Confirmation / Vacation 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).

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).

A District Court in the Sixth Circuit has confirmed an arbitration award in a products liability injury matter, rejecting a contention that the award should be vacated due to the failure of one of three arbitrators to disclose that he had been counsel of record in several cases years ago in which counsel for one of the parties to the arbitration was either co-counsel or counsel for another party. The Court found that the Sixth Circuit had stated that the review of an arbitral award is governed by “one of the narrowest standards of judicial review in all of Ameican jurisprudence.” The Court found that no reasonable person would find that the presence of the two attorneys in the same lawsuits constituted a conflict of interest or resulted in bias, fraud or corruption. Uhl v. Komatsu Forklift Co., Case no. 04-10148 (USDC E.D. Mich. Dec. 8, 2006).

Quoting from one of its own 2004 opinions, the Fifth Circuit has elaborated upon the standard for finding that an arbitration award is in manifest disregard of law, holding that such a finding requires proof of two elements: (1) that the legal error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator; and (2) that the award results in a significant injustice. The first element includes a need to demonstrate that the arbitrator appreciated the existence of a clearly governing principle of law, but decided to ignore or pay no attention to such principle. The arbitration hearing at issue was not reported. The Court concluded that “[h]aving failed to secure a record of the arbitration proceedings, and without any evidence that the arbitral panel was aware of the Fifth Circuit standard [for awarding attorneys' fees], OneBeacon cannot make this showing, so its claim that the award was in 'manifest disregard' of the law fails ….” OneBeacon America Ins. Co. v. Turner, Case No. 06-20302 (5th Cir. Oct. 30, 2006).

Two recent opinions continued the trend of courts confirming arbitration awards over a variety of objections:

• In Kuest v. Citigroup Global Markets, Inc., (USDC W.D. Wash. Nov. 14, 2006), an NASD arbitration award was confirmed over contentions that it was irrational and exhibited a manifest disregard of law.  The Court found that the Petition to Vacate the award merely complained about evidence rulings by the Arbitration Panel and its weighing of the evidence.
• In Millenium Validation Services, Inc. v. Thompson, (USDC D. Del. Nov. 3, 2006), an arbitration award relating to a shareholder agreement was confirmed, rejecting five grounds proposed for the vacation of the award: (1) the arbitrator exceeded his authority by rejecting the “binding valuation” of the objector's accountant; (2) the award contained “evident material miscalculation of figures;” (3) the arbitrator refused to consider pertinent evidence, amounting to a manifest disregard of law; (4) the arbitrator refused to consider an alleged breach of a contractual provision; and (5) the arbitrator exceeded his authority with respect to attorneys' fees and costs.

These opinions are further examples of courts viewing such complaints as nothing more than impermissible re-argument of the merits of the arbitration under different guises.