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Arbitration / Court Decisions

UK Court enjoins depositions in US lawsuit

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In the autumn of 2006, facultative reinsurance specialists left Benfield to join Aon. Although the principal individuals involved worked in the UK, there were allegations of conspiracy and other misconduct in both the UK and the US. Benfield filed suit in US District Court in New York in October 2006, and in the UK the following month. The UK proceeding proceeded towards a trial in March 2007, while the US proceeding proceeded into discovery without a trial date being set. When it became apparent that Benfield would seek to depose critical witnesses in the US suit prior to the UK trial, while trial preparations were underway, the UK Court enjoined Benfield from taking the depositions until after the UK trial. Although reluctant to take action that would interfere with the US suit, the UK Court noted the slow pace of progress of the US suit, and articulated nine factors that it took into account in reaching its decision. This is a very interesting opinion dealing with the “coordination” and relationships between a UK and a US proceeding. Benfield Holdings Limited v. Aon Limited, [2007] EWHC 171 (Queen's Bench Feb. 21, 2007).

In mid-March, 2007, Aon announced it reached “a global and comprehensive settlement with Benfield… relating to former Benfield facultative reinsurance employees…who will be joining Aon on April 1.” Under the terms of the settlement, Benfield will receive payments over time totaling more than $18 million dollars.

INVESTOR LOSES APPEAL TO VACATE ARBITRATION AWARD

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After losing several million dollars in high-risk investments, Michael Lessin filed a statement of claim alleging misrepresentation and negligent supervision against his broker, Brett Bernstein and investment firm, Merrill Lynch. A panel of three NASD arbitrators heard evidence over a six-day period and found Merrill Lynch, but not Bernstein, liable to Lessin for compensatory damages of $32,975. Lessin sought to vacate the arbitration award on the basis that the arbitration panel refused to hear one of his expert witnesses and demonstrated a manifest disregard of the law in awarding compensatory damages.

The D.C. District Court affirmed the arbitration award and Lessin appealed to the D.C. Circuit Court of Appeals. Lessin argued that the arbitration panel engaged in misconduct by refusing to hear pertinent evidence from one of his two designated expert witnesses. Lessin proffered two expert witnesses to show that certain notes regarding his investments stored in a Merrill Lynch computer system were fabricated after the fact. While the Court of Appeals recognized that the experts were testifying to different aspects of the computer system (one on personal observation/testing and the other on methodology), the court concluded that “[e]very failure of an arbitrator to receive relevant evidence does not constitute misconduct requiring vacatur of an arbitrator’s award.” The Court of Appeals also rejected Lessin’s claim that the panel manifestly disregarded the law because Lessin was unable to demonstrate that the panel acted beyond its authority or that the award violated an explicit public policy.

This is yet another, in a long line of cases, demonstrating the limited judicial review of arbitration awards, and the limited success that parties have in overturning arbitration awards. Lessin v. Merrill Lynch, Case No. 06-7067 (D.C. Cir. Mar. 16, 2007).

ENGLISH HIGH COURT GRANTS ANTI-SUIT INJUNCTION

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The English High Court considered an application by Noble and Shell for an anti-suit injunction to restrain Gerling from continuing proceedings in the Vermont courts against both Noble and Shell where there had been a final arbitration award rendered in a London arbitration.

In November 2006 the Vermont court held that it had no jurisdiction to vacate the arbitration award since the seat of the award was London, but accepted subject matter jurisdiction over the claims to rescind the contracts for misrepresentation. In granting the ex parte injunction, the Court held that the misrepresentation claim fell within the scope of the arbitration agreement. The Court also held that the claims raised in the Vermont proceedings could have been raised in the London arbitration and that Gerling was estopped from raising those claims in the Vermont proceedings.

On the inter partes hearing for a final injunction, the Court held that Gerling’s conduct in attempting to nullify the effect of the arbitration award by court proceedings in Vermont against both Noble and its parent Shell, based on assertions contrary to the findings in the award, was vexatious, oppressive, an abuse of process and unconscionable. This decision confirms the jurisdiction of the English court to grant an anti-suit injunction to protect an arbitration award after the arbitration proceedings have concluded, and not only exiting arbitration proceeding prior to the delivery of an award. Noble Assurance Company and Shell Petroleum Inc. v. Gerling-Konzern General Insurance Company, 2006 EWHC 253 (February 22, 2007).

SECOND CIRCUIT FINDS JURISDICTION UNDER FAA TO HEAR INTERLOCUTORY APPEAL

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This ruling addresses the narrow issue of whether or not an appellate court has jurisdiction under the FAA to hear an interlocutory appeal of a decision denying a motion to compel arbitration. In 2004 appellees filed a class action against several American Express companies (collectively, “Amex”) alleging conspiracy to fix fees for transactions in foreign currencies and conspiracy to impose compulsory arbitration clauses on their cardholders in order to suppress competition and deprive their cardholders of a meaningful choice concerning the arbitration of disputes.

Amex moved to compel arbitration pursuant to the arbitration clauses contained in the cardholder agreements. The District Court denied the motion, reasoning that, because the plaintiffs/appellees had raised an antitrust claim concerning the validity of the arbitration clauses, a jury trial was necessary to determine the validity of the arbitration clauses prior to enforcement.

Amex appealed, invoking Section 16 of the FAA, which grants jurisdiction to courts of appeals over interlocutory appeals from refusals to stay an action under 9 U.S.C. § 3 and from denials of petitions to compel arbitration under 9 U.S.C. § 4. Appellees filed a motion to dismiss on the ground that Section 16 of the FAA does not apply in cases where arbitration is required by principles of equitable estoppel.

The Second Circuit denied appellee’s motion to dismiss the appeal, holding that “when a District Court finds that a signatory to a written arbitration agreement is equitably estopped from avoiding arbitration with a non-signatory, the writing requirement of Section 16 of the FAA is met.” Ross v. American Express Company, Case No. 06-4598 (2d Cir. February 13, 2007).

NON-SIGNATORY LACKED STANDING TO COMPEL ARBITRATION

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This case addressed whether a court was required to recognize the right of a non-signatory to compel arbitration. The Defendant, Boris Bannai, executed an agreement for the sale of ore on behalf of Northgate. The agreement included an arbitration clause, requiring the arbitration of all claims relating to the agreement in London. When the plaintiff sued Bannai for fraud and unjust enrichment based on the agreement, Bannai moved to compel arbitration. Applying English law as required by the choice of law provision in the arbitration agreement, the court denied the motion, concluding that as a nonsignatory, Bannai lacked standing to compel arbitration. There are three expecptions to the general principle of English law that a non-party to an agreement may not compel arbitration, but none of the exceptions were asserted. Felman Productions Inc. v. Boris Bannai, Case No. 3:06-0644 (USDC S.D. W.Va. March 5, 2007)