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Confirmation / Vacation of Arbitration Awards

DISTRICT COURT VACATES ARBITRATION AWARD DUE TO ARBITRATORS’ “EVIDENT PARTIALITY”

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Scandinavian Reinsurance Company petitioned a federal district court to vacate a final award in an arbitration between it and St. Paul Fire and Marine. Scandinavian argued that two of the arbitrators exhibited evident partiality by failing to disclose their simultaneous involvement in another arbitration that involved a common witness, similar disputed issues and contract terms, and a company that succeeded to the business of St. Paul.

During the selection process, the arbitrators were asked about their current and previous service as arbitrators and experience with affiliates and subsidiaries of the parties, but neither disclosed that they were involved in an arbitration that involved a common key witness and issues. Scandinavian claimed that had it known about the arbitrators’ involvement in the other case, it would have objected to their service.

Under the Second Circuit’s test of evident partiality, “an arbitrator who knows of a material relationship with a party and fails to disclose it meets Morelite’s ‘evident partiality’ standard: A reasonable person would have to conclude that an arbitrator who failed to disclose under such circumstances was partial to one side.” Applying this test, the district court concluded that the undisclosed relationship to the other arbitration constituted a “material conflict of interest,” since the arbitrators could receive ex parte information on key issues relevant to this arbitration. As such, the court found the arbitrators exhibited evident partiality, and vacated the award. Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Insurance Co., 09-9531 (U.S.D.C. S.D.N.Y. Feb. 23, 2010).

This post written by Lynn Hawkins.

FOURTH CIRCUIT AFFIRMS VACATUR OF ARBITRATION AWARD AGAINST FINANCIAL SERVICES COMPANY

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In 2005, three financial advisors filed a consolidated arbitration demand against Raymond James Financial Services, Inc. (“Raymond James”) seeking damages related to the alleged wrongful termination of the advisors’ affiliations with Raymond James. The arbitration panel granted substantial compensatory damages to the advisors, citing Raymond James’ unauthorized practice of law by permitting in-house counsel to represent the advisors in third-party arbitration proceedings against both Raymond James and the advisors. Raymond James then filed a motion in federal district court to vacate the award. After a remand to the panel for clarification, the district court vacated the award, concluding, among other things, that the panel exceeded its powers. The advisors appealed. The Fourth Circuit first concluded that the district court did not abuse its discretion in remanding the award to the panel for clarification of the award’s bases. The Fourth Circuit then affirmed the district court’s vacatur of the award, holding that the panel exceeded its power by granting an award whose basis exceeded the framework of arbitrable employment-related claims under NASD Rule 10101. Raymond James Fin. Servs., Inc. v. Bishop, No. 09-1038 (4th Cir. Feb. 22, 2010).

This post written by Dan Crisp.

RECENT DECISIONS ON CONFIRMATION OF ARBITRATION AWARDS

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This post summarizes the salient issues and key points of recent decisions on arbitration awards:

  • In the latest development in Swiss Re v. Lincoln National, the Northern District of Indiana confirmed the entry of an uncontested arbitration award. Swiss Reinsurance Co. v. Lincoln Nat’l Reinsurance Co. (Barbados) Ltd., Case No. 09-cv-36 (N.D. Ind. Dec. 14, 2009).
  • In ConocoPhillips v. United Steel Workers, the Eastern District of Pennsylvania analyzed a labor arbitration award. The court determined that the arbitrator was not authorized to make a particular progressive discipline structure of his own creation part of the Collective Bargaining Agreement. The court confirmed the award, but modified the arbitrator’s opinion to make clear that the five-step progressive discipline structure described would only be illustrative rather than required by or part of the CBA. ConocoPhillips v. United Steel Workers Local 10-234, Case No. 09-3842 (E.D. Pa. Jan. 19, 2010).
  • Following an adverse arbitration award, plaintiff Jerry Broaddus moved the Middle District of Tennessee to vacate the award. Mr. Broaddus contended the award was in manifest disregard of the law because the arbitrator incorrectly defined an “adverse employment action” as a materially adverse change in the terms of conditions of employment in contravention of controlling case law. The court found that even if the arbitrator failed to correctly view the “adverse employment action,” the error was harmless. The award was confirmed. Broaddus v. Rivergate Acquisitions, Inc., Case No. 08-0805 (M.D. Tenn. Jan. 14, 2010).
  • In Kirby Morgan Dive Sys. V. Hydrospace Ltd., the Central District of California entered an order confirming an arbitration award in favor of Kirby Morgan Dive Systems. The court found that (1) it had subject matter jurisdiction over the petition; (2) personal jurisdiction over the defendant; (3) Kirby Morgan was permitted to proceed on a default basis; (4) and Kirby Morgan was not required to obtain a prior order compelling arbitration. Kirby Morgan Dive Sys. v. Hydrospace Ltd., Case No. 09-4934 (C.D. Cal. Jan. 13, 2010).
  • A Texas Court of Appeals conditionally granted Chevron USA’s motion for a writ of mandamus against the trial court judge compelling him to enter an order confirming three arbitration awards. Chevron additionally filed a notice of appeal from an order which, it argues, denies its motion to confirm the arbitration awards. The Court of Appeals dismissed the notice of appeal after determining that it lacked jurisdiction to hear the interlocutory appeal. In re: Chevron U.S.A., Inc., Case No. 08-00082 (Tex. Ct. App. Jan. 27, 2010).
  • Rhode Island Hospital moved to vacate an arbitration award in favor of Defendant United Nurses and Allied Professionals Local 5098. The Court held that the award was founded on a “plausible interpretation” of the collective bargaining agreement, and thus the court “must uphold it.” Rhode Island Hospital v. United Nurses and Allied Professionals, Local 5098, Case No. 09-226 (D. R.I. Jan. 22, 2010).
  • In Thomas Kinkade Co. v. Lighthouse Galleries, LLC, the Eastern District of Michigan vacated an arbitration award in favor of Lighthouse Galleries. The court, while noting the limited nature of judicial review of arbitration awards, found that the award violated the parties’ contract and disregarded undisputed evidence. Thus, the court ruled that intervention was appropriate and vacated the award. Thomas Kinkade Co. v. Lighthouse Galleries, LLC, Case No. 09-10757 (E.D. Mich. Jan. 27, 2010).
  • In a dispute related to construction work on the US Navy’s SPAWAR facility, the US District Court sitting in South Carolina denied plaintiff Coastal Roofing Company’s motion to vacate the arbitration award entered against it. The court found that even though the arbitrator failed to include a written explanation for his decision, the award should be confirmed. United States of America for the Use and Benefit of Coastal Roofing Co., Inc. v. P. Browne & Assoc., Inc., Case No: 07-3008 (D. S.C. Jan. 22, 2010).
  • Petitioners Thomas E. Collins, Jr. and Heather Collins moved to confirm an arbitration award issued by FINRA against Lawrence Joseph Ferrari, who had not filed a response or appearance in the action. The court found that petitioners carried their light burden of persuasion, and the award was confirmed. Collins v. Ferrari, Case No. 08-1274 (N.D. N.Y. Feb. 9, 2010).
  • In Schwartz v. Merrill Lynch, the Southern District of New York found that petitioner Robert Schwartz offered no legitimate grounds to support his motion to vacate the arbitration award entered in favor of Merrill Lynch. The court found specious Schwartz’s arguments that the arbitrator was biased and failed to consider relevant evidence. Schwartz v. Merrill Lynch & Co., Inc., Case No. 09-900 (S.D. N.Y. Feb. 8, 2010).

This post written by John Black.

TENTH CIRCUIT CONFIRMS ARBITRATION AWARD, RULES ARBITRATORS IMPARTIAL

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We have previously reported on the ongoing litigation between Legacy Trading Co. and defendant Robert Hoffman. Recently, Legacy Trading appealed to the Tenth Circuit the District Court’s order denying their motion to vacate an arbitration award and granting Hoffman’s motion for confirmation. Hoffman cross appealed the denial of his request for attorneys’ fees. The Tenth Circuit affirmed the order confirming the award, dismissing Legacy Trading’s frivolous argument that it had not agreed to arbitrate. The Court noted that as a member of NASD, Legacy Trading was subject to arbitration and, in addition, it had signed an agreement in this case agreeing to arbitration. The Court concluded that there was insufficient evidence to suggest that the arbitrators were evidently partial, that Legacy Trading was denied a fair hearing, or that the arbitrators had manifestly disregarded the law. On the last point, the Court noted that Legacy Trading had failed to include the entire transcript as evidence of manifest disregard, and thus had failed to carry the burden of persuasion. The Court also rejected Legacy Trading and co-plaintiff Mark Uselton’s public policy argument.

Regarding Hoffman’s cross appeal, the Tenth Circuit ruled that because the District Court had not explained its decision to deny the request for fees, the issue should be reversed and remanded. Legacy Trading Co. Ltd. v. Hoffman, Case No. 09-6007 (10th Cir. Jan. 29, 2010).

This post written by John Black.

SECOND CIRCUIT VACATES CONFIRMATION OF ORIGINAL ARBITRATION AWARD; REINSTATES AMENDED AWARD

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Parties to a contract for the sale of steel pipe brought cross-motions to vacate, modify and correct an arbitration award conducted according the International Dispute Resolution Procedures of the AAA’s International Centre for Dispute Resolution. The arbitrator issued an amended award, which was challenged in District Court by both parties. The District Court vacated the amended award and confirmed the original award. Appellant T.Co. Metals appealed the judgment to the Second Circuit arguing that the arbitrator acted in manifest disregard of the law and exceeded his powers. Appellee Dempsey Pipe & Supply filed a motion for fees.

The Second Circuit agreed with the district court’s refusal to vacate the damage award to Dempsey finding that the arbitrator did not manifestly disregard the law in interpreting the Supreme Court’s recent decision in Hall Street Assoc. LLC v. Mattel, Inc., 128 S. Ct. 1396 (2008). The Court determined, however, that the district court erred in applying the functus officio doctrine to the arbitrator as he was acting on the parties’ petitions for reconsideration and revised the award pursuant to his interpretation of the arbitral rules the parties had agreed upon. Accordingly, the Second Circuit vacated the order confirming the arbitrator’s original award and remanded the case so that the amended award may be confirmed. Dempsey’s motion for fees was denied. T.Co. Metals, LLC v. Dempsey Pipe & Supply, Inc., Case No. 08-3894 (2d Cir. Jan. 14, 2010).

This post written by John Black.