Confirmation / Vacation of Arbitration Awards

ARBITRATOR’S DECISION ON AVAILABILITY OF COLLECTIVE AND CLASS ARBITRATION WITHSTANDS PROCEDURAL AND SUBSTANTIVE CHALLENGES

February 9, 2017 by Rob DiUbaldo

A Colorado federal court recently denied DISH Network (“DISH”)’s petition to vacate an arbitration award that decided an arbitration agreement with former employee Ray permitted collective or class certification. The arbitrator had decided as a jurisdictional matter that he had authority to determine whether the agreement permitted collective or class arbitration, and then held on the merits that the disputed agreement permitted arbitration of this kind.

First, the court upheld the arbitrator’s decision that he had authority to determine whether the agreement permitted collective or class arbitrations, but on slightly different grounds than the arbitrator decided the issue. The arbitrator found that the question of whether an agreement permits collective or class arbitration is not a “gateway” issue—or “question of arbitrability”—so she therefore had jurisdiction to decide the substantive issue. Alternatively, the arbitrator found that the agreement itself clearly and unmistakably indicated the parties’ intent to submit the issue to the arbitrator. The court, on the other hand, followed persuasive authority from other circuits holding that the question of whether an agreement permits collective or class arbitration is a question typically decided by a court and not the arbitrator. It still upheld the finding of jurisdiction, however, because it found that the parties manifested an intent to delegate questions of arbitrability to the arbitrator by incorporating the American Arbitration Association’s National Rules for the Resolution of Employment Disputes—which provide for determination of such issues by the arbitrator—into their arbitration agreement.

Second, the court refused to vacate the arbitrator’s decision that the agreement permitted collective or class certification, based primarily on the limited review applicable to arbitration awards under the Federal Arbitration Act. The arbitrator weighed a series of six features of the agreement’s language, three of which counseled for construing the agreement to permit collective or class arbitration of Ray’s claims and three counseled against permitting collective or class arbitration. Regarding the permissibility of collective arbitration provided by the Fair Labor Standards Act, the arbitrator decided that the three features supporting collective arbitration outweighed the three opposing it. Regarding the permissibility of class arbitrations, the arbitrator found a closer case and proceeded to interpret the agreement against DISH as the drafter to permit class arbitration.

In reviewing DISH’s merits challenges, the court found that the arbitrator’s decision was entirely consistent with relevant Supreme Court and Colorado precedent. The court also noted that even if the arbitrator’s analysis was inconsistent with the relevant authority, errors in interpreting or applying the law do not constitute grounds for vacating an arbitration award. Furthermore, it found the decision to interpret the contract against DISH was appropriate, because other rules of contract interpretation failed.

Dish Network, L.L.C. v. Ray, Case No. 16-314 (USDC D. Colo. Dec. 28, 2016).

This post written by Thaddeus Ewald .

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COURT APPLIES THE “LOOK THROUGH” APPROACH TO FAA SECTION 10 PETITIONS IN DETERMINING SUBJECT MATTER JURISDICTION

February 1, 2017 by Michael Wolgin

Plaintiffs, members of the Harman family, sold their family farm and sought investment advice from defendant Wilson-Davis. The Harmans claimed they were damaged after making certain investments due to forged financial statements by Wilson-Davis, and that Wilson-Davis spoliated evidence pertaining to those investments. At arbitration, the panel found no liability against Wilson-Davis. The Harmans then sought to vacate the panel’s award.

The court considered whether it had subject matter jurisdiction, and whether there were sufficient grounds to vacate the award under either public policy grounds or section 10 of the FAA. Regarding subject matter jurisdiction, the court analyzed whether it could “look through” the face of the petition to vacate the award, and find jurisdiction based on whether federal-law claims were raised in the underlying arbitration. (There is a split among the federal circuits as to whether a court may look through a section 10 petition to vacate an award in order to find federal question jurisdiction; the Supreme Court previously applied “look through” only under section 4.) The Tenth Circuit, in which the district court in this matter is located, has not yet addressed the issue. The court here sided with the Second Circuit, and not the opposing view of the Third and Seventh Circuits, holding that applying the “look through” approach to the entire FAA was the only logical construction of the law, notwithstanding differences in statutory language between sections 4 and 10. The court, however, denied the Harmans’ petition because it found no public policy or statutory grounds supporting vacatur. Harman v. Wilson-Davis & Co., Case No. 2:2016-cv-00229-CW (USDC D. Utah Jan. 6, 2017).

This post written by Gail Jankowski.

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COURT FINDS THAT ENRON’S FRAUD DOES NOT VOID CONTRACT ENTERED INTO WITH ENRON SUBSIDIARY

January 17, 2017 by Rob DiUbaldo

A federal appellate court has upheld a district court order enforcing an arbitration award by the ICC against the Republic of Nigeria in favor of Enron Nigeria Power Holdings, Ltd. (“ENPH”), a former subsidiary of Enron International Corporation (“Enron”), for breach of a contract. Nigeria claimed that enforcing the contract was against public policy due to that fraud that became apparent when Enron collapsed in 2001. However, the court rejected this argument, noting that Enron was not a party to or mentioned in this contract.

The operative contract, agreed to in 1999, contemplated ENPH engaging in three phases of construction, but the dispute was limited to the second phase under which ENPH was to have built a power plant in Nigeria. ENPH made various efforts through 2005 to get Nigeria to move forward with the second phase of the contract, but Nigeria refused to do so, leading ENPH to take the matter to arbitration with the ICC.

Nigeria argued that the contract was void as against public policy because of false statements regarding Enron’s financial attributes made to Nigeria in order to induce Nigeria to enter the contract. The ICC found no clear evidence that these statements induced Nigeria to enter the contract, emphasizing that the contract contained no express or implied guarantees from Enron, which was not a party to nor required to do anything under the contract. Further, the ICC found that Enron’s accounting fraud had no connection to ENPH nor to the second phase of the contract. When Nigeria refuse to pay ENPH, ENPH successfully sought enforcement in federal court. On appeal, the court upheld the order granting enforcement of the award, noting the deference due to both the factual determinations and interpretations of the contract made by the ICC.

Despite finding in ENPH’s favor, the court rejected three arguments advanced by ENPH. First, ENPH argued that Nigeria had failed to identify a well-defined public policy, but the court found that enforcing a contract tainted by fraud was plainly against public policy. Second, ENPH argued that Nigeria contractually waived any right to challenge the award anywhere except London, where the arbitration was held, but the court found that a party cannot waive such a public policy argument, as that would effectively “elevat[e] the parties’ contractual choices above the fundamental need of the federal courts to protect their own integrity.” Third, the court rejected the argument that Nigeria forfeited the argument that ENPH should be held responsible for Enron’s fraud as its alter ego by not properly raising it before the district court, finding that a party cannot waive this sort of public policy argument that courts are bound to decide.

Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, No. 15-7121 (D.C. Cir. Dec. 27, 2016)

This post written by Jason Brost.

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ELEVENTH CIRCUIT RESOLVES JURISDICTIONAL ISSUES REGARDING THE CONFIRMATION OF AN ARBITRATION AWARD

January 16, 2017 by Rob DiUbaldo

The Eleventh Circuit recently held that a district court retained jurisdiction over a motion to confirm an arbitral award, even though the plaintiff had voluntarily dismissed its claims while the motion to confirm was pending.

After PTA-FLA and affiliated entities (“ClearTalk plaintiffs”) filed a series of lawsuits across multiple jurisdictions against ZTE USA, ZTE moved to compel arbitration and the disputes were addressed in a consolidated arbitration proceeding. The arbitration resulted in a zero dollar award for both sides meant to bind ZTE and the ClearTalk plaintiffs.

While ZTE’s motion to confirm the arbitral award was pending, PTA-FLA voluntarily dismissed its claims, but the district court confirmed the arbitral award based upon its supplemental jurisdiction to do so. The Eleventh Circuit affirmed, finding that the lower court’s diversity jurisdiction granted it power both to compel the arbitration and confirm the resulting award. It held that the zero dollar award did not destroy diversity jurisdiction because the amount in controversy was satisfied at the time the case was filed. Likewise, it decided that the voluntarily dismissal did not destroy diversity jurisdiction because the confirmation of an arbitral award is a collateral claim over which the district court had independent jurisdiction.

Furthermore, the Eleventh Circuit confirmed that the lower court had supplemental jurisdiction to confirm the award against those ClearTalk plaintiffs that were joined for the consolidated arbitration. In doing so, it confirmed that the exception to supplemental jurisdiction excluding claims by plaintiffs against parties added under certain Federal Rules applied only to the “original” plaintiffs, and not third-party, counter, or cross plaintiffs.

PTA-FLA, Inc. v. ZTE USA, Inc., No. 15-15159 (11th Cir. Dec. 15, 2016)

This post written by Thaddeus Ewald .

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COURT HOLDS ALLEGED INDUSTRY BIAS AMONG ARBITRATORS INSUFFICIENT TO VACATE AWARD

January 12, 2017 by Michael Wolgin

The case concerned two purchase orders whereby defendant BJB LLC dba Agri Trading (Agri Trading) agreed to purchase corn oil from plaintiff Hardy Industrial Technologies, Inc. (Hardy). A dispute arose and was submitted for arbitration pursuant to language in the purchase orders incorporating the American Fats and Oils Association, Inc.’s (AFOA) trade rules. A three-member panel of the AFOA Arbitration Tribunal issued its award finding in favor of Agri Trading that both purchase orders were invalid.

Hardy moved to vacate, modify, or correct the arbitration award, principally relying on “evident partiality” on the part of the arbitrators, namely, that the arbitrators were biased in favor of Agri Trading. In support of its motion, Hardy argued that the arbitrators were biased because Agri Trading was a member of the AFOA but Hardy was not, and because the president of Agri Trading attended AFOA meetings with the arbitrators, worked on AFOA committee meetings, served on the AFOA Board of Directors, and socialized with them.

The Court rejected this argument, finding that Hardy failed to establish that the alleged partiality was direct, definite, and capable of demonstration, or that specific facts existed which indicated improper motives on the part of the arbitrators. The Court reasoned that Hardy’s claim was “one of institutional bias, which, at best, establishes an appearance of bias.” Furthermore, the Court noted that the AFOA’s arbitration rules, which required that three-member panels be comprised of one arbitrator designated as a buyer, one as a seller, and one as other, undermined Hardy’s argument that the arbitrators were biased. As such, the Court denied Hardy’s motion to vacate and affirmed the arbitration award. Hardy Indus. Tech., LLC v. BJB, LLC, Case No. 1:12-cv-3097 (USDC N.D. Ohio Dec. 16, 2016).

This post written by Gail Jankowski.

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