Confirmation / Vacation of Arbitration Awards

Court Confirms Arbitration Award In Reinsurance Dispute Involving Quota Share Retrocessional Agreement

February 6, 2019 by Carlton Fields

A court confirmed a final arbitration award in favor of Continental Insurance Company (as successor by merger to Continental Reinsurance Corporation) and against AXA Versicherung AG. Continental Re was a reinsurer of Continental Insurance. AXA, in turn, provided retrocessional reinsurance to Continental Re through a quota share retrocessional agreement. Several years into the agreement, AXA announced that it would no longer make retrocessional payments to Continental Insurance, reasoning that a Loss Portfolio Transfer Reinsurance Agreement (the “LPT Agreement”), which Continental Insurance had recently entered into with a third party, absolved AXA of its responsibility to continue making retrocessional payments. Continental Insurance objected, and the parties went to arbitration. At arbitration, the panel awarded Continental Insurance damages in the amount of $337,034 plus interest. Continental Insurance brought an action to confirm the award, which AXA did not oppose. The court confirmed the award, finding that Continental Insurance met the statutory requirements for confirmation under the Federal Arbitration Act.

Continental Ins. Co. v. AXA Versicherung AG, Case No. 1:18-CV-07349-VEC (USDC S.D.N.Y. Jan. 2, 2019).

District Court Vacates Award Based on Violation of FINRA Rules for Manifest Disregard of the Law

January 22, 2019 by Carlton Fields

A district court has decided against giving an arbitration panel a third chance to get it right after the court found that the panel manifestly disregarded the law in its initial and modified arbitration awards.

The arbitration was initiated after claimants lost all of the money they had put into a set of investment accounts that they had opened with respondent Interactive Brokers LLC. Claimants alleged, among other things, that Interactive should not have allowed them to engage in the types of trades they did using the portfolio margin account they had with Interactive, as this violated FINRA Rule 4210. The panel issued an arbitration award in claimants’ favor, and claimants moved for confirmation. The court declined to do so, however, finding that it could not make sense of the award of compensatory damages, in part because the award stated that “[a]ny and all claims for relief not specifically addressed herein . . . are denied,” without explaining which claims had been specifically addressed. The court remanded the case to the arbitration panel with instructions to clarify the basis for its award.

The panel then issued a second award, and once again claimants moved to have it confirmed, while Interactive moved to have it vacated. The court found that the panel had done little to clarify its original award and focused on the panel’s emphasis on Interactive’s alleged violations of FINRA Rule 4210, which the court determined was the predicate for finding Interactive liable and denying its counterclaim.

Interactive argued that this reliance on Rule 4210 met the stringent standards for vacating an arbitral award based on manifest disregard for the law. Under Fourth Circuit precedent, this requires that the law at issue be “clearly defined and . . . not subject to reasonable debate, and that arbitrator was “aware of the law, understood it correctly, found it applicable to the case before [him], and yet chose to ignore it in propounding [his] decision.” The court found this standard was met based on the following:

it is clearly established that there is no private right of action for violations of FINRA Rules;
based on Interactive’s briefs explaining this law and the panel’s own references to that briefing, the panel was aware of that law;
the court’s own instructions to the panel to make clear the predicate for liability, to which the panel responded by further emphasize the alleged violation of FINRA Rule 4210, established that the panel understood the law, found it applicable to the case, and chose to ignore it.

The court thus vacated the award and reinstated Interactive’s counterclaims. Finding that the panel had both flagrantly ignored the law and struggled to follow the court’s prior order, the court remanded the matter to a new panel of arbitrators for reconsideration of Interactive’s counterclaims.

Interactive Brokers LLC v. Saroop et al., Civil Action No. 3:17-cv-127 (E.D. Va. Dec. 19, 2018)

Munich Re Wins Arbitration it Initially Resisted, and Parties Agree to Dismiss Federal Lawsuit Against Munich Re as a Result

January 16, 2019 by Benjamin Stearns

Alabama Municipal Insurance Corporation (AMIC) has agreed to dismiss with prejudice its federal lawsuit against Munich Re after an arbitrator rendered judgment against AMIC in a case we previously wrote about here. Munich Re had resisted arbitration, contending that AMIC’s claim did not arise under a contract which contained an arbitration clause. The district court disagreed, finding that another contract applied to the claim and that contract provided for “final and binding” arbitration of disputes. Despite losing the initial round, Munich Re has emerged victorious from the arbitration it initially sought to avoid, and the court dismissed AMIC’s lawsuit with prejudice on December 7, 2018, pursuant to the parties’ joint request. Alabama Municipal Insurance Corporation v. Munich Reinsurance America, Inc., Case No. 2:16-cv-00948-WHA-SRW (USDC M.D. Ala. Dec. 7, 2018) (final judgment); (Nov. 9, 2018 Joint Status Report Regarding Arbitration).

This post written by Benjamin E. Stearns.

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Ninth Circuit Holds that Federal Rules of Civil Procedure Govern How to Calculate the FAA’s Three-Month Filing Deadline to Seek Vacatur of an Arbitration Award

January 14, 2019 by Benjamin Stearns

The Ninth Circuit affirmed the denial of a petition to vacate an arbitration award because the petition was filed one day late. The court determined that whether a petition to vacate is filed within the applicable three-month deadline under the FAA is based upon the method of calculating provided by Federal Rule of Civil Procedure 6(a). That Rule provides a three-step process: (1) exclude the day the arbitrator delivered the final award (in this case, September 14, 2016); (2) calculate three months from the following day (in this case September 15); and (3) include the last day of the period, unless it is on the weekend or a legal holiday, in which case the period concludes at the end of the next weekday that is not a legal holiday. Here, the court focused on Step 2. The court stated that each month began on the 15th day of the month and ended on the 14th day of the following month, just as “the month beginning January 1 concludes on January 31, not February 1.” Because the plaintiffs filed their petition for vacatur on December 15, when the last day for filing within the available three-month window under the FAA was December 14, the Ninth Circuit found that the petition was properly denied as untimely. The Ninth Circuit also addressed the standard for whether a post-judgment motion tolls the time to file an appeal pursuant to Federal Rule of Appellate Procedure 4(a)(4). Stevens v. Jiffy Lube International, Inc., No. 17-15965 (9th Cir. Dec. 27, 2018).

This post written by Benjamin E. Stearns.

See our disclaimer.

English High Court Refuses to Set Aside an Order for Enforcement of an International Arbitration Award

January 9, 2019 by Jeanne Kohler

This case relates to a dispute between Eastern European Engineering Ltd. (“EEEL”) and Vijay Construction (Proprietary) Ltd. (“VCL”), both of which are incorporated in the Seychelles, arising out of the construction of a hotel resort and spa. In 2011, the parties had entered into six materially identical contracts. Disputes arose and EEEL eventually terminated the contracts. EEEL referred the disputes to an International Chamber of Commerce (“ICC”) arbitration seated in Paris. A sole arbitrator was appointed, who issued an award in November 2014 in EEEL’s favor (the “Award”).

VCL challenged the Award in the French courts on three grounds. The French court dismissed VCL’s challenge. Although VCL initially appealed that decision, it did not purse the appeal and it was subsequently dismissed in May 2017. Concurrently, in January 2015, VCL also initiated proceedings in the Seychelles, seeking to set aside the Award on essentially the same grounds as those on which the challenges were based in the French proceedings. In April 2017, the Seychellois court dismissed all of VCL’s challenges and held that the Award was enforceable. VCL, however, successfully appealed that decision because, under Seychellois law, there is no power to order enforcement on the basis that the New York Convention had been previously repudiated by the Seychelles. The merits of the substantive grounds of the lower court’s decision were not considered in the appeal.

In August 2015, EEEL successfully obtained an order from the English High Court to enforce the Award in England and Wales and to enter judgment against VCL (the “August 2015 Order”). In October 2015, VCL applied under section 103 of the Arbitration Act 1996 to set aside the August 2015 Order. That application was stayed while the French and the Seychellois proceedings were pending. EEEL argued that VCL’s application should be denied because of issue estoppel and public policy on finality. As to issue estoppel, EEEL argued that the conditions were satisfied because the decision of the French court was a final merits decision in a court of competent jurisdiction between the same parties.

The English High Court denied VCL’s application to set aside the August 15 Order. First, the English court agreed that, in relation to VCL’s challenge based on jurisdiction, VCL was estopped as VCL’s argument in the English proceeding appeared to be exactly the same as that which was made in the French proceeding. As to VCL’s challenge on the ground of procedural unfairness, the court found that VCL’s argument was “slightly different” in the English proceeding, and thus the court considered the merits of the challenges. In considering each of VCL’s challenges, the court found that they failed. Thus, the English court did not have to reach the question of public policy on finality. It, however, noted that it would “have concluded that the balance came down in favor of upholding the public policy on finality,” explaining that the facts here, where VCL had sought to raise substantially the same challenges to the Award in two other courts, one of which had a full evidentiary hearing, “are circumstances which would weigh very heavily against allowing VCL a third challenge.”

Eastern European Engineering Ltd. v. Vijay Construction (Proprietary) Ltd., [2018] EWHC 2713 (Comm) (Oct. 11, 2018).

This post written by Jeanne Kohler.

See our disclaimer.