Confirmation / Vacation of Arbitration Awards

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.

See our disclaimer.

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.

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.

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.