Confirmation / Vacation of Arbitration Awards

Second Circuit Vacates SDNY Order Enforcing Arbitration Award Against Reinsurer

May 7, 2019 by Alex Silverman

In the latest iteration of a complex reinsurance dispute, the U.S. Court of Appeals for the Second Circuit vacated a 2018 district court order enforcing an arbitration award against IRB Brasil Resseguros S.A. (IRB). We previously blogged about the district court order here. The arbitration award required IRB to indemnify National Indemnity Co. (NICO) against a claim by Companhia Siderurgica Nacional S.A. (CSN). NICO and CSN settled CSN’s claim in a settlement agreement to which IRB was not a party. The agreement provided that CSN would receive $5 million of the $9 million NICO owed, but that the funds would come from IRB through a lawsuit that NICO would commence against it, i.e., this action.

IRB appealed the 2018 district court order, arguing that the NICO/CSN settlement agreement could not have established its liability. The Second Circuit agreed. It held that IRB cannot be responsible for paying an amount determined by a contract to which it was not a signatory.

IRB next went a step further, arguing that the NICO/CSN settlement extinguished any obligation IRB had to indemnify NICO pursuant to the arbitration award. But the Second Circuit found IRB went too far in this regard. The court held that IRB is still potentially liable for the $5 million based on the arbitration award, which had already been confirmed in 2016, and affirmed in 2017. The court rejected IRB’s suggestion that a private contract between NICO and CSN could override obligations established by the arbitration award. The court strongly implied that a judgment determining NICO’s liability to CSN could trigger IRB’s indemnity obligations to NICO.

Nat’l Indem. Co. v. IRB Brasil Ressegurous S.A., No. 18-534-cv (2d Cir. Apr. 18, 2019)

Court Finds Jurisdiction Over Petition to Confirm Arbitration Award in Dispute Between Liquidator and Foreign Reinsurer

April 29, 2019 by Benjamin Stearns

In the wake of the liquidation of Legion Indemnity Co., the Illinois Director of Insurance, as liquidator of Legion, and Catalina Holdings arbitrated claims originating under reinsurance agreements between Legion and a predecessor of Catalina. After the arbitrators ruled in favor of Catalina, Catalina filed a petition to confirm the award with the Northern District of Illinois. The Director moved to dismiss.

The court found that it had jurisdiction over the petition under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The arbitration agreement arose out of a dispute over reinsurance contracts, which are generally considered “commercial” under 9 U.S.C. § 2, and the contracts arose out of a relationship between a citizen of the United States and a citizen of the United Kingdom. Pursuant to 9 U.S.C. § 202, all arbitral awards fall under the Convention unless they arise out of “a relationship which is entirely between citizens of the United States.”

The court ruled against the Director’s argument that the Convention is reverse-preempted by the McCarran-Ferguson Act because the Convention did not “invalidate, impair, or supersede any law enacted by [the] State for the purpose of regulating the business of insurance.” Finally, the court found that Burford abstention would be inappropriate in this case. The Director argued, pursuant to Burford, that the court should “abstain from the exercise of federal review that would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.” There are two “essential elements” to this type of Burford abstention: The state must offer a forum where these claims may be litigated, and that forum must “stand in a special relationship of technical oversight or concentrated review to the evaluation of those claims.” The requisite elements were not present in this case and, as a result, the court refused to abstain.

Catalina Holdings (Bermuda) Ltd. v. Hammer, No. 1:18-cv-05642 (N.D. Ill. Mar. 22, 2019).

Ninth Circuit Finds No Foreign Arbitration Award to Uphold

April 24, 2019 by Brendan Gooley

Foreign arbitration awards must generally be upheld in the United States under treaty obligations. Upholding a foreign award requires that there actually be an arbitration award, however. For that matter, it requires an actual arbitration proceeding. A recent Ninth Circuit decision confronted a strange situation where there was no arbitration to confirm.

Michael Castro signed an employment agreement to be a commercial fisherman for Tri Marine. The agreement contained a mandatory arbitration provision that required him to arbitrate any disputes in and subject to the procedural rules of American Samoa. Castro was injured on the job. He released his claims in exchange for a cash settlement. The release also contained an arbitration clause requiring arbitration in American Samoa. Castro was then advised to go to an arbitrator in the Philippines with a representative of Tri Marine, though claimed he was told and believed he was merely picking up his settlement check. At the arbitrator’s office, Tri Marine filed a motion to dismiss the arbitration, even though there was not an arbitration case filed (indeed, there wasn’t even a case number assigned to the matter). The arbitrator granted that motion. Castro later required additional surgery and sought to bring suit in Washington state court in the United States. Tri Marine removed to Washington federal court, which dismissed the case.

The Ninth Circuit reversed. The court recognized that foreign arbitration awards must generally be upheld under the New York Convention, but concluded that there was no arbitral award under the facts. Although the arbitrator had issued a decision on a motion to dismiss, the parties had settled their dispute before the “case” was even filed. There was nothing to arbitrate. But even if there was an “arbitration,” it did not comply with the arbitration agreement’s arbitration clause or choice-of-venue provision. There was no evidence Castro waived those provisions. And even putting aside all those problems, the “arbitration” did not comply with the law of the Philippines concerning arbitration. The Ninth Circuit was careful to note that it was not infringing on “consent awards” whereby settlements reached during arbitration are turned into arbitration awards. That did not happen in this case. The court then remanded the case to the district court and instructed it to consider whether jurisdiction existed.

Castro v. Tri Marine Fish Co., No. 17-35703 (9th Cir. Feb. 27, 2019).

New York Federal Court Rejects Attempt to Vacate Arbitration Award Related to Theft of Corporate Assets

April 24, 2019 by Brendan Gooley

A New York federal court recently confirmed an arbitration award related to the alleged theft of more than $100 million from a Luxembourg company, SLS Capital. SLS’s liquidator in bankruptcy court then initiated a FINRA arbitration against CRT Capital, which had sold its majority interest in SLS to David Elias, who allegedly stole SLS’s assets.

CRT prevailed after a lengthy arbitration and was awarded more than $4 million, which includes costs and fees. CRT sought to confirm the award. SRT opposed that motion and sought to vacate the award. SRT argued that the arbitrators had improperly: (1) excluded expert rebuttal testimony it proffered; (2) applied the Federal Rules of Evidence during the hearing; and (3) awarded fees. The New York district court rejected those arguments and confirmed the award. The court concluded that the arbitration panel had numerous independent grounds for excluding the proffered rebuttal testimony, acted within its discretion to apply the evidentiary rules, and, under a highly circumscribed review, did not manifestly disregard the law of New York with respect to the award of costs and fees.

CRT Capital Grp. LLC v. SLS Capital, S.A., No. 1:18-cv-03986-VSB (S.D.N.Y. Mar. 31, 2019)

“Partial Final” Does Not Mean Final

April 3, 2019 by Brendan Gooley

Don’t try to confirm an arbitration award when there is still arbitration work to be done. Relying on Seventh Circuit precedent, the Northern District of Illinois concluded that it lacked subject-matter jurisdiction to confirm an arbitration award because the arbitrators’ work was incomplete and the arbitration hearing wasn’t finished.

FCE Benefit Administrators Inc., a third-party benefits administrator, agreed to administer health insurance policies underwritten by Standard Security Life Insurance Co. of New York and Madison National Life Insurance Co. The life insurers terminated the agreement, alleging that FCE had breached it, essentially by doing a bad job. They initiated arbitration and FCE counterclaimed, claiming the insurers wrongfully terminated the agreement.

Before the arbitration, FCE sought a continuance for discovery and to amend its counterclaim. The panel denied the request for a continuance, but granted the request to amend. In addition, the panel explained that FCE’s counterclaims would be presented at a second phase of the arbitration at which FCE would also be required to produce certain documents.

The parties proceeded to arbitration and the panel issued a “Partial Final Award” in favor of the insurers, concluding that the insurers were within their rights to terminate the agreement. The panel awarded the insurers nearly $5.4 million and determined that “[a]ll other claims for relief by the parties [were] denied.” The insurers sought to confirm the award.

The district court dismissed the insurers’ claim for confirmation for lack of subject-matter jurisdiction. It explained that courts lack jurisdiction to confirm an award when the arbitrators’ work was unfinished. Although the award in this case had resolved the insurers’ claim and denied all other claims, it was “undisputed that the Panel still ha[d] left to adjudicate, at a minimum, FCE’s counterclaim against” the insurers. All parties had contemplated a “Phase II.”

Standard Sec. Life Ins. Co. of New York v. FCE Benefit Adm’rs, Inc., No. 19 CV 64 (N.D. Ill. Mar. 13, 2019).