Reinsurance Focus

A software company’s (Xtria) appeal of the trial court’s refusal to vacate a commercial arbitration award was rejected, along with Xtria’s assertion that the arbitrator made a gross mistake or manifestly disregarded the law because the claims of Xtria’s sales agent (International) were barred due to a previous settlement entered into between Xtria and International’s subsidiary (Tracking Systems). The settlement defined Tracking Systems to includes its “past, present and future affiliate.” In a subsequent arbitration between Xtria and International concerning Xtria’s alleged breach of another contract, the arbitrator refused to apply the settlement to International because, although it was Tracking System’s parent company, it was not an “affiliate” under California law, because International controlled Tracking Systems, not the other way around. The arbitrator awarded International $1.35 million for breach of contract. The trial court confirmed the award.

On appeal, the award was again confirmed. The appellate court noted the United States Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., and Fifth Circuit precedent holding that the “manifest disregard” vacatur ground is no longer a federal common law standard, and contrary state law is preempted by the Federal Arbitration Act. However, the appellate court stated that “without making a determination that the so-called common-law grounds for vacatur no longer exist,” it would address Xtria’s manifest disregard argument “in the attitude of cautiously donning both a belt and suspenders.” However, Xtria’s argument was unavailing since the arbtirator did not manifestly disregard the law in: (1) interpreting the settlement agreement; (2) determining the parties’ intent to exclude International from the settlement; or (3) deciding that International was not a Tracking Systems “affiliate.” There was also no “gross mistake” in the arbitrator’s decision. Xtria v. Int'l Ins. Alliance Inc., Case No. 06-08-00073 (Tex. App. May 15, 2009).

This post written by Brian Perryman.