Confirmation / Vacation of Arbitration Awards

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.

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).

Cincinnati Insurance Company (“CIC”) brought a subrogation action against Tyco Fire Products (“Tyco”), alleging that Tyco negligently designed, manufactured, and installed a sprinkler system that malfunctioned, causing property damage to CIC’s insured. The parties agreed to submit the matter to binding arbitration by Arbitration Forums, Inc. (“AF”). AF’s rules provide, among other things: (1) that an arbitration is commenced by the filing of a completed P-Form; (2) that a respondent answers by filing its materials with AF and all other involved parties; and (3) that “personal representation will not be allowed in cases when an answer has not been filed as outlined above.” Despite submission of an incomplete P-Form by CIC (neglecting to “x” the boxes requesting notice of and attendance at the arbitration hearing) and failure by Tyco to provide CIC with copies of its answer, AF, contrary to its own rules, concluded that CIC had waived notice and appearance and allowed Tyco to be represented at the hearing. The arbitration proceeded without attendance of CIC’s counsel and a decision favorable to Tyco was issued. Thereafter, CIC petitioned the Minnesota District Court to vacate the arbitration award under Minn. Stat. § 572.19, subd. 1(1) (2004), as procured by “other undue means.” The District Court granted the petition and Tyco appealed.

The Minnesota Court of Appeals affirmed the District Court’s decision, concluding that Tyco’s failure to provide its arbitration documents to Cincinnati resulted in Tyco having an ex parte communication with the neutrals in the case and constituted procurement of an award by “other undue means.” The Court of Appeals reasoned that, even if CIC could be said to have waived notice of and appearance at the hearing, CIC never waived its right to receive copies of Tyco’s submissions or its right to amend its own submissions in response. Additionally, the Court concluded that the arbitration award should be vacated under Minn. Stat. § 572.19, subd. 1(4), on the alternative ground that the hearing was conducted without due process, in violation of Minn. Stat. § 572.129(a), requiring that the arbitrators have notification of the arbitration hearing served on the parties “personally or by certified mail not less than five days before the hearing.” In re Arbitration Cincinnati Ins. Co. v. Tyco Fire Prod., f/k/a Cent. Sprinkler Co., Case No. 82C806001071 (Minn. Ct. App. May 1, 2007).