Confirmation / Vacation of Arbitration Awards

ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S CONFIRMATION OF ARBITRATION AWARD, FINDING THAT ARBITRATOR’S REFUSAL TO POSTPONE HEARING DOES NOT WARRANT VACATUR UNDER THE FEDERAL ARBITRATION ACT

November 22, 2016 by John Pitblado

The background of this case is as follows. CM South East Texas Houston LLC and South East Texas KCH Co. LLC (collectively, “CM South”) asserted breach of contract claims against CareMinders Home Care Inc. (“CareMinders”) and demanded arbitration. After months of initial proceedings, a five day hearing was scheduled for December 2014. A scheduling conflict arose and both sides requested new hearing dates, and the hearing was rescheduled for February 2015. Yet another conflict arose, and both sides requested a new date, and this time the hearing was rescheduled for March 9-13, 2015. One of CareMinders’ key witnesses then had a family emergency. CareMinders asked the arbitrator to reschedule the hearing for some time between May and September, 2015, advising that CM South agreed to the rescheduling. After conferring with the parties and discussing available dates, the arbitrator rescheduled the hearing to March 18-21, 2015, reducing it from five to four days. The hearing took place and CareMinders’ witness attended the hearing. The arbitrator then issued an award in favor of plaintiff CM South, awarding it damages. CM South filed a motion to confirm the award in Georgia federal court, and CareMinders filed a motion to vacate the award, contending that the arbitrator engaged in misconduct by refusing to postpone the hearing when both parties agreed to the rescheduling. The district court denied the motion to vacate, finding that CareMinders failed to show that the arbitrator’s refusal to postpone the hearing amounted to misconduct or that it prejudiced CareMinders’ ability to defend the case. The court also confirmed the arbitration award, which CareMinders appealed.

The Eleventh Circuit affirmed the Georgia district court’s order confirming the arbitration award. In doing so, the Court held that an arbitrator’s refusal to postpone a hearing after it had been already rescheduled twice does not warrant vacatur of the award under the Federal Arbitration Act. The Court also noted that CareMinders’ witness attended and provided testimony at the hearing. As such, the Court further ruled that the parties were not prejudiced or deprived of a fair hearing and vacatur was not warranted.

CM South East Texas Houston v. CareMinders Home Care Inc., No. 16-11054 (11th Cir. Oct. 7, 2016).

This post written by Jeanne Kohler.
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COURT CONFIRMS AWARD, HOLDS ARBITRATOR DID NOT ERR IN DETERMINING VESTING STATUS OF FORMER EXECUTIVE’S SHARES

November 9, 2016 by Michael Wolgin

The case arose from an arbitration initiated under an employment agreement, after the chief operating officer of ACP Investment Group resigned. Addressing a provision in the agreement that required the COO’s forfeiture of only his unvested shares, the arbitrator determined that out of approximately 3 million shares that the COO had accrued, just over 2 million had vested. However, the arbitrator refused to value these shares or order their disposition because she believed that part of the dispute was outside the purview of the arbitration clause.

After the award, ACP sought clarification in a letter, asking the arbitrator whether the portions of the award addressing the vesting status of the COO’s shares were non-binding dicta, and arguing that the arbitrator’s determination was outside the jurisdiction of the American Arbitration Association. The arbitrator denied ACP’s request, reasoning that because the employment contract provided only for forfeiture of the COO’s unvested shares, she was acting within the scope of her authority by determining the vesting status of the shares.

ACP sought a temporary restraining order, which the court denied, and the COO moved to confirm the arbitration award. ACP argued that the arbitrator exceeded her scope, disregarded terms of the employment agreement, and that there were procedural irregularities during arbitration. The court dismissed ACP’s arguments, confirming the award, holding that the vesting determination was squarely within the scope of the arbitrator’s authority. The court also noted the great deference given by federal courts to arbitral panels, as well as the lack of any “abundantly clear” improper procedure at play. ACP Investment Group, LLC et al v. Blake, Case No. 15-CV-9364 (USDC S.D.N.Y. Oct. 13, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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NINTH CIRCUIT REVERSES CONFIRMATION OF ARBITRATION AWARD, REQUIRES EVIDENCE AS TO CONTRACT INTERPRETATION

November 7, 2016 by Michael Wolgin

The hotel management agreement (HMA) between hotel manager Four Seasons and hotel owner Burton Way provided that Four Seasons could not license any of the “Four Seasons Operational Benefits” within 14 miles of the Four Seasons Los Angeles, but provided an exception permitting Four Seasons to “manage or operate” the Regent Beverly Wilshire hotel. A dispute arose as to whether Four Seasons’ provision of Four Seasons Operational Benefits to the Regent Beverly Wilshire was permitted under the “manage or operate” exception. Both parties at arbitration presented extrinsic evidence as to the interpretation of the exception, and the panel made determinations as to the credibility of both interpretations.

On appeal of the district court’s order confirming the arbitration award, the Ninth Circuit reversed, holding that such fact-finding at summary judgment by the panel was legal error and required an evidentiary hearing. The court also reversed the confirmation of the panel’s determination of sanctions against Four Seasons for spoliation of evidence, remanding for purposes of re-determining the question of prejudice to Burton Way. The Ninth Circuit affirmed, however, on the issues of fiduciary duty and fraudulent inducement. On the issue of fiduciary duty, the court held that it was not legal error for the panel to conclude that negotiations between the two parties over the terms of their management agreement fell outside the scope of the principal-agent relationship. Regarding the inducement claim, the court held that it was not legal error for the panel to conclude that Burton Way waived its fraudulent inducement claim where, despite the fact that it included a clause reserving its claims, it signed a later agreement continuing the relationship. Burton Way Hotels, Ltd. V. Four Seasons Hotels Ltd., Case No. 14-56846 (9th Cir. Oct. 18, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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NEVADA FEDERAL COURT AFFIRMS ARBITRATION AWARD

November 2, 2016 by John Pitblado

The background of this case is as follows. Lift Equipment Certification Co., a heavy equipment manufacturer, was contracted by Lawrence Leasing Corp., a shipping company to redesign one of Lawrence’s cranes. The deal fell through, and the parties proceeded to arbitration. The arbitrator awarded both parties significant sums of money. However, plaintiff Lift believed that defendant Lawrence received too much in the arbitration award, and that it received too little. Thus, it moved in federal court in Nevada for the arbitration award to be vacated, and Lawrence cross-moved for the award to be confirmed.

The Nevada federal court noted that its review of arbitration awards is limited, and that plaintiff Lift faced a “heavy burden to prove by clear and convincing evidence that the arbitrator intentionally disregarded obvious legal principles” or that the decision is “utterly without support in the record.” The court then held that plaintiff Lift failed to prove by clear and convincing evidence that the arbitrator “manifestly disregarded the law” or that the award was “arbitrary and capricious.” Thus, the court denied Lift’s motion to vacate the arbitration award, and granted Lawrence’s cross motion to confirm the arbitration award. However, the court declined defendant Lawrence’s request for legal fees since plaintiff’s claims were “far from frivolous.”

Lift Equipment Certification Co., Inc. v. Lawrence Leasing Corp., No. 2:15-CV-01987-JAD-GWF (USDC D. Nev. Sept. 23, 2016)

This post written by Jeanne Kohler.

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THIRD CIRCUIT REJECTS CONTRACTOR’S CHALLENGE TO ARBITRAL JURISDICTION BASED ON FAILURE TO COMPLY WITH AGREEMENT’S PROCEDURAL REQUIREMENTS

October 24, 2016 by Rob DiUbaldo

The Third Circuit affirmed a lower court’s ruling against a contractor challenging an arbitrator’s authority in ordering payment of delinquent contributions to employee benefit funds. Plaintiff (“Nolt”) signed a Project Labor Agreement (“PLA”) for a construction project that required it to hire union employees, but permitted it to hire non-union employees in certain circumstances. The PLA also required Nolt to contribute to employee benefit funds “on behalf of all employees covered by” it. The PLA contained a provision with an exclusive grievance and arbitration procedure for disputes between the parties, which included certain pre-arbitration “meet and confer” requirements and time limits, the failure to comply with which rendered any grievances null and void.

In a dispute over whether Nolt was required to contribute to union employee benefit funds on behalf of its non-union employees, who would not benefit from the funds, an arbitrator interpreted the plain language of the PLA to require contributions for “all employees covered” by the PLA and ordered payment of $492,000 in delinquent contributions. Nolt moved to vacate the arbitration award on the grounds that the arbitrator lacked jurisdiction and that the award violated public policy and other relevant wage laws.

The Third Circuit, noting the limited role of courts in reviewing arbitration awards, affirmed the award based on a finding of arbitral jurisdiction and lack of sufficient conflict with a cognizable public policy. The court found that Nolt’s argument claiming the union failed to comply with the PLA’s procedural requirements was a question of “procedural arbitrability” that was appropriately left to the arbitrator, rather than one of “substantive arbitrability” that would be appropriate for judicial resolution. The court also rejected Nolt’s claim that the award conflicted with public policy by forcing it to essentially pay twice, first to the union employee benefit fund and second via its obligations under applicable wage laws. Nolt failed to identify any “explicit conflict with other ‘laws and legal precedents’,” and, instead, relied on a non-cognizable “general interest in fairness and equal treatment” between union and non-union employers. The court deferred to the arbitrator’s interpretation of the PLA as contract interpretation within his authority and affirmed despite recognizing Nolt’s persuasive arguments that the award forced Nolt to pay an unfair price for its non-union employees.

D.A. Nolt, Inc. v. Local Union No. 30 United Union of Roofers, Waterproofers & Allied Workers, No. 15-3697 (3d Cir. Sept. 23, 2016).

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

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