Reinsurance Focus

The Second Circuit Court of Appeals affirmed in part and vacated in part a district court’s ruling that an arbitrator committed misconduct by excluding certain evidence (as reported by ReinsuranceFocus in its March 29, 2012 Arbitration Roundup). The Second Circuit Court found that the arbitrator’s exclusion of certain evidence in a commercial property dispute was within the arbitrator’s authorized discretion, and thus remanded with instructions to confirm the arbitrator’s award in that regard. The Court also affirmed other issues appealed by both parties, finding the district court properly concluded that the arbitrator acted properly in refusing to determine a purchase price, and in dismissing the defendant’s breach of fiduciary duty and breach of the covenant of good faith and fair dealing claims. LJL 33rd Street Associates, LLC v. Pitcairn Properties, Inc., Nos. 11-5425 and 12-1382 (2d Cir. July 31, 2013).

This post written by John Pitblado.

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A federal district court has issued an order enjoining the arbitration of a dispute between several workers compensation insurers and reinsurer, National Union Fire Insurance Co. of Pittsburgh, while allegations of misconduct concerning the arbitration process are investigated. The parties’ reinsurance treaty requires disputes to be adjudicated by “disinterested officials” who are “not under the control of either party.” It also provides that each side will choose one arbitrator and that the two will select an umpire. The chosen two arbitrators in the matter could not agree on an umpire; thus, after casting lots, National Union selected an umpire who was a close friend of their chosen arbitrator. The panel issued an interim final award favorable to National Union that addressed liability but left damages issues open. Plaintiffs petitioned the court to stay the arbitration.

Plaintiffs argued that National Union breached the provision in the treaty requiring disputes to be decided by arbitrators not under either party’s control. In support of their motion, plaintiffs presented National Union’s attorneys’ bills (submitted in connection with its attorneys fee request during the arbitration), demonstrating that National Union’s counsel had repeatedly communicated with its arbitrator during the course of the arbitration proceeding in violation of the arbitration panel’s order. Additionally, plaintiffs showed that the arbitration panel had made decisions without the participation of the third arbitrator chosen by plaintiffs. The court issued a corrected preliminary injunction that precludes any further orders from the arbitrators and communications between the parties and the arbitrators pending subsequent order from the court. National Union has filed a notice of appeal in which it indicates it will argue to the Sixth Circuit, among other things, that the court lacked jurisdiction to enjoin an ongoing arbitration proceeding.

Star Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, Case No. 2:13-cv-13807 (USDC E.D. Mich. Sept. 12, 2013).

This post written by Ben Seessel.

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On September 29, 2009 and November 22, 2010, respectively, we reported on a court’s vacatur of an arbitration award related to a “deficit carry forward” provision in a reinsurance agreement, and the Third Circuit’s subsequent affirmance of that order. The dispute surrounded the manner in which deficits in a reinsurer’s “experience account” under a reinsurance agreement for one year, applies to distribution of account funds under a separate reinsurance agreement for a subsequent year. The court previously vacated an arbitration award that awarded the reinsurer $6 million and failed to apply the “deficit carry forward” provision, which the court found to be unsupported by the contract and therefore “completely irrational” (notwithstanding a broad “Honorable Engagement Clause”). In a recent opinion and order, the court affirmed the award of a new arbitration panel, which interpreted the agreements and found that the “deficit carry forward” provision applied to permit the reinsurer to retain its portion of the account deficits prior to distribution to the reinsured of the funds of the account for the subsequent year. Because the panel “grounded its decision on the language” of the relevant reinsurance agreement, the court found that the panel’s decision properly “draws its essence” from the contract. Platinum Underwriters Bermuda, Ltd. v. Excalibur Reinsurance Corp., Case No. 2:12-mc-00070 (USDC E.D. Pa. July 15, 2013), and corresponding judgment entered July 18, 2013.

This post written by Michael Wolgin.

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Disagreement over result

Bailey Brake Farms, Inc. v. Trout, No. 2011-CA-00610 (Ms. S.C. May 23, 2013) (mere disagreement with the result of arbitration is not a ground for vacating an arbitration award)

Leeward Constr. Co. v. American Univ. of Antigua College of Medicine, Case No. 12-6280 (USDC S.D.N.Y. Mar. 26, 2013) (mere disagreement with the result of arbitration is not a ground for vacating an arbitration award)

Evident partiality

Bain Cotton Co. v. Chestnutt Cotton Co., No. 12-11138 (5th Cir. Je. 24, 2013) (dewnial of discovery by arbitrator did not amount to evident partiality)

Antietam Industries, Inc. v. Morgan & Keegan Co., Case No. 12-1250 (USDC M.D. Fl. Mar, 25, 2013) (lack of disclosure by arbitrator did not amount to evident partiality, nor was arbitrator misbehavior or exceeding powers demonstrated)

Exceeding authority

Donnelly v. Jewel of Kahana, LLC, Case No. 12-00347 (USDC D. Ha. Mar. 28, 2013)(using the completely irrational test, the arbitrator did not act in excess of authority; improper arbitrator bias was not shown; mere disagreement with arbitration result is not a basis for vacating an award)

E*Trade Securities, LLC v. Nash, Case No. 12-1766 (USDC M.D. FL. Mar. 12, 2013)(arbitrator did not exceed authority by deciding issue when the parties waived their right to have the issue determined by a court)

Jurisdiction

Liu v. Mar, Case No. 13-685 (USDC N.D. Ill. April 10, 2013) (motion to confirm arbitratin award dismissed for lack of subject matter jurisdiction because no basis for federal jurisdiction was articulated other than the Federal Arbitration Act, which does not provide a basis for the exercise of jurisdiction)

Manifest disregard

Bartlett Grain Co. v. Sunburst Farms Partnership, Case No. 13-1152 (USDC D. Ks. July 5, 2013)(avoids quesion of whether the doctrine of manifest disregard of law survives Superme Courtt’s Hall Street Associates opinion by finding that manifest disregard not demonstrated)

Stipulation

Berkley Ins. Co. v. Excalibur Reinsur. Corp., Case No. 13-2633 (USDC S.D. N.Y. May 15, 2013) (arbitration award concerning reinsurance dispute confirmed by stipulation)

Untimely request to vacate

Glaser v. Legg, Case No. 12-805 (USDC D. D.C. Mar. 11, 2013) (petition to vacate arbitration award denied as untimely under the Federal Arbitration Act; Petitioner barred from raising arguments in support of vacating award as affirmative defenses to cross-petition to confirm the award)

This post written by Rollie Goss.

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Manifest Disregard

HET-JV v. Weston Solutions, Inc., No. 13-100 (USDC E.D. Pa. June 4, 2013) (vacatur denied for ICDR interim award on liability, no manifest disregard, arbitrators did not imperfectly execute powers. Confirmation also denied as premature prior to damages phase of arbitration)

Smith v. Servicemaster Holding Corp., No. 2:11-cv-02943 (USDC W.D. Tenn. May 21, 2013) (vacatur denied where arbitrator ruled that arbitration could proceed on class-wide basis, ruling did not exceed powers, and was not in manifest disregard of the law).

A&G Coal Corp. v. Integrity Coal Sales, Inc., No. 12 Civ. 5293 (USDC S.D.N.Y. May 21, 2013) (vacatur denied, no manifest disregard, arbitrator did not exceed scope of authority).

C-Sculptures, LLC v. Brown, No. 2011-195907 (S.C. May 8, 2013) (affirmation of award reversed by South Carolina Supreme Court, finding award reflected manifest disregard of the law, as arbitrator had been apprised of applicable law and improperly failed to grant respondent’s motion to dimiss)

Exceeding or Imperfectly Executing Powers

Langlais v. Pennmont Benefit Services, Inc., No. 12-3234 (3d Cir. June 7, 2013) (affirming confirmation of arbitration award, arbitrator did not exceed powers, claims were within the scope of arbitration).

Award Exceeds Scope of Submission

Chevron Corp. v. Republic of Ecuador, No. 12-1247 (USDC D.C. June 6, 2013) (confirming award under New York Convention, finding the award was within the scope of the submission).

Marker Volkl (Int’l) GMBH v. Epic Sports Int’l, Inc., No. 12 Civ. 8729 (USDC S.D.N.Y. May 1, 2013) (denying vacatur of foreign award under New York Convention for failure to establish any of the enumerated bases for vacatur, award was within scope of submission).

Award Result of Fraud, Deceit

Meeks v. Host International, Inc., No. 11-17928 (9th Cir. May 22, 2013) (vacatur denied to pro se plaintiff from arbitration award against her in employment termination case, as no fraud, deceit or bad faith demonstrated in arbitration award).

This post written by John Pitblado.

See our disclaimer.

In an uninsured/underinsured motorists coverage case, the plaintiff, an injured party in a collision with an underinsured driver, sued her insurer for underinsured motoriests benefits under her policy, which carried limits of $100,000. She was awarded $120,000 by the arbitrator, and the plaintiff then moved to comfirm in court. The insurer objected, based on the fact that there was no basis for any award beyond the policy’s limits. The trial court agreed with the insurer, and vacated that portion of the award in excess of $100,000, and otherwise confirmed the award as modified. However, on appeal, the Supreme Court of Rhode Island reversed, noting:

In modifying this award, the trial justice accepted defendant‘s contention that, . . . arbitrators may not award prejudgment interest above policy limits. . . . In effect, then, the trial justice modified the award based on his belief that the arbitrators had made an error of law. However, it is settled beyond a hint of contradiction that a mistake of law is not grounds for upsetting an arbitration award.

Wheeler v. Encompass Insurance Co., No. 2011-313 (R.I. May 24, 2013).

This post written by John Pitblado.

See our disclaimer.

Thomas Kinkade Company’s suit against Nancy and David White was submitted to an arbitration proceeding in which, as the Sixth Circuit noted, “the coincidences all break one way.” During the five-year arbitration, the arbitrator, Mark Kowalsky, defied his role as neutral intermediary in various ways. For example, Kowalsky provided the Whites multiple opportunities to bolster the proofs of their claims. Kowalsky allowed the Whites to submit as evidence 8,800 documents they had deliberately withheld from Kinkade for four years. On a straightforward breach-of-contract claim that went virtually uncontested throughout arbitration, he denied Kinkade any relief. When Kinkade raised objections to Kowalsky’s decisions as an arbitrator, Kowalsky gave no response. Kowalsky additionally awarded the Whites attorney’s fees of nearly $500,000 after the arbitration panel unequivocally denied those fees in the Interim Award. Finally, during arbitration, the Whites and their appointed arbitrator both retained Kowalsky’s law firm in unrelated matters, and Kowalsky made no effort to avoid receiving compensation for such matters. Kinkaid sought to disqualify Kowalsky to no avail. Both the AAA and Kowalsky denied disqualification requests. The arbitration panel entered a Final Award in favor of the Whites in an amount in excess of $1.4 million. The district court granted Kinkade’s motion to vacate due to the arbitrator’s partiality, and the Sixth Circuit affirmed. Thomas Kinkade Company v. White, No. 10-1634 (6th Cir. April 2, 2013).

This post written by Rollie Goss.

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Confirming Award

Mandell v. Reeve, No. 11-5238 (2d. Cir. Feb. 4, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; denying appellee’s motion for sanctions, finding that the appeal was not frivolous).

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., No. 12-20256 (5th Cir. Apr. 9, 2013) (reversing district court’s decision to vacate an arbitration award with instructions to reinstate the award, holding that the arbitrator’s award of a perpetual license as relief to the prevailing party was not inconsistent with the essence of the parties’ contract).

Data & Development, Inc. v. Infokall, Inc., No. 12-2456 (2d Cir. Mar. 13, 2013) (affirming district court’s decision to confirm arbitration award, holding that the arbitrator did not manifestly disregard New York law in awarding lost profits to the prevailing party on breach of contract claim).

Stonebridge Equity v. China Automotive Systems, Inc., No. 12-1548 (6th Cir. Mar. 26, 2013) (affirming district court’s confirmation of arbitration award, holding that arbitrators did not act in manifest disregard of the law by using extrinsic evidence to interpret the parties’ contract and that the district court’s minor modification of the award to assure compliance was in accordance with the FAA).

Johnson Controls, Inc. v. Edman Controls, Inc., Nos. 12-2308 & 12-2623 (7th Cir. Mar. 18, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; arbitrator had not disregarded the parties’ choice of law nor exceeded his powers in awarding damages and attorneys fees to prevailing party).

Vacating Award

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 12-1850 (6th Cir. Apr. 9, 2013) (affirming district court’s partial vacatur of arbitration award, holding that the district court did not commit clear error in making the factual determination that an entity was not bound by an arbitration clause).

City of Oswego v. Oswego City Firefighters Association, No. 49 (N.Y. Apr. 2, 2013) (reversing order of appellate division; ordering that an arbitration award be vacated because the award would require a municipality to provide a benefit no longer authorized by law and that the final result would conflict with other laws and well-defined policy considerations).

Class Action Waiver and FAA Preemption

McKenzie Check Advance of Florida, LLC v. Betts, No. SC 11-514 (Fla. Apr. 11, 2013) (FAA preemption prevents court from invalidating class action waiver as void against state public policy because waiver would prevent consumers from vindicating rights under state consumer protection laws).

Jurisdiction

Community State Bank v. Knox, No. 12-1304 (4th Cir. Apr. 11, 2013) (affirming district court’s dismissal of petition to compel arbitration holding that that the FAA by itself does not bestow federal jurisdiction and that there was no independent basis for federal jurisdiction).

This post written by Ben Seessel.

See our disclaimer.

Manifest Disregard/Exceeding Powers

Tivo, Inc. v. Goldwasser, Case No. 12-cv-07142 (USDC S.D.N.Y. Feb. 14, 2013) (denying motion to vacate award; granting motion to confirm award; panel did not exceed authority for allegedly basing award on theory not advanced by parties; panel’s patent licensing determinations not a “manifest disregard” of the law)

Giller v. Oracle USA, Inc., No. 12-895 (2d Cir. Feb 22, 2013) (affirming order granting motion to dismiss petition to vacate award in employment dispute; no grounds for vacatur for arbitrator’s interpretation of underlying contract; noting that “manifest disregard” still regarded as a “judicial gloss” on the FAA in the Second Circuit)

Peterson v. Macy’s, Case No. 10-cv-05119 (USDC E.D.N.Y. Feb. 25, 2013) (denying motion to vacate in pro se employment discrimination action; “since, inter alia, there is more than a ‘colorable justification’ for the arbitrator’s decision, the arbitration award was not rendered in manifest disregard of the law”)

Department of Professional & Financial Regulation v. Maine State Employees Association, Case No. 2013 ME 23 (Me. Feb. 28, 2013) (reversing and remanding for lower court to enter order denying motion to vacate award that reinstated employee; because the award “did not violate a public policy ‘affirmatively expressed or defined in the laws of Maine,’ the arbitrator did not exceed his powers, and the award is not subject to further judicial scrutiny on that basis”)

Choice of Law

Orbitcom, Inc. v. Qwest Communications Co., Case No. 12-cv-01639 (USDC D. Co. March 12, 2013) (granting motion to confirm award; denying motion to vacate; arbitrator did not exceed powers for 16-month delay of entry of final award; arbitrator correctly applied FAA for arbitration procedure, rather than New York law, notwithstanding New York substantive choice of law provision)

Abu Dhabi Investment Authority v. Citigroup, Inc., Case No. 12-cv-00283 (USDC S.D.N.Y. March 4, 2013) (denying petition to vacate award; no manifest disregard for New York choice of law; proceedings were not fundamentally unfair, notwithstanding tribunal’s denial of certain discovery)

Subject Matter Jurisdiction

Duffy v. Legal Aid Society, Case No. 12-cv-02152 (USDC S.D.N.Y. Feb. 12, 2013) (dismissing petitioner’s pro se action to vacate arbitration decision in employment dispute; employee lacked standing to challenge arbitration between union and employer; petitioner failed to argue that union did not provide fair representation; argument that arbitration decision was “confusing and contradictory” not grounds for vacatur)

Smith v. Cheesecake Factory Restaurants, Inc., Case No. 06-cv-00829 (USDC M.D. Tenn. Feb. 8, 2013) (denying motion to vacate award; arbitrator’s award authorizing collective arbitration under Fair Labor Standards Act was an interim decision and vacatur was thus not ripe for judicial review)

Conclusory Challenge

Wanken v. Wanken, No. 12-10562 (5th Cir. Feb. 11, 2013) (affirming order denying motion for relief from judgment and confirming arbitration award; appellant failed to show that court ignored evidence allegedly showing that appellees gave perjured testimony and fraudulently procured the arbitration award)

Bailey Brake Farms, Inc. v. Trout, Case No. 2011-CA-00610 (Miss. Feb. 28, 2013) (reversing vacatur of arbitration award that set the value of shares under a stock buy-sell agreement; court’s order lacked any analysis or findings supporting grounds for vacatur, such as exceeding authority, “undue means,” or “unresolved issues”)

This post written by Michael Wolgin.

See our disclaimer.

In a summary order, the Second Circuit Court of Appeals affirmed the district court’s confirmation of an arbitration award issued in favor of NCG Network Asia and the denial of PAC Pacific Group International’s motion to vacate. The court found that the arbitrator had properly disclosed a prior business relationship that indirectly linked him with NCG Network Asia, nothing about the relationship would compel a reasonable person to believe that the arbitrator was partial, and that PAC Pacific Group had thus not made the requisite showing to entitle it to post-arbitration discovery on the arbitrator’s alleged bias. The court also held that there was nothing inappropriate in denying PAC Pacific Group’s challenges to the arbitrator based on alleged impartiality, which denials complied with governing AAA rules and, further, that the arbitrator’s conclusion that there was no breach of the implied covenant of good faith and fair dealing was in accord with applicable law. NGC Network Asia, LLC v. PAC Pacific Group International, Inc., No. 12-0967 (2d Cir. Feb. 11, 2013).

This post written by Ben Seessel.

See our disclaimer.