Confirmation / Vacation of Arbitration Awards

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.

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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.

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The Ninth Circuit Reverses California District Court’s Ruling Vacating Arbitration Award Based on Evident Partiality

January 8, 2019 by Jeanne Kohler

The background of the case can be found here. In sum, in 2009, plaintiffs American Brokerage Network and its owner Cung Thai (collectively, “ABN”) and American General Life and Accident Insurance Company (“AGLA”), a subsidiary of American International Group, Inc. (“AIG”), entered into a master general agent agreement, which was terminated in 2013. In 2015, ABN brought an arbitration under the rules of the American Arbitration Association (the “AAA”) against AGLA, AIG and later American General Life Insurance Company, successor to AGLA (collectively, “American General”), asserting claims of intentional interference with business relationships, breach of contract and breach of the implied covenant of good faith and fair dealing in connection with the agreement. Defendants counterclaimed for breach of contract and contractual indemnity. The sole arbitrator in the case made disclosures of certain relationships of her law firm with defendants and their subsidiaries. ABN asked no questions about her disclosures and she was accepted as arbitrator. In June 2016, the arbitrator dismissed AIG from the case. Thereafter, in September 2016, after ten days of testimony and other evidence, the arbitrator issued a Final Award, denying both sides’ claims for relief. After receiving the Award, ABN learned, through public records, of alleged undisclosed relationships between the arbitrator’s law firm and defendants’ alleged subsidiaries. ABN then moved in the California district court to vacate the Final Award due to the alleged incomplete disclosures. In June 2017, the district court granted the motion to vacate, finding that the arbitrator breached her duties of disclosure and investigation, and that the nondisclosures created a reasonable impression of bias, and that ABN did not waive its right to challenge the arbitrator. Defendants appealed to the Ninth Circuit.

The Ninth Circuit overturned the California district court’s decision, noting that “[g]iven the arbitrator’s disclosure that AIG was a former client of her firm, ABN had some duty to inquire about the nature of that relationship.” But the Ninth Circuit further noted that “ABN asked no questions and proceeded with the hearing.” According to the Court, “the laborious efforts required to discover the undisclosed relationships give credence to the reasonableness of the arbitrator’s investigation.” Finally, the Court held that “the undisclosed relationships, considered in the light of those the arbitrator did disclose, are insufficient to create a ‘[r]easonable impression of partiality.’” Thus, the Ninth Circuit reversed the California district court’s decision and remanded the case to the district court with instructions to enter judgment confirming the arbitration award.

American Brokerage Network and Cung Thai v. American General Life Insurance Co., No. 3:16-cv-06952 (9th Cir. Nov. 30, 2018).

This post written by Jeanne Kohler.

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Court Confirms Arbitration Award Rejecting Insurers’ Allocation of Losses to Multiple Policies for Reinsurance Purposes

January 2, 2019 by Carlton Fields

A federal district court in Massachusetts has confirmed and entered as a judgment of the court an arbitration award in favor of Certain Underwriters at Lloyd’s, London against Century Indemnity Company regarding reinsurance coverage they provided for a set of claims against Boy Scouts of America (BSA) for sexual molestation by individuals associated with BSA in the 1960s and 1970s.

Century had provided insurance to BSA under 8 policies between 1963 and 1971, and the Underwriters had agreed to reinsure those policies. In the late 1990s, BSA submitted dozens of claims regarding BSA’s alleged liability for sexual molestation claims, and Century settled these claims. The dispute with the reinsurer’s at Lloyd’s of London arose out of the manner in which Century, per an agreement with BSA, chose to allocate these settlement payments among the BSA policies, such that all payments to a particular claimant were allocated to the policy of the first year of the alleged conduct against that individual. Century also combined all claims from a particular year into a single loss for reinsurance purposes.
The Underwriters refused to pay Century’s reinsurance claim, arguing that the manner of allocating losses to the first year of the alleged conduct “was counterfactual” and the agreement with BSA to do it that way “was not the product of a reasonable and business-like investigation.” Century took the dispute to arbitration, and the panel issued an award in the Underwriters’ favor.

The Underwriters then moved to have the court confirm the award and enter it as a judgment of the court. Century did not oppose this motion, which the court then granted without comment.

Certain Underwriters at Lloyd’s, London v. Century Indemnity Company, Civil Action No. 18-12041 (D. Mass. Nov. 16, 2018)

California Appellate Court Holds Parties Cannot Contract Around Service Requirements of Hague Service Convention

December 19, 2018 by John Pitblado

Changzhou Sinotype Technology Co., Ltd. (“Changzhou”) is a Chinese company that develops fonts. Changzhou and Los Angeles-based investment firm Rockefeller Technology Investments (Asia) VII (“Rockefeller”), entertained the idea of a joint venture to create a Silicon Valley-based company to develop and market international fonts.

The parties signed what Rockefeller characterized as a memorandum of understanding, and which Rockefeller believed was binding. However, Changzhou characterized the document as a “bei wang lu,” a type of memorandum understood in Chinese to merely record the current state of negotiations, and that the signing of a “bei wang lu” “does not create a binding contract.

After negotiations ultimately broke off, Rockefeller initiated an arbitration, citing the memorandum’s arbitration provision. Changzhou did not respond to the demand for arbitration, nor did it appear or participate in the arbitration Rockefeller filed in California. The arbitrator entered a default award in excess of $414 million against Changzhou.

Rockefeller brought an action to confirm the award in California state court. It effected service on Changzhou in China via mail, as had been “agreed” in the memorandum. Changzhou did not appear in the action, and judgment confirming the award entered in Rockefeller’s favor.

Approximately 15 months later, Changzhou moved to set aside the judgment on the grounds that it had never entered into a binding contract with Rockefeller, had not agreed to contractual arbitration, and had not been served with the summons and petition to confirm the arbitration award in the manner required by the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the “Hague Service Convention”).

The court denied Changzhou’s petition to vacate, finding service was effective in the action to confirm the award, even though it had not complied with the Hague Service Convention, as the parties were free to contract around the Convention, and had done so.

Changzhou appealed and a California intermediate appellate court reversed, finding that parties may not ‘contract around’ the Hague Service Convention. “[T]he Hague Service Convention does not permit Chinese citizens to be served by mail, nor does it allow parties to set their own terms of service by contract. [Changzhou] therefore was never validly served with process.”

The Appellate Court also did not credit the argument that Changzhou waited too long to challenge service, finding that a lack of personal jurisdiction is not curable, and that “[t]here is a wealth of California authority for the proposition that a void judgment is vulnerable to direct or collateral attack ‘at any time.’” (emphasis added).

Rockefeller Technology Investments (Asia) VII v. Changzhou Sinotype Technology Co., Ltd., No. B272170 (Cal. Ct. App. June 1, 2018)

This post written by John Pitblado.

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