Confirmation / Vacation of Arbitration Awards

COURT VACATES “COMPLETELY IRRATIONAL” FINRA PANEL DECISION

June 23, 2011 by Carlton Fields

In an unusual case, a court has refused to enforce an arbitration award as “completely irrational.” The plaintiff employee sued the defendant for disability benefits under the parties’ employment agreement. She was awarded disability benefits by the court, but the parties reserved certain other disputes for submission to a FINRA arbitration. The FINRA panel held that plaintiff owed defendant repayment of a substantial portion – more than $700,000 – of a contingent signing bonus, including for the duration of time not worked due to plaintiff’s disability. Plaintiff moved to vacate the award, arguing that the panel’s decision was not rationally derived from a reading of the employment agreement or from the parties’ submissions to the arbitrators. The court agreed, finding the plaintiff met the high burden of proving the panel decision was “completely irrational.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Schwarzwaelder, Case No. 11-0107 (USDC W.D. Pa. May 17, 2011).

This post written by John Pitblado.

APPEALS COURT BALANCES DEFERENCE TO ARBITRATOR WITH LESS STRINGENT STANDARDS FOR PRO SE PARTIES

June 22, 2011 by Carlton Fields

The plaintiff, Sandra Parker, brought an employment discrimination suit against her employer, J.C. Penney, which moved to arbitrate the case. Plaintiff proceeded pro se in the arbitration, after her counsel filed a motion to withdraw. The arbitrator found in favor of J.C. Penney. The plaintiff moved to vacate the award in federal district court. The court denied vacatur and confirmed the arbitrator’s award. The plaintiff appealed to the Court of Appeals for the Fifth Circuit. Citing competing constraints of “exceedingly deferential” review of an arbitrator’s award, while nonetheless “liberally” construing a pro se litigant’s brief and generally applying a less stringent standard to parties proceeding pro se than to parties represented by counsel, the Fifth Circuit affirmed, holding that plaintiff failed to demonstrate any of the bases for vacatur provided for in the FAA. Parker v. J.C. Penney Corporation, Inc., No. 10-40280 (5th Cir. May 20, 2011).

This post written by John Pitblado. [Read more…] about APPEALS COURT BALANCES DEFERENCE TO ARBITRATOR WITH LESS STRINGENT STANDARDS FOR PRO SE PARTIES

COURT CHARACTERIZES CROSS-PETITION TO CONFIRM AWARD AS SUPERFLUOUS AND IMPROPER, BUT DECLINES TO STRIKE IT

June 21, 2011 by Carlton Fields

Century Insurance arbitrated a dispute with London Market Reinsurers under the parties’ treaty reinsuring Century’s exposure to asbestos claims. Century petitioned the federal district court to have the arbitration award confirmed. The reinsurers cross-petitioned, citing the same basis for confirmation as did Century, but using its filing to tell its side of the story. Century moved to strike the cross-petition, charging that it was redundant, misleading, violative of the parties’ confidentiality agreement, and an improper attempt to advance the reinsurers’ “public relations agenda.” The court agreed that the filing was improper, and that the parties should “conduct their own public relations campaign outside the Court,” but refused to strike the cross-petition, reasoning that orders striking papers should be sparingly granted because the public should have access to court filings. Century Insurance Co. v. Certain Underwriters at Lloyd’s London, Case No. 11 Civ. 1503 (USDC S.D.N.Y. May 23, 2011).

This post written by Ben Seessel.

COURT OF APPEAL HOLDS THAT ARBITRATOR BIAS NOT PROVEN AND THAT PANEL DID NOT MANIFESTLY DISREGARD APPLICABLE LAW

June 13, 2011 by Carlton Fields

Credit Suisse sold STMicroelectronics (“ST”) auction rate securities to manage its cash and cash equivalents, replacing prior investments in money market funds and floating rate notes, which ST had selected for their safety and liquidity. While Credit Suisse promised that it would invest only in safe and liquid instruments, it instead invested in higher risk un-guaranteed collateralized debt obligations and credit-linked notes, sending ST false transaction confirmations. When the auction rate securities market failed, ST was left holding over $400 million of securities which failed at auction. ST demanded arbitration. A three member panel issued an award in favor of ST, pursuant to which ST returned the securities in exchange for a payment of approximately $404.5 million in damages, interest and attorneys’ fees.

Credit Suisse unsuccessfully attempted to have one of the arbitrators thrown off the panel part way through the proceeding, contending that he had failed to make adequate disclosure of a prior expert witness engagement on an issue relevant to the arbitration. Affirming the District Court’s confirmation of the award, the Court of Appeals noted that Credit Suisse never asked the arbitrator for details of his expert engagements, had misstated the evidence, and had not satisfied the very high burden to show arbitrator bias or misconduct. The Court also rejected the contention that the panel had manifestly disregarded the law, finding that even if the doctrine still existed, Credit Suisse’s proof fell well short of establishing manifest disregard. While confirming the award, the Court agreed that the District Court should have credited against the amount of the award $97 million received by ST after the issuance of the award for the sale of the auction rate securities to another institution. STMicroelectronics, N.V. v. Credit Suisse Securities, No. 10-3847 (2d Cir. June 2, 2011).

This post written by Rollie Goss.

VACATUR OVER “FRAUD-ON-THE-PANEL” AFFIRMED BY APPELLATE COURT

May 26, 2011 by Carlton Fields

The Illinois Appellate Court affirmed a ruling vacating a reinsurance arbitration award as having been procured by fraud. Virginia Surety and Lloyds entered into two motor vehicle warranty contractual liability reinsurance agreements, one covering a period starting in 1996 and one in 1998. Virginia Surety demanded arbitration, contending that Lloyds wrongly refused to pay amounts owed on both treaties. The parties arbitrated, and, at the end of the proceeding, but prior to submission, the parties announced they had settled all disputes arising from the 1996 Treaty, each party to bear its own costs, and that they only needed a decision as to the dispute under the 1998 Treaty. The panel thereafter found in favor of Lloyds, relieving it of payment obligations, and directing it to return premiums under the 1998 Treaty. The panel also made an award of costs and expenses due to its finding of material misrepresentations on the part of Virginia Surety, and ordered Lloyds to submit billings for costs and fees. Lloyds submitted billings, under condition of confidentiality, and the panel enforced confidentiality against Virginia Surety, despite its attempts to seek to review the billings. The panel awarded Lloyds $2 million in costs and fees. Virginia Surety moved to vacate, arguing that the size of the costs and fees award indicated that Lloyds submitted billings relating to both the 1996 Treaty dispute and the 1998 Treaty dispute, which was a fraud perpetrated on the panel, because the parties had agreed that each would bear its own costs for the 1996 Treaty dispute. The court agreed, finding that Virginia Surety made the required showing for vacatur due to fraud, as Lloyds had in fact submitted billings pertaining to both disputes. Virginia Surety Co., Inc. v. Certain Underwriters at Lloyd’s, No. 09-CH-45355 (Ill. App. Ct. April 20, 2011).

This post written by John Pitblado.