The plaintiff in the underlying arbitration (Health Options) served a third-party subpoena on Walgreens to attend a hearing and produce documents concerning the prices it charged for pharmaceuticals to Navitus that Health Options ultimately covered. Walgreens initially declined to produce the requested information and a corporate representative for the hearing, claiming its headquarters was more than 100 miles from the hearing location in Madison, Wisconsin, and that the court lacked personal jurisdiction over it. The court, however, granted a motion to enforce the arbitration subpoena. First, the court rejected Walgreens’s territoriality argument, accepting Health Options’s proposed method of measuring distance “as the crow flies” and finding that Walgreens’ headquarters in Deerfield, Illinois was less than 100 miles from Madison. Second, the court held that it had personal jurisdiction over Walgreens. The court concluded that Walgreens’s suit-related in-state activities—submitting inflated prices to Navitus that Navitus in turn submitted to Health Options—were sufficiently related to Health Options’s injuries—overpaying on Navitus’s claims. Walgreens’s “purposely-directed communications” to Navitus in Wisconsin were “part of the wrongful conduct” that prompted the lawsuit. Because it is unclear whether the traditional minimum contacts inquiry applies in the third-party discovery context, the court examined the additional criterion some circuits apply: whether a close relationship exists between the non-party’s contacts with the specific discovery request. Even with the heightened scrutiny, the court found the subpoena sought documents related specifically to Walgreens’s contact with Wisconsin. Finally, the court denied Walgreens’s request that Health Options pay its subpoena compliance costs up front. It found Walgreens did not demonstrate the subpoena would be unduly burdensome nor did it provide an estimate of costs, both flaws that precluded an award of costs, let alone upfront costs. Maine Community Health Options v. Walgreen Co., Case No. 18-0009 (USDC W.D. Wis. Dec. 20, 2018).
Ninth Circuit Holds that Federal Rules of Civil Procedure Govern How to Calculate the FAA’s Three-Month Filing Deadline to Seek Vacatur of an Arbitration Award
The Ninth Circuit affirmed the denial of a petition to vacate an arbitration award because the petition was filed one day late. The court determined that whether a petition to vacate is filed within the applicable three-month deadline under the FAA is based upon the method of calculating provided by Federal Rule of Civil Procedure 6(a). That Rule provides a three-step process: (1) exclude the day the arbitrator delivered the final award (in this case, September 14, 2016); (2) calculate three months from the following day (in this case September 15); and (3) include the last day of the period, unless it is on the weekend or a legal holiday, in which case the period concludes at the end of the next weekday that is not a legal holiday. Here, the court focused on Step 2. The court stated that each month began on the 15th day of the month and ended on the 14th day of the following month, just as “the month beginning January 1 concludes on January 31, not February 1.” Because the plaintiffs filed their petition for vacatur on December 15, when the last day for filing within the available three-month window under the FAA was December 14, the Ninth Circuit found that the petition was properly denied as untimely. The Ninth Circuit also addressed the standard for whether a post-judgment motion tolls the time to file an appeal pursuant to Federal Rule of Appellate Procedure 4(a)(4). Stevens v. Jiffy Lube International, Inc., No. 17-15965 (9th Cir. Dec. 27, 2018).
This post written by Benjamin E. Stearns.
See our disclaimer.
Third Circuit Affirms Dismissal of Landlord’s Attempt to Vacate Arbitration Award
Sears Roebuck and Co. (Sears) entered a 40-year lease with Century III Mall, PA., LLC (“Century III Mall”), whereby Sears agreed to maintain an anchor store at the Century III Mall. In the event that Sears elected to discontinue operations, the lease provided Century III Mall with an option to acquire the Sears “Building and Improvements,” the valuation to be determined by a formula specified in the lease. The lease also contained an arbitration clause prohibiting the arbitrators from, among other things, changing any terms set forth in the lease. Sears later terminated the lease and Century III Mall exercised its right to acquire the Building and Improvements. Unable to agree on a valuation, Sears commenced arbitration and an arbitration panel awarded Sears nearly $4 million.
Century III Mall filed a petition in a federal district court in Pennsylvania seeking to vacate the award, claiming the panel exceeded its authority by “rewriting” the terms of lease and, in turn, inflating the property value. The district court disagreed and dismissed the action, as well as confirmed the award. The Third Circuit affirmed, noting, as an initial matter, that the district court had subject matter jurisdiction under 9 U.S.C. §§ 9 and 10 and 28 U.S.C. § 1332, and that appellate jurisdiction was proper under 9 U.S.C. § 16(a) and 28 U.S.C. § 1291. Substantively, the Third Circuit agreed with the district court that the panel reasonably interpreted the lease and rationally applied its terms. Thus, citing the “highly deferential standard of review” applicable to arbitration decisions, the Court declined to disturb the district court’s decision not to vacate the award.
Century III Mall, PA., LLC v. Sears Roebuck & Co., Nos. 17-2284 and 17-2759 (3d Cir. Dec. 20, 2018).
This post written by Alex Silverman.
See our disclaimer.
English High Court Refuses to Set Aside an Order for Enforcement of an International Arbitration Award
This case relates to a dispute between Eastern European Engineering Ltd. (“EEEL”) and Vijay Construction (Proprietary) Ltd. (“VCL”), both of which are incorporated in the Seychelles, arising out of the construction of a hotel resort and spa. In 2011, the parties had entered into six materially identical contracts. Disputes arose and EEEL eventually terminated the contracts. EEEL referred the disputes to an International Chamber of Commerce (“ICC”) arbitration seated in Paris. A sole arbitrator was appointed, who issued an award in November 2014 in EEEL’s favor (the “Award”).
VCL challenged the Award in the French courts on three grounds. The French court dismissed VCL’s challenge. Although VCL initially appealed that decision, it did not purse the appeal and it was subsequently dismissed in May 2017. Concurrently, in January 2015, VCL also initiated proceedings in the Seychelles, seeking to set aside the Award on essentially the same grounds as those on which the challenges were based in the French proceedings. In April 2017, the Seychellois court dismissed all of VCL’s challenges and held that the Award was enforceable. VCL, however, successfully appealed that decision because, under Seychellois law, there is no power to order enforcement on the basis that the New York Convention had been previously repudiated by the Seychelles. The merits of the substantive grounds of the lower court’s decision were not considered in the appeal.
In August 2015, EEEL successfully obtained an order from the English High Court to enforce the Award in England and Wales and to enter judgment against VCL (the “August 2015 Order”). In October 2015, VCL applied under section 103 of the Arbitration Act 1996 to set aside the August 2015 Order. That application was stayed while the French and the Seychellois proceedings were pending. EEEL argued that VCL’s application should be denied because of issue estoppel and public policy on finality. As to issue estoppel, EEEL argued that the conditions were satisfied because the decision of the French court was a final merits decision in a court of competent jurisdiction between the same parties.
The English High Court denied VCL’s application to set aside the August 15 Order. First, the English court agreed that, in relation to VCL’s challenge based on jurisdiction, VCL was estopped as VCL’s argument in the English proceeding appeared to be exactly the same as that which was made in the French proceeding. As to VCL’s challenge on the ground of procedural unfairness, the court found that VCL’s argument was “slightly different” in the English proceeding, and thus the court considered the merits of the challenges. In considering each of VCL’s challenges, the court found that they failed. Thus, the English court did not have to reach the question of public policy on finality. It, however, noted that it would “have concluded that the balance came down in favor of upholding the public policy on finality,” explaining that the facts here, where VCL had sought to raise substantially the same challenges to the Award in two other courts, one of which had a full evidentiary hearing, “are circumstances which would weigh very heavily against allowing VCL a third challenge.”
Eastern European Engineering Ltd. v. Vijay Construction (Proprietary) Ltd., [2018] EWHC 2713 (Comm) (Oct. 11, 2018).
This post written by Jeanne Kohler.
See our disclaimer.
The Ninth Circuit Reverses California District Court’s Ruling Vacating Arbitration Award Based on Evident Partiality
The background of the case can be found here. In sum, in 2009, plaintiffs American Brokerage Network and its owner Cung Thai (collectively, “ABN”) and American General Life and Accident Insurance Company (“AGLA”), a subsidiary of American International Group, Inc. (“AIG”), entered into a master general agent agreement, which was terminated in 2013. In 2015, ABN brought an arbitration under the rules of the American Arbitration Association (the “AAA”) against AGLA, AIG and later American General Life Insurance Company, successor to AGLA (collectively, “American General”), asserting claims of intentional interference with business relationships, breach of contract and breach of the implied covenant of good faith and fair dealing in connection with the agreement. Defendants counterclaimed for breach of contract and contractual indemnity. The sole arbitrator in the case made disclosures of certain relationships of her law firm with defendants and their subsidiaries. ABN asked no questions about her disclosures and she was accepted as arbitrator. In June 2016, the arbitrator dismissed AIG from the case. Thereafter, in September 2016, after ten days of testimony and other evidence, the arbitrator issued a Final Award, denying both sides’ claims for relief. After receiving the Award, ABN learned, through public records, of alleged undisclosed relationships between the arbitrator’s law firm and defendants’ alleged subsidiaries. ABN then moved in the California district court to vacate the Final Award due to the alleged incomplete disclosures. In June 2017, the district court granted the motion to vacate, finding that the arbitrator breached her duties of disclosure and investigation, and that the nondisclosures created a reasonable impression of bias, and that ABN did not waive its right to challenge the arbitrator. Defendants appealed to the Ninth Circuit.
The Ninth Circuit overturned the California district court’s decision, noting that “[g]iven the arbitrator’s disclosure that AIG was a former client of her firm, ABN had some duty to inquire about the nature of that relationship.” But the Ninth Circuit further noted that “ABN asked no questions and proceeded with the hearing.” According to the Court, “the laborious efforts required to discover the undisclosed relationships give credence to the reasonableness of the arbitrator’s investigation.” Finally, the Court held that “the undisclosed relationships, considered in the light of those the arbitrator did disclose, are insufficient to create a ‘[r]easonable impression of partiality.’” Thus, the Ninth Circuit reversed the California district court’s decision and remanded the case to the district court with instructions to enter judgment confirming the arbitration award.
American Brokerage Network and Cung Thai v. American General Life Insurance Co., No. 3:16-cv-06952 (9th Cir. Nov. 30, 2018).
This post written by Jeanne Kohler.
See our disclaimer.