Reinsurance Focus

In 2006, the federal district court in Maine confirmed an arbitration award in favor of Sleeper Farms (plaintiff potato farmers) arising out of a dispute with Agway, an agricultural cooperative. Plaintiffs, dissatisfied with their limited victory, appealed to the First Circuit. Plaintiffs argued that the district court erred in referring the dispute to the arbitrator in 2002, and erred again in 2006 when it confirmed the arbitrator’s award.

With respect to the 2002 order, Sleeper Farms argued that the order was unenforceable for two reasons: (1) that the contracts were illegal and (2) that Agway waived its right to arbitrate. The Court rejected both arguments finding that the illegality argument goes to the validity of the substantive provisions of the contract, not to arbitrability. Specifically, the court held that as a matter of federal law, the arbitration clause is unaffected even if the substance of the contract is otherwise void. Secondly, the court recognized that a claim of waiver may be a genuine challenge to arbitrability, but in this case the requirements of waiver were not met.

The First Circuit also rejected Sleeper Farms’ argument that the 2006 arbitration award should be vacated. Specifically, the court concluded that plaintiffs could not satisfy their claim that the arbitrator acted in manifest disregard of the law or that the arbitral award was contrary to public policy. Sleeper Farms v. Agway, Inc., No. 06-2694 (1st Cir. Nov. 2, 2007).

This post written by Lynn Hawkins.