New reinsurance-related and arbitration developments from Carlton Fields
Those in the insurance sector may have a much better idea of how the Dodd-Frank Act may affect them soon, as the implementation of the Act continues, and rulemaking is starting to specify some of the requirements of the Act. With this post, we offer a Special Focus article which provides a high level review of relevant recent activities. For further detail, or for advice on particular needs, contact a member of our blog staff.
This post written by Rollie Goss.
Where a court of appeals reversed a lower court’s order compelling arbitration, and mandated a stay of ongoing arbitration proceedings, the proceedings conducted in arbitration both before and after the institution of the stay were not void. The case surrounded a coverage dispute under an automobile insurance policy. The lower court had improperly compelled arbitration prior to determining whether coverage existed under the policy. After the court of appeals reversed, remanded, and stayed arbitration, the lower court found coverage existed and the arbitration resumed. The arbitrator then issued an award for the insureds, and the insurer appealed, contending the stay of the premature arbitration effectively voided all subsequent arbitral proceedings. Quoting a legal dictionary, the court held: “A stay does not vacate anything, but it is instead only the postponement or halting of a proceeding, judgment, or the like.” United Automobile Insurance Co. v. Wilson, Case No. 1-09-3061 (Ill. Ct. App. Jan. 18, 2011).
This post written by Michael Wolgin.
In the latest development in the dispute between Cardell Financial and Suchodolski Associates, the Second Circuit issued a summary order affirming the district court’s judgment confirming an arbitration award and injunctive relief in Cardell’s favor. (We earlier posted on this case at the district court-level on January 20, 2010.) The underlying dispute chiefly concerned two separate agreements: the first – a $12.8 million promissory note, the second – a nonrecourse stock pledge agreement. The district court determined that the arbitrator had not manifestly disregarded the law by, among other things, refusing to apply New York law. Suchodolski Associates appealed, asserting the same theory for overturning the award. The Second Circuit affirmed for substantially the same reasons stated by the district court. Cardell Fin. Corp. v. Suchodolski Associates, Inc., No. 10-226 (2d Cir. Feb. 9, 2011).
This post written by John Black.
In a case involving an arbitration award in a labor dispute, a federal district court in the Eighth Circuit recently questioned whether the “manifest disregard of the law” ground for vacating an arbitration award continues to exist under the Labor-Management Relations Act. The case concerned an arbitration regarding the company’s procedures for evaluating whether an injured employee was physically able to return to work. The arbitrator found in favor of the employee, determining that the procedure employed by the company concerning this employee was inconsistent with its past practices with other employees. The company claimed that its actions were consistent with its collective bargaining agreement and with federal law, and moved to vacate the award as a “manifest disregard” under the LMRA and the Federal Arbitration Act. In upholding the arbitration award, the court recognized that in the Eighth Circuit, “manifest disregard” is no longer a valid basis for vacating an arbitration award under the FAA, and “even if this ground for vacatur survives in LMRA cases,” the arbitrator at worst incorrectly applied the applicable law, rather than refused to apply it. Breckenridge O’Fallon, Inc. v. Teamsters Union Local No. 682, Case No. 4:09CV2005 (USDC E.D. Mo. Jan. 24, 2011).
This post written by Michael Wolgin.
The Ninth Circuit Court of Appeals recently issued an opinion holding that it was improper for a District Court to pass initial review of an arbitration award onto an appellate court rather than reviewing the award itself when presented with motions to confirm and to vacate. The parties, following a lengthy discovery process, had submitted to binding arbitration with appeal rights. After the arbitrator issued an award, and plaintiff moved the federal district court to confirm, defendant Wells Fargo informed the district court of an arithmetical error in the arbitrator’s calculations. Wells Fargo indicated that it did not intend to appeal the arbitrator’s judgment, but moved to modify or vacate the award. The district court refused to review the award, stating that such objections should be taken up on appeal. Wells Fargo subsequently filed the instant appeal.
Finding that it was proper to review the procedural error sua sponte, the Ninth Circuit remanded the case to the district court. The appeal court saw no reason justifying the district court’s circumvention of the Congressionally-established structure of the federal courts and the Federal Arbitration Act’s process for the review of arbitration awards. The Supreme Court’s Hall Street Associates opinion prevents parties from contracting for a standard of review different than that contained in the FAA, and similarly, parties should not be able to contract for a different review process. The district court was thus directed to rule on the motion to modify or vacate. Johnson v. Wells Fargo Home Mortgage, Inc., Case No. 05-321 (9th Cir. Feb. 15, 2011).
This post written by John Black.