Confirmation / Vacation of Arbitration Awards

Arbitration Awards, Part II

July 27, 2007 by Carlton Fields

Three recent court opinions addressed the confirmation of arbitration awards on fairly traditional grounds:

In a case involving reinsurance, the court found that an arbitration panel did not exceed its authority in entering the award it entered. The dispute was whether a West Virginia Court had already determined the scope of contractual obligations later ruled upon by the arbitration panel. HCC Aviation Insur. Group, Inc. v. Employers Reinsurance Corp., Case No. 05-11118 (USCA 5th Cir. June 28, 2007).
In Pirooz v. MEMC Electronic Materials, Inc., Case No. 06-2002 (USCA 8th Cir. July 2, 2007), the Court of Appeals, in a per curiam opinion, affirmed a “well-reasoned” district court opinion that confirmed an arbitration award over objections that the arbitrator had exceeded his authority, entered an award that failed to draw its essence from the agreement and evidenced manifest disregard for the law.
A US District Court, in The Upper Deck Company v. American International Specialty Lines Ins. Co., Case No. 05-1945 (USDC SD Cal. June 28, 2007), confirmed an arbitration award, rejecting contentions that the award “implausibly interpreted” a contract and evidenced manifest disregard for the law.

These three cases all involved arguments that essentially disputed the merits of the arbitration awards and the judgments made by the arbitrators, arguments which are rarely successful.

There have been a large number of Court of Appeal and District Court opinions recently relating to arbitrations awards. This week, we present a two-part post to present these opinions. Today's post concerns evident partiality and venue, while tomorrow's will address the scope of arbitrators' authority and manifest disregard of law.

In a potentially important opinion, the Second Circuit has issued a fairly detailed analysis of a situation in which an arbitrator came to be aware of a business relationship between his company and the parent company of one of the parties to the arbitration. Rather than investigate, he walled himself off with a “Chinese Wall” in an attempt to remain ignorant, and did not disclose his lack of investigation of the potential conflict. The District Court held that this constituted evident partiality, and vacated the arbitration award. The Court of Appeals affirmed. This case contains a good discussion of the legal principles relating to evident partiality. Applied Industrial Materians Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., Case No. 06-3297 (USCA 2d Cir. July 9, 2007).
In Toroyan v. Barrett, Case No. 06-4422 (USDC SD N.Y. July 10, 2007), the court confirmed an arbitration award over objections of evident partiality and manifest disregard of law. The evident partiality claim was based on the fact that parties to the arbitration had contributed to maintaining an endowed chair in a different school of the University where the arbitrator was a professor. The court rejected the evident partiality claim for three reasons: (1) there was no indication that the arbitrator knew of the relationship; (2) the relationship was immaterial; and (3) the objector should have known about the issue and raised it prior to losing the arbitration.
In The Ridge at Red Hawk, LLC v. Schneider, Case No. 06-4162 (USCA 10th Cir. July 9, 2007), the 10th Circuit affirmed a venue decision by an arbitration panel. This case is intersting in part because it involves parallel proceedings in a Texas state court and a Utah federal court, with Rooker-Feldman Doctrine implications. The courts concluded that a somewhat unique arbitration provision in the contract underlying the dispute allowed an appeal of the venue issue only if the determination was strictly legal in nature, and the arbitration award indicated that the venue determination was a combination of a legal and factual determination. Therefore, the courts dismissed the federal court challenge to the arbitration award.
In ReliaStar Life Ins. Co. v. Certain Underwriters at Lloyd's London, Case No. 06-3845 (USDC D Minn. Feb. 1, 2007), the court confirmed an arbitration award by agreement of the parties. The Stipulation filed with the court includes a copy of the award.

Courts Rule on Confirmation of Arbitration Awards

July 3, 2007 by Carlton Fields

Seven recent decisions addressed whether arbitration awards should be confirmed or vacated:

In Choice Hotels International, Inc. v. Shiv Hospitality, LLC, No. 05-2201 and 06-1043 (USCA 4th Cir. June 20, 2007), the Court affirmed a District Court's confirmation of an arbitration award, because a motion to vacate the award was untimely under the Federal Arbitration Act, which provides that an award may be confirmed within one year of its entry, but that a motion to vacate an award must be filed within three months of the entry of an award judgment. The Court confirmed the District Court's application of this rule to confirm the award when the motion to vacate was not filed within the required three month period.
In Downer v. Siegel, No. 06-30159 (USCA 5th Cir. June 13, 2007), the Court vacated a District Court Order vacating an arbitration award on the basis that the dispute was not subject to arbitration under the arbitration provision of an asset management agreement. The claimants attempted to avoid arbitration by naming the broker individually, instead of the brokerage firm with which they had contracted. The Court of Appeal held that the dispute was arbitrable because it necessarily related to the asset management agreement. The case was remanded for confirmation of the award.
In Sheet Metal Workers' International Assoc. Local 15 v. Law Fabrication, LLC, No. 06-16185 and 07-10356 (USCA 11th Cir. June 26, 2007), the Court affirmed the confirmation of a labor arbitration award, rejecting contentions that the dispute was not arbitrable and that the arbitration submission was untimely, finding the timeliness claim to be for the arbitrators to decide.
In Grabowski v. Vital Signs, Case No. 99-5683 (USDC D. N.J. June 8, 2007), the Court confirmed an arbitration award, rejecting claims that an arbitrator exibited evident partiality because: (1) one party's original expert (who was replaced by another expert) joined a firm with which the arbitrator was associated; and (2) the arbitrator was retained as an expert by a party allegedly adverse to defendant's counsel in another pending litigation.
In Hall Steel Co. v. Metalloyd Ltd., Case No. 05-70743 (USDC E.D. Mich. June 7, 2007), the Court denied a motion to confirm two arbitration awards entered by a London arbitrator on the basis that they were interim, not final, awards, and hence not eligible for confirmation under the Federal Arbitration Act.
In Glass Service Co. v. Illinois Farmers Ins. Co., No. C1-02-005860 (Minn. Ct. App. June 26, 2007), the Court affirmed the confirmation of arbitration awards despite claims that the arbitrators exceeded their authority: (1) by awarding aggregate damages in multiple individual consolidated claims; (2) by failing to hold a party to its burden of proof as an assignee and under the arbitration rules; and (3) in awarding damages in contravention of the policy language and governing statute, and that the lower court had erred in modifying the awards to add pre-award interest.
In In re Arbitration of Cincinnati Ins. Co. v. Tyco Fire Products, No. 82C806001071 (Minn. Ct. App. May 1, 2007), the Court affirmed the vacation of an arbitration award on the basis that it was procured by undue means, where the record supported a determination that the respondent was excluded from the arbitration proceeding by undue means, in violation of the due process provisions of the Minnesota Arbitration Act.

Court Confirms Arbitration Award Over Objection of Moving Party

June 13, 2007 by Carlton Fields

In an unusual twist in a matter unrelated to reinsurance, an arbitration panel awarded a party in a construction dispute approximately $1.4 million, when the Petitioner sought an award of approximately $6 million, and the Respondent’s expert had estimated the losses at approximately $4 million. The parties each filed separate proceedings directed to the award. When the Petitioner’s request for vacation of the award was denied, the Respondent sought to voluntarily dismiss its request for confirmation under Fed. R. Civ. Pro. 41, apparently due to its belief that since the limitation period for confirmation had expired, the award might be unenforceable, and it could try again for a larger award. The district court found the attempted dismissal null and void, and confirmed the award, holding that Rule 41 applied by its terms only to “actions,” and that since requests for confirmation of arbitration awards were motions rather than actions, Rule 41 did not apply. The court proceeded to confirm the award. Alstom Power, Inc. v. S & B Engineers & Constructors, Ltd., Case No. 04-2370 (USDC N.D.Tex. April 30, 2007). The court may have felt that Alstom Power was abusing the Court's process.

SECOND CIRCUIT AFFIRMS ARBITRATION AWARD FINDING NO VIOLATION OF ‘WELL-DEFINED AND DOMINANT’ PUBLIC POLICY

May 17, 2007 by Carlton Fields

The Second Circuit recently addressed the standard by which a court may refuse to enforce an arbitration award on the ground that the award is contrary to public policy. In a case arising out of an employment dispute, Hope Day Nursery appealed a district court decision granting the plaintiffs’ motion to confirm two arbitration awards that (1) reinstated a discharged employee with back pay; and (2) instructed Hope Day nursery to “cease and desist from hiring and/or assigning substitute teachers to work extra hours” before first offering those hours to qualified existing employees.

The Second Circuit agreed with the district court’s finding that Hope Day Nursery’s challenge to the first arbitration award was untimely. With respect to the challenge to the second arbitration award, the court explained that “[w]hile a court may ‘refus[e] to enforce an arbitrator’s award under a collective-bargaining agreement because it is contrary to public policy,’ such a refusal ‘is limited to situations where the contract as interpreted would violate some explicit public policy that is well defined and dominant…and not from general considerations of supposed public interests.’” Since Hope Day Nursery did not point to a well defined and dominant public policy that would be violated by enforcement of the collective bargaining agreement, the Second Circuit affirmed the arbitration award. District Council 1707 v. Hope Day Nursery, Case No. 06-0325-cv (2d Cir. May 4, 2007).