Reinsurance Focus

Plaintiff David Balch entered into a contract with Oracle Corp. to close a large government contract known as the “Mega Deal.” After closing the Mega Deal, Balch received a bonus that was less than he believed he was owed. Pursuant to the contract, Balch initiated an arbitration proceeding against Oracle to resolve the dispute. The arbitrator issued an award in favor of Oracle.

Balch filed a petition to vacate the award in a Maryland state court. Oracle removed to the U.S. District Court for the District of Maryland and filed a motion to confirm the award. The district court explained that an award can only be vacated on four narrow grounds set out in 9 U.S.C. § 10. Section 10 allows for vacating an award (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or misconduct on the part of the arbitrator; or (3) where the arbitrator exceeded his or her powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. In addition, a court may overturn a legal interpretation of an arbitrator if it is “in manifest disregard of the law.”

The court ruled in favor of Oracle and confirmed the award. The court reasoned that the arbitrator did not fail to follow the essence of the contract. The court further explained that the arbitrator “had full discretion to determine the case on summary judgment … and the arbitrator otherwise afforded Mr. Balch a full and fair hearing through extensive briefing and discovery.” Lastly, the court held that the arbitrator did not act in manifest disregard of the law because the arbitrator identified the controlling principles of the Maryland Wage Payment and Collection Law, reasonably determined that an ambiguity existed in the application of the law to apposite cases, and heeded the legal principles laid out in the cases he perceived to be correct and on point.

Balch v. Oracle Corp., No. 1:19-cv-01353 (D. Md. Nov. 15, 2019).

The Seneca Nation of Indians moved under Section 10 of the Federal Arbitration Act (FAA) to vacate certain arbitration awards issued in favor of the state of New York, finding that Seneca must pay the state millions in revenue-sharing pursuant to an exclusive gaming compact. The issue before the Western District of New York was whether the awards “manifestly disregarded” the Indian Gaming Regulatory Act (IGRA). The state cross-moved to confirm.

At the outset, Seneca’s petition to vacate was deemed timely. The court ruled that a partial award issued by the panel regarding liability only was not “final” and thus did not trigger the three-month filing period for a petition to vacate an arbitral award, as the partial award did not “definitively resolve” all the issues submitted to arbitration. The state relied on a Second Circuit decision finding a partial award to be “final” under the FAA, but the court found the case to be factually distinguishable here. Nonetheless, both the partial and final awards were confirmed. First, the court found no statutory basis for vacatur pursuant to Section 10 of the FAA. It also found no basis for vacating the awards based on a manifest disregard of the law, noting that the extreme deference afforded to arbitration awards “essentially bars review of whether an arbitrator misconstrued a contract.” Citing a recent decision by the Second Circuit and applying a two-step analysis, the court agreed with the state that this is not one of the “exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent,” as is required for a finding of “manifest disregard.” As such, Seneca’s petition to vacate was denied, and the state’s cross-petition to confirm was granted.

Seneca Nation of Indians v. State of N.Y., No. 1:19-cv-00735 (W.D.N.Y. Nov. 8, 2019).

Metso Minerals Canada Inc. and Metso Minerals Industries Inc. entered into a contract with ArcelorMittal Exploitation Miniere Canada and ArcelorMittal Canada Inc. to supply a specialized mill to a mining mill that ArcelorMittal operated in Quebec, Canada. The contract contained an arbitration clause requiring the parties to submit all disputes arising from the contract to arbitration. ArcelorMittal initiated an arbitration proceeding asserting causes of action under Quebec law, including contract-based claims and a claim for breach of the duty to inform. The breach-of-duty-to-inform claim was based on the allegation that Metso knew of a potential defect in the mill but did not inform ArcelorMittal.

The panel granted an award in favor of Metso stating that the mill met the design criteria in the contract, and therefore a duty to inform about possible defects was meaningless. Metso moved to confirm the arbitration award against ArcelorMittal, and ArcelorMittal cross-moved to vacate the award. The court confirmed the award. The court explained that courts may vacate an arbitration award on four narrow grounds under 9 U.S.C. § 10. In addition, an award can be vacated for “manifest disregard of the law.” “Manifest disregard” is one of “last resort” and is limited to “exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent.” In evaluating a motion to vacate an award based on manifest disregard of the law, a court looks to three questions: (1) whether the law that was allegedly ignored was clear and explicitly applicable to the matter before the arbitrator; (2) whether the applicable law was in fact improperly applied resulting in an erroneous outcome; and (3) whether the arbitrator intentionally disregarded the law. The court explained that despite the fact that the law regarding the duty to inform was potentially unclear, it was plausible for the panel’s majority to find that the undisclosed risks ArcelorMittal identified were insufficiently important to warrant disclosure and that the only facts Metso had to disclose were those regarding whether the mill could meet contractual design criteria and fulfill ArcelorMittal’s expectations under the contract. As such, the court confirmed the award in favor of Mesto.

Metso Minerals Canada, Inc. v. ArcelorMittal Exploitation Miniere Canada, No. 1:19-cv-03379 (S.D.N.Y. Nov. 4, 2019).

Two professional baseball teams — the Washington Nationals and the Baltimore Orioles — were parties to a partnership agreement granting exclusive broadcast rights to their baseball games to a third entity. The agreement had a multistep dispute resolution process. After an unsuccessful mediation, the parties were required to arbitrate before the commissioner of Major League Baseball, unless MLB had an ownership or financial interest in one of the parties to the dispute when it arose. In that event, any dispute was required to be arbitrated before the American Arbitration Association (AAA), pursuant to AAA rules.

The question on appeal was whether the MLB commissioner, the AAA, or a court should decide the gateway issue of whether MLB had a financial interest at the time the dispute arose between the parties. The Appellate Division, First Department, acknowledged that AAA rules were expressly incorporated in the relevant agreement by reference. Under AAA rules, threshold arbitrability questions are clearly and unmistakably delegated to the arbitrator. For this reason, the court held that it possessed “no power” to override the arbitration agreement between the parties. It also emphasized that the arbitration clause here broadly encompassed “any dispute” and expressly stated that if MLB has a potential interest in a dispute, AAA rules shall apply, notwithstanding any powers MLB may ordinarily grant the commissioner in the dispute resolution process. The court therefore vacated an interim stay of arbitration instituted pending appeal and denied the Nationals’ motion for a preliminary injunction enjoining a AAA proceeding commenced by the Orioles.

In re WN Partner, LLC v. Baltimore Orioles Ltd. P’ship, No. 652052/2019 (N.Y. App. Div. Nov. 19, 2019).