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Arbitration / Court Decisions

COURT REFUSES CONFIRMATION OF ARBITRATION AWARD TO AVOID MAKING SUBSTANTIVE RULINGS ON CONTRACT ISSUES

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A motion to compel arbitration and to stay a case was granted to prevent the court from having to intepret certain reinsurance contracts that contain the arbitration agreements. Petitioner Sun Life Assurance Company of Canada sought the confirmation of an arbitration award. The respondents opposed, arguing that in seeking confirmation of the award, Sun Life also sought substantive rulings regarding the rights and liabilities of the parties that the arbitration panel did not address, namely, whether Sun Life owed interest on the award and whether the parties’ relationship should be terminated. The court agreed with the respondents, finding that to grant the relief Sun Life sought, the court would have to review the contracts and determine substantive rights and liabilities of the parties, thereby improperly usurping the arbitrators’ role. Sun Life Assurance Co. of Canada v. Liberty Mutual Insurance Co., Case No. 09 CV 2133 (USDC S.D. Cal. Dec. 9, 2009).

This post written by Brian Perryman.

DISTRICT COURT CONFIRMS FOREIGN ARBITRATION AWARD DESPITE PENDING PETITION IN CHINA; DEFENDANT APPEALS

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The Southern District of New York recently confirmed an arbitration award made by the China Maritime Arbitration Commission, over objections that enforcement of the award was inappropriate because the award was being challenged before the proper authority in China. This is a particularly noteworthy opinion because of the court’s willingness to confirm the arbitration award despite the fact that the defendant had filed a petition with a foreign jurisdiction to set aside the award, which means that the arbitral award was not final.

The Court confirmed the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act (“the Convention”). Under the Convention, a court “shall confirm the award” unless one of seven enumerated exceptions applies. Applying those, in connection with the Second Circuit’s non-exhaustive list of six “competing concerns”, the court concluded that confirmation of the award was appropriate. The District Court, however, refused to award attorneys’ fees finding that the defendant had not delayed payment in bad faith.

Defendants have appealed this decision to the Second Circuit. China National Chartering Group Corp. v. Pactrans Air & Sea, Inc., Case No. 06-13107 (S.D. N.Y. Nov. 13, 2009).

This post written by John Black.

NINTH CIRCUIT AFFIRMS CONFIRMATION OF AWARD MADE THROUGH AN “UNUSUAL” ARBITRATION PROCESS

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The Ninth Circuit affirmed the confirmation of an arbitration award over the respondents objections that the process employed by the arbitration panel was unfair and resulted in an implausible interpretation of the reinsurance contracts. The petitioner, U.S. Life, contended that by closing a meeting of the panel with panel-retained workers’ compensation experts, the panel refused to hear pertinent evidence regarding the appropriateness of the respondent, Superior National, claims handling. U.S. Life also contended that the panel exceeded its authority by requiring U.S. Life to pay interest in excess of the award, pay all tendered bills, and pay all future bills within thirty days. Although noting the ex parte meeting with the experts was “unusual,” the Ninth Circuit determined that the arbitration process provided the parties with a fundamentally fair arbitration, and also that the arbitration award rested on a plausible interpretation of the governing arbitration documents. It accordingly affirmed the district court’s order confirming the award.

Of interest in this case was the district court’s order on U.S. Life’s request to waive or reduce the supersedeas bond for the appeal. The liability for the judgment was $592.8 million dollars. Although the petitioner presented evidence of “considerable financial strength,” the court found that standard practice was to set a bond amount of 1.25 to 1.5 times the amount of the judgment. The district court therefore entered a bond amount of $600 million. United States Life Insurance Co. v. Superior National Insurance Co., No. 07-55938 (9th Cir. Jan. 3, 2010).

This post written by Brian Perryman.

FEDERAL COURT GRANTS MOTION TO STAY FINDING PARTIES HAD AGREED TO ARBITRATE

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A federal district court recently granted defendant, Vitol Inc.’s motion to stay a claim pending arbitration. The plaintiff, ICC Chemical, argued that the parties had not agreed to arbitratre, and therefore, that the four-part inquiry used by the Second Circuit to determine whether an action is arbitrable was not satisfied. Specifically, plaintiff argued that the contract (drafted and delivered by a third party) did not contain an arbitration provision. Plaintiff did not dispute that a “confirmation” of the agreement sent four days later did contain the arbitration provision. The Court concluded that under the New York Uniform Commercial Code, the “confirmation” set forth additional contract terms and was sent in a reasoanble time period. Additionally, under New York law, arbitration provisions do not constitute material alterations to a contract. Therefore, the Court concluded that the parties had agreed to arbitrate, and stayed the action pending arbitration. ICC Chemical Corp. v. Vitol, Inc. , 09 Civ. 7750 (PKC) (USDC S.D.N.Y. Nov. 18, 2009).

This post written by Lynn Hawkins.

NEW JERSEY APPELLATE HOLDS THAT POLICYHOLDER MUST ARBITRATE BID-RIGGING AND OTHER CONSPIRACY CLAIMS AGAINST INSURERS

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American International Group, Inc. (“AIG”) and its subsidiary, National Union Fire Insurance Company (“National Union”) moved to compel arbitration of claims brought against them by the plaintiff, Epix Holding Corporation (“Epix”) in New Jersey state court. Epix alleged that the insurers were engaged in an illegal bid-rigging scheme with the broker (the co-defendants Marsh McClennan Companies, Inc. and March USA, Inc.), and other improper tactics, for the purpose of imposing higher premiums and onerous payment conditions on insureds such as Epix. The trial court denied the motions to compel arbitration, but the New Jersey Appellate Court reversed. Epix argued that the dispute primarily pertained to certain premium calculations that were not intended to come within the scope of the parties’ arbitration agreement. It also argued that AIG is not entitled to enforce the arbitration agreement because it was not a signatory to the contract. The Appellate Court rejected Epix’s arguments, finding that, on the threshold standing issue that AIG and National Union (which was a signatory to the contract containing the arbitration clause) were substantially aligned in connection with Epix’s allegations against them, and that AIG’s status as a non-signatory was thus immaterial. It also rejected Epix’s arguments that the dispute was not within the scope of the arbitration agreement, given the wide range of allegations Epix made against the insurers. Epix Holding Corp. v. March & McClennan Companies, Inc., No. A-3059-08T3 (N.J. App. Ct. Nov. 17, 2009).

This post written by John Pitblado.