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Arbitration / Court Decisions

SECOND CIRCUIT UPHOLDS ARBITRATION AGREEMENT ABSENT EMPLOYEE’S SIGNATURE

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The United States Court of Appeals for the Second Circuit issued a summary order affirming a decision by the district court for the district of Connecticut compelling arbitration pursuant to an employee handbook’s mandatory arbitration provision. Reviewing de novo, the court upheld the lower court’s order compelling arbitration based on its finding that (1) plaintiff’s employment had been at-will since its inception and (2) her continued employment after the amendment of defendants’ employee handbook, which included the mandatory arbitration requirement, equated to an acceptance of the new terms. The court noted that in Connecticut, the terms of employment may be determined even in the absence of an express written agreement. Focusing on whether plaintiff validly accepted the modification to her original unilateral employment contract, which at the time of hiring did not contain a mandatory arbitration requirement, the court answered in the affirmative. The fact that plaintiff continued to work for defendants for approximately 15 years following the arbitration amendment to the employee handbook, coupled with the fact that defendants produced evidence that plaintiff electronically accepted the modified employee handbook several times after it was amended, together demonstrated plaintiff’s consent to the added arbitration provision. McAllister v. East, No. 11-4696 (2d Cir. May 5, 2015).

This post written by Brian Perryman.

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MASSACHUSETTS FEDERAL COURT UPHOLDS ARBITRATION AWARD BASED ON EQUITABLE POWERS

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A recent case out of the District of Massachusetts reviewing an arbitration award against Ace American Insurance Company (“Ace”) found that an arbitrator did not exceed her power in crafting an arbitration award when she relied almost exclusively on her equitable powers under the arbitration provision. In the underlying dispute, Ace had insured a thirteen year old boat, which sank following severe weather. Ace denied coverage claiming that such an incident would fall under the wear and tear provision of the coverage. However, the arbitrator disagreed, finding that “if the ‘wear and tear’ exclusion were enforceable in this case, Ace would comfortably insure boats beyond a certain age without an expectation of ever having to pay” and that allowing Ace to deny coverage would violate Massachusetts Chapter 93A. Where the arbitration provision gave the arbiter authority to resolve “any controversy or claim based in any legal or equitable theory,” the District Court found that the arbiter was well within her powers in making this finding, thereby making a vacation of this arbitration award unwarranted.

Ace American Ins. Co. v. Puccio, Case No. 15-cv-10262-IT (USDC D. Mass. June 4, 2015).

This post written by Zach Ludens.

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COURT DENIES TERMINATED EMPLOYEE’S MOTION TO VACATE ARBITRATION AWARD FOR FAILURE TO SHOW BIAS, MISCONDUCT, OR MANIFEST DISREGARD

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A district court refused to vacate an arbitration award where Preis, a terminated employee, failed to produce sufficient evidence of bias or misconduct in the arbitration panel’s decision. Preis moved to vacate the award in favor of former employee Citigroup Global Markets Inc. on the grounds that (1) the panel was biased, and (2) the panel manifestly disregarded the law. Although Preis relied on New York’s civil practice laws and Citigroup relied on the Federal Arbitration Act, the court decided choice of law was irrelevant because no conflict existed between state and federal law on the grounds for vacating arbitration awards.

On the issue of bias, the court found that the examples cited by Preis were neutral, did not suggest prejudice, and “would not lead a reasonable person to conclude that the panel was biased.” The court was even more skeptical of Preis’s manifest disregard claim, finding that he failed to show the panel intentionally defied a well-defined, applicable law. His claims did not rise to the level of showing “some egregious impropriety on the part of the arbitrator,” and thus, did not warrant vacating the award. The court did, however, deny Citigroup’s request for attorneys’ fees and costs, finding it failed to show that Preis acted in bad faith in seeking to overturn the award. Preis v. Citigroup Global Markets Inc., Case No. 14-06327 (USDC S.D.N.Y. Apr. 8, 2015).

This post written by Brian Perryman.

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MASSACHUSETTS COURT OF APPEALS MAINTAINS “SEVERELY LIMITED” DE NOVO REVIEW OF REINSURANCE-RELATED ARBITRATION AWARD

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Collective defendants, Nationwide, appealed from a Massachusetts superior court judgment confirming an arbitration award in favor of collective plaintiffs, Liberty Mutual. The underlying dispute involved a 1972 reinsurance treaty wherein Nationwide, the reinsurer, indemnified Liberty Mutual, the cedant, for a portion of the losses paid on Liberty Mutual’s general liability and worker’s compensation policies. At issue was a provision in the treaty granting Nationwide a right of access to Liberty Mutual’s documents concerning the covered policies. The dispute arose when Liberty Mutual refused to produce documents it claimed were protected by attorney-client and work product privileges. At arbitration, the panel dismissed Nationwide’s argument that it was entitled to any and all documents relating to the covered policies, reasoning that the right of access provision excluded privileged documents. Liberty Mutual thereafter submitted an application to the superior court to confirm the award and Nationwide submitted a cross-application to vacate the access to records portion of the judgment.

Despite a de novo review, the court’s discretion was limited as it was bound by the arbitrators’ findings and legal conclusions, even if they appeared erroneous, inconsistent, or unsupported by the record. Through this lens, the court of appeals upheld the arbitrators’ decision, dismissing Nationwide’s argument that the arbitrators exceeded their powers in interpreting the access to records provision in the reinsurance treaty. The appellate court reasoned that where the parties do not dispute the scope of the arbitrators’ powers and where the claimed error is in the interpretation of the terms of the parties’ underlying contract and not in the agreement to arbitrate in the first place, it must apply a severely limited review of arbitration awards. Liberty Mutual v. Nationwide, No. 14-1129 (Mass. App. Ct. June 5, 2015).

This post written by Brian Perryman.

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DELAWARE ENACTS THE “DELAWARE RAPID ARBITRATION ACT”

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The purpose of the Act is to provide Delaware businesses with the ability to resolve disputes within 120 days in a “cost-effective, and efficient manner, through voluntary arbitration conducted by expert arbitrators.” The Act streamlines the process for seeking court assistance with appointing arbitrators, if necessary, which may occur only in the Delaware Court of Chancery. The Act gives the arbitrator exclusive jurisdiction to determine the scope of the arbitration and to determine the type of relief, “including any legal or equitable remedy appropriate in the sole judgment of the arbitrator.” Only one direct challenge to the Delaware Supreme Court is authorized, and only the standards of the FAA are utilized on appeal. Among other limiting measures, the Act may not be used in controversies between businesses and consumers, in controversies in which parties have not expressly consented in writing to arbitration, and in controversies in which choice of Delaware law has not been expressly selected. To ensure rapid resolution of arbitrations, the Act contains a schedule for the reduction of the arbitrator’s fees depending upon the lateness of the award: (1) between 0 to 30 days late, the reduction is 25%; (2) between 30 to 60 days late, the reduction is 75%; and (3) greater than 60 days late, the reduction is 100%. While the arbitrator is required to issue a written award, there is no requirement that it be a reasoned award. Thus, the award can be as simple as “plaintiff wins.” Delaware House Bill No. 49 (eff. May 4, 2015).

This post written by Barry Weissman.

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