Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Confirmation / Vacation of Arbitration Awards

Confirmation / Vacation of Arbitration Awards

Second Circuit Affirms Confirmation of ICC Decision Based on UAE Law

by

The Second Circuit Court of Appeals recently affirmed a decision confirming a decision by the International Chamber of Commerce (ICC) that applied the law of the United Arab Emirates (UAE).

Cessna Finance Corp. leased several private jets to startup Prestige Jet Rental. Ghaith Al Ghaith, Prestige’s chairman, who was also the deputy chairman of Al Ghaith Holding Co. PJSC (AGHC), guaranteed the lease agreements in his capacity as deputy chairman of AGHC. When Prestige defaulted, Cessna initiated arbitration in the ICC pursuant to the lease agreements against AGHC. AGHC argued that Al Ghaith’s guarantee was invalid because its articles of association required the signatures of “two out of three” of its chairman, deputy chairman, and managing director to bind the company, and only Al Ghaith had signed the guarantee. The ICC rejected that claim, finding that “AGHC was bound by ‘good faith’ under … the UAE Civil Code.” Cessna moved to confirm the ICC’s award and AGHC cross-moved to vacate the award.

The district court confirmed the award. The Second Circuit affirmed. The Second Circuit rejected AGHC’s argument that the ICC had “manifestly disregarded the law,” explaining that it had applied the law of the UAE in a way that “provided at least a barely colorable justification for its decision.” The court noted that a barely colorable justification was all that was needed for an award to be enforced against a challenge that an arbitrator manifestly disregarded the law.

Cesfin Ventures LLC v. Al Ghaith Holding Co. PJSC, No. 20-1106 (2d Cir. Apr. 22, 2021).

Eleventh Circuit Holds That “Notice of a Motion to Vacate” Under FAA Cannot Be Accomplished by Email Absent Express Written Consent

by

After an arbitration resulted in an award that included more than $650,000 in attorneys’ fees, the liable party filed a motion to vacate that portion of the award in a federal district court. The attorney for that party, however, only emailed opposing counsel a “courtesy copy” of the 20-page memorandum in support of the motion to vacate and did not formally serve the motion itself until a few weeks later — beyond the FAA’s three-month deadline to seek vacatur of an award. The district court denied the motion to vacate and confirmed the arbitration award, reasoning that the defending party had not consented to service by email, and as a result, there was no timely service of the motion to vacate the award.

On appeal, the Eleventh Circuit affirmed the district court’s ruling, explaining that the FAA imposes strict procedural requirements, including those relating to service of a notice of motion to vacate an award. Federal Rule of Civil Procedure 5 allows service “by other electronic means,” including email, but only to the extent “that the person consented to in writing.” The Eleventh Circuit determined that the adverse party here had not consented in writing, notwithstanding that the underlying arbitration agreement referenced the AAA construction rules, which permit service by email under certain circumstances. Service by email is permitted only for service of “notices required by” the AAA construction rules, and those rules do not include the motion at issue here, requesting that a court vacate an arbitration award. Accordingly, because the adverse party never provided express written consent for email service, the court affirmed the district court’s decision that there was no valid service of the motion to vacate, and also affirmed the confirmation of the award.

O’Neal Constructors, LLC v. DRT America, LLC, No. 20-11045 (11th Cir. Apr. 1, 2021).

Ninth Circuit Vacates “Bizarre” Arbitration Award in Drug-Related Employment Termination Dispute

by

In a 2-1 decision, the Ninth Circuit Court of Appeals recently reversed a district court’s order confirming an arbitration award in favor of a former Costco employee who had been fired for selling cocaine on company property. The arbitrator found that the employee’s termination was barred by the doctrine of “industrial double jeopardy,” because he had already incurred a three-day suspension for his conduct, and awarded that the employee be “made whole.”

The Ninth Circuit took issue with the fundamental fairness of the arbitration proceedings. Following the presentation of evidence, the arbitrator engaged in extensive ex parte communications with the terminated employee and the Teamsters Union, which had represented the employee at arbitration. The arbitrator also conveyed a $6,000 settlement offer to the employee, which Costco was unaware of and had not authorized. When rendering his decision, the arbitrator did so via a “vague and bizarre” email sent only to the Teamsters Union, which said: “The above named grievant prevails in his grievance. The Union’s arguments as to double jeopardy were correct. Union remedy is adopted. So that I can look at myself in the mirror, my resignation is effective today.” The arbitrator failed to provide any reasoned basis for his decision, without any finding of fact or statement of law. He then resigned after rendering his email judgment.

Acknowledging the high standard that must be met to vacate an arbitration award, the Ninth Circuit ultimately decided that the arbitration proceedings deprived Costco of a fundamentally fair hearing, and entitled Costco to vacatur of the award. “For all we know,” the majority commented, “the arbitrator flipped a coin, consulted a ouija board, or threw darts at a dartboard to determine the outcome.” The court concluded: “No Party agreeing to arbitration bargained for a proceeding such as this.”

Court Confirms “Baseball Arbitration” Award, Finds Party Alleging Unfairness Was Caught Looking When It Failed to Object

by

The U.S. District Court for the Eastern District of Missouri confirmed an arbitration award in favor of Clayco Inc. in a dispute with its subcontractor arising from a construction contract. The parties’ contract provided detailed dispute resolution procedures comprising 13 paragraphs providing for mediation followed by arbitration if the mediation was unsuccessful. However, the contract also provided for an “alternate condensed and accelerated procedure” that could be “invoked” at Clayco’s option. This condensed procedure called for eight hours of mediation “followed by a ‘baseball arbitration’ in which the mediator immediately takes the role of arbitrator, each side submits a best and final offer and the arbitrator chooses of the two offers as the award.”

Clayco invoked the “baseball arbitration” procedure by letter to the subcontractor and the American Arbitration Association (AAA), as provided in the parties’ contract. More than nine months later, the mediation and arbitration were held according to the condensed procedure, and the arbitrator selected Clayco’s best and final offer as the award, resulting in an approximate $1.7 million award.

The subcontractor sought to vacate the award, arguing that Clayco had not properly “invoked” the procedure because it never received a copy of Clayco’s letter to the AAA selecting the condensed procedure. The court found that whether the subcontractor received a copy of the letter was irrelevant under the terms of the parties’ contract, which only required Clayco to make a “written application” to the AAA. Furthermore, the subcontractor had ample notice of the mediation and arbitration and never “made a formal written objection” to the proceeding. Instead, after the unfavorable arbitration award was rendered, it submitted an affidavit of counsel to the court in support of its motion for vacatur stating that counsel “asserted that [the ‘baseball arbitration’ was unfair.”

The court described the subcontractor’s argument as a “flimsy post hoc excuse[]” and stated that “a party may not sit idle through an arbitration procedure and then collaterally attack that procedure on grounds not raised before the arbitrators when the result turns out to be adverse,” quoting Marino v. Writers Guild of America, East, Inc., 992 F.2d 1480 (9th Cir. 1993). Since the arbitration process took place according to the parties’ contract, and the subcontractor had waived any procedural defects even if it did not, the court confirmed the award.

Clayco, Inc. v. Food Safety Grp., Inc., No. 4:20-mc-00739 (E.D. Mo. Mar. 8, 2021).

SDNY Vacates Arbitration Award in International Maritime Shipping Dispute

by

Petitioner Copragri and respondent Agribusiness United DMCC are foreign buyers and sellers of feed and grain, respectively, who entered into sales agreements for grain cargoes. Pursuant to its obligations under the sales agreements, Agribusiness chartered a vessel from Vitosha Maritime Ltd. to transport the grain cargoes from Louisiana to Morocco. The vessel’s master issued bills of lading for the cargoes to Agribusiness. Copragri was not a party to the bills of lading, the back of which included a provision calling for arbitration in New York.

After Vitosha Martina presented a claim against Agribusiness for delays of the vessel and other expenses at the discharge port in Morocco, Agribusiness presented an indemnity claim to Copragri. Six years later, Agribusiness commenced arbitration of this claim, and an arbitration panel was selected without Copragri’s participation. Copragri objected to the arbitration on several grounds, primarily because the governing contracts between the parties were the sales agreements for grain cargoes, and not the bill of lading under which Agribusiness had initiated the New York arbitration. These objections were provided both to Agribusiness and to the arbitration panel. However, Copragri’s objections were ignored, and the arbitration panel issued an award to Agribusiness for $208,300. The award did not address Copragri’s various objections or issues of arbitrability or jurisdiction, nor did it include any legal citations.

Copragri thereafter filed a petition in the Southern District of New York to vacate the award, which the court granted. The court held that because Copragri was not a party to the bill of lading and therefore did not consent to arbitration in New York, the arbitration panel acted outside its scope and authority when issuing its award. The court also held that the arbitration panel’s failure to analyze or even address Copragri’s various objections — a number of which could have been outcome-determinative — constituted a manifest disregard for the law, further justifying vacatur.