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Arbitration / Court Decisions

FEDERAL COURT REFUSES TO SEAL DOCUMENTS DESPITE FACT THAT PROCEEDINGS WERE CONFIDENTIAL UNDER ARBITRAL RULES

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A federal district court recently refused to seal various documents finding that the defendant failed to overcome the strong presumption in favor of access to judicial documents. The court rejected the defendant's argument that the weight of the presumption was low in light of the underlying arbitration proceedings, finding that “[t]he fact that arbitral proceedings in this case may have been confidential under arbitral rules or the arbitration clause at issue does not necessitate that they be kept confidential in these proceedings.” Ultimately, the court dismissed the matter finding that it did not have personal jurisdiction over the defendant, nor did it have quasi in rem jurisdiction over the property at issue. Sony Ericsson Mobile Comm. AB v. Delta Electronics Pub. Co. Ltd., Case No. 09-995 (USDC S.D.N.Y. Apr. 8, 2009).

This post written by John Black.

CONFUSION OVER HALL STREET CAUSES COURT TO ADOPT “BELT AND SUSPENDERS” APPROACH TO MANIFEST DISREGARD CLAIM

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A software company’s (Xtria) appeal of the trial court’s refusal to vacate a commercial arbitration award was rejected, along with Xtria’s assertion that the arbitrator made a gross mistake or manifestly disregarded the law because the claims of Xtria’s sales agent (International) were barred due to a previous settlement entered into between Xtria and International’s subsidiary (Tracking Systems). The settlement defined Tracking Systems to includes its “past, present and future affiliate.” In a subsequent arbitration between Xtria and International concerning Xtria’s alleged breach of another contract, the arbitrator refused to apply the settlement to International because, although it was Tracking System’s parent company, it was not an “affiliate” under California law, because International controlled Tracking Systems, not the other way around. The arbitrator awarded International $1.35 million for breach of contract. The trial court confirmed the award.

On appeal, the award was again confirmed. The appellate court noted the United States Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., and Fifth Circuit precedent holding that the “manifest disregard” vacatur ground is no longer a federal common law standard, and contrary state law is preempted by the Federal Arbitration Act. However, the appellate court stated that “without making a determination that the so-called common-law grounds for vacatur no longer exist,” it would address Xtria’s manifest disregard argument “in the attitude of cautiously donning both a belt and suspenders.” However, Xtria’s argument was unavailing since the arbtirator did not manifestly disregard the law in: (1) interpreting the settlement agreement; (2) determining the parties’ intent to exclude International from the settlement; or (3) deciding that International was not a Tracking Systems “affiliate.” There was also no “gross mistake” in the arbitrator’s decision. Xtria v. Int'l Ins. Alliance Inc., Case No. 06-08-00073 (Tex. App. May 15, 2009).

This post written by Brian Perryman.

EIGHTH CIRCUIT AFFIRMS BANKRUPTCY APPELLATE PANEL’S INTERPRETATION OF REINSURANCE AGREEMENT

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As previously reported (3/17/08 post), this case involves the interpretation of the terms of a reinsurance contract and the duties of the parties under that contract. In the most recent development, the Eighth Circuit affirmed the Bankruptcy Appellate Panel’s judgment affirming in part, and reversing in part, a prior decision of the bankruptcy court regarding the reinsurance contract at issue. The Eighth Circuit determined that appellant/debtor Acceptance Insurance Company (“AIC”) was a part to the reinsurance contract, however, the language in the reinsurance provision of the contract was ambiguous and susceptible to two alternate interpretations. Accordingly, extrinsic evidence was both appropriate and necessary to interpret the language of the provision and to ascertain the intent of the parties. Citing evidence before the bankruptcy trial court, the Court affirmed the bankruptcy panel's decision that the parties intended the reinsurance provision to provide reinsurance coverage. The Eighth Circuit also found that appellee Granite Re was entitled to the full $15 million premium payment, and AIC was not discharged of its duty to pay the premium by the frustration of fundamental purpose defense. In Re Acceptance Ins. Co. Inc., No. 08-1933 (8th Cir. May 18, 2009).

This post written by John Black.

EIGHTH CIRCUIT AFFIRMS BANKRUPTCY APPELLATE PANEL'S INTERPRETATION OF REINSURANCE AGREEMENT

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As previously reported (3/17/08 post), this case involves the interpretation of the terms of a reinsurance contract and the duties of the parties under that contract. In the most recent development, the Eighth Circuit affirmed the Bankruptcy Appellate Panel’s judgment affirming in part, and reversing in part, a prior decision of the bankruptcy court regarding the reinsurance contract at issue. The Eighth Circuit determined that appellant/debtor Acceptance Insurance Company (“AIC”) was a part to the reinsurance contract, however, the language in the reinsurance provision of the contract was ambiguous and susceptible to two alternate interpretations. Accordingly, extrinsic evidence was both appropriate and necessary to interpret the language of the provision and to ascertain the intent of the parties. Citing evidence before the bankruptcy trial court, the Court affirmed the bankruptcy panel's decision that the parties intended the reinsurance provision to provide reinsurance coverage. The Eighth Circuit also found that appellee Granite Re was entitled to the full $15 million premium payment, and AIC was not discharged of its duty to pay the premium by the frustration of fundamental purpose defense. In Re Acceptance Ins. Co. Inc., No. 08-1933 (8th Cir. May 18, 2009).

This post written by John Black.

U.S. SUPREME COURT FINDS FAA PROVISIONS APPLICABLE TO NON-SIGNATORIES TO ARBITRATION AGREEMENT

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The U.S. Supreme Court recently addressed whether Sections 3 and 16 of the Federal Arbitration Act (“FAA”) apply to non-signatories affected by an arbitration agreement. Section 3 of the Federal Arbitration Act (“FAA”) allows parties who have agreed to arbitrate to move for a stay of trial proceedings until they have had a chance to attempt arbitration. Section 16 of the FAA allows an immediate appeal of judgments denying a stay under such circumstances.

In a 6-3 decision, with Justice Scalia writing for the majority, the Court held that a federal court of appeals has jurisdiction over an appeal from a motion to stay proceedings under Section 16(a)(1)(A) of the FAA regardless of whether the petitioner is in fact eligible for a stay. The Court also found that Section 3 of the FAA does not categorically prevent a non-signatory to an arbitration agreement from pursuing a stay in proceedings. Rather, a person may pursue and obtain a stay under Section 3 if the relevant state law would make a contract to arbitrate a particular dispute enforceable by a non-signatory. The Court remanded the case to the Sixth Circuit to determine whether state law allows the non-signatories to enforce their agreement under state contract law and thus are allowed to pursue a stay in proceedings.

The dissent (authored by Justice Souter and joined by Chief Justice Roberts and Justice Stevens) argued that Congressional policy limits the ability of parties to obtain interlocutory appeals and that an appeal from a denial of a motion to stay proceedings should not be available to those parties who have not signed the relevant arbitration agreement. Arthur Andersen v. Carlisle, No. 08-146 (Sup. Ct. May 4, 2009).

This post written by Lynn Hawkins.