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

COURT UPHOLDS ARBITRATION AWARD DESPITE CHALLENGE TO ARBITRATOR’S USE OF EXCLUDED EVIDENCE

by

Jersey Shore University Medical Center discharged a staff nurse employee for her actions when a female patient was assaulted by another patient in the nurse’s assigned work area. A labor organization that represents employees at the medical center, submitted a grievance to arbitration on behalf of the discharged nurse, pursuant to the parties’ collective bargaining agreement. The arbitrator issued an opinion and award which rescinded the medical center’s decision to terminate the nurse and replaced it with a suspension without pay for time served. The arbitrator based his decision on a number of factual findings, including findings related to three pieces of evidence (a medical record, a record of post-incident staffing changes, and the nurse’s work history) that the arbitrator excluded or never heard at the hearing.

The medical center filed an action in court to vacate the award, arguing that (1) the arbitrator disregarded certain evidentiary rulings made at the arbitration hearing and (2) the award was a “manifest disregard of the law.” The medical center explained that the arbitrator’s exclusion of certain pieces of evidence at the hearing and subsequent reliance on that evidence in his ruling, unreasonably prejudiced the medical center’s right to a fair hearing and contradicted the arbitrator’s own legal rulings. The court, however, disagreed and denied the medical center’s petition to vacate the award. The court found that the medical center failed to demonstrate that any of the three evidentiary issues amounted to misconduct or prejudice. The court also found that “even if ‘manifest disregard or the law’ remains a viable argument in the Third Circuit in the wake of Hall Street Associates, [the medical center] has failed to meet the relevant standard.” Jersey Shore University Medical Center v. Local 5058, Health Professionals & Allied Employees, AFT/AFL-CIO, Case No. 16-cv-04840 (USDC D.N.J. Mar. 16, 2017).

This post written by Gail Jankowski.

See our disclaimer.

NINTH CIRCUIT AFFIRMS DISTRICT COURT’S DISMISSAL OF PLAINTIFF’S PROCEDURAL DUE PROCESS CLAIM

by

In this action, plaintiff Sherri Roberts appealed a Montana federal district court’s order which granted her former employer/defendant Lame Deer Public Schools’ summary judgment motion because plaintiff’s procedural due process claim was foreclosed by claim preclusion, and that even if preclusion did not bar her claim, her claim failed on the merits because she was accorded adequate procedural due process.

On appeal, plaintiff argued that her post-termination arbitration hearing and the statutory limits on judicial review of the arbitration’s result violated her procedural due process rights. The Ninth Circuit, however, noted that plaintiff could have brought her procedural due process claim in Montana state court where she challenged the arbitrator’s decision, but instead she chose only to attempt to vacate the arbitration decision in that previous lawsuit. Therefore, the Ninth Circuit held that claim preclusion bars her from litigating a claim that she could have raised in the earlier proceeding. Further, the Ninth Circuit held that even if plaintiff’s claim was not barred by claim preclusion, the Montana district court correctly concluded that plaintiff was accorded adequate procedural due process. She received a hearing before she was terminated by Lame Deer Public School. She was able to challenge her termination in an arbitration, as mandated by the collective bargaining agreement to which she was a party. After losing the arbitration, she was then permitted to challenge the arbitrator’s decision in court, which she did in Montana state court and lost. Thus, according to the Ninth Circuit, she received more than adequate procedural due process. The Court noted that Montana law does not give her a right to a court hearing on the merits post-arbitration, and that Montana’s statute, limiting judicial review of arbitration decisions, does not violate the Constitution. In fact, the Ninth Circuit noted that the Montana statute is “in many ways identical to its (constitutional) federal version, 9 U.S.C. § 10,” which affords “an extremely limited [judicial] review authority, a limitation that is designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures.” (citations omitted).

Roberts v. Lame Deer Public Schools, No. 12-cv-0083 (9th Cir. Mar. 13, 2017).

This post written by Jeanne Kohler.

See our disclaimer.

FEDERAL COURT RESOLVES ARBITRATION CHALLENGES TO DISSOLUTION OF LAWYER AND NON-LAWYER PARTNERSHIP

by

A federal court recently decided a host of different motions related to an arbitration dissolving the now-defunct Beltway Law Group (“BLG”), a firm that operated websites and other marketing efforts to attract clients on behalf of unaffiliated trial law firms. The arbitrator had previously resolved the primary dispute between the parties—non-lawyer partners who provided marketing services and the lawyer-partner—by ordering the dissolution of the firm. The opinion discussed herein arose from the parties’ various motions challenging or supporting an arbitrator’s resolution of the secondary disputes between the parties: attorneys’ fees and costs (awarded to the lawyer-partner), motions to vacate and to confirm, and supervision of the winding down process.

The non-lawyer partners sought to vacate the arbitration award under each of the four statutory bases recognized by the Federal Arbitration Act, as well as for manifest disregard of the law. In turn, the court rejected each of these challenges and upheld the arbitral award. First, the court rejected vacatur based on “undue means” because the challenging partners did not present clear and convincing evidence of fraudulent conduct or undue means that denied them a “fundamentally fair hearing.” Second, the court rejected vacatur based on “evident partiality” because the challenging party failed to meet the “heavy burden” of showing that the circumstances indicated any improper motives on behalf of the arbitrator. Third, the court rejected vacatur based on “”misconduct” by the arbitrator because the arbitrator’s refusal to stay the proceedings and allow one of the non-lawyer partners more discovery was not unreasonable nor an abuse of discretion. Fourth, the court addressed the challenging parties’ contention that the arbitrator acted with “manifest disregard” of the law—the legal viability of which as a basis to vacate an arbitration award remains uncertain. The court declined to resolve that issue by finding that the challenging parties’ failed to meet the manifest disregard standard (even assuming it is viable) – that the arbitrator knowingly refused to apply a governing legal principle that was well defined and clearly applicable.

Proceeding to the other pending motions before it, the court next granted the lawyer-partner’s motion to confirm the arbitral award because there was no valid basis to vacate it. It further denied the non-lawyer partners’ motion to appoint a receiver to facilitate the winding down of BLG because appointment of a receiver must be ancillary to primary relief—not primary relief itself—and because the issue of receivership was already adjudicated in the underlying arbitration. Finally, the court rejected the lawyer-partner’s motion seeking sanctions against the non-lawyer partners because their positions were not frivolous or deceptive.

Ray v. Chafetz, Case No. 16-428 (USDC D.D.C. Feb. 17, 2017)

This post written by Thaddeus Ewald .

See our disclaimer.

FEDERAL CIRCUIT UPHOLDS $455 MILLION INTERNATIONAL ARBITRATION AWARD, BUT FINDS THAT FEDERAL STATUTORY INTEREST RATE, RATHER THAN HIGHER RATE SPECIFIED BY ARBITRATIONS TRIBUNAL, APPLIES POST-JUDGMENT

by

The Federal Circuit has upheld a district court’s confirmation of a $455 million award by an international arbitration tribunal, but modified the judgment to clarify that, after the date of the district court’s judgment confirming the award, interest will accrue at the federal statutory rate rather than the tribunal’s higher post-award rate.

The case involved patent infringement and breach of contract claims regarding technologies related to genes that provide resistance to certain herbicides. The Federal Circuit found that it had jurisdiction over the appeal as the matter arose under the patent laws of the United States. Because the case involved an international arbitration, enforcement of the award was regulated by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which, like the Federal Arbitration Act, requires that courts apply a highly deferential standard of review when evaluating challenges to the decisions of arbitrators. In this case, the Federal Circuit found that appellants failed to show that the tribunal’s decision was contrary to public policy, reflected a manifest disregard for the law, or was otherwise reversible under these deferential standards.

However, the Federal Circuit found that the district court erred by denying a motion to amend its judgment to use the federal statutory rate for post-judgment interest, rather than the higher rate that the tribunal stated would apply “from the date of this Award until full payment.” The Federal Circuit emphasized the distinction between post-award interest (i.e., after the date of the arbitration award) and post-judgment interest (i.e., after the date of district court’s order confirming that award), and noted that it was undisputed that the tribunal’s attention was not called to this distinction. Citing precedent holding that the statutory rate applies to post-judgment interest unless the parties or arbitrators “unambiguously express their intent to replace the federal rate for the post-judgment period,” the Federal Circuit found that there was no such unambiguously expressed intent and, therefore, the federal statutory rate would apply to that period.

Bayer CropScience AG v. Dow Agrosciences LLC, 2016-1530 (Fed. Cir. Mar. 1, 2017)

This post written by Jason Brost.

See our disclaimer.

ARBITRAL AWARD SETTLING BUYOUT PRICE IN DIAMOND BUSINESS DISPUTE AFFIRMED OVER ALLEGATIONS OF ARBITRATOR PARTIALITY

by

The arbitration award in a dispute between former joint venture partners in a series of international diamond businesses has been confirmed by the Southern District of New York. The decision resolved motions by Julius Klein Diamonds, LLC, related entities, and several members of the Klein family (the “Kleins”) attempting to vacate the arbitration award ordering them to pay a buyout price of $179 million to LGC USA Holdings. The bulk of the Kleins’ substantive arguments challenging the award alleged bias on the part of the third neutral arbitrator selected by the two party-appointed arbitrators. At the outset of the arbitration, the arbitrator at issue disclosed professional relationships with LGC’s owner as well as the arbitrators, but failed to disclose the extent of those relationships or his pending indictment and later conviction on tax fraud charges.

First, applying the standard set forth by the Federal Arbitration Act and applicable case law, the court rejected the Kleins’ substantive challenges to the arbitral award. While the court noted that third arbitrator could have been more forthcoming concerning the scope of his business relationships with the other arbitrators and LGC’s owner, the court found his initial disclosure was sufficient to put the Kleins on inquiry notice. Thus, the court found that their failure to investigate or object until after an unfavorable award waived any such objection. The court also found insufficient admissible evidence to substantiate the assertion that the undisclosed relationship impacted his partiality in any way. Additionally, the court concluded the arbitrator’s failure to disclose his indictment and subsequent conviction for tax fraud issues did not warrant vacatur because the conviction was unrelated to and did not affect the outcome of the arbitration.

The court also rejected the Kleins’ additional substantive challenges that the arbitrators acted with manifest disregard for the law or exceeded their powers in issuing the award. Noting the high degree of deference afforded arbitration awards, the court found the particular arbitral agreement at issue to be broad, covering “[a]ny controversy or claim arising out of or relating to” the agreements. Thus, the arbitrators did not err by ordering a full buyout of the joint ventures at issue. Nor did the arbitrators err by finding the Kleins joint and severally liable with their associated entities, because the family members were personal signatories to the agreement, agreed to allow the arbitrators decide all disputes, and actively and voluntarily participated in the arbitral process.

LGC Holdings, Inc. v. Julius Klein Diamonds, LLC, Case No. 16-5352 (USDC S.D.N.Y. Feb. 28, 2017).

This post written by Thaddeus Ewald .
See our disclaimer.