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Confirmation / Vacation of Arbitration Awards

Vacation of arbitration awards due to failure to follow arbitration agreement

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Two opinions recently have addressed the issue of whether an arbitration award should be vacated when the arbitrators fail to follow the arbitration agreement.

  • In Martin v. Wells Fargo Financial, Inc., 2006 WL 2466945, Case No. 05-00003 (9th Cir. Aug. 25, 2006), the Court of Appeals affirmed a District Court decision vacating an arbitration award “because the underlying arbitrations were not conducted in accordance with the terms of the parties' arbitration agreement.”  This unreported opinion is not available on Pacer, and it does not reveal what the Court of Appeals viewed as the deficiencies in the arbitration.

  • In Allstate Ins. Co. v. Superior Court, 2006 WL 2473419 (Cal.Ct.App. Aug. 29, 2006), the Court reversed the vacation of an award on the basis that the panel rendered a “reasoned” award when the arbitration agreement provided that the award should not state reasons.  Instead of vacating the award, the Court directed that the “reasons” be stricken from the confirmed award as surplusage.

Court addresses standard for vacating awards under the Foreign Arbitral Awards Convention

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In a non-insurance matter, a District Court denied a motion to vacate an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Among the grounds alleged for vacating the award was an undisclosed “relationship” between two of the three arbitrators. HSN Capital LLC v. Productora Y Comercializador de Television, S.A., Case No. 05-1769 (M.D. Fla. July 5, 2006). This case contains a good statement of the standards for vacating an arbitration award under the Foreign Arbitral Awards Convention.

Arbitration award vacated due to lack of disclosure by arbitrator

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In a non-reinsurance matter involving commerce in Turkey, a District Court has vacated an arbitration award due to a failure by the panel chair to disclose that an affiliate of the chair's employer had an ongoing business relationship with the prospective purchaser of a party to the arbitration. This opinion is notable due to the high standard of disclosure imposed by the Court, which was based upon language in the agreement signed by the parties, the American Arbitration Association's Code of Ethics and the International Bar Association's Guidelines on Conflicts of Interest. The panel chair had contended that the total revenue involved in the relationship was an imperceptible fraction of this employer's revenue. Applied Industrial Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., Case No. 05-10540 (U.S.N.Y. June 28, 2006).

Motion to vacate arbitration award denied due to lack of record

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The United States Court of Appeals for the Ninth Circuit, in an unpublished opinion involving a non-insurance matter, affirmed the denial of a motion to vacate an arbitration award, which contended that the arbitrators had exhibited evident partiality or corruption. However, the Court could not evaluate this claim on its merits because there was no transcript of the arbitration proceeding available. Henry v. Standard Automation & Control, 2006 WL 2233390, Case No. 04-16588 (9th Cir. August 24, 2006). Unless whatever is the subject of post-hearing motions is completely encompassed within written submissions to a panel, which will be an atypical occurrence, it is likely that there will be an inadequate record for judicial review if the arbitration hearing is not transcribed. Electing not to have a court reporter attend an arbitration hearing therefore will severely limit a party's post-hearing options, making an arbitration award effectively not subject to even the limited “judicial review” provided for in the Federal Arbitration Act.

Wisconsin Supreme Court vacates arbitration award

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Construing the Wisconsin arbitration statute, the Wisconsin Supreme Court vacated an arbitration award in a dispute between Allstate Insurance Company and a policyholder on the basis that a party-appointed arbitrator demonstrated evident partiality. Borst v. Allstate Insurance Co., Case No. 2004 AP 2004 (Wisc. June 13, 2006). The arbitrator appointed by Allstate was an attorney who had a “substantial, ongoing attorney/client relationship with Allstate.” Even though the relationship was disclosed, and all parties were aware of the relationship going into the arbitration hearing, the Court found that disclosure and knowledge did not avoid the prohibition of such a relationship under Wisconsin law. The Court also strictly limited the permissible discovery depositions to those permitted by the Wisconsin statute.