Confirmation / Vacation of Arbitration Awards

FEDERAL COURTS LACK JURISDICTION OVER ENFORCEMENT OF FOREIGN JUDGMENTS, EVEN WHERE JUDGMENT IS INCONSISTENT WITH EARLIER ARBITRATION AWARD OR AGREEMENT TO ARBITRATE

April 14, 2016 by Carlton Fields

Plaintiff Albaniabeg, power plant operator, sought enforcement of an Albanian judgment in a New York state court against defendant Italian power companies. Section 205 of the FAA permits removal of an action that relates to an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The defendants sought to remove the case to federal court, claiming that the action related to the original arbitration because the Albanian judgment was obtained in violation of the parties’ arbitration clause and award. Albaniabeg moved to remand to state court due to lack of federal subject matter jurisdiction. The court held that removal was improper because the issue was unrelated to the arbitration agreement or the arbitral award; rather, the issue related to enforcement of a foreign judgment. The court held that, while certain defenses to the award may involve claims relating to the prior arbitration, the Convention does not provide subject matter jurisdiction over actions to enforce a foreign court’s judgment, even where a party contends that the foreign court’s judgment is inconsistent with an earlier arbitration award or agreement to arbitrate. Albaniabeg Ambient Sh.p.k. v. Enel S.P.A., Case No. 15 Civ. 3283 (USDC S.D.N.Y. Mar. 11, 2016).

This post written by Joshua S. Wirth.

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FEDERAL COURT CONFIRMS REINSURANCE ARBITRATION AWARD, FINDING THAT PANEL’S ALLEGED CALCULATION ERROR DID NOT JUSTIFY MODIFICATION OF THE AWARD

March 31, 2016 by Carlton Fields

A federal court recently granted a reinsurer’s motion to confirm an arbitration award, and denied a cedent’s petition to modify the same, holding that the panel’s alleged error in computing the amount due to the cedent was not apparent from the face of the award, and thus subject to the highly deferential review of review provided by the Federal Arbitration Act. Scottsdale Insurance Company sought indemnification from its reinsurers for an underlying settlement of a consolidated class action brought against its insured. Scottsdale allocated the settlement payment equally between two insurance policies implicated by the underlying suit, and billed its reinsurers on the grounds that there were ten “occurrences” under each policy. One of the reinsurers, John Deere Insurance Company, disputed the amount of Scottsdale’s settlement and its allocation methodology. The operative reinsurance agreements contained an arbitration provision, and thus the parties resolved their dispute before a three-person arbitration panel of insurance and reinsurance professionals. After a three-day hearing and post-arbitration briefing, the panel issued a final award that required John Deere to pay certain sums based on an “adjusted settlement amount” for “reinsurance billing purposes.” John Deere complied with the award.

Thereafter, Scottsdale commenced an action in the United States District Court for the District of Arizona seeking an order to modify or correct the panel’s award, on the grounds that the award contained a computational error. John Deere cross-moved to confirm. The Federal Arbitration Act, and not Arizona law, governed judicial review of the award, because the relevant provisions in the reinsurance agreements at issue provided that Arizona law only applied to the arbitration process, and not to judicial proceedings to challenge or confirm the award. Applying the federal standard, the court held the panel’s alleged calculation error was not apparent from the face of the award, and thus should not be disrupted, given the highly deferential review afforded by federal law. The court further noted that the panel was not obligated to detail its computational reasoning in the award, nor was it appropriate for the court to second-guess the panel’s legal conclusions or factual findings, even if erroneous. Accordingly, John Deere’s cross-motion to confirm was granted and Scottsdale’s Petition to Modify or Correct denied. Scottsdale Insurance Co. v. John Deere Insurance Co., No. 15-cv-00671 (USDC D. Ariz. Feb. 17, 2016).

This post written by Rob DiUbaldo.

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NEW YORK FEDERAL COURT ADDRESSES UMPIRE’S “PRE-SELECTION” DISCLOSURE OBLIGATIONS IN REINSURANCE DISPUTE

March 29, 2016 by Carlton Fields

In a dispute arising out of a series of contentious reinsurance arbitrations over a seven-year period between National Indemnity Company (“NICO”) and IRB Brasil Ressegurous S.A., the court confirmed three awards issued by an arbitration panel in NICO’s favor. IRB had sought coverage for a significant property and business interruption loss under a retrocessional reinsurance contract entered into with NICO. A dispute arose concerning NICO’s indemnification obligations for the loss, which was submitted to arbitration before a three-person panel. Other issues between the parties, including whether NICO was entitled to keep certain premium paid under another retrocessional agreement between the parties, and its request for attorneys’ fees and costs, were also submitted to the panel. Ultimately, the panel issued three awards in NICO’s favor.

Each party sought confirmation and vacatur of the awards through various lawsuits filed in federal court, which were consolidated. One of the primary bases upon which IRB sought vacatur was that the umpire failed to disclose his appointment as party-arbitrator for an entity that was an alleged affiliate of NICO in a separate dispute during the period of time between his nomination as umpire (after his umpire questionnaire was completed) and his eventual appointment some two-years later. For this reason, IRB asserted that the umpire demonstrated evident partiality towards NICO, requiring vacatur of the awards under the Federal Arbitration Act. The court disagreed with IRB, finding that the umpire had no obligation to disclose the appointment during the period after he completed the umpire questionnaire, while he was up for consideration, and that the umpire’s voluntary disclosure post-selection (and decision not to withdraw) was sufficient. Further, the court noted that there was no case law supporting the notion that an arbitrator’s disclosure after being selected as umpire, instead of during the period in which his nomination was pending, constituted sufficient grounds to vacate an arbitration award. Notably, the decision cited to the ARIAS-US Code of Conduct in analyzing the umpire’s conduct, finding that he acted in accordance with the Code in addressing the situation. National Indemnity Co. v. IRB Brasil Ressegurous S.A., No. 15-cv-3975 (USDC S.D.N.Y. Mar. 10, 2016).

This post written by Rob DiUbaldo.

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SECOND CIRCUIT AFFIRMS THE CONFIRMATION OF AN ARBITRATION AWARD, FINDING NO MANIFEST DISREGARD OF THE LAW

March 24, 2016 by Carlton Fields

The appellant argued that the arbitrator failed to weigh evidence properly when it made a finding of fact with respect to the passing of title. The Second Circuit rejected this as a basis of overturning an award based “manifest disregard of the law,” holding that the Second Circuit “does not recognize manifest disregard of the evidence as proper ground for vacating an arbitrator’s award.” The court then ruled out any other basis to find a manifest disregard of the law, and affirmed the lower court’s confirmation of the arbitral award. ISMT, Ltd. v. Fremak Indus., Inc., Case No. 15-2086 (2d Cir. Feb. 24, 2016).

This post written by Zach Ludens.

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NINTH CIRCUIT REVERSES DISTRICT COURT’S ORDER VACATING ARBITRATION AWARD BASED ON EVIDENT PARTIALITY

March 16, 2016 by John Pitblado

This appeal is from an order from a district court in California, vacating an arbitration award against Masimo Corporation in favor of two former employees for $5.3 million because the court found that the arbitrator exhibited “evident partiality” because his brother litigated cases against Masimo. The employees appealed to the Ninth Circuit, which reversed the district court’s ruling, finding that Masimo provided “no coherent explanation” as to how the arbitrator’s brother’s litigation practice “would cause a person to doubt [the arbitrator’s] impartiality” and that Masimo failed to establish facts indicating actual bias. Although the Ninth Circuit found that the arbitrator committed an error in applying the wrong law as to punitive damages, it found that it did not rise to the level of affirmative misconduct. Finally, finding that Masimo’s remaining challenges to the award were unavailing, the Court noted that the arbitrator’s findings, even if erroneous, did not “exceed his powers” or rise to the level of manifest disregard of the law. Thus, the Ninth Circuit remanded to the district court to issue an order confirming the award in its entirety.

Ruhe, et al. v. Masimo Corporation, Nos. 14-55556 and 14-55725 (9th Cir. Feb. 19, 2016).

This post written by Jeanne Kohler.

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