Confirmation / Vacation of Arbitration Awards

FEDERAL CIRCUIT ENFORCES ARBITRATION AWARD, REJECTS FOREIGN SOVEREIGN’S IMMUNITY CHALLENGE

September 24, 2015 by Carlton Fields

In 1973, Chevron and Ecuador signed an agreement allowing Chevron to develop oil fields in Ecuador. Years later, litigation ensued and eventually Chevron commenced an arbitration action before a tribunal in the Hague. Ecuador objected to the arbitral tribunal’s jurisdiction. The tribunal rejected the jurisdictional challenge and ultimately awarded Chevron $96 million. After appeals in the Dutch courts, Chevron sought to confirm the award in a federal district court under the New York Convention. Ecuador challenged the court’s jurisdiction under the Foreign Sovereign Immunities Act (“FSIA”), lost and appealed.

The main issue before the Federal Circuit Court was whether the district court had subject-matter jurisdiction under the FSIA. Resolution of that issue turned, in great part, the arbitration provision contained in the U.S.-Ecuador Bilateral Investment Treaty (“BIT”) pursuant to which Chevron initiated the arbitration. The appellate court rejected Ecuador’s argument that Ecuador’s offer in the BIT to arbitrate certain types of disputes was not an agreement to arbitrate the Chevron dispute. The court found that BIT included a “standing offer to all potential U.S. investors to arbitrate investment disputes” and that Chevron properly accepted that offer. Thus, the court concluded, the FSIA allowed the district court to exercise jurisdiction over Ecuador to consider an action to confirm or enforce the arbitral award.

The appellate court noted that the FSIA required Chevron to make a prima facie showing that there was an agreement to arbitrate. Once Chevron met that burden, the burden shifted to Ecuador to demonstrate that the notice to arbitrate in the BIT did not constitute a valid arbitration agreement. Resolution of this question was critical, the appellate court noted, to the district court’s jurisdictional analysis: “The statute requires the District Court to satisfy itself that the party challenging immunity has presented prima facie evidence of an agreement between the parties and that the sovereign asserting immunity has failed to sufficiently rebut that evidence.” The district court had failed to make that determination, which might have been reversible error. However, the appellate court found that because the district court had separately determined that there was a valid agreement to arbitrate, there was no need to remand. Chevron Corp. v. Republic of Ecuador, No. 13-7103 (D.C. Cir. Aug. 4, 2015).

This post written by John A. Camp.

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ACTION TO VACATE ARBITRAL AWARD DISMISSED FOR LACK OF SUBJECT-MATTER JURISDICTION

September 22, 2015 by Carlton Fields

A disappointed claimant in a FINRA arbitration filed suit under section 10 of the Federal Arbitration Act (“FAA”) in United States District Court to vacate the arbitral award. The court dismissed the case for lack of subject-matter jurisdiction. The court noted the well established principle that the FAA is not itself a source of subject-matter jurisdiction. Stating that the parties were not diverse, the court proceeded to evaluate whether it could exercise subject-matter jurisdiction based upon the existence of a federal question. The plaintiff proposed two bases for federal question jurisdiction: (1) the failure of its opponent to produce certain documents, which it argued constituted a violation of FINRA rules, or a disregard by the panel of FINRA rules; and (2) the fact that the claims pursued in the arbitration included claims under federal securities laws and SEC regulations. The court rejected both contentions, finding with respect to the first issue that many courts have held that “manifest disregard” of FINRA or NASD rules do not constitute manifest disregard of federal law for purposes of the FAA. With respect to the second contention, the court followed a Second Circuit opinion which held that a court may not “look through” the petition to the claims in the underlying arbitration for a basis for subject-matter jurisdiction. The court rejected the argument that jurisdiction was supported by Vaden v. Discover Bank, 556 U.S. 49 (2009), which held that, with respect to petitions to compel arbitration under section 4 of the FAA, courts may look through the petition to determine whether it is predicated on an action that “arises under” federal law. Citing textual differences between sections 4 and 10 of the FAA, the court held that Vaden did not provide support for looking through the petition for purposes of evaluating whether the court had subject-matter jurisdiction over an action predicted on section 10 of the FAA. Doscher v. Sea Port Group Securities, LLC, Case No. 15-cv-384 (USDC S.D.N.Y. August 5, 2015).

This post written by Rollie Goss.

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FOURTH CIRCUIT APPLIES “LIMITED REVIEW” OF CLASS ARBITRATION AWARD AND FINDS NO MANIFEST DISREGARD OF THE LAW

August 25, 2015 by Carlton Fields

The Fourth Circuit considered whether an arbitrator manifestly disregarded the law by failing to find actual damages and failing to award sufficient attorney’s fees against certain non-profit credit repair companies, despite the arbitrator’s finding that the companies had made inadequate disclosures under the Credit Repair Organizations Act (CROA). Regarding damages, the arbitrator had determined that plaintiffs were not entitled to “amount[s] paid” under the CROA as damages, because plaintiffs made “voluntary contributions” to the non-profit credit repair organizations, rather than actual payments contemplated within the meaning of the CROA. The Fourth Circuit held that, given the absence of binding precedent requiring a contrary interpretation of the CROA, the arbitrator’s ruling “did not constitute a refusal to heed a clearly defined legal principle.” The court further noted that it was not for it “to pass judgment on the strength of the arbitrator’s chosen rationale.” Similarly, with respect to the arbitrator’s ruling on attorney’s fees, the Fourth Circuit held that while “it may be debatable whether the arbitrator performed [the] task ‘well,’ the record in this case shows that the arbitrator undertook a careful analysis of the applicable legal principles and reached a decision supported by his interpretation of our precedent.” In reaching its decision, the Fourth Circuit considered certain U.S. Supreme Court rulings in making clear that the “limited review” of an arbitration award is appropriate even when “the arbitrator considered remedies created by statute, rather than rights established by contract.” Jones, et al. v. Dancel, et al., Case No. 14-2160 (4th Cir. July 6, 2015).

This post written by Michael Wolgin.

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SECOND CIRCUIT UPHOLDS ARBITRATION AGREEMENT ABSENT EMPLOYEE’S SIGNATURE

August 14, 2015 by Carlton Fields

The United States Court of Appeals for the Second Circuit issued a summary order affirming a decision by the district court for the district of Connecticut compelling arbitration pursuant to an employee handbook’s mandatory arbitration provision. Reviewing de novo, the court upheld the lower court’s order compelling arbitration based on its finding that (1) plaintiff’s employment had been at-will since its inception and (2) her continued employment after the amendment of defendants’ employee handbook, which included the mandatory arbitration requirement, equated to an acceptance of the new terms. The court noted that in Connecticut, the terms of employment may be determined even in the absence of an express written agreement. Focusing on whether plaintiff validly accepted the modification to her original unilateral employment contract, which at the time of hiring did not contain a mandatory arbitration requirement, the court answered in the affirmative. The fact that plaintiff continued to work for defendants for approximately 15 years following the arbitration amendment to the employee handbook, coupled with the fact that defendants produced evidence that plaintiff electronically accepted the modified employee handbook several times after it was amended, together demonstrated plaintiff’s consent to the added arbitration provision. McAllister v. East, No. 11-4696 (2d Cir. May 5, 2015).

This post written by Brian Perryman.

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MASSACHUSETTS FEDERAL COURT UPHOLDS ARBITRATION AWARD BASED ON EQUITABLE POWERS

August 12, 2015 by Carlton Fields

A recent case out of the District of Massachusetts reviewing an arbitration award against Ace American Insurance Company (“Ace”) found that an arbitrator did not exceed her power in crafting an arbitration award when she relied almost exclusively on her equitable powers under the arbitration provision. In the underlying dispute, Ace had insured a thirteen year old boat, which sank following severe weather. Ace denied coverage claiming that such an incident would fall under the wear and tear provision of the coverage. However, the arbitrator disagreed, finding that “if the ‘wear and tear’ exclusion were enforceable in this case, Ace would comfortably insure boats beyond a certain age without an expectation of ever having to pay” and that allowing Ace to deny coverage would violate Massachusetts Chapter 93A. Where the arbitration provision gave the arbiter authority to resolve “any controversy or claim based in any legal or equitable theory,” the District Court found that the arbiter was well within her powers in making this finding, thereby making a vacation of this arbitration award unwarranted.

Ace American Ins. Co. v. Puccio, Case No. 15-cv-10262-IT (USDC D. Mass. June 4, 2015).

This post written by Zach Ludens.

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