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Arbitration / Court Decisions

U.S. SUPREME COURT: ARBITRATOR HAS THE AUTHORITY TO DETERMINE WHETHER AN ARBITRATION PROVISION IS VOID DUE TO UNCONSCIONABILITY

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In Rent-A-Center v. Jackson, No. 09-497 (Sup. Ct. June 21, 2010), the U.S. Supreme Court considered whether a provision that delegated to an arbitrator the authority to decide whether any portion of an arbitration agreement was void or voidable is enforceable under section 2 of the Federal Arbitration Act (“FAA”), in a situation in which it was contended that the agreement was unconscionable under Nevada law The Court recognized that it had previously held that parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether an agreement covers a particular controversy. The Court further recognized that there were two types of challenges to the validity of an agreement under section 2 of the FAA: (1) challenges to an agreement to arbitrate itself; and (2) challenges to the contract containing the arbitration agreement as a whole, “either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.” Only the first type of challenge is relevant to a court’s determination whether the arbitration agreement is enforceable. Since an arbitration provision is severable from the remainder of the contract, a challenge must be specifically directed to the arbitration provision in order for the court to intervene. Since the challenge here was to the contract as a whole, rather than specifically directed to the arbitration provision at issue, the arbitration provision was enforceable, and the arbitrator had the authority to determine the issue of unconscionability.

This post written by Michael Wolgin.

PETITION TO CONFIRM ARBITRATION DISMISSED FOR LACK OF FEDERAL COURT’S SUBJECT MATTER JURISDICTION

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A limited liability corporation petitioned to confirm an arbitration award against an Illinois corporation in a California federal district court. The district court dismissed for lack of subject matter jurisdiction, as the parties were not diverse in their citizenship, as required by 28 U.S.C. § 1332. The LLC merely alleged it was incorporated in California and had its principal place of business there. These allegations were insufficient to establish the LLC’s citizenship, as an LLC must make allegations regarding the citizenship of each of its members and owners to properly allege its own citizenship. Kim-C1, LLC v. Valent Biosciences Corp., Case No. 1:10-cv-591 (USDC E.D. Cal. June 3, 2010).

This post written by Brian Perryman.

RULINGS ON ARBITRATION AWARDS – AN UPDATE

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A number of significant arbitration award decisions have been handed down over the past several weeks.

Orders generally confirming or vacating arbitration awards

  • The Ninth Circuit recently reversed the vacatur of an award finding that the award was not excessive in size and that the arbitration panel did have jurisdiction to enter a punitive damages award. However, the Ninth Circuit also found that Lloyds Underwriters failed to establish the partiality of two of the arbitrators. Lagstein v. Certain Underwriters at Lloyd’s, London, Case No. 03-01075 (9th Cir. June 10, 2010).
  • In Perhach v. Option One Mortgage Corp., Case No. 08-60637 (11th Cir. June 15, 2010), the Eleventh Circuit affirmed the district court’s denial of Albert Perhach’s pro se motion for relief from an order compelling arbitration and his motion to vacate the arbitrator’s award in favor of his former employer Option One Mortgage Corp.
  • The Southern District of New York in Rai v. Barclays Capital Inc., Case No. 10-1675 (S.D. N.Y. June 15, 2010) denied Rai’s motion to vacate an arbitration award against him and entered an order confirming the award in Barclays’ favor.
  • Hearing cross-motions to confirm and vacate an arbitration award in Petrie v. Clark Moving & Storage, Case No. 09-06495 (W.D.N.Y. May 17, 2010), the Western District of New York confirmed the arbitrator’s award in favor of the Petries finding no manifest disregard of the law.
  • The Northern District of California denied Pacific Development Partners motion to vacate or modify an arbitration award in favor of Elem Indian Colony of Pomo Indians. The Court affirmed the arbitrator’s ruling that a contract for casino development was void. Elem Indian Colony of Pomo Indians v. Pacific Development Partners X, LLC, Case No. 09-1044 (N.D. Cal. May 19, 2010).
  • In Adams v. Barnes, Case No. 09-1860 (N.D. Tex. June 17, 2010), the District Court denied former Dallas Cowboy Flozell Adams’ motion to vacate an arbitration award in favor of his former agent Roosevelt Barnes. The Court confirmed the award.
  • In International Brotherhood of Teamsters, Local 701 v. CBF Trucking, Inc., Case No. 09-5525 (D. N.J. June 10 2010), the District Court granted the union’s motion to dismiss CBF Trucking counterclaim and confirmed an arbitration award in favor of the Teamsters.

Violation of public policy

  • In American Postal Workers Union, AFL-CIO v. United States Postal Service, Case No. 09-1084 (N.D. Tex. May 14, 2010), the District Court dismissed plaintiffs’ Complaint to Vacate Arbitration Award and confirmed defendant’s motion to confirm the award. The Court held that the award did not violate Texas public policy and that the award was not a result of any factual error in the arbitrator’s findings.

Attorneys fees

  • Illinois Union Ins. Co. v. North County Ob-Gyn Medical Group, Case No. 09-2123 (S.D. Cal. May 18, 2010): The Southern District of California confirmed an arbitration panel’s ruling that legal fees paid by the insurance company on the medical group’s behalf eroded the liability of a policy issued by IU to NCOG.
  • In First Automotive Service Corp. v. First Colonial Ins. Co., Case No. 07-682 (M.D. Fla. June 16, 2010), the District Court denied motions to remand the case and for sanctions under Rule 11 and confirmed a modified arbitration award as to attorneys’ fees and costs. Judgment was entered in favor of First Automotive and Northbrook Indemnity Co.

Interest

  • In Diaz v. Cruz, Case No. 09-286 (Mass. Ct. App. May 21, 2010), the Massachusetts Court of Appeals determined that, while the Superior Court had jurisdiction to hear a motion to confirm an arbitration award, it erred in granting prejudgment interest in favor of the plaintiff.

This post written by John Black.

SECOND CIRCUIT: CONVENING NEW ARBITRATION PANEL UNNECESSARY WHERE VACANCY IS CREATED BY RESIGNATION

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On August 3, 2009, we reported on a district court vacating its prior order that arbitration must commence anew and reappointing an arbitrator to the panel after the arbitrator’s health improved. Insurance Company of North America and INA Reinsurance (collectively, “INA”) appealed and also successfully moved for a stay pending the appeal in the Second Circuit, as we reported on April 15, 2010.

Now, the Second Circuit has issued its decision affirming the district court’s grant of Public Service Mutual Insurance Company’s motion for relief from the judgment based on newly discovered evidence that an arbitrator who had resigned was, in fact, able to rejoin the arbitration panel prior to the district court’s decision on whether to convene a new panel or order a replacement arbitrator. According to the Second Circuit, the general rule that a new panel should be convened if a vacancy arises on an arbitral panel due to the death of an arbitrator prior to the rendering of an award does not apply to a vacancy created by a resignation. The Second Circuit further found that the district court’s decision either to reappoint the arbitrator who had resigned, or, in the alternative, to direct INA to appoint a replacement was proper. Among other things, that decision avoided the waste entailed in convening a new panel after the remaining arbitrators had already engaged in significant proceedings in the case. Insurance Co. of North America v. Public Service Mutual Insurance Co., No. 09-3640 (2d Cir. June 23, 2010).

This post written by Brian Perryman.

COURT HOLDS NEW YORK CONVENTION COVERS DOMESTIC AWARDS THAT ARE “FOREIGN IN CHARACTER”

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A U.S. District Court has denied the Republic of Argentina’s motion to vacate a $185 million dollar arbitration award in favor of a British investor in Argentinean gas distribution. The award was made in an arbitration under the United Nations Commission on International Trade Law Rules, as provided in the Argentina-United Kingdom bilateral investment treaty.

As an initial matter, the court determined that it had proper subject matter jurisdiction over the matter under Chapter 2 of the FAA, also known as the Convention On The Recognition And Enforcement Of Foreign Arbitral Awards. Specifically, the court rejected Argentina’s arguments based on the Convention’s reciprocity clause, finding that an award made in the U.S. between a U.K. investor and a foreign state fell within the New York Convention as an award “not considered as domestic.” The court then rejected each of Argentina’s merits-based arguments, finding that the Court of International Arbitration did not exceed its powers in rejecting a challenge to one of the arbitrators based on bias, that the panel’s decisions were based on plausible constructions of the bilateral investment treaty, and that the panel did not otherwise abuse its powers. Republic of Argentina v. BG Group PLC, Case No. 08-485 (USDC D.D.C. June 7, 2010).

This post written by Michael Wolgin.