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Confirmation / Vacation of Arbitration Awards

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.

COURT REFUSES TO VACATE ARBITRATION AWARD, FINDING NO MANIFEST DISREGARD OF LAW OR EVIDENT PARTIALITY

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In an arbitration regarding the purchase of securities, the losing party sought to vacate the award on the basis that it was in manifest disregard of law and that the arbitrator was biased. The court denied the motion, finding that the manifest disregard of law claim was not that the arbitrator disregarded the law, but that he simply erred in the application of applicable law, which even if proven does not constitute manifest disregard of law. The evident partiality contention was based upon alleged conduct of opposing counsel, and its potential affect upon the arbitrator, and the arbitrator’s reviewing of documents which he then declined to admit into evidence. The court easily found that such conduct did not constitute evident partiality, which requires a showing of specific facts that indicate improper motives on the part of an arbitrator. Williams Fund Private Equity Group, Inc., v. Engel, Case No. 06-2266 (USDC D.C. Nov. 7, 2007).

This post written by Rollie Goss.

ARBITRATION AWARD CAN NOT BE CORRECTED TO REFLECT FACTS NOT PRESENTED TO ARBITRATOR; PRE-JUDGMENT INTEREST GOVERNED BY STATE LAW

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Section 11(a) of the Federal Arbitration Act permits a district court to correct an “evident material mistake in the description of any person, thing, or property referred to in an award.” A district court “corrected” an arbitration award under the authority of that section to reflect that the party which lost the arbitration had paid substantially all of the liability prior to the entry of the award, even though it had been stipulated in the arbitration that the payment had not been made. The court of appeals reversed, finding that an award could be corrected under this section only if the arbitrator had made a mistake by “understanding wrongly” or “recognizing or identifying incorrectly.” The court held that ignorance, or lack of knowledge, because the parties did not convey a fact to the arbitrator, did not qualify as a mistake. The court of appeal also reversed a decision of the district court not to award pre-judgment interest, which was based upon federal law, holding that in a matter in which jurisdiction is based upon diversity of citizenship, questions relating to pre-judgment interest are governed by applicable state law. AIG Baker Sterling Heights, LLP v. American Multi-Cinema, Inc., No. 07-10130 (11th Cir. Nov. 28, 2007).

This post written by Rollie Goss.