Confirmation / Vacation of Arbitration Awards

In two separate appellate decisions, two circuit courts of appeal declined to overturn orders enforcing arbitration awards where the appellants had challenged the respective awards based on “evident partiality” under the FAA. In Republic of Argentina v. AWG Group Ltd., Argentina contended that there was evident partiality by one of the arbitrators who did not disclose that she at one time (more than a year before the arbitration panel found Argentina liable) sat on the board of directors for a company with investments in two of the parties. Argentina appealed, but the appellate court affirmed, reasoning that the company on whose board the arbitrator sat had only trivial interest in the parties, and therefore, the arbitrator’s interests in the parties were insignificant.

Similarly, in Ploetz v. Morgan Stanley Smith Barney LLC, an arbitrator had submitted a disclosure report stating that he was currently serving as an arbitrator in two other cases that had Morgan Stanley as a party and that he had served as an arbitrator in eight closed cases in which an affiliate of Morgan Stanley had been a party. However, the arbitrator failed to disclose that he had once served as a mediator in another case, which was unsuccessful, in which an arbitration panel (on which he did not sit), ultimately found that Morgan Stanley owed the claimant $75,000 in damages. Despite this omission, the appellate court affirmed the order denying vacatur of the award. The appellate court reasoned that because the arbitrator timely disclosed the ten other cases he arbitrated where a member of the Morgan Stanley family was a party, his undisclosed mediation of the omitted case represented at most a trivial and inconsequential addition to that relationship. Republic of Argentina v. AWG Group Ltd., Case No. 1:15-cv-01057 (D.C. Cir. July 3, 2018); Ploetz v. Morgan Stanley Smith Barney LLC, Case No. 17-2405 (8th Cir. July 2, 2018).

This post written by Gail Jankowski.

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The Second Circuit recently held that parties seeking to vacate awards under Federal Arbitration Act Section 10(a)(2) must satisfy a higher burden in showing evident partiality by a party-appointed arbitrator. The parties arbitrated a workers compensation reinsurance dispute and the losing party (Lloyds) moved to vacate the ultimate arbitral award on the ground that the prevailing party (ICA)’s selected arbitrator displayed evident partiality by failing to fully disclose his connections to ICA. The lower court vacated the award, finding that ICA’s appointed arbitrator’s undisclosed relationships were “more significant, more numerous, and involve[d] more financial entanglements” than would be acceptable, particularly in light of the “apparent willfulness” of the non-disclosure.

On appeal, the Second Circuit addressed as an issue of first impression what the appropriate standard is for a Section 10(a)(2) evident partiality challenge to a party-appointed arbitrator. The court disagreed with the lower court and instead followed the approach of other circuits in distinguishing between a heightened burden standard for party-appointed arbitrators and a reasonable person standard for neutral arbitrators. Despite the heightened burden, party-appointed arbitrators are subject to certain “baseline limits to partiality.” First, undisclosed relationships are material—and therefore warrant vacatur—if they violate the arbitration agreement. Here, the court noted, the only limitation in the arbitration agreement was that arbitrators be “disinterested,” in terms of financial and personal stake in the outcome. Second, undisclosed relationships are material if the complaining party can demonstrate the partiality had a prejudicial effect on the award.

As a result of this new framework, the Second Circuit remanded to the trial court to determine whether ICA’s arbitrator’s undisclosed relationships betrayed his disinterest or had a prejudicial effect on the arbitral award.

Certain Underwriting Members of Lloyds of London v. Ins. Co. of Am., No. 17-1137 (2d Cir. June 7, 2018).

This post written by Thaddeus Ewald .

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Respondent argued against the confirmation of the arbitral award as it was based upon the consent of the parties, rather than a disputed hearing, which it contended made the award not subject to the New York Convention, resulting in a lack of jurisdiction.  The Court disagreed that it lacked subject matter jurisdiction, citing to Albtelecom SH.A. v. UNIFI Commc’ns, Inc., 2017 WL 2364365 (S.D.N.Y. May 30, 2017). The court noted that “[w]hile the tribunal did not make findings or reach legal conclusions, it made an award that bound parties, with its power.  No binding or persuasive statutory language or case law requires a court to hold that a tribunal must reach its own conclusions, separate from the parties’ agreement, to make a valid binding award subject to the Convention.”

As Respondent did not argue that the award should not be confirmed on any ground but lack of subject-matter jurisdiction, the Court found the award must be confirmed.

Transocean Offshore Gulf of Guinea VII Ltd., et al. v. Erin Energy Corp., No. H-17-2623 (USDC S.D. Tex. Mar. 12, 2018)

This post written by Nora A. Valenza-Frost.
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