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Confirmation / Vacation of Arbitration Awards

ALABAMA SUPREME COURT REVERSES ARBITRATION AWARD WHERE ARBITER FAILED TO MAKE REQUIRED DISCLOSURES

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In a case involving a dispute between a not-for-profit corporation administering a self-insured group workers’ compensation fund and their investment advisor and broker-dealer, the Supreme Court of Alabama granted the fund’s motion to vacate an arbitration award in the advisors’ favor. The arbitration was conducted pursuant to FINRA’s rules for arbitration proceedings, which call for the selection of a three-arbitrator panel. However, because the court found that one of the arbiters failed to disclose a potential conflict of interest prior to his selection, it reversed the panel’s award. The arbiter was a vice president and partner in a financial-services firm that had served as a co-underwriter with the advisors on 36 equity and debt issuances, had been codefendants with the advisors in a number of lawsuits, was represented by the same counsel as the advisors, and had involvement with the investment product alleged in this lawsuit. This was enough to constitute a “reasonable impression of partiality” even though the arbiter claimed that he did not know about this relationship on behalf of his firm. Applying the constructive knowledge doctrine, the court found that there was “evident partiality” on the part of the arbiter and reversed the arbitration award under the Federal Arbitration Act. The lower court had refused to disturb the award, necessitating the lower court’s reversal as well. Municipal Workers Compensation Fund, Inc. v. Morgan Keegan & Co., No. 1120532 (Ala. Apr. 3, 2015).

This post written by Zach Ludens.

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COURT AFFIRMS ARBITRATION PANEL’S $14 MILLION AWARD IN FAVOR OF INSURED IN REINSURANCE DISPUTE OVER ASBESTOS CLAIMS

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A federal district court has confirmed a $14 million arbitration award entered in favor of Amerisure against its reinsurer Everest. As we earlier reported, the court had previously denied the motion to seal briefing associated with Amerisure’s motion to confirm the award. Now at issue was the confirmation, modification, or vacatur of the award, which directed Everest to indemnify Amerisure for its share of asbestos losses that fell within the parties’ reinsurance treaties. Everest moved to vacate the award on several grounds, including an arbitrator’s “evident partiality” in the proceedings and the panel’s allegedly erroneous procedural and evidentiary rulings. At the core of the reinsurance dispute was whether Amerisure could aggregate individual asbestos losses into a single occurrence in order to exceed the applicable retention and thereby qualify for indemnification under the reinsurance treaties. The panel held that Amerisure could aggregate the losses by relying, in part, on what it found to be the “commonly accepted” business of treating multiple asbestos losses as a single occurrence. The panel rejected the argument that Amerisure’s claim was precluded or undercut by the fact that the underlying claims were settled as individual losses and further discounted the expert opinion testimony offered by Everest as unpersuasive. The district court, in turn, affirmed the award, rejecting all arguments of partiality or erroneous rulings. While Everest had established the panel exceeded its powers in one respect, it did not find that warranted vacatur or modification of the award. Amerisure Mutual Insurance Co. v. Everest Reinsurance Co., Case No. 14-cv-13060 (USDC E.D. Mich. Mar. 18, 2015).

This post written by Renee Schimkat.

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ARBITRATION AWARD CONFIRMED IN QUOTA SHARE REINSURANCE DISPUTE

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An arbitration award to Petitioner, Employers Insurance of Wausau A Mural Company (“Wausau”), has been confirmed after Respondents withdrew their prior objections.  The dispute arose over payment obligations stemming from a Quota Share reinsurance agreement between the Respondents, Nutmeg Insurance Company and Twin City Fire Insurance Company (“Nutmeg/Twin”), and Wausau. The dispute went to arbitration where a panel, finding in favor of Wausau, directed Nutmeg/Twin to provide documentation relating to the claim of loss— including proof of payment and a narrative on the appropriateness of a loss settlement award.

Nutmeg/Twin subsequently objected to Wausau’s petition to confirm the award on jurisdictional grounds for “non-final issues,” specifically the parties’ obligations under various remaining claims. Wausau argued that Nutmeg/Twin’s objections were moot as the parties’ obligations had been performed. The court, however, did not need to resolve this question as Nutmeg/Twin withdrew their arbitration award objections as part of a settlement arrangement.  Employers Insurance of Wausau v. Nutmeg Insurance Company, Case No. 14-CV-9284 (USDC S.D.N.Y. Mar. 10, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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FIRST CIRCUIT REINSTATES ARBITRAL AWARD DESPITE ARBITRATION PANEL’S POTENTIALLY ERRONEOUS CONCLUSIONS

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The First Circuit Court of Appeals recently reversed the district court’s vacatur ruling and remanded the matter for entry of an order confirming an arbitration award. While the First Circuit found that several of the arbitration panel’s holdings may have been erroneous, the court held that “even serious error” by arbitrators will not invalidate an award and, further, “any error by the panel . . . does not rise to the level necessary to justify vacatur.”  Plaintiff Robert Fenyk filed a complaint in Vermont state court alleging Raymond James Financial Services (RJFS) fired him because of his sexual orientation and his status as a recovering alcoholic in violation of Vermont employment laws. RJFS countered that Fenyk should not be afforded the protections of Vermont employment law because Fenyk was not an employee. RJFS also moved to compel arbitration pursuant to a previously signed agreement between the parties. Fenyk dismissed the suit and submitted his claims to arbitration.

In arbitration, Fenyk sought to amend his proceeding to bring additional claims under federal, New York, and Florida law. The arbitral panel denied Fenyk’s motion to amend but did award him $600,000 in back pay and $36,042.03 in attorney’s fees and costs. RJFS challenged the award in the district court, arguing that the arbitration panel had misapplied Florida law, the state where Raymond James is based. RJFS further argued that Fenyk’s claims were made beyond the one-year statute of limitations for civil rights cases, and therefore barred. The district court agreed with these positions and vacated Fenyk’s previous award, finding that the arbitrators had exceeded their authority.

A panel of three First Circuit judges unanimously reversed, remanding for the entry of an order confirming the arbitration award.  The Court held that although there was uncertainty as to whether the arbitrators had correctly applied applicable law, even “serious error” of law is not a basis for invalidating an arbitration award, and the uncertainty did not establish that they had exceeded their authority under the arbitration provision.   Raymond James Fin. Servs., Inc. v. Fenyk, 780 F.3d 59 (1st Cir. 2015) (No. 14-1252).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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