Confirmation / Vacation of Arbitration Awards

COURT ADDRESSES HONORABLE ENGAGEMENT PROVISION IN ARBITRATION CLAUSE

April 14, 2015 by Carlton Fields

In First State Insurance Company v. National Cas. Co., 2015 WL 1263147, No. 14-1644 (1st Cir. March 20, 2015), the U.S. Court of Appeals for the 1st Circuit (the “Court of Appeals”) affirmed the lower court’s refusal to vacate an arbitration award involving contract interpretation and addressed the operation and effect of an “honorable engagement provision” in an arbitration clause.

In this case, the Appellant/Reinsurer sought to vacate a contract interpretation award involving eight reinsurance and retrocessional agreements because the arbitrators exceeded their scope of powers by re-writing the terms of the parties’ agreements. Specifically, the Appellant/Reinsurer asserted that the payment protocol set forth in the arbitration award was not based on the parties’ agreements and obligated Appellant/Reinsurer to pay billings that may not fall within the terms and conditions of the agreements. The Appellant/Reinsurer further asserted that the payment protocol would foreclose or impair its broad access rights under certain inspection and audit provisions of the agreements by conditioning those rights on the transmittal of an appropriate time-of-payment reservation of rights.

Regarding the payment protocol, the Court of Appeals determined that the payment protocol in the award tracked the plain language of the relevant portions of the parties’ reinsurance agreements. Concerning the challenge to the reservation of rights procedure, the Court of Appeals noted that the arbitration clauses for the reinsurance agreements contained an honorable engagement provision, which directed the arbitrators to consider each agreement as an “honorable engagement rather than merely a legal obligation” and further stated that the arbitrators “are relieved or all judicial formalities and may abstain from following the strict rules of law.” The Court of Appeals held that the honorable engagement provisions empowered arbitrators to grant forms of relief, including equitable remedies not explicitly mentioned in the underlying agreement. The Court of Appeal viewed the honorable engagement provisions as enhancing the prospects for a successful arbitration because they provided the arbitrators with the flexibility to custom-tailor remedies to fit particular circumstances.

This post written by Kelly A. Cruz-Brown.

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COURT DIRECTS CEDENTS TO INDICATE WHETHER THEY WILL CONTINUE TO ARGUE AGAINST THE FINALITY OF AN ARBIRATION AWARD TO PRECLUDE ITS CONFIRMATION

April 9, 2015 by Carlton Fields

In a pending dispute in the Southern District of New York arising from a quota share contract of reinsurance between Employers Insurance of Wausau, as reinsurer, and Nutmeg Insurance and Twin City Fire, as cedents, Nutmeg and Twin City argue that issues relating to the parties’ obligations with respect to specific claims arising out of the parties’ reinsurance treaties, and a process to resolve issues relating to those claims, are not yet final and the court therefore lacks jurisdiction to confirm those portions of an arbitration award. The petition to confirm the award, found here, sought to confirm, in part, the arbitration panel’s directive that Nutmeg and Twin City produce certain information and documentation to Wausau supporting the claimed loss at issue. Specifically, the panel directed Nutmeg and Twin City to produce evidence of proof of payment of the loss at issue, copies of the underlying policies at issue, and a narrative and reasonable documentation demonstrating that the loss was within the treaty’s terms.

At issue was the quantum and type of information that must accompany billing in order to trigger Wausau’s payment obligations and whether Wausau may withhold payment pending its request for additional, sometimes privileged, information and documentation. Wausau informed the court that Nutmeg and Twin City’s objections were moot because all parties had performed their obligations and the entire award was now final. The court directed Nutmeg and Twin City to file a letter with the court within five days from the date of its order indicating whether they will persist with their objections to the court’s confirmation of the entire arbitration award. Employers Insurance of Wausau v. Nutmeg Insurance Co., No. 14-CV-9284 (USDC S.D.N.Y. Feb. 25, 2015).

This post written by Renee Schimkat.

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ARBITRATION ROUNDUP

April 1, 2015 by Carlton Fields

Award Authorizing Class Action Litigation

Emilio v. Sprint Spectrum L.P., Case No. 14-732-cv (2d Cir. Nov. 12, 2014) (affirming denial of motion to vacate award; district court did not err by finding that arbitrator did not exceed powers nor manifestly disregard law when it ruled that Sprint could not be compelled to proceed with class arbitration and plaintiff could not be compelled to proceed with bilateral arbitration under state law, which the arbitration agreement stated would govern);

Emilio v. Sprint Spectrum L.P., Case No. 1:11-cv-03041 (USDC S.D.N.Y. Dec. 23, 2014) (denying motion to dismiss class action or strike class allegations; defendant collaterally estopped from relitigating basis for prior arbitration rulings authorizing class action litigation)

Manifest Disregard

NDV Investment Co. v. Apex Clearing Corp., Case No. 1:14-cv-00923 (USDC S.D.N.Y. Jan. 8, 2015) (denying motion to vacate FINRA award; granting cross-motion to confirm award; no manifest disregard of the law for misapplying FINRA rule or for the panel’s failure to permit a full hearing; no arbitrator “misconduct” for refusing to hear evidence);

Power Partners Mastec, LLC v. Premier Power Renewable Energy, Inc., Case No. 1:14-cv-08420 (USDC S.D.N.Y. Feb. 20, 2015) (granting petition to confirm nearly $3 million award; no manifest disregard of law; arbitrator’s findings were supported by the record);

Sotheby’s International Realty, Inc. v. Relocation Group, LLC, Case No. 14-253-cv (2d Cir. Jan. 6, 2015) (reversing district court’s order that vacated award as manifest disregard of law; court failed to apply test, which includes finding that relevant law was “clear,” determining that no “barely colorable justification” for the panel’s decision existed, and addressing alternate readings of the relevant law that might have supported the arbitrators’ decision)

Exceeding Authority

Seagate Technology, LLC v. Western Digital Corp., Case No. A12-1944 (Minn. Oct. 8, 2014) (affirming appellate court’s order reinstating $500 million arbitration award; defendants did not waive their rights to challenge the award, but a review of the merits of the award showed that arbitrator did not exceed authority by issuing punitive sanctions for defendants’ fabrication of evidence, which included excluding defendants’ evidence and defenses);

BNSF Railway Co. v. Alstom Transportation, Inc., Case No. 13-11274 (5th Cir. Feb. 6, 2015) (reversing order vacating arbitration award; court improperly reviewed merits of arbitrators’ interpretation of contract instead of limiting review to “whether the arbitrators even arguably interpreted the Agreement in reaching their award”)

Scope of FAA

Wiand v. Schneiderman, Case No. 14-11203 (11th Cir. Feb. 10, 2015) (affirming district court’s order compelling arbitration and denying motion to vacate award; court-appointed receiver’s “clawback” action against estate of investor in Ponzi scheme is not exempt from FAA; court did not err in referring validity of contract to arbitration; court did not err in holding arbitrator did not exceed powers; court would not review arbitrator’s evidence-based rulings)

This post written by Michael Wolgin.
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THIRD CIRCUIT: PENNSYLVANIA LAW PREEMPTED BY THE FAA

March 25, 2015 by Carlton Fields

The Third Circuit recently ruled that a Pennsylvania statute prohibiting an unregistered businesses from maintaining any “action or proceeding” in any court in the state interferes with the enforcement of arbitration awards and therefore is preempted by the Federal Arbitration Act. The plaintiff was a non-registered company, but the parties had agreed that the arbitration could proceed and be administered under the rules of the American Arbitration Association. The district court confirmed the arbitration award, and the Third Circuit affirmed, holding that the FAA preempted application of the law because it rendered the arbitration agreement unenforceable, noting that the intent of Congress in enacting the FAA was to promote arbitration. Therefore, the Pennsylvania statute, by barring any “action or proceeding,” interfered with the enforceability of the FAA and therefore was preempted.

The issue of state statutes interfering with the enforcement of arbitration awards has been a subject of Reinsurance Focus blogs numerous times. Particularly, courts have examined state statutes that require the posting of security before a non-admitted company may file suit in that state. We will continue to monitor case law addressing whether other courts find that the FAA pre-empts similar pre-pleading security statutes.

Generational Equity LLC v. Schomaker, No. 14-1291 (3d Cir. Feb. 23, 2015).

This post written by Catherine Acree.

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COURT AFFIRMS REINSURANCE ARBITRATION AWARD BUT DIRECTS FURTHER BRIEFING ON THE ISSUE OF SEALING DOCUMENTS

March 16, 2015 by Carlton Fields

A federal district court in New York confirmed an arbitration panel’s final award, but directed the parties to brief the issue of whether the continued sealing of supporting documents, filed in connection with the petition to confirm that award, was appropriate. Clearwater Insurance and the respondent insurance companies were parties to multiple reinsurance contracts and arbitrated their dispute concerning amounts billed under those contracts. Clearwater’s petition to confirm the arbitration award was unopposed and the court found no basis for vacating, modifying, or correcting it. The court did, however, question whether the continued sealing of documents, requested by both parties, was warranted. The documents were filed under seal because their public filing would allegedly violate a confidentiality agreement between the parties. This, the court found, did not justify the sealing nor overcome the strong presumption of public access to judicial documents. The parties were directed to submit additional briefing to the court on this issue. Clearwater Insurance Co. v. Granite State Insurance Co., No. 1:15-cv-00165 (USDC S.D.N.Y. Feb. 5, 2015).

This post written by Renee Schimkat.

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