Confirmation / Vacation of Arbitration Awards

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.

See our disclaimer.

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.

See our disclaimer.

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.

See our disclaimer.

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.

See our disclaimer.

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.

See our disclaimer.