Confirmation / Vacation of Arbitration Awards

EIGHTH CIRCUIT UPHOLDS ARBITRAL IMMUNITY IN CHALLENGE TO AAA’S REMOVAL OF ARBITRATOR

December 19, 2016 by Michael Wolgin

Owens, a terminated CEO, engaged in a AAA arbitration with his former company before a three-member panel. In the course of the proceeding, the company sought to remove an arbitrator for making an incomplete disclosure regarding conflicts of interest. The AAA removed the conflicted arbitrator without holding a hearing or consulting the panel, and the remaining two arbitrators ultimately awarded Owens $3 million. The company then successfully moved for dismissal of the award in the district court. Following dismissal, Owens sued the AAA for breach of contract, unjust enrichment, and tortious interference, but his claims were dismissed by the court based on arbitral immunity. On appeal, the Eighth Circuit affirmed, explaining that the reason courts extend immunity to arbitrators is to protect them and the arbitration process from undue influence and attacks from dissatisfied litigants. The Court concluded that “the removal of arbitrators is similarly protected by arbitral immunity because it is just as much a part of the arbitration process as the appointment of arbitrators.” Owens v. American Arbitration Association, Inc., Case No. 16-1055 (8th Cir. Nov. 18, 2016).

This post written by Gail Jankowski.

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SDNY CONFIRMS ARBITRATION AWARD UNDER FAA AND THE NEW YORK CONVENTION DESPITE AWARD BEING SILENT ON TAX LIABILITY

December 15, 2016 by John Pitblado

An arbitration award required respondent to pay a series of royalty payments, audit costs and interest, but did not address either party’s tax obligations. Respondent made several payments to petitioner, but withheld 20% from some of the payments citing its obligation under Taiwanese tax laws and regulations. The arbitration panel declined to amend the award in regards to the tax law issue, stating it was without power or jurisdiction, and further, no claims regarding these deductions was ever made or determined in the arbitration.

Respondent argued against enforcement of the final award for three reasons. The first reason, that enforcement of the award would violate Taiwanese tax law and therefore public policy, was rejected because the award said nothing about obligations to pay taxes, and thus did not prevent respondent from paying taxes directly rather than withholding taxes from its payment of the award. The second reason, that due process was violated under the New York Convention, was rejected, as respondent never “attempted to make a ‘case’ regarding tax withholding, much less that it was ‘unable to present’ one” during the arbitration. The third reason, that respondent had satisfied its obligation through prior payments net of tax withholding, was also rejected because respondent “provided no basis from which to infer that the tribunal implicitly authorized [respondent[ to deduct taxes,” as expressly stated by the arbitration panel when asked to amend the award. The Court confirmed the award.

Mondis Technology Ltd. v. Wistron Corp., No. 15-CV-02340 (USDC SDNY Nov. 3, 2016)

This post written by Nora A. Valenza-Frost.

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SECOND CIRCUIT UPHOLDS CONFIRMATION OF ARBITRATION AWARD FINDING THE PENALTY PROVISION IN CONTRACT DID NOT VIOLATE PUBLIC POLICY

December 13, 2016 by John Pitblado

Although unable to revisit the arbitration panel’s fact-finding or legal reasoning behind an arbitration award, the Second Circuit Court of Appeals upheld confirmation of the award itself, as it did not violate public policy. The arbitration panel, which acknowledged the policy against contract penalties, nevertheless found the policy inapplicable because it construed the contract clause at issue as a termination provision, rather than as a liquidated damages provision. Petitioners pointed to no laws nor legal precedents indicating that the contract’s termination provisions “setting the terms for ending a joint venture are contrary to well defined and dominant public policy.” Thus, the Court upheld the Southern District’s confirmation of the award.

PDV Sweeny, Inc., et al. v. Conocophillips Co., et al., No. 16-170-cv (2d Cir. Nov. 7, 2016)

This post written by Nora A. Valenza-Frost.

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RECIPIENT OF ARBITRATION AWARD IN REINSURANCE DISPUTE PERMITTED DISCOVERY OF FUNDS WITHHELD ACCOUNT

December 8, 2016 by Rob DiUbaldo

Plaintiffs secured an interim arbitration award in the amount of $7.8 million, plus interest, in what the court described as a complex insurance/reinsurance program. Seeking to collect on the award, plaintiffs served a subpoena on a third party which allegedly owed funds to the judgment debtor evidenced by a liability set up on its books in a funds withheld account. The recipient of the subpoena moved to quash the subpoena. The court held that the holder of the arbitration award was entitled to conduct discovery reasonably calculated to lead to the discovery of assets of the judgment debtor. The court found that it was undisputed that the funds listed on the books of the recipient of the subpoena were identified as a liability owed to the judgment debtor. The court enforced the subpoena, ordering the recipient of the subpoena to respond to the subpoena, and entered a “restraining notice” preventing the subpoena’s recipient from transferring the funds or taking them for its own use. The court did not find that the judgment debtor was entitled to the funds in the funds withheld account. That issue will be resolved later, if necessary. Amtrust North America, Inc. v. Preferred Contractors Insurance Co. Risk Retention Group, Case No. 15-7505 (USDC S.D.N.Y. Oct. 18, 2016)

This post written by Rollie Goss.
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REINSURANCE ARBITRATION AWARD STANDS IN FACE OF CHALLENGES TO RATIONALITY AND IMPARTIALITY OF DECISION

December 6, 2016 by Rob DiUbaldo

Yosemite Insurance Co. (“Yosemite”) lost its challenge to an arbitration award that found Nationwide Mutual Insurance Co. (“Nationwide”) was not required to cover a share of Yosemite’s settlement with the State of California regarding pollution losses from the 1950s. After the arbitral board decided in Nationwide’s favor, Yosemite challenged the impartiality and rationality of the award.

In deciding Yosemite’s challenge, the court emphasized that the bases to vacate an arbitration award under the Federal Arbitration Act (“FAA”) are narrow and impose a steep burden on the challenging party. The dispute was based on whether an exclusion for “contamination and pollution” applied to any claims made or only where the party’s “main operations” related to “contamination and pollution.” The court found that while it believed the operative language was ambiguous, the arbitrators’ decision was “anchored” in the text of the agreement. Because the decision did not stray from an interpretation and application of the agreement, or exhibit a manifest disregard for the law, the court lacked authority under the FAA to second-guess the arbitral panel’s award.

Yosemite also challenged the arbitral panel’s impartiality because one of the three members failed to disclose that he had previously represented a client in a case adverse to Yosemite—a representation Yosemite’s counsel himself did not recall. The court applied a four-factor test borrowed from the Fourth Circuit to determine whether the inadvertent failure to disclose the representation would cause a reasonable person to conclude the arbitrator was biased. The court found there was no non-speculative suggestion of a conflict of interest, no suggestion of antipathy against Yosemite, and that the ten-year old adverse representation failed to impugn the impartiality of the arbitrator.

Despite rejecting Yosemite’s challenges, the court declined to award attorneys’ fees and costs to Nationwide because the claims were not objectively unreasonable. The court did however, “encourage” Yosemite’s counsel to review the strict and demanding showings required when seeking to vacate an arbitral award.

Yosemite Ins. Co. v. Nationwide Mut. Ins. Co., Case No. 16-5290 (USDC S.D.N.Y. Nov. 10, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

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