to vacate the award.

  • In Hall v. American General Financial Service, Inc., No. 06-1768 (USCA 8th Cir. Jan. 29, 2008), in a very perfunctory opinion, the court affirmed a decision confirming an award, stating the the party objecting to the award had not demonstrated that the award was completely irrational or in manifest disregard of the law.

  • In Nationwide Mut. Inc. Co. v. Randall & Quilter Reinsur. Co., Case No. 07-120 (USDC S.D. Ohio Jan. 24, 2008), the court confirmed an award, which had already been paid. The issue was whether the award should be confidential, when there was no written confidentiality agreement, only a discussion of confidentiality at one of the arbitration hearings. The court found that since the parties had not consented to the confirmation of oral awards, the court was not authorized under section 9 of the Federal Arbitration Act to confirm a purported oral confidentiality order. See a September 5, 2007 post to this blog for an earlier ruling in this case.

This post written by Rollie Goss.

COURT GRANTS SUMMARY JUDGMENT ON CLAIMS AMOUNTING TO ABUSE OF ARBITRATION PROCESS

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Myles had a credit card from Juniper Bank and failed to pay amounts due under the credit card. Wolpoff & Abramson LLP filed an arbitration claim against Miles on behalf of Juniper Bank. Myles contended that he never agreed to arbitrate, and no arbitration agreement signed by Myles was ever produced. The arbitrator retained the matter but dismissed the claim with prejudice. Myles then sued Wolpoff under the Fair Debt Collection Practices Act (“FDCPA”), the Michigan Collection Practices Act and the Michigan Occupational Code. The claims essentially alleged that Wolpoff had abused the arbitration process by filing a baseless arbitration claim. The district court found that the FDCPA claims failed as a matter of law because they amounted to a collateral attack on the arbitration award, which should have been challenged under the Federal Arbitration Act. The state law claims were then dismissed without prejudice pursuant to 28 U.S.C. § 1367. Myles v. Wolpoff & Abramson, LLP, Case No. 07-12247 (USDC E.D. Mich. Jan. 14, 2008).

This post written by Rollie Goss.

COURT DENIES MOTION TO VACATE ARBITRATION AWARD

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Commercial Risk Reinsurance Company Limited (“Commercial Risk”) brought this action to vacate an arbitration award against it and in favor of Security Insurance Company of Hartford (“Security”). In the underlying arbitration, Security sought to recover losses arising from workers compensation programs covered by two reinsurance agreements entered into by the parties in 1999 and 2000. In those contracts, Commercial Risk agreed to accept a certain share of Security’s interests and liabilities associated with the covered workers compensation programs insured by Security. Commercial Risk denied payments of amounts billed by Security under the treaties contending that a portion of the losses were not covered. The arbitration panel found in favor of Security.

Commercial Risk argued that the award should be overturned because: (1) the panel issued the Award jointly rather than severally against the two separate Commercial Risk entities; (2) the arbitration proceeding was fundamentally unfair because the panel excluded testimony of Commercial Risk’s witnesses and exhibits pertaining to damages; and (3) the panel exceeded its authority in a variety of ways. The Court rejected all of Commercial Risk’s arguments finding “no evidence that the arbitrators engaged in misconduct, or exceeded their authority, or that Security committed any fraud sufficient to vacate the Award.” Commercial Risk Reinsurance Co. Ltd. v. Security Insurance Co. of Hartford, Case No. 07 Civ 2772 (S.D.N.Y., Nov. 30, 2007). Commercial Risk’s motion for reconsideration also was denied. Commercial Risk Reinsurance Co. Ltd. v. Security Insurance Co. of Hartford, Case No. 07 Civ 2772 (S.D.N.Y., Dec. 12, 2007).

This post written by Lynn Hawkins.

SUPREME COURT HEARS ORAL ARGUMENT ON WHETHER PARTIES MAY SUPPLEMENT ARBITRATION AGREEMENTS BEYOND FAA’S VACATUR STANDARDS

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The Supreme Court recently heard oral arguments on whether an arbitration agreement may provide for more expansive judicial review of an arbitration award than the narrow standard of review provided for in the Federal Arbitration Act. This case arose out of a property lease dispute between Mattel, the well-known toy manufacturer, and its landlord, Hall Street Associates. The parties agreed to arbitrate the dispute pursuant to the FAA procedures, but also agreed that a district court could overrule the arbitrator’s decision if the arbitrator’s “conclusions of law [we]re erroneous.”

The Ninth Circuit barred this type of court review, reasoning that private parties cannot expand the Congressionally-determined role of courts in reviewing arbitration awards. In contrast, the First, Third, Fourth, Fifth, and Sixth Circuits appear to have interpreted the FAA’s vacatur standards as non-exclusive standards which parties may supplement by agreement. While the Seventh Circuit has not squarely addressed the issue, it stated in dicta that the parties “cannot contract for a judicial review” of a labor arbitration award “because federal jurisdiction cannot be created by contract.”

After hearing oral arguments on the issue, the Supreme Court asked for additional briefing on three issues: (1) whether authority exists outside the FAA under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award; (2) if such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority; and (3) whether the petitioner waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties’ arbitration agreement.

Hall Street Associates, LLC v. Mattel, Inc., No. 06-989.

This post written by Lynn Hawkins.

COURT CONFIRMS $443.5 MILLION ARBITRATION AWARD AND ORDERS $600 MILLION BOND

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The California Department of Insurance Conservation and Liquidation Office won a $443.5 million dollar arbitration award in favor of five Superior National Insurance Companies in liquidation. The award was against the United States Life Insurance Company, a subsidiary of AIG.

The arbitration arose out of a dispute of a 1998 reinsurance contract between U.S. Life and the five Superior National Companies. In 1999, U.S. Life initiated arbitration proceedings seeking rescission of the reinsurance contract, alleging misrepresentation and nondisclosure. The following year, Superior National, having suffered significant losses from its workers’ compensation business, became insolvent. California’s Insurance Commissioner seized the companies and placed them in conservation.

The arbitration panel denied U.S. Life’s claim for rescission, which was affirmed by the federal district court and Ninth Circuit. The arbitration panel then convened a second phase of arbitration to determine the amount of damages. The Final Arbitration Award ordered U.S. Life to pay the Superior National companies $443,515,724.

Following the district court’s confirmation of the award, the court entered a memorandum opinion requiring that U.S. Life post a $600 million dollar supersedeas bond (Order on bond memorandum decision) to provide adequate security for the judgment pending appeal. United States Life Ins. Co. v. Superior Nat'l. Ins. Co., Case No. 07-850 (USDC C.D. Cal.). This case is a consolidation of two cases.

This post written by Lynn Hawkins.