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Confirmation / Vacation of Arbitration Awards

FEDERAL COURT HOLDS IT HAS NO AUTHORITY TO TRANSFER ARBITRATION CONFIRMATION ACTIONS TO STATE COURT

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Subway International B.V., a Netherlands-based franchisor of Subway sandwich stores, brought three actions in Connecticut federal court, seeking enforcement of arbitration awards secured against certain Greek franchisees for breach of their respective franchise agreements. The franchisees had each separately brought actions to vacate the awards in New York State Supreme Court, and they each moved to transfer the Connecticut cases filed by Subway to that venue. The Court denied each of the motions to transfer, holding that it had no authority under federal procedural statutes to transfer actions to state court. In one of the actions, however, the Court granted a motion to dismiss for insufficient service of process. Subway Int’l B.V. v. Cere, Case No. 10-01713 (USDC D. Conn. Aug. 11, 2011), Subway Int’l B.V. v. P. Bletas and J. Bletas, Case No. 10-01714 (USDC D. Conn. Aug. 11, 2011); and Subway Int’l B.V. v. P. Bletas, Case No. 10-01715 (USDC D. Conn. Aug. 11, 2011).

This post written by John Pitblado.

COURT ALLOWS DISCOVERY OF ARBITRATOR FOR VACATUR CLAIM BASED ON EVIDENT PARTIALITY

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Chartis insured Lasalle Bank under certain surplus lines policies covering Lasalle’s business trusts. The insurance policies contained mandatory arbitration agreements. After a dispute arose between the parties, Chartis initiated a tripartite arbitration through the AAA as per the agreement. The arbitration entailed more than sixty (60) days of evidentiary hearings, which concluded on September 22, 2010. During the pendency of the arbitration, Chartis discovered that Charles Ennis, one of the three agreed-upon arbitrators, had concealed a past adversarial relationship with Chartis affiliates, and requested his removal through the AAA. After reviewing supplemental disclosures by Ennis, the AAA rejected Chartis’ request and the arbitration was concluded. The panel thereafter issued an award, and the parties and arbitrators entered into a Confidentiality Order. Chartis immediately filed an action in court to vacate the award, based in part on Ennis’ purported “evident partiality.” Chartis moved to seal the award pursuant to the Confidentiality Order, and also moved for permission to seek limited discovery on Ennis’ prior adversarial relationship with the Chartis affiliates. The court denied the motion to seal, but allowed Chartis the opportunity to redact specified portions of the award. The Court granted Chartis’ motion for discovery of Ennis’s past adversarial relationship to Chartis affiliates. Chartis Specialty Ins. Co. v. Lasalle Bank, N.A., C.A. No. 6103-VCN (Del. Ch. July 29, 2011).

This post written by John Pitblado.

ARBITRATION ROUND-UP

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Manifest Disregard:

Protherapy Associates, LLC v. AFS of Bastian, Inc., Case No. 6:10cv00017 (USDC W.D. Va. July 27, 2011) (granting motion to confirm award; denying motion to modify award; no manifest disregard of law; arbitration decision that found joint and several liability did not conflict with related judicial opinion that elected not to pierce corporate veil);

International Brotherhood of Teamsters Local Union 177 v. United Parcel Service, Inc., Case No. 2:11cv00180 (USDC D.N.J. Aug. 11, 2011) (denying motion to vacate award; arbitrator relied on evidence and did not exceed powers; no “manifest disregard” of underlying collective bargaining agreement where arbitrator’s interpretation was not “totally unsupported” by general contract principles);

Johnson v. Wells Fargo Home Mortgage, Inc., Case No. 3:05cv00321 (USDC D. Nev. Aug. 17, 2011) (granting in part motion to vacate award on remand from Ninth Circuit; damages award under the Fair Credit Reporting Act was “manifest disregard” to the extent it conflicted with court’s prior holding that certain foreclosure fees were paid for a business purpose and not a consumer purpose);

Priority One Services, Inc. v. W&T Travel Services, LLC, Case No. 1:10cv01873 (USDC D.D.C. Aug. 23, 2011) (granting in part motion to vacate award; panel’s award of prejudgment interest was an “evident material miscalculation” requiring modification; court need not resolve whether “manifest disregard” is valid basis for vacatur because no showing panel otherwise acted improperly in applying state law and calculating damages);

Amaprop Ltd. v. Indiabulls Financial Services Ltd., Case No. 1:11cv02001 (USDC S.D.N.Y. Sept. 9, 2011) (granting petition to confirm arbitration award; no “manifest disregard” where arbitrator’s analysis justified award and party failed to oppose petition);

Sussex v. Turnberry/MGM Grand Towers, LLC, Case No. 2:08cv00773 (USDC D. Nev. Sept. 15, 2011) (denying motion to vacate award and motion for reconsideration; no “manifest disregard” for arbitrator’s determination that plaintiffs could not proceed as a class; reconsideration denied where new case law did not change the law);

Jurisdiction:

Powerweb Energy, Inc. v. GE Lighting Systems, Inc., Case No. 2:10cv02652 (USDC E.D. Pa. Sept. 2, 2011) (granting motion for remand to state court of petition to vacate award; jurisdiction cannot be based on federal issues absent from complaint that would arise only upon vacatur of award or based on counts of counterclaim);

Northland Truss System, Inc. v. Henning Construction Co., Case No. 4:11cv00216 (USDC S.D. Iowa Sept. 7, 2011) (dismissing petition to vacate arbitrator’s order joining seller of construction materials to arbitration between barn owner and builder; no jurisdiction where allegation of manifest disregard of federal law was “patently meritless”; noting that Eight Circuit has not determined whether claim for manifest disregard of federal law confers jurisdiction; plaintiff failed to state claim because FAA does not authorize vacatur of arbitration orders).

Procedure:

Pearl Seas Cruises, LLC v. Irving Shipbuilding, Inc., Case No. 3:11cv00201 (USDC D. Conn. Aug. 9, 2011) (granting motion to dismiss petition to vacate interim award; prior to final award, party’s claim of undue delay was for panel, not for court);

Atlantic City Electric Co. v. Estate of Jerry Riccardo, Case No. 2:09cv03573 (USDC E.D. Pa. Aug. 11, 2011) (granting summary judgment in action to set aside award due to misrepresentations related to health of accident victim; fraud claims were time-barred; under Pennsylvania law, “regardless of whether the arbitration at issue is a statutory or common law arbitration, the thirty (30) day time limit within which to challenge the award applies”);

International Brotherhood of Teamsters, Local No. 264 & 375 v. Nason’s Delivery, Inc., Case No. 1:11cv00186 (USDC W.D.N.Y. Aug. 31, 2011) (denying unions’ motion for preliminary injunction and temporary restraining order to enforce relief awarded in arbitration against employer liquidating its assets; unions failed to show irreparable harm of employer’s liquidation and likelihood of success of petition to confirm award under N.Y. General Associations Law).

Evident Partiality:

Plastic Recovery Technologies, Co. v. Samson, Case No. 1:11cv02643 (USDC N.D. Ill. July 28, 2011) (denying motion to vacate award; no evident partiality despite arbitrator’s knowledge of party’s refusal to pay fees).

FINRA:

McCafferty v. A.G. Edwards & Sons, Inc., Case No. 2:11cv00517 (USDC D.N.J. Aug. 11, 2011) (granting motion to dismiss and cross-motion to confirm award; alleged violation of N.J. whistleblower statute was not a “statutory employment discrimination claim” under FINRA; arbitration panel did not lack jurisdiction or exceed powers by including a “non-public” arbitrator on the panel).

Due Process:

First American Title Insurance Co. v. Ordin, Case No. B226671 (Cal. Ct. App. Sept. 14, 2011) (affirming confirmation of awards; plaintiff failed to show it was “substantially prejudiced” by arbitrator’s alleged refusal to hear relevant evidence and to permit supplemental briefing).

This post written by Michael Wolgin.

ORDER VACATING CONFIRMATION OF ARBITRATION AWARD FOR LACK OF JURISDICTION AFFIRMED WHERE DEFENDANT DID NOT APPEAR IN CASE

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On December 15, 2010, we reported on Aurum Asset Managers, LLC v. Banco de Estado do Rio Grande do Sul, in which a court vacated its prior confirmation of an arbitration award in favor of Aurum upon independently finding that subject matter jurisdiction was lacking over the case. The appellate court has now affirmed that decision, rejecting the argument that the award could be overturned only if it constituted a “clear usurpation of power.” The court explained that the “clear usurpation” legal standard applies only when jurisdiction has been litigated “such that re-litigation of the issue is barred by principles of res judicata.” Here, the defendant had elected to ignore the judicial proceedings. The lower court did not err by conducting its own jurisdictional analysis, finding that jurisdiction did not exist, and vacating the arbitration award. Aurum Asset Managers, LLC v. Bradesco Companhia de Seguros, No. 10-4281 (3d Cir. Aug. 15, 2011).

This post written by Michael Wolgin.

TWO LONDON ARBITRATION AWARDS ENFORCED

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Constellation Energy recently filed a petition in the US District Court for the Southern District of New York to confirm two London arbitration awards entered against Transfield ER Cape Ltd. Constellation also sought to enforce the awards against ER Cape’s alleged alter ego, Transfield EL Limited, which was not a party to the arbitrations. The District Court held that the arbitration awards against ER Cape should indeed be enforced, concluding that forum non conveniens did not prevent adjudication in US Court and that venue was appropriate. The Court noted that the petitioner’s choice of home forum is entitled to substantial deference, the balance of private and public interests did not strongly favor ER Cape, and that the mere existence of adequate alterative forums in insufficient to override petitioner’s choice of forum. The Court, however, ruled that Constellation had failed to plead sufficient factual content to support a claim for alter ego liability and accordingly dismissed the petition against ER Limited. Constellations’ petition for attorneys’ fees and costs was also denied. Constellation Energy Commodities Group, Inc. v. Transfield ER Cape Ltd., No. 10-cv-04434 (USDC S.D.N.Y. July 29, 2011).

This post written by John Black.