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Confirmation / Vacation of Arbitration Awards

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

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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

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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.

ARBITRATION ROUNDUP

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Class Arbitration

Sutter v. Oxford Health Plans, LLC, Case No. 10-04903 (USDC D.N.J. Feb. 25, 2011) (class arbitration was still required following the Supreme Court’s Stolt-Nielson decision, notwithstanding the omission of the words “class action” in the parties’ arbitration agreement because the arbitrator had determined that the agreement unambiguously expressed the parties’ intent to authorize class arbitration).

Interim Awards

Draeger Safety Diagnostics, Inc. v. New Horizon Interlock, Inc., Case No. 11-mc-50160 (USDC E.D. Mich. Feb. 14, 2011) (confirming interim award for emergency relief ordering defendant to return records, data, and reports; claim was ripe because the plaintiff was likely to be harmed absent confirmation; court lacked subject matter jurisdiction to confirm non-final award of fees because the claim was not ripe).

Arbitrator Disqualification

O’Dowd v. Hardy, No. G04308 (Cal. Ct. App. Feb. 24, 2011) (defendant’s counsel’s letter to arbitrator, copied to plaintiff’s counsel, containing negative statements about plaintiff did not warrant arbitrator disqualification).

Notice Issues

Selective Ins. Co. v. Coach Leasing, Inc., No. A-4007-06T2 (N.J. Super. Ct. App. Div. June 16, 2008) (reversing orders vacating arbitration awards and remanding for entry of judgment enforcing awards; notifying defendant’s third-party administrator of the arbitration was sufficient notice under the parties’ agreement and New Jersey statute).

Exceeding Authority; Manifest Disregard for the Law

CCent. Mont. Rail v. BNSF Ry. Co., No. 05-00116 (9th Cir. Mar. 18, 2011) (affirming the district court’s confirmation of an arbitration award because the conditions for vacatur were not met; the arbitrators had not exceeded their authority nor manifestly disregarded the law).

Ameser v. Nordstrom, Inc., Case No. 09-0395 (USDC N.D. Tex. Mar. 14, 2011) (denying motion to vacate award; movant failed to demonstrate that the arbitrator was partial, exceeded her powers, demonstrated manifest disregarded for the law, or that the award was obtained by undue means).

Harrell & Owens Farm v. Fed. Crop Ins. Corp., Case No. 09-217 (USDC E.D.N.C. Mar. 23, 2011) (denying motion to vacate award and confirming award; arbitrator did not exceed the scope of his authority by purportedly failing to follow a government agency’s binding interpretation of an insurance policy; award did not fail to draw its essence from the arbitration agreement).

IFA Ins. Co. v. Am. Trucking & Transp. Ins. Co., No. A-1845-09T2 (N.J. Super. Ct. App. Div. Mar. 22, 2011) (affirming confirmation of arbitration award; failure of the arbitrator to apply comparative negligence principles did not warrant vacatur; the fact that the arbitration was court ordered and not by agreement of the parties did not alter the narrow scope of judicial review).

Timeliness Issues

Century Indem. Co. v. Clearwater Ins. Co., Case No. 11-1038 (USDC S.D.N.Y. Mar. 30, 2011) (confirming arbitration award because respondent failed to timely move to vacate, modify, or correct the award and finding no other basis for vacating the award).

Am. Ins. Managers, Inc. v. Guar. Ins. Co., Case No. 07-01615 (USDC D.S.C. Mar. 29, 2011) (motion to vacate or modify filed exactly three-months after delivery of the award was timely because the FAA and not state law governed the applicable statute of limitations; denying motion to vacate or modify; award was not “fundamentally unfair” or “irrational” and there was no “evident partiality” by the arbitrator).

This post written by Ben Seessel.

SECOND CIRCUIT REMANDS FOR CONSIDERATION OF PERSONAL JURISDICTION ISSUES WITH RESPECT TO ORDER CONFIRMING CHINESE ARBITRATION AWARD

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Last year, we reported that the Southern District of New York had confirmed an arbitration award made by the China Maritime Arbitration Commission against Pactrans Air & Sea, Inc. (“Pactrans”), notwithstanding Pactrans’ argument that the award was being challenged before the proper authorities in China. The judgment recognizing the award was subsequently appealed by Pactrans on jurisdictional grounds. The Second Circuit Court of Appeals remanded the case, instructing the district court to determine whether it decided the issue of its personal jurisdiction over Pactrans, and, if not, to enter an order to show cause why it should not dismiss the case for lack of personal jurisdiction. China Nat’l Chartering Corp. v. Pactrans Air & Sea, Inc., No. 09-4956 (2d. Cir. Jan. 19, 2011).

This post written by Ben Seessel.

COURT EXERCISES PERSONAL JURISDICTION OVER CANADIAN CORPORATION BUT FINDS MOTION TO VACATE PARTIAL FINAL ARBITRAL AWARD IS NOT JUSTICIABLE

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Pearl Seas Cruises, LLC (“PSC”), a Marshall Islands company whose members are Connecticut residents, petitioned a Connecticut federal district court to vacate a partial final arbitral award issued by a panel of arbitrators in connection with its dispute against Canadian corporation, Irving Shipbuilding Incorporated (“ISI”). ISI moved to dismiss, arguing that the court lacked personal jurisdiction over it and that PSC’s petition was premature because no final arbitration award had been issued yet by the panel. The court held that because ISI’s sales pitch, contract negotiations, and several meetings to resolve issues regarding contract performance occurred in Connecticut, ISI had the required minimum contacts with Connecticut to subject it to the court’s jurisdiction. However, the court held that PSC’s petition was not justiciable because the panel had not yet issued a final arbitral award. Pearl Seas Cruises, LLC v. Irving Shipbuilding, Inc., Case No. 10-1294 (USDC D. Conn. Feb. 9, 2011)

This post written by Ben Seessel.