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Arbitration / Court Decisions

ARBITRATION AWARDS CONFIRMED DESPITE SOME CREATIVE CHALLENGES

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Courts have continued to confirm arbitration awards in the face of a variety of challenges:

  • Manifest disregard of law: Grain v. Trinity Health, No. 08-1410 (6th Cir. Dec. 24, 2008) (manifest disregard is not a basis for modifying an award, only potentially for vacating an award – appellant sought a doubling of the award amount based upon manifest disregard and evident miscalculation); Martin Marietta Materials, Inc. v. Bank of Oklahoma, No. 07-6422 (6th Cir. Dec. 17, 2008) (arbitrator not exceed his powers; no manifest disregard of law demonstrated – the Court assumed that the doctrine survived Hall Street Associates, noting a conflict on that issue between the First and Second Circuits); Donato-Young v. Wachovia Securities, LLC, Case No. 08-1557 (USDC S.D. Cal. Jan. 5, 2009) (not in manifest disregard of law – not mention Hall Street).
  • Arbitrators acted in excess of their authority: This basic for vacating an award seems often to be a guise for a disagreement with the merits of the arbitration decision. Donato-Young (cannot show that the arbitration award was in excess of authority because the award was not reasoned); Martin Marietta; Associated Int’l. Insur. Co. v. Montenegro Re, Ltd., No. B203064 (Cal. Ct. App. Dec. 22, 2008) (interpretation of reinsurance agreement); Dealer Computer Services, Inc. v. Hammonasset Ford Lincoln-Mercury, Inc., Case No. 08-1865 (USDC S.D. Tex. Dec. 22, 2008); Vandenavond v. i2Technologies, Inc., Case No. 08-1000 (USDC N.D. Tex. Dec. 19, 2008) (permissible for arbitrator to decide breach of contract claim on provision of contract other than those argued by parties).
  • Doctrine of functus officio: In a case interpreting American Arbitration Association Rule 47, which governs modification of a final award, the First Circuit reversed a decision of a district judge which adopted the recommendation of a magistrate judge that an award that purported to “clarify” an earlier award be vacated, on the basis that the arbitrator did not retain authority to modify the substance of the prior award. The Court of Appeal held that there was a “latent ambiguity” in the prior award, and that the later award properly “clarified” the prior award. Eastern Seaboard Constr. Co. v. Gray Constr., Inc., No. 08-1679 (1st Cir. Dec. 31, 2008) (see May 1, 2008 post to this blog relating to the magistrate judge’s recommendation).
  • Procedural claims: Scott v. Amaregal, Inc., Case No. 08-219 (USDC N.D. Tex. Jan. 5, 2009) (not have to address each claim specifically if state that there is no liability); AAMCO Transmissions, Inc. v. Rizvi, Case No. 08-151 (USDC ED. Pa. Dec. 17, 2008) (no notice problem where arbitration notice sent to business and one partner hid the notice from the other); New Jersey Regional Council of Carpenters v. Maximum Constr., LLC, Case No. 08-2942 (USDC D.N.J. Dec. 5, 2008) (absence of counsel for one party from a second arbitration hearing not a basis for vacating an award) (opinion and separate Order).

This post written by Rollie Goss.

UK COURT OF APPEALS DISMISSES REINSURER’S APPEAL OF DECISION FINDING CREATION OF REINSURANCE CONTRACT PRIOR TO CASUALTY

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We previously posted on November 12, 2008 about a British court’s decision holding that a reinsurance contract was created prior to a putatively covered ocean-going casualty, based on certain written exchanges between the parties reflecting their negotiations. The reinsurer, Aigaion Insurance Company S.A. (“Aigaion”), appealed, arguing that the lower court’s decision was unclear, and that even if a contract had been formed, it contained a warranty provision allowing the policy to lapse without notice in the case of non-payment of premium (the parties did not dispute that the reinsured, Allianz Insurance Company of Egypt, forwarded timely premium payment to an intermediary broker, who failed to then forward payment to Aigaion).

The Court of Appeals disagreed with Aigaion, finding no basis for its appeal, which it dismissed. The Court found that whether or not the parties negotiated the warranty provision Aigaion sought, it was nonetheless not explicitly included in the terms of the agreement that the lower court had found the parties made by a date certain which, at the latest, preceded the casualty. Allianz Insurance Company of Egypt v. Aigaion Insurance Company, S.A. [2008] EWCA Civ 1455 (Court of Appeals, Civ. Div. Dec. 19, 2008).

This post written by John Pitblado.

COURT COMPELS TRUSTEE OF TRUST AGREEMENT INCORPORATED INTO REINSURANCE CONTRACT TO ARBITRATION

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Homestead Insurance Company (“Homestead”) entered into a reinsurance contract with Interstate Guaranty Insurance Company (“Interstate”). Under applicable Georgia insurance regulations, Interstate was required to place funds in a trust for Homestead’s benefit to protect Homestead in case Interstate became insolvent. Thereafter, Homestead, Interstate and Wachovia Bank entered into a trust agreement, with Wachovia serving as Trustee. The trust agreement contained provisions incorporating it into the reinsurance contract. The reinsurance contract contained an arbitration clause mandating arbitration as a condition precedent to a lawsuit where disputes arose concerning either “the interpretation of [the reinsurance] Agreement” or the “rights of either party” thereunder.

After dispute arose between Homestead and Wachovia pertaining to Wachovia’s conduct as Trustee, Homestead filed an action in New Jersey state court (which was ultimately removed and transferred to Georgia federal court) to compel Wachovia to arbitration as required under the reinsurance contract. Wachovia argued that it was not a party to the reinsurance contract, and thus was not bound by the provision mandating arbitration. However, the court agreed with Homestead, citing terms of the trust agreement that indicated the parties’ intent to incorporate it in its entirety into the reinsurance contract, and finding that the Trust Agreement incorporated by reference the arbitration clause of the Reinsurance Agreement. The court found that the interpretation of the Trust Agreement came within the scope of arbitrable issues. After the court denied Wachovia’s motion to reconsider, Homestead dismissed the case with prejudice. Homestead Insurance Company v. Wachovia Bank, N.A., Case No. 07-2821 (USDC N.D. Ga. 2008).

This post written by John Pitblado.

BAR OF ARBITRATION CLAIMS BY PRIOR CLASS SETTLEMENT CONFIRMED

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In a February 26, 2008 post, we discussed an opinion of the Sixth Circuit Court of Appeals which held that claims asserted in arbitration by members of a settlement class were barred if they related to the settled claims because the claimants had not opted out of the class-wide settlement of the claims. The case was remanded to the arbitration panel to clarify the basis for the award. The panel confirmed that the award was based solely on the matters that were encompassed by the settlement. In a second appellate round, the court confirmed the vacation of the award due to the bar of the settlement, and also affirmed the dismissal of cross-claims by the district court. Rich v. Spartis, No. 06-1723 (6th Cir. Dec. 16, 2008).

This post written by Rollie Goss.

NO INDEPENDENT SUBJECT MATTER JURISDICTION UNDER FEDERAL ARBITRATION ACT

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Defendant, Sandra R. Sanchez, filed a Rule 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction against the plaintiff, Newton & Associates, LLC. Sanchez asserted that, because the Federal Arbitration Act (“FAA”) did not confer federal-court jurisdiction, the case should be dismissed because the parties are not diverse and there was no other basis for federal jurisdiction. The Eastern District of Louisiana granted Sanchez’s motion to dismiss, holding that while the FAA created a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, it did not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise. The District Court noted in particular that section 10 of the FAA allowed federal district courts to vacate arbitration awards but did not confer upon federal courts subject matter jurisdiction. The court did, however, opine that under limited circumstances, the non-statutory ground for vacatur of an arbitration award (if made in manifest disregard of the law) may provide subject matter jurisdiction for the federal courts. As this was not the case here, the court dismissed the action. The case has been remanded to state court. Newton & Assoc., LLC v. Sanchez, Case No. 08-4558 (USDC E.D. La. Dec. 22, 2008).

This post written by John Black.