Confirmation / Vacation of Arbitration Awards

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

December 17, 2007 by Carlton Fields

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

December 12, 2007 by Carlton Fields

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.

SEVENTH CIRCUIT CLARIFIES CRITICAL DATES FOR PURPOSES OF FAA’S THREE-MONTH LIMITATIONS PERIOD

November 13, 2007 by Carlton Fields

The Seventh Circuit has addressed important issues relating to the commencement of efforts to vacate an arbitration award. The relevant facts are found in the district court's Order. An arbitration award was entered against Webster under the rules of the American Arbitration Association (“AAA”). Under the Federal Arbitration Act (“FAA”), 9 U.S.C. section 12, when a party moves to vacate, confirm or modify an arbitration award, notice “must be served upon the opposing party or his attorney within three moths after the award is filed or delivered.” The district court found Webster's attempt to vacate the award was one day late, and hence barred, and the Seventh Circuit affirmed. The courts held that the award was “filed or delivered” within the meaning of the FAA and the AAA's rules when it was both e-mailed and mailed by the arbitrator to counsel for the parties, regardless of when counsel received the mailed version or opened his e-mail. The court noted that a request to vacate an award is a motion, rather than a new action, under the Federal Rules of Civil Procedure, and the plain language of section 12 of the FAA speaks in terms of “service” rather than “filing.” Since Webster's counsel filed a Complaint seeking to vacate the award one day prior to the three month deadline, but did not serve the action on his opponent until one day after the three month deadline, the request to vacate the award was untimely under the FAA. The Court rejected Webster’s argument that the FAA’s limitation period was tolled with the filing of the action, stating instead that there was “nothing ambiguous about § 12’s provision that the statute of limitations is tolled when notice of a motion to vacate is ‘served upon the opposing party or his attorney.’” (emphasis added). This is a critical principle for parties seeking to vacate or confirm an award under the FAA. Webster v. A.T. Kearney, Inc. & Electronic Data Systems Corp., No. 06-3094 (7th Cir. Nov. 2, 2007).

INTERESTING DECISIONS ON ARBITRATION AWARDS

November 8, 2007 by Carlton Fields

Four recent opinions address interesting issues in the confirmation of arbitration awards:

In Extendicare Health Services, Inc. c. District 1199P Service Employees International Union, No. 06-4768 (3d Cir. Oct. 26, 2007), the court affirmed a district court decision finding that the reinstatement of an employee by an arbitrator in a labor arbitration was not contrary to public policy. This opinion contains a rather extended discussion of the public policy issue analysis.

In Lagstein v. Certain Underwriters at Lloyds of London, Case No. 03-1075 (USDC D. Nev., Aug. 15, 2007), an insurance bad faith case, the arbitration panel awarded $900,000 in compensatory damages, $1.5 million in bad faith compensatory/emotional distress damages, $4 million in punitive damages and $350,000 in attorneys’ fees. The district court found that this award “shocks the Court’s conscience, is biased, and cannot stand.” The court further found that the damages were unsupported by the record and in manifest disregard of law, that the punitive damage award exceeded the jurisdiction of the arbitration since it awarded damages for a time period that the parties had expressly agreed was beyond the scope of the arbitration, and that the size of the punitive damage award was excessive.

In Hendrik Delivery Service, Inc. v. St. Louis Post-Dispatch LLC, Case No. 07-1516 (USDC E.D. Mo. Oct. 19, 2007), the court confirmed an arbitration award of $892,000 in compensatory and $750,000 of punitive damages in a business dispute. The losing party sought to vacate the award, essentially arguing that the arbitrator made the wrong decision. The court found no manifest disregard of law, and refused to vacate the award.

In Van Pelt v. UBS Financial Services, Inc., Case No. 05-477 (USDC W.D. N.C. Oct. 12, 2007), the court denied a motion to vacate an arbitration award of $2.4 million for wrongful termination of a financial advisor. The employer contended that the award should be vacated because: (1) the award was not drawn from the essence of a contract; (2) the panel manifestly disregarded the law; (3) the panel exceeded its power in making the award; and (4) the award violated public policy. The court denied the request to vacate the award. The critical point in this opinion is that since the award was not a reasoned award, and hence the panel did not explain the bases for its decision, there was an insufficient record upon which to vacate the award.

ARBITRATION AWARD CONFIRMATION DECISIONS

October 16, 2007 by Carlton Fields

There are three recent decisions regarding arbitration awards, two of which have some unique interest:

In Comedy Club, Inc. v. Improv West Associates, No. 05-55739 (USCA 9th Cir. Sept. 7, 2007), the court partially confirmed and partially vacated an arbitration award, finding that the arbitrator properly arbitrated equitable claims, properly issued injunctions except to the extent that they sought to bind non-parties to the arbitration agreement who were not in privy with parties, did not act irrationally, but acted in manifest disregard of law in the imposition of an overbroad covenant not to compete.

In Ward v. Phantom Screens Manufacturing, Ltd., Case No. 04-3916 (USDC D. N.J. April 13, 2007), the court confirmed a Canadian arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards with minimal analysis, noting that the Convention clearly stated the bases upon which an award could be vacated, and that none of those grounds were present. The bases for the Order are set out in a Memorandum.

In Louis J. Kennedy Trucking Co. v. Teamsters Local Union No. 701, Case No. 05-6005 (USDC D. N.J. Sept. 17, 2007), the court refused to vacate an arbitration award based upon claims that the arbitrator exceeded her authority, manifestly disregarded the law and acted in violation of public policy. The basis for the argument to vacate was basically that the arbitrator had erred, which is insufficient under the FAA.