Confirmation / Vacation of Arbitration Awards

Eleventh Circuit Rejects Manifest Disregard

May 11, 2010 by Carlton Fields

The Eleventh Circuit has joined the First and Fifth Circuits in holding that the manifest disregard of law doctrine is not a valid basis for vacating arbitral awards after the Supreme Court’s Hall Street Associates opinion. In Frazier v. Citifinancial Corp., No. 08-15188 (11th Cir. Apr. 30, 2010), the losing party in an arbitration sought to vacate an arbitral award on statutory grounds and on three non-statutory grounds: (1) that the award was arbitrary and capricious; (2) that the award was in violation of public policy; and (3) that the award was in manifest disregard of law. The Court concluded that Hall Street “compels” the conclusion that judicially-created bases for vacature are no longer valid. The Court rejected the Second and Ninth Circuit’s characterization of the doctrine as a judicial interpretation of the statutory ground that an award may be vacated if the arbitrators exceeded their powers. Manifest disregard is now no longer a viable basis for vacating arbitral awards in three Circuits.

This post written by Rollie Goss.

Fifth Circuit Reverses – Finds Arbitrator’s Adverse Inference Protected Employee’s Interests

May 6, 2010 by Carlton Fields

In a suit arising out of alleged employment discrimination, Dillard’s Inc. appealed the district court’s decision to vacate an arbitration award to the Fifth Circuit Court of Appeals. At the initial arbitration pursuant to Ms. Barahona’s employment contract, despite drawing an adverse inference against Dillard’s for its failure to produce relevant emails, the arbitrator ruled that Ms. Barahona failed to carry her burden of proof on her discrimination and retaliation claims. Upon Ms. Barahona’s motion, the district court at first remanded the dispute to the arbitrator, but after the arbitrator’s refusal to reconsider the case on jurisdictional grounds, the District Court granted Ms. Barahona’s motion to vacate the award based on Dillard’s fraudulent conduct in failing to produce the emails.

The Fifth Circuit reversed and remanded, holding that Dillard’s allegedly fraudulent conduct – failing to produce the emails – was brought to the attention of the arbitrator who addressed it by drawing an adverse inference against Dillard’s. Accordingly, Ms. Barahona could not meet her burden for vacatur under the FAA and the case should be remanded. Trinidad Suyapa Barahona v. Dillard’s Inc., Case No. 09-31142 (5th Cir. 2010).

This post written by John Black.

SOUTHERN DISTRICT OF OHIO CONFIRMS FINRA ARBITRATION AWARD

April 6, 2010 by Carlton Fields

Following a FINRA arbitration award in favor of defendant Carlos Reisen, plaintiff J.J.B. Hilliard, W.L. Lyons, LLC (“Hilliard Lyons”) filed a complaint (treated by the court as a motion to vacate) before the US District Court for the Southern District of Ohio seeking to vacate the award. Reisen filed a cross motion to confirm the award and to enter judgment in his favor. The Court, applying the Sixth Circuit’s “manifest disregard of the law” test, confirmed the arbitration panel’s determination that Hilliard Lyons had made defamatory statements in its Form U5/Uniform Termination Notice. The Court concluded that it could not vacate the award on the basis that the panel had acted recklessly, as claimed by Hilliard Lyons. Likewise, the Court confirmed the award of attorneys fees and the post-award interest, finding that the panel did not act in manifest disregard of the law because there were statutory bases for the decisions. Hilliard Lyons has since filed a notice of appeal to the Sixth Circuit. Hilliard v. Reisen, Case No. 09-cv-535 (S.D. Ohio Mar. 2, 2010, Mar. 5, 2010).

This post written by John Black.

THIRD CIRCUIT SIDE-STEPS SPLIT ON MANIFEST DISREGARD OF LAW

March 31, 2010 by Carlton Fields

The Third Circuit Court of Appeals heard the appeal of Bapu Corporation from a district court’s denial of its motion to vacate an arbitration award. The dispute centered on Choice Hotels International Inc.’s decision to terminate a Quality Inn license agreement with Bapu on the basis that Bapu had failed to make required renovations to the hotel. Bapu asserted that Choice’s claim for damages was barred by the applicable three year statute of limitations, and raised that issue and others in the parties’ arbitration. Ultimately, both the district court and the Third Circuit Court agreed that the arbitrator’s decision against Bapu, based partly on the fact that Bapu had waived its statute of limitations claim by failing to pursue it after initially raising it, did not provide a basis for vacatur. The Court side-stepped the question, however, of whether manifest disregard of law constituted an independent basis for vacatur of arbitration awards, after the Supreme Court’s ruling in Hall Street Associates, L.L.C. v. Mattel Inc., but noted a split of authority in the sister circuits on that question. The Court also rejected Bapu’s claim of arbitrator bias or corruption. Bapu Corp. v. Choice Hotels Int’l, Inc., No. 09-1011 (3d Cir. March 16, 2010).

This post written by John Pitblado.

ARBITRATION AWARD CONFIRMED WHERE ARBITRATOR RELIED ON THE SAME CONTRACTUAL PROVISIONS TO DENY DAMAGES FOR ONE CLAIM AND AWARD DAMAGES FOR ANOTHER CLAIM

March 16, 2010 by Carlton Fields

This dispute concerns sales commissions allegedly owed to three employees of Umpqua Bank (“Umpqua”) pursuant to a third-party brokerage agreement (the “Agreement”) between Umpqua and Woodbury Financial Services. Employment agreements between Umpqua and the employees required the matter to be submitted to arbitration. After the arbitrator issued an award granting damages for breach of fiduciary duty and attorneys’ fees and costs for two of the employees, Umpqua moved to vacate this award, arguing that this award exhibited manifest disregard of the law or was completely irrational because the arbitrator relied on the same provisions in the Agreement to deny damages for the third-party beneficiary claim and to award damages for the breach of fiduciary duty claim. The employees consequently moved to confirm the award and for attorneys’ fees and costs. The court disagreed with Umpqua’s argument, ruling that the arbitrator could rationally find a breach of fiduciary duty but not third-party beneficiary rights under the Agreement because the two claims have separate legal standards. The third-party beneficiary claim requires a showing of intent, and the breach of fiduciary duty claim does not require a showing of intent. The court thus granted the employees’ motion to confirm the award. Then, looking to the language of the employment agreements, the court confirmed the award of attorneys’ fees and costs and granted the employees’ motion for attorneys’ fees and costs incurred to enforce this award. Swarbick v. Umpqua Bank, Case No. 08-00532 (USDC E.D. Cal. Feb. 26, 2010).

This post written by Dan Crisp.