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Confirmation / Vacation of Arbitration Awards

COURT CONFIRMS REINSURANCE ARBITRATION AWARD, REJECTING NUMEROUS PROCEDURAL CHALLENGES

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When a dispute arose over the allocation and payment of losses under a reinsurance agreement pursuant to which Global International Reinsurance Company agreed to reinsure TIG Insurance Company, the parties took their dispute to arbitration. An arbitrator granted TIG’s motion for partial summary judgment, finding that Global had released its right to audit and dispute certain claims. The dispute arose out of transactions and claims which had been the subject of a prior arbitration and settlement agreement. The parties disagreed as to their current claim audit rights and payment obligations under the reinsurance agreement and the prior settlement agreement. The arbitrator granted partial summary judgment based upon an interpretation of the various agreements and the prior arbitration award, after four hours of oral argument but no evidentiary hearing.

Global sought the vacation of the award, contending that it had been denied a fundamentally fair hearing because the arbitrator had refused to hear evidence, disregarded the standards of summary judgment, and resolved material factual disputes without discovery or an evidentiary hearing, in violation of the standards contained in Section 10(a)(3) of the Federal Arbitration Act. The district court confirmed the award, noting: (1) that the settlement agreement gave the arbitrator the authority to resolve “any dispute” arising from or relating to the settlement agreement and other agreements; (2) that arbitrators have “great latitude to determine the procedures governing their proceedings and to restrict or control evidentiary proceedings;” and (3) that a court has very narrow authority to vacate arbitration awards, even if it disagrees with the merits of the arbitrator’s decision, so long as there is a “barely colorable justification for the outcome reached.” The court found that the arbitrator had acted within the scope of the authority delegated by the very broad provision and within the scope of his broad authority to manage the arbitration process. This opinion illustrates the expansive authority that arbitrators have to manage and conclude arbitrations. Global Int’l. Reinsur. Co. v. TIG Insur. Co., Case No. 08-7338 (USDC S.D.N.Y. Jan. 20, 2009).

This post written by Rollie Goss.

MANIFEST DISREGARD OF LAW OPINION POSSIBLY EN ROUTE TO SUPREME COURT

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Last October, the Supreme Court vacated the Ninth Circuit's opinion in Comedy Club, Inc. v. Improv West Associates, and remanded the case for further consideration in light of Hall Street Associates. In the vacated opinion, the Ninth Circuit had vacated an arbitration award, finding that the arbitrator had acted in manifest disregard of law. On remand, the Appellee filed an initial brief, the Appellant filed a responsive brief, and the Appellee filed a reply brief. The case is now fully briefed. As of this writing, oral argument had not been scheduled. We will continue to monitor this case, which may provide authoritative guidance as to whether the manifest disregard of law doctrine survived the Supreme Court's Hall Street Associates opinion.

This post written by Rollie Goss.

ARBITRATION AWARDS CONFIRMED DESPITE SOME CREATIVE CHALLENGES

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Courts have continued to confirm arbitration awards in the face of a variety of challenges:

  • Manifest disregard of law: Grain v. Trinity Health, No. 08-1410 (6th Cir. Dec. 24, 2008) (manifest disregard is not a basis for modifying an award, only potentially for vacating an award – appellant sought a doubling of the award amount based upon manifest disregard and evident miscalculation); Martin Marietta Materials, Inc. v. Bank of Oklahoma, No. 07-6422 (6th Cir. Dec. 17, 2008) (arbitrator not exceed his powers; no manifest disregard of law demonstrated – the Court assumed that the doctrine survived Hall Street Associates, noting a conflict on that issue between the First and Second Circuits); Donato-Young v. Wachovia Securities, LLC, Case No. 08-1557 (USDC S.D. Cal. Jan. 5, 2009) (not in manifest disregard of law – not mention Hall Street).
  • Arbitrators acted in excess of their authority: This basic for vacating an award seems often to be a guise for a disagreement with the merits of the arbitration decision. Donato-Young (cannot show that the arbitration award was in excess of authority because the award was not reasoned); Martin Marietta; Associated Int’l. Insur. Co. v. Montenegro Re, Ltd., No. B203064 (Cal. Ct. App. Dec. 22, 2008) (interpretation of reinsurance agreement); Dealer Computer Services, Inc. v. Hammonasset Ford Lincoln-Mercury, Inc., Case No. 08-1865 (USDC S.D. Tex. Dec. 22, 2008); Vandenavond v. i2Technologies, Inc., Case No. 08-1000 (USDC N.D. Tex. Dec. 19, 2008) (permissible for arbitrator to decide breach of contract claim on provision of contract other than those argued by parties).
  • Doctrine of functus officio: In a case interpreting American Arbitration Association Rule 47, which governs modification of a final award, the First Circuit reversed a decision of a district judge which adopted the recommendation of a magistrate judge that an award that purported to “clarify” an earlier award be vacated, on the basis that the arbitrator did not retain authority to modify the substance of the prior award. The Court of Appeal held that there was a “latent ambiguity” in the prior award, and that the later award properly “clarified” the prior award. Eastern Seaboard Constr. Co. v. Gray Constr., Inc., No. 08-1679 (1st Cir. Dec. 31, 2008) (see May 1, 2008 post to this blog relating to the magistrate judge’s recommendation).
  • Procedural claims: Scott v. Amaregal, Inc., Case No. 08-219 (USDC N.D. Tex. Jan. 5, 2009) (not have to address each claim specifically if state that there is no liability); AAMCO Transmissions, Inc. v. Rizvi, Case No. 08-151 (USDC ED. Pa. Dec. 17, 2008) (no notice problem where arbitration notice sent to business and one partner hid the notice from the other); New Jersey Regional Council of Carpenters v. Maximum Constr., LLC, Case No. 08-2942 (USDC D.N.J. Dec. 5, 2008) (absence of counsel for one party from a second arbitration hearing not a basis for vacating an award) (opinion and separate Order).

This post written by Rollie Goss.

COURTS CONTINUE CONFIRMATION OF ARBITRATION AWARDS

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Since our last post on arbitration award confirmation/vacation, eight opinions of some note have been entered, all of which confirmed or declined to vacate arbitration awards. Many parties challenging awards continue to argue that they are in manifest disregard of law. The courts issuing the opinions reported in this post were reluctant to address the issue of whether the doctrine is viable after Hall Street Associates, and instead reviewed the awards and found that they were not in manifest disregard of law.

This post written by Rollie Goss.

COURT OF APPEALS AFFIRMS TRIAL COURT’S CHALLENGED “ENFORCEMENT” OF ARBITRATION AWARD

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The United States Court of Appeals for the Fourth Circuit affirmed the judgment of a federal district court which enforced an arbitration award between plaintiff, Qorvis Communications, LLC (“Qorvis”) and defendant, Christopher S. Wilson. Wilson and Qorvis were parties to an employment contract whereby Wilson agreed to provide certain research, polling, and political consulting services to Qorvis in his position as a public affairs executive, and CEO of the company’s Research Strategies Division (“RSD”). As part of the employment contract, Wilson agreed that he would devote his “full time, attention, skill and energy” to developing and building Qorvis’s RSD. The agreement also obligated Wilson not to solicit Qorvis clients for his own account during his employment and for eighteen months thereafter. Qorvis later alleged that Wilson did, in fact, solicit Qorvis clients for his own account during his employment and misappropriated certain confidential trade secrets, all to Qorvis’s financial detriment. Qorvis invoked the agreement’s arbitration provision as a result of the dispute.

Without objection, the parties proceeded to arbitration, after which the arbitrator ruled on all of Qorvis’s claims, as well as counterclaims which Wilson had raised during the course of the proceeding. The arbitrator awarded Qorvis $366,037.72, plus post-judgment interest. Qorvis then moved to confirm the award in the federal district court, and Wilson moved to vacate. The district court entered judgment in favor of Qorvis. Wilson appealed on the primary basis that the arbitration agreement did not explicitly provide the parties a right to enforce an award in court, but rather merely referred to the rules of Judicial Arbitration and Mediation Services, Inc. (“JAMS”). However, the Court of Appeals agreed with the district court that the JAMS rules clearly contemplated enforcement of any award in court under the Federal Arbitration Act, and that, combined with the strong public policy in favor of arbitration, “only an explicitly expressed intention that the award NOT be enforced by the courts would suffice to make the award unenforceable.” On that and other ancillary issues raised by Wilson, the Court of Appeals affirmed the district court’s judgment. Qorvis Communications, LLC v. Wilson, No. 07-1967 (4th Cir. Dec. 3, 2008).

This post written by John Pitblado.