Confirmation / Vacation of Arbitration Awards

TEXAS SUPREME COURT VACATES $26 MILLION ARBITRATION AWARD AND REVERSES COURT OF APPEAL’S DECISION IMPOSING REQUIREMENT FOR SELECTION OF ARBITRATORS

July 29, 2014 by Carlton Fields

Nearly ten years after arbitration proceedings commenced involving a claim arising from the purchase and sale of various insurance companies, the Texas Supreme Court vacated the $26 million arbitration award entered against Americo Life, Inc. et. al. (“Americo”) in favor of Robert L. Myer and Strider Marketing Group, Inc. (“Myer”) and reversed the Court of Appeal’s judgment, finding that the arbitration panel exceeded its authority because the panel was formed contrary to the express terms of the arbitration agreement. The arbitration clause contained in the agreement between Americo and Myers provided for a tripartite arbitration, where each party appointed an arbitrator and the two arbitrators would select a third. Each arbitrator was to be a “knowledgeable, independent business person or professional.” The arbitration clause also provided that the arbitration proceedings “shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”). At the time the agreement was executed, AAA rules did not require arbitrator impartiality, but by the time the arbitration was invoked, AAA rules required by default that any arbitrator shall be “impartial and independent…”

The issue in this case centered around the AAA striking the arbitrator selected by Americo on the basis the arbitrator was not impartial. America moved to vacate the award and argued that in disqualifying the arbitrator, the AAA failed to follow the arbitrator-selection process specified in the parties’ agreement because the parties never agreed that the arbitrators must be “impartial.” The Texas Supreme Court agreed.

First, the Texas Supreme Court rejected Myer’s argument that the term “independent”, which was contained in the parties’ agreement, was the same as the term “impartial.” The Court then turned to the question of whether the incorporation by reference of the AAA Rules also incorporated the impartiality requirement even though the requirement did not exist at the time the agreement was signed. The Americo Court held the impartiality requirement was not incorporated because it conflicted with the terms of the parties’ agreement. The parties agreed to arbitrators who were “knowledgeable” and “independent,” but not impartial. Thus, because the AAA impartiality rules conflicted with the parties’ agreement, the agreement controls over the AAA rules. Therefore, the AAA should not have disqualified Americo’s arbitrator on the grounds of impartiality and the arbitration panel exceeded its authority, requiring that the award be vacated. Americo Life, Inc. v. Myer, No. 12-0739 (Texas June 20, 2014).

This post written by Leonor Lagomasino.

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ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION ALLOWING DISCOVERY FOR USE IN FOREGN PROCEEDING

July 8, 2014 by Carlton Fields

The Eleventh Circuit affirmed a decision permitting discovery for use in foreign proceedings which were contemplated but not yet pending. In this case, which arose from a billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. (“CONECEL”) and Jet Air Service Ecuador SA, CONECEL applied in the district court for an order under 28 U.S.C. § 1782 to obtain discovery for use in foreign proceedings in Ecuador. The foreign proceedings included both a pending arbitration brought by Jet Air against CONECEL and contemplated civil and private criminal suits CONECEL might bring against two of its former employees who, CONECEL claimed, may have colluded with Jet Air. The District Court granted CONECEL’s application and Jet Air appealed.

As we previously reported, on June 25, 2012, the Eleventh Circuit affirmed the lower court’s order, holding that the arbitral panel was a foreign tribunal for purposes of 28 U.S.C. § 1782. That decision did not address whether the contemplated civil and criminal proceedings constituted foreign proceedings within the meaning of § 1782. Recently, however, the Eleventh Circuit vacated its earlier decision sua sponte and instead analyzed whether the contemplated civil and criminal proceedings satisfied the “foreign tribunal” element of the statute. Noting § 1782 requires only that a proceeding be within reasonable contemplation, as supported by reliable indications that the proceedings will be instituted within a reasonable time, the Court found that CONECEL provided such reliable indications by proffering the results of its internal audits leading to its findings of collusion and by submitting sworn declarations of CONECEL’s intent to purse the civil and criminal actions. Application of Consorcio Ecuatoriano de Telecomunicaciones SA v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. Jan. 10, 2014), vacating 685 F.3d 987 (11th Cir. 2012).

This post written by Leonor Lagomasino.

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ELEVENTH CIRCUIT RESTRICTS EXTRASTATUTORY JUDICIAL REVIEW OF ARBITRATION AWARDS

June 25, 2014 by Carlton Fields

The Eleventh Circuit recently limited the authority by which an aggrieved party can obtain judicial review of arbitration awards outside of the four grounds enumerated in the Federal Arbitration Act, ruling that an insurance policy alone could not serve as “an independent basis for the enforcement of an arbitration award.” The plaintiff argued that its right to expanded judicial review was based on the policy’s express language that “[a]ny decision rendered in arbitration is binding on you and us unless judicial review is sought…you and we have the right to judicial review of any decision rendered in arbitration.” The Eleventh Circuit disagreed, holding that if parties wish to allow for more avenues to judicial review, they must explicitly designate the “state statutory or common law alternatives to the FAA in their arbitration agreements.” Otherwise, the contract alone will not suffice as the sole basis for judicial review when the FAA itself does not apply. Campbell’s Foliage, Inc. v. Federal Crop Insurance Corp., No. 13-11896 (11th Cir. Apr. 3, 2014).

This post written by Rollie Goss.

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APPELLATE COURT HOLDS THAT ARBITRATORS DID NOT ACT IN EXCESS OF THEIR AUTHORITY OR IN MANIFEST DISREGARD OF LAW IN DENYING MOTION TO VACATE AWARD

June 19, 2014 by Carlton Fields

The Ninth Circuit Court of Appeals affirmed a district court’s denial of a motion to vacate an arbitration award issued in a dispute between the Johnsons and Wetzel’s Pretzels, concerning the termination of a franchise agreement. The appellants, the Johnsons, challenge the award on grounds that the arbitrator exceeded his powers by enforcing provisions in the franchise agreement that required the Johnsons to assign their lease and property interests to the defendant. The Ninth Circuit denied the appellants’ claims, stating that the Johnsons were unable to show that the award was “irrational or exhibit[ed] a manifest disregard of law,” two of the limited grounds on which a federal court may vacate an arbitral award. Emphasizing the terms of the franchise agreement, the Court stated that the arbitrator acted within the scope of the agreement, which expressly provided for the assignment of the plaintiff’s lease and property interests upon termination of the agreement. Additionally, the Court indicated that the Johnsons were unable to offer convincing evidence that award exhibited a manifest disregard of law. Wetzel’s Pretzels, LLC v. Johnson, No. 12-56716 (10th Cir. Apr. 3, 2014).

This post written by Rollie Goss.

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COURT VACATES ARBITRATION AWARD WHERE ARBITRATION HELD UNDER INCORRECT ARBITRATION RULES

May 15, 2014 by Carlton Fields

A federal judge in Houston recently vacated an arbitration award where the reinsurance agreement specified that the arbitration of any disputes would proceed “under the auspices of the ICC,” but the arbitration actually proceeded under the American Arbitration Association’s Commercial Arbitration Rules. The Court found that the parties to the reinsurance agreements selected the International Chamber of Commerce, and application of its rules, as a mandatory and essential condition of their agreement to arbitrate. Because this did not occur, the selected arbitrator lacked jurisdiction to hear the claims presented. The court noted that generally, after the conclusion of an arbitration, a court cannot second guess the arbitrator’s jurisdiction and decision so long as the arbitrator (1) is arguably construing or applying the contract, and (2) is acting within the scope of his authority. The court found, however, that the case presented a rare example of the second exception, in which an arbitrator assumed authority over a dispute that the parties’ agreements mandated be referred to a different forum, namely the ICC. This error fundamentally prejudiced the proceedings. PoolRe Insurance Corp. v. Organizational Strategies, Inc., Case No. H-13-1857 (USDC S.D. Tex. Mar. 31, 2014).

This post written by Catherine Acree.

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