Confirmation / Vacation of Arbitration Awards

MISSISSIPPI FEDERAL COURT DECISION SHOWS DEGREE OF BURDEN TO CHALLENGE ARBITRATION AWARD

March 9, 2016 by Carlton Fields

A decision of a Mississippi federal district court illustrates the weighty burden that a party must carry in order to vacate an arbitration award. The dispute was over an executive terminated from a company and whether his termination was with or without cause. The arbitrator found that it was done without cause and awarded the executive nearly $600,000. The terminating company moved to vacate based on seven arguments, including that the arbitrator shifted the burden from the employee to the company, that the arbitrator awarded a lump-sum damage award not contemplated by the agreement, that the arbitrator erred in awarding pre- and post-judgment interest, and that the arbitrator exceeded his authority by awarding benefits in excess of the amounts sought in the filings. The terminated employee cross-moved for sanctions.

The court suggested that, although the terminating company may have had a point in its argument, the arbitrator miscalculated the damages, “the arbitration provision did not limit the arbitrator’s authority with respect to damages, other than to forbid him from awarding punitive damages.” It may have been that the arbitrator misconstrued the contract or the law, but the terminating company did not meet its burden of showing an unambiguous and undisputed mistake of fact. The court also analyzed whether sanctions were warranted, finding no evidence of bad faith. However, the court cautioned, “the bases for vacating an arbitration award are narrowly prescribed and motions to vacate should therefore be employed sparingly.” U-Save Auto Rental of America, Inc. v. Barton, Case No. 3:15-cv-00348 (USDC S.D. Miss. Feb. 12, 2016).

This post written by Zach Ludens.

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SECOND CIRCUIT FINDS PANEL DID NOT COMMIT A “MANIFEST DISREGARD OF THE LAW” AND DENIES VACATUR OF ARBITRATION AWARD

March 1, 2016 by Carlton Fields

The appellee, Sutherland Global Services, a call center support service provider, invoked the arbitration clause contained in its Master Service Agreement with the appellant, Adam Technologies, after Adam reportedly failed to pay for call center services rendered under the contract. The arbitration resulted in an award for Sutherland, which the district court confirmed. Adam appealed this ruling, contending that the arbitrators exceeded their authority and manifestly disregarded the terms of the contract. The Second Circuit found that Adam’s attempts to demonstrate errors committed by the panel were nothing more than attacks on “an arbitrator’s factual findings and contractual interpretation” which “generally are not subject to judicial challenge.” To the extent Adam argued that the panel overlooked certain provisions in the MSA limiting damages, the court held that the FAA “does not permit vacatur for legal errors.” Finally, with respect to Adam’s argument that the panel was improperly constituted, the court held that this contention was previously rejected by an earlier proceeding before the Fifth Circuit, and therefore barred by the doctrine of issue preclusion. Sutherland Glob. Servs. Inc. v. Adam Techs. Int’l SA de C.V., Case No. 15-1063-cv (2d Cir. Feb. 9, 2016).

This post written by Joshua S. Wirth.

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COURT DENIES MOTION TO VACATE ARBITRATION AWARD, FINDING ARBITRATION APPEALS PROCESS WAS VALID, AND THAT PANELS’ RULINGS DID NOT MANIFESTLY DISREGARD LAW

February 19, 2016 by John Pitblado

Plaintiffs used a hay treatment product manufactured and sold by Cargill, Inc. A dispute arose between them concerning whether Cargill’s product caused serious injury to one of the plaintiffs. After protracted litigation concerning the arbitrability of the dispute, it was referred to arbitration before the National Grain and Feed Association (“NGFA”). The panel found in Cargill’s favor and plaintiffs appealed under the NGFA Arbitration Rules, challenging the arbitrators’ qualifications, evidentiary rulings, and other aspects of their decisionmaking. The NGFA Appeals Committee affirmed the decision and award issued by the original panel.

Plaintiffs brought an action to vacate the award. In support of its application, plaintiffs argued, among other things, that the arbitrators were biased in Cargill’s favor, that the arbitrators were not qualified to hear the dispute, that the structure of the NGFA arbitral process was flawed, and that both panels’ decisions were erroneous as a matter of law. The court denied plaintiff’s motion to vacate and granted Cargill’s cross-motion to confirm because: (a) plaintiffs had waived their right to challenge the arbitrators’ qualifications or the NGFA process by not raising these issues until after the proceedings; (b) Cargill’s involvement in NGFA’s annual convention, as well as the amount of membership dues it paid to the NGFA, did not evidence bias; (c) the panels’ failure to issue their decisions within the time period referenced by certain NGFA Arbitration Rules did not warrant vacatur, particularly since certain delays were attributable to plaintiffs; and (d) the panels’ evidentiary and legal rulings did not amount to manifest disregard of the law, as such rulings did not ignore binding precedent. Van Buren v. Cargill, Inc., No. 1:10-cv-00701 (USDC W.D.N.Y. Jan. 19, 2016).

This post written by Rob DiUbaldo.

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SECOND CIRCUIT REVERSES AWARD OF ATTORNEYS’ FEES FOR CONFIRMATION OF ARBITRAL AWARD

February 18, 2016 by Carlton Fields

The Second Circuit reversed a lower court’s decision granting attorneys’ fees for the cost of confirming an arbitration award. The dispute arose out of a shipping contract for overseas shipping of acrylonitrile, and the defendant in arbitration prevailed. Following arbitration, the district court awarded the prevailing party its fees in seeking to confirm the arbitration award under a provision in the charter agreement awarding fees for a breach of contract. The Second Circuit reversed, finding first that there was no breach of the agreement by the party losing in arbitration. Further, there could be no breach of the agreement by resisting the arbitral award’s confirmation—and even if there was—such a provision would be unenforceable. By agreeing to arbitrate, the parties “also consented to confirmation of the arbitral award in any court of competent jurisdiction,” which the court found to be an effective incorporation of the Federal Arbitration Act into the contract. The Second Circuit went further, however, in holding that any agreement purporting to limit the ability to challenge an arbitration award would be unenforceable because it would “divest the courts of their statutory and common-law authority to review both the substance of the awards and the arbitral process for compliance with § 10(a) and the manifest disregard standard.” Zurich American Insurance Co. v. Team Tankers A.S., No. 14-4036-cv (2d Cir. Jan. 28, 2016).

This post written by Zach Ludens.

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COURT DENIES MOTION TO STAY FURTHER REINSURANCE ARBITRATION PENDING APPEAL CONCERNING INITIAL ARBITRATION

February 16, 2016 by Carlton Fields

At the end of January, the United States District Court for the Eastern District of Michigan denied a motion to stay arbitration pending appeal. The case involves a reinsurance dispute between National Union Fire Insurance Company of Pittsburgh and members of the Meadowbrook Insurance Group. Following an initial arbitration, National Union moved to confirm the award. The court confirmed in part but vacated the portion of the arbitration award dealing with prejudgment interest. As a result, the court ordered the parties to arbitrate the issue of prejudgment interest. Both parties appealed, and National Union filed a motion to amend the judgment and a motion to stay the subsequent arbitration pending appeal.

According to National Union, the parties had already arbitrated the amount and interest in the first arbitration and the district court should have confirmed, vacated, or modified the awards—rather than submitting that question to a new arbitration—which National Union is appealing to the Sixth Circuit. However, the district court noted that the arbitration panel found in favor of National Union “in part because Meadowbrook failed to produce documentation” that would allow it to compute damages and prejudgment interest. Therefore, the district court reasoned, this issue had not already been arbitrated, and National Union was unlikely to succeed on the merits of its appeal. For this reason, among others, the court denied both National Union’s motion to amend the judgment and a motion to stay the subsequent arbitration pending appeal. Star Insurance Co. v. National Union Insurance Co. of Pittsburgh, Case No. 14-12915 (E.D. Mich. Jan. 27, 2016).

This post written by Zach Ludens.

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