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Confirmation / Vacation of Arbitration Awards

SECOND CIRCUIT COURT OF APPEALS ALLOWS FEDERAL COURTS TO “LOOK THROUGH” § 10 FAA PETITION TO DETERMINE FEDERAL JURISDICTION

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The United States Court of Appeals for the Second Circuit has reversed its own precedent to allow federal courts examining petitions under § 10 of the FAA to “look through” the petition to examine if there is federal jurisdiction. In the case, which arose out of a dispute involving registered FINRA members and their former employees, the district court dismissed the case for want of jurisdiction, finding that it did not state a “substantial federal question on its face.” On appeal, the petitioner argued that the Second Circuit’s precedent in Greenberg v. Bear, Stearns & Co., 220 F.3d 22 (2d Cir. 2000), which led the district court to its determination, had been displaced by Vaden v. Discovery Bank, 556 U.S. 49 (2009). The Second Circuit panel held that Vaden “rendered Greenberg’s result fundamentally inconsistent with the Act’s statutory context and judicial interpretations.” Thus, the Second Circuit returned the case to the district court with instructions that it could “look through” the § 10 petition, “applying the ordinary principles of federal-question jurisdiction to the underlying dispute as defined by Vaden.” Doscher v. Sea Port Group Securities, LLC, No. 15-2814 (2d Cir. Aug. 11, 2016).

This post written by Zach Ludens.

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EX PARTE COMMUNICATIONS BETWEEN REINSURER’S ATTORNEY AND PARTY-APPOINTED ARBITRATOR LEAD TO VACATUR OF AWARD

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The Sixth Circuit recently held that a lower court erred by refusing to vacate an arbitration panel’s interim and final awards due to ex parte communications between one of the arbitrators and the attorney for the appellee, reinsurer National Union Fire Insurance Company of Pittsburgh (NUFIC). The appellant, cedent Meadowbrook Insurance Group (Meadowbrook), and NUFIC entered into a reinsurance agreement containing an arbitration provision. When NUFIC asserted that Meadowbrook overbilled its reinsurance claims, the parties instituted an arbitration in front of a three person panel, including two party-appointed arbitrators and a neutral umpire. The parties agreed to scheduling orders that instituted a ban on all ex parte communications after the filing of the first brief in any arbitration. After the date of filing, the attorney for NUFIC and the arbitrator that had been selected by NUFIC commenced ex parte communications on three different occasions. The Sixth Circuit, upon review, found that while such ex parte communications did not void an award per se, the communications could void an award if they violated the terms of the arbitration agreement. The Sixth Circuit found here that the ex parte communications violated the scheduling orders and also prejudiced Meadowbrook’s rights under the arbitration agreement. The Sixth Circuit therefore vacated both awards. Star Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, Pa., Case Nos. 15-1403/1490 (6th Cir. Aug. 18, 2016).

This post written by Joshua S. Wirth.

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FEDERAL COURT CONFIRMS ARBITRATION AWARD DESPITE DISSENTING ARBITRATOR’S “FAR MORE PERSUASIVE” ANALYSIS

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Although a New York federal district court would have found the same result as the dissenting arbitrator if it were resolving this case as an original matter, the limited scope of judicial review of arbitral decisions prevented the court from vacating the arbitration award. The petitioner and respondent were parties to a license agreement concerning the operation of a Benihana restaurant. The respondent allegedly committed various breaches of the license agreement, and petitioner exercised its option to terminate the agreement. The respondent commenced arbitration to declare it was not in default. The panel construed the license agreement “to permit termination only when reasonable,” finding the petitioner was not reasonable as respondent’s breaches were “trivial” and it had taken corrective measures to cure them. A dissenting arbitrator concluded that the petitioner had been justified as a result of the numerous material breaches by the respondent, as New York law holds “a non-breaching party may terminate a contract where the other party committed a material breach” – precisely what occurred here.

The court was unable to review the panel’s findings of fact, even for manifest disregard, nor can a claim of factual error support vacatur. As to the petitioner’s challenge that principles of equity were not properly considered, it fell “short of showing either that the panel ‘ignored’ these principles where their application was clear, or that this misapplication ‘led to an erroneous outcome.’” Nor did the court find the panel exceeded its authority by construing the license agreement as it did, as the license agreement did not define “reasonableness,” a term the arbitration panel was left to determine. As to the petitioner’s last challenge – that the panel refused to hear evidence by rejecting the petitioner’s request to submit a decision in a separate case between the parties relating to similar misconduct of the respondent – such conduct did not rise to the level of a violation of fundamental fairness. Benihana, Inc. v. Benihana of Tokyo, LLC, Case No. 15 Civ. 7428 (USDC S.D.N.Y. July 15, 2016).

This post written by Nora A. Valenza-Frost.

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FIFTH CIRCUIT CONFIRMS AWARD UNDER FEDERAL ARBITRATION ACT’S “EXCEEDINGLY DEFERENTIAL” STANDARD

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The United States Court of Appeals for the Fifth Circuit recently confirmed an arbitration award in an underlying employment dispute, finding that the appellant failed to demonstrate that the award was the product of corruption and adhering to the “exceedingly deferential” standard of review of an arbitrator’s factual findings required by the Federal Arbitration Act.

Plaintiff Tommy L. Parker brought suit against his former employer, ETB Management, L.L.C., alleging age discrimination and retaliation. The United States District Court for the Northern District of Texas compelled arbitration of the dispute, and an arbitrator found in ETB’s favor after hearing witness testimony and analyzing documentary evidence and briefing. After the District Court confirmed the award, Parker appealed seeking vacatur under the FAA on the grounds that the award was “procured by corruption” and that the arbitrator acted with “evidence of partiality or corruption.” Specifically, Parker argued that the arbitrator ignored conflicting statements given by ETB’s witnesses regarding the events that immediately preceded Parker’s firing, and thus that there was no factual basis to support the arbitrator’s findings. The Fifth Circuit rejected Parker’s arguments, declining to reexamine the witness credibility determinations of the arbitrator pursuant to the deferential standard of review afforded to arbitral decisions under the FAA, and noting that Parker had failed to make any showing that the arbitrator or the process was corrupt. Parker v. ETB Management L.L.C., No. 15-11128 (5th Cir. Aug. 4, 2016).

This post written by Rob DiUbaldo.

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COURT CONFIRMS INTERIM AWARD OF INJUNCTIVE RELIEF BUT REFUSES TO CONFIRM NON-FINAL OPINION OF ARBITRATOR THAT ARBITRATION WAS BINDING

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In a real estate broker commission dispute, the arbitrator had granted injunctive relief in favor of the plaintiff broker, ordering a percentage of the sale of certain real estate to be placed in an escrow account pending the outcome of the arbitration. The arbitrator had also suggested in an email to the parties, his belief that the arbitration proceeding was binding. The plaintiff then sought to confirm these two “awards.” Regarding the award of injunctive relief, the defendants contended that the arbitrator committed a manifest disregard of the law by misconstruing the legal standard for entry of an injunction. The court, however, confirmed the injunction award, finding that there was no record of the basis for the arbitrator’s injunction, and therefore the court could find no manifest disregard of the law. Regarding the arbitrator’s email stating that the arbitration would be binding, the court refused to confirm, holding that there were no formal orders or opinions memorializing that ruling. Bowers v. Northern Two Cayes Co. Ltd. Lighthouse Reef Resort Ltd., Case No. 1:15-cv-00029-MR-DLH (USDC W.D.N.C. July 7, 2016).

This post written by Joshua S. Wirth.

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