The United States Court of Appeals for the Second Circuit, in a non-reinsurance matter, has held that the Federal Arbitration Act does not authorize nationwide service of process of third-party subpoenas. This opinion is of particular interest since it exposes a jurisdictional gap: the FAA provides that subpoenas issued by arbitrators may be enforced by the District Court in which the arbitration panel sits (the Southern District of New York in this matter), yet that Court did not have jurisdiction over the recipient of the subpoena, which was located in Texas, due to the failure of Congress to provide for nationwide jurisdiction. The Court indicated that this was a problem for Congress to address, and that parties should consider the likely sources of third-party evidence when deciding where to arbitrate disputes. Dynegy Midstream Services, LP v. Trammochem, Case No. 05-3544 (2d Cir. June 13, 2006).
Arbitration / Court Decisions
Court of Appeal addresses jurisdictional issues regarding arbitration-related matters
The United States Court of Appeals for the Fifth Circuit has dismissed an appeal of decisions to grant summary judgment to Lloyd's and remand to state court a case filed by Lloyd's against an insured to recover $39 million in claims paid to an insurer/ reinsured pursuant to a confirmed arbitration award rendered under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This opinion addresses the reviewability of remand decisions and whether the District Court should have retained jurisdiction over state law-based counterclaims. Certain Underwriters at Lloyd’s, London v. Warrantech Corp., Case No. 04-11168 (5th Cir. Aug. 17, 2006).
Party loses right to appoint arbitrator due to untimely appointment
An arbitration provision required that both parties appoint an arbitrator within 30 days of receipt of written notice from the other party requesting that it do so. Lloyd's appointed an arbitrator timely. The 30th day after receiving such notification for Argonaut fell on the Sunday before Labor Day, and when the appointment was not made by the end of Sunday, Lloyd's appointed a second arbitrtator on Labor Day. Argonaut appointed an arbitrator the following day, claiming that the time for its appointment was extended since its deadline fell on a Sunday, followed by a holiday. The Court disagreed, holding that the agreement to appoint within 30 days was binding, and upheld Lloyd's appointment of two arbitrators. Certain Underwriters at Lloyd's v. Argonaut Insurance. Co., Case No. 04-5852 (N.D. Ill. Aug. 8, 2006).
Court addresses standard for vacating awards under the Foreign Arbitral Awards Convention
In a non-insurance matter, a District Court denied a motion to vacate an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Among the grounds alleged for vacating the award was an undisclosed “relationship” between two of the three arbitrators. HSN Capital LLC v. Productora Y Comercializador de Television, S.A., Case No. 05-1769 (M.D. Fla. July 5, 2006). This case contains a good statement of the standards for vacating an arbitration award under the Foreign Arbitral Awards Convention.
Court of Appeals defers issues of arbitration procedure to arbitrators
In an unreported opinion, the United States Court of Appeals for the Ninth Circuit affirmed the action of a District Court that declined to become involved in how an arbitration would be conducted, including whether consolidating multiple arbitrations was appropriate. The Court followed Supreme Court precedent in holding that the courts should only decide “gateway issues” such as whether there was a valid agreement to arbitrate, leaving issues relating to arbitration procedure to the arbitrators. Certain Underwriters at Lloyds v. Cravens Dargan & Co., 2006 WL 2337959, Case No. 05-56154 (9th Cir. Aug. 14, 2006).