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Confirmation / Vacation of Arbitration Awards

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.

ARBITRATION AWARD ALLOWED TO BE FILED UNDER TEMPORARY SEAL

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A group of reinsurers successfully moved to file under temporary seal a final arbitration award and motion to dismiss for lack of subject matter jurisdiction in an action petitioning for confirmation of the arbitration award. The Respondent moved to dismiss, contending that the jurisdictional amount in controversy requirement was not satisfied, and sought to file the award under seal in support of its motion to dismiss. All parties had expressed the concern that filing the award as a matter of the public record would violate the arbitration panel’s confidentiality order. The court permitted the Respondent to “temporarily file” its motion to dismiss and the award under seal, pending a determination of the motion to dismiss. Follow the links to view the petition to confirm the arbitration award, the memorandum of law supporting the motion to file under seal, and the court’s order. American Bankers Insurance Co. of Florida v. National Casualty Co., Case No. 08-13522 (USDC E.D. Mich. Oct. 10, 2008).

This post written by Brian Perryman.

COURT CONFIRMS ARBITRATION AWARD, BUT REVERSES PANEL’S DECISION TO REFUSE TO DISBAND

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KX Reinsurance Company (“KX”) arbitrated certain disputes with North Star Reinsurance Corporation (“North Star”) and General Reinsurance Company (“Gen Re”) (North Star and Gen Re had each initiated separate arbitral proceedings against KX, but all parties agreed to consolidate the proceedings as they involved interrelated issues). The arbitral panel ruled against KX on North Star’s and Gen Re’s contract claims, and awarded North Star and Gen Re interest and attorneys fees pursuant to the parties’ respective contracts. The Panel ruled in KX’s favor on North Star’s and Gen Re’s bad faith claims.

During the course of the proceedings, North Star and Gen Re also sought an interim order requiring KX to post security in the form of letters of credit pertaining to certain other potential future contract disputes. KX argued that letters of credit pertaining to potential future claims were beyond the scope of the arbitral submission. North Star and Gen Re argued that their respective submissions broadly included future potential claims. The panel ruled against KX and issued the interim order, which it later incorporated into the final award. It also included in the award an explicit retention of jurisdiction over potential future disputes. KX thereafter sought to confirm the award in the district court, except for that aspect of the final award which purported to allow the panel to retain jurisdiction over potential future disputes under the parties’ contracts, which it sought to vacate.

The district court ruled in KX’s favor, confirming the undisputed aspects of the final award, and vacating the panel’s decision to retain jurisdiction insofar as it exceeded the scope of the submission and was violative of KX’s right under its contracts with North Star and Gen Re to select an arbitrator of its choosing pertaining to any future disputes under the contracts. The Court noted that any contrary interpretation of that contractual right would create arbitral panels with unlimited jurisdiction over the course of the parties’ future contractual relations, a result not supported by the public policy underlying the Federal Arbitration Act. KX Reinsurance Co. v. North Star Reinsurance Corp., Case No. 08-7807 (USDC S.D.N.Y. Nov. 14, 2008).

This post written by John Pitblado.

SIXTH CIRCUIT VACATES ARBITRATION AWARD BASED UPON MANIFEST DISREGARD OF LAW

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This procedurally complicated dispute arises out of a franchise agreement for a Coffee Beanery cafe. As a result of disputes about the negotiation of the agreements for the café and its operation, the franchisee demanded arbitration, later withdrew the demand and filed suit in federal court, followed by the franchisor demanding arbitration and the Maryland Securities Commissioner issueing an Order to Show Cause, contending that the franchisor had violated the disclosure and anti-fraud provisions of the Maryland franchise act. An arbitration proceeded to a final award in favor of the franchisor. A request to vacate the award was denied, and an appeal followed.

The Sixth Circuit issued two opinions in this appeal. Both opinions held that because an officer of the Coffee Beanery failed to disclose a prior felony conviction for grand larceny, the agreement was in violation of the Maryland Franchise and Registration Act. As such, the court found that the arbitration award should be vacated because the arbitrator showed “a manifest disregard of the law.” The first opinion did not discuss Hall Street Associates LLC v. Mattel Inc., 28 S.Ct 1396 (2008). The amended opinion discusses Hall Street, finding that it did not clearly eliminate the manifest disregard of law doctrine. The opinion states that “[i]n light of the Supreme Court’s hesitation to reject the manifest disregard doctrine in all circumstances, we believe it would be imprudent to cease employing such a universally recognized principle.” The court found that since the franchisee was deprived of a statutorily required notification of prior felony convictions, it was fraudulently induced and not bound by the arbitration provision, and could pursue a claim to rescind the franchise agreement in its federal court lawsuit. Coffee Beanery, LTD v. WW LLC, No. 07-1830 (6th Cir. November 14, 2008).

This post written by John Black.