In a software licensing dispute, a sole arbitrator entered an award, only to have the award vacated by a District Court on the basis that the arbitrator had failed to disclose an instance in which he had served as one of many co-counsel in a lawsuit with one of the counsel in the arbitration. The District Court vacated the arbitration award, on the basis that the prior relationship “might have conveyed an impression of possible partiality to a reasonable person.” A panel of the Fifth Circuit affirmed, but in an en banc decision, the full Fifth Circuit reversed, finding that the nondisclosure of “a trivial or insubstantial prior relationship” did not merit vacating the award under the evident partiality standard. The relevant legal standard arises out of a plurality Supreme Court opinion, and the en banc opinion noted a split of the Circuits as to what legal standard for evident partiality comes from the Supreme Court's opinion, with the en banc opinion alinging with the way in which the majority of Circuit Courts had interpreted the opinion. Positive Software Solutions, Inc. v. New Century Mortgage Corp., Case No. 04-11432 (5th Cir. Jan. 18, 2007). There is a prior Reinsurance Focus posting about this case dated June 6, 2006, which includes the Fifth Circuit panel opinion.
Confirmation / Vacation of Arbitration Awards
Court remands case to new arbitration panel for further proceedings
After partially vacating an arbitration award as being in manifest disregard of law, a District Court has remanded the case to a new arbitration panel for further proceedings. The Court found it inappropriate to remand the case to the same arbitration panel for further proceedings relating to the issue as to which it had found that the panel had manifestly disregarded Pennsylvania law. Koken v. Cologne Reinsurance (Barbados) Ltd., Case No. 98-0678 (USDC MD Pa Dec. 5, 2006).
Court stays enforcement of arbitral award pending ruling by liquidation court on set off claim
LDG Re reinsured workers' compensation and employers' liability risks retained by Legion Insurance and a related company under two quota share reinsurance agreements. LDG Re booked the reinsurance into a pool facility in which a number of companies participated, including Chartwell Reinsurance (which was later purchased by Trenwick America Reinsurance). When LDG failed to make timely payments under the quota share agreements, Legion demanded arbitration. A settlement was reached. When LDG allegedly failed to make payments required by the settlement agreement, Legion sought to reactivate the arbitration. LDG objected, contending that the dispute was not arbitrable and that the pool members were entitled to set off other debts owed to them by Legion. The panel entered an award purporting to enforce the settlement agreement, requiring a payment by LDG of over $5 million, not mentioning the set off request. Legion moved to confirm the award, and Trenwick moved to intervene in both the District Court action and in Legion's liquidation proceeding in Pennsylvania state court, seeking to assert a set off. In a Memorandum Opinion, followed by an Order and Judgment, the District Court confirmed the arbitration award, but stayed execution pending the submission by Legion or Trenwick of a motion in the liquidation proceeding seeking a ruling as to whether the claimed set off should be allowed. Koken v. LDG Re Corp., Case No. 06-81 (USDC ED Pa. Dec. 29, 2006).
Courts continue confirmation of arbitration awards
Two recent rulings addressed the confirmation of arbitration awards:
- The US Court of Appeals for the First Circuit affirmed the confirmation of an arbitration award in a non-insurance case, rejecting a contention that the award construed a contract in such a way that it violated a First Circuit standard that prohibits the interpretation of contracts “in a way that cannot possibly be described as plausible or rational.” Vital Basics Inc. v. Vertrue Inc., Case No. 05-2741 (1st Cir. Dec. 29, 2006).
- A New York state court ruled that an arbitration award should be confirmed under New York law, since it was not arbitrary, capricious, or irrational, and the losing party had failed to prove its contention that the arbitrator had improperly prejudiced its rights and the integrity of the arbitral process due to purported ex parte contacts with opposing counsel. Mounier v. American Transit Ins. Co., Case No. 2005-03804 (NY Sup.Ct. App.Div. Jan. 9, 2007).
Court denies late attempt to impose offset to arbitration award
A California insurance agent arbitrated disputes with an insurance agency to which he had sold his business. The contract provided that any arbitration award would be subject to offsets. An offset claim was presented to the arbitrator, but the award made no mention of the offset request. After the confirmation of the award, the losing party sought to have the court impose the offset. A California Court of Appeal affirmed a ruling that the request was too late, that the party should have applied to the arbitrator to correct the award to specifically address the offset issue pursuant to a California statute, or should have raised the issue during confirmation proceedings. The Court specifically found that the strategy did not constitute an error of counsel for which the party should be provided relief. Kelly v. RMI Ins. Services, Inc., Case No. H030047 (Cal. Ct. App. Dec. 19, 2006).