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What Happens when Arbitrators Exceed Clear Limitations on their Authority?

October 24th, 2014 Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, State Arbitration Law, State Arbitration Statutes, State Courts, United States Court of Appeals for the Second Circuit No Comments » By Philip J. Loree Jr.

One advantage of arbitration is that parties can define and delineate the scope of disputes they agree to submit to arbitration, the basis on which disputes  can or must be resolved and the scope of the arbitrator’s remedial powers. If parties impose clear limits on an arbitrator’s authority (usually by expressly excluding certain matters from arbitration or expressly providing that an arbitrator cannot or must grant certain remedies), then courts and arbitrators are supposed to enforce those limitations. See, e.g., Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 680-81 (2010).

Far too frequently, parties simply agree to a broad arbitration agreement that places no limitations on arbitral power, and when they end up on the wrong-end of an award they didn’t expect, they discover to their dismay that they have no judicial remedy. Whether or not they understood that at the time they agreed to arbitrate is, of course, irrelevant. The only relevant consideration is whether their agreement could be reasonably construed to grant the arbitrator that authority, even if it could also be reasonably construed to withhold it. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (“when a court interprets such provisions in an agreement covered by the FAA, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration”) (quotation and citation omitted).

But suppose the parties take the time to consider whether they desire to limit arbitral authority, and their arbitration agreement unambiguously expresses an intention to limit arbitral authority to resolve certain disputes or impose certain remedies, or to expressly require that the arbitrators grant certain types of relief, such as fee shifting to a prevailing party. Should a court vacate the award if the arbitrator does not abide by the parties’ unambiguously expressed intentions?  Continue Reading »

National Children’s Center, Inc. v. Service Employees Int’l Union: What Happens when an Arbitrator Interprets a Contract, but does not even Arguably Apply the Interpretation to the Parties’ Dispute?

October 20th, 2014 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, United States District Court for the District of Columbia, United States Supreme Court No Comments » By Philip J. Loree Jr.

Introduction

The deferential Enterprise Wheel/Stolt-Nielsen/Oxford contract-based outcome review standard the U.S. Supreme Court has applied to both labor arbitration awards under Section 301 of the Labor Management Relations Act, and commercial arbitration awards falling under the Federal Arbitration Act, is fairly simple to articulate yet often difficult to apply, especially in close cases.

In National Children’s Center, Inc. v. Service Employees Int’l Union, No. 13-1036, slip op. (D.D.C. Sep’t 19, 2014), United States District Court for the District of Columbia was faced with such a case, and the district court judge had to make a tough call. Applying the sometimes elusive standard, the Court concluded that the award had to be vacated. It was a close call— so close, in fact, that others may disagree and support their conclusions with what may appear to be compelling arguments.

On balance, we think the Court did the right thing given the somewhat unusual circumstances the case presented. But at least on some level it doesn’t matter. The district court judge did exactly what a good judge should do: she followed the law and, faced with the task of applying the law to a rather odd set of circumstances, she did so in the way she thought (and we agree) the law should be applied, even though the result was overturning an award.

It is quite likely that on remand the arbitrator will issue an award reaching the same conclusion and that the second award will be judicially enforced. While some might argue that vacatur should have been denied for expediency’s sake, that would not only have been the wrong decision, but a shortsighted one. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

October 6th, 2014 Choice-of-Law Provisions, Claims Handling, Contract Interpretation, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Reinsurance Arbitration, Reinsurance Claims, Retrospectively-Rated Premium Contracts, State Courts, Statute of Limitations No Comments » By Philip J. Loree Jr.

 Part IV.B

 

 Why is Hahn Automotive v. American Zurich Ins. Co. Important?

 

Introduction

Now that we’ve taken a closer look at Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012), let’s step back a bit and consider what it means both in general and in the reinsurance-claim-statute-of-limitations scheme of things.

As will be explained in this Part VI.B, Part VI.C, and Part VI.D, Hahn:

  1. Creates a new general rule, which effectively extends to a larger universe of contracts a statute of limitations accrual principle that it had applied only to certain specific types of contracts, including contracts of indemnity;
  2. Demonstrates that, outside the limited context of express conditions, breach-of-contract statute-of-limitations accrual is not exclusively a matter of party intent;
  3. Suggests that the New York Court of Appeals, if faced with an accrual question where the obligee’s demand is an express condition to the obligor’s liability, would probably not permit accrual to be delayed for more than a relatively brief period measured from the date on which the obligee was legally entitled to demand payment;
  4. All but forecloses an argument that a court may justify a delay in the statute of limitations by deeming a demand requirement to be an implied condition;
  5. Creates an analytic framework for determining breach-of-contract statute-of-limitations accrual questions that is at least as well-suited to excess-of-loss reinsurance contracts as it is to retrospective premium contracts;
  6.  Will likely be applied to reinsurance contract statute-of-limitations questions, that cedents or reinsurers may in the past have assumed would be governed by Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996); and
  7. If so applied to a situation where, as in Stronghold: (a) the reinsurance contract does not unambiguously condition the reinsurers’ liability on claims presentation; and (b) the cedent settled the underlying insurance claims more than six-years before commencing their action, will, all else equal, likely require a finding that the cedent’s claims are time-barred.

Hahn therefore has some important claims management implications for both cedents and reinsurers, which we’ll discuss in Part IV.E.

But there is, as no doubt many readers have discerned, a proverbial “elephant in the room:” arbitration. Arbitration agreements are exceedingly common in reinsurance contracts, particularly in treaties. In Part V., we’ll discuss the profound effect that the choice between judicial and arbitral resolution of a controversy can have on statute of limitations questions, and how that choice bears on cedent and reinsurer time-bar strategy.

Finally, there is another very important—and all too frequently overlooked— consideration that we would arguably be remiss not to discuss: choice-of-law. Reinsurance disputes, like so many of their other commercial counterparts, frequently cross state and national borders, raising horizontal choice-of-law issues. But in many (indeed, probably most U.S.) jurisdictions, including New York, choice-of-law rules that determine what substantive rules of decision apply (i.e., what rules of decision apply to merits-related issues) do not determine what statute-of-limitations rules apply, and that may be true (as it ordinarily is in New York) even where parties agree that the law of State X governs their agreement.

In New York, that issue is ordinarily determined by New York’s borrowing statute, New York Civ. Prac. L. § 202, many other states have similar (although not necessarily identical) borrowing statutes and at least a few other states may either simply follow the traditional rule that forum law governs statute of limitations or apply substantive choice-of-law rules to determine the applicable statute of limitations. Part VI will thus address choice-of-law questions pertinent to the statute of limitations, focusing on New York’s borrowing statute, and discuss how choice-of-law issues affect time-bar strategy. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

September 19th, 2014 Claims Handling, Contract Interpretation, Insurance Contracts, Late Notice, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Retrospectively-Rated Premium Contracts, Statute of Limitations, United States Court of Appeals for the Second Circuit No Comments » By Philip J. Loree Jr.

Part IV.A

 

Hahn Automotive v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012): Unless Parties Unambiguously Condition Obligor’s Duty to Perform on Demand for Payment, Statute of Limitations Begins to Run as Soon as Obligee is Legally Entitled to Demand Payment

If you’ve been following this multi-part post from inception, then you know that we think the New York Court of Appeals’ 2012 decision in Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012) strongly suggests that, if faced today with facts materially identical to those in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996), New York’s highest court would hold that the cedent’s claims were time-barred because: (a) the notice provisions in the reinsurance contracts did not unambiguously condition the reinsurers’ obligation to pay on presentation of claims and demands for payment; and (b) the cedent was legally entitled to present and demand payment for each of its reinsurance claims more than six years before the cedent commenced its action. This Part IV.A discusses what transpired in Hahn, and Part IV.B will analyze Hahn’s likely effect on excess-of-loss reinsurance-claim statute-of-limitations accrual.

Hahn Facts and Procedural History

Hahn was a dispute between an auto parts distributor (the “Insured”), and its two insurers, both members of the Zurich Insurance Group (the “Insurers”).

During each annual period between September 1992 and September 2003, the Insurers provided general liability, auto liability and workers’ compensation coverage to the Insured. The insurance was priced using three types of alternative-risk-finance rating plans embodied in: (a) retrospective premium agreements (the “Retro Premium Agreements”); (b) adjustable deductible policies (the “Adjustable Deductible Policies”); and (c) deductible policies (the “Deductible Policies”). The Insurers also entered into certain claims services contracts (the “Claims Services Contracts”) under which the Insurers provided claims-handling services on a fixed-fee-per-claimant basis. Continue Reading »

Res Judicata and Consolidated Arbitration: the Sixth Circuit puts the Kibosh on the “Contagion Theory of Arbitration”

September 17th, 2014 Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Consolidation of Arbitration Proceedings, Construction Industry Arbitration, Contract Interpretation, Drafting Arbitration Agreements, Existence of Arbitration Agreement, Final Awards, Judicial Review of Arbitration Awards, Michigan State Courts, Practice and Procedure, Preclusive Effect of Awards, Res Judicata or Claim Preclusion, State Courts, United States Court of Appeals for the Sixth Circuit, United States Supreme Court 2 Comments » By Philip J. Loree Jr.

Res judicata—Latin for a “matter” or “thing” “decided”—is the legal principle under which a final judgment in one action bars the same parties from relitigating in another, successive action matters that were or could have been asserted in that  first action. Also known as “claim preclusion”, it is designed to promote finality and judicial economy, and to protect persons from vexatious litigation. See, generally, Taylor v. Sturgell, 553 U.S. 880, 891 (2008).

But can an unconfirmed arbitration  award preclude a party from maintaining a court action to resolve a matter that it did not submit or agree to submit to arbitration? Suppose:

  1. A has an arbitration agreement with B (the “AB Agreement”);
  2. B has an arbitration agreement with C (the “BC Agreement”);
  3. A and C did not agree to arbitrate any disputes between them;
  4. The AB Agreement contemplates the parties arbitrating their claims against each other in a consolidated arbitration that may involve factually-related disputes that B has agreed to arbitrate with C or other third parties, provided those third parties consent to consolidated arbitration;
  5. The AB Agreement does not purport to require A or B to arbitrate any disputes between (a) A or B or both; and (b) C or any other non-party;
  6. The BC Agreement does not purport to require B or C to arbitrate any disputes between (a) B or C or both; and (b) A or any other third party;
  7. A dispute arises between A and B, and A demands arbitration against B;
  8. B, in turn, demands arbitration against C, seeking indemnity from C for any liability B may have to A;
  9. The AB and BC arbitrations are consolidated over A’s objection;
  10. A knows it has a legal and factual basis for asserting a tort claim against C arising out of the same transactions and occurrences at issue in the consolidated arbitration, but does not submit (or attempt to submit) that claim to arbitration;
  11. The arbitration proceeds, and the arbitrator issues a final award finding that B is liable to A for $X in damages and that C is not obligated to indemnify B;
  12. Nobody seeks to confirm, vacate, modify or correct the award; and
  13. A subsequently brings an action in court against C, which seeks damages from C allegedly caused by C’s negligent conduct with respect to the same transactions and occurrences that were the subject of the consolidated arbitration.

Is A’s lawsuit barred by res judicata?

On August 28, 2014, in O’Neil v. Shepley, No. 13-2320, slip op. (6th Cir. Aug. 28, 2014),  the U.S. Court of Appeals for the Sixth Circuit, in a 2-1 decision, said the answer was “no,” and that the answer would have been the same had the AB/BC award been confirmed. See slip op. at 10-11.

The two-judge majority opinion—authored by Chief Circuit Court Judge R. Guy Cole, and joined by Circuit (and former Chief) Judge Danny Julian Boggs—minced no words when it said that to bar A’s lawsuit based on res judicata would be to endorse a “contagion theory of arbitration” that “has no basis in law or the relevant contracts[:]”

Simply put: the premise of arbitration is consent and [A] did not consent to arbitrate the present claims [against C]. Our judicial doctrines do not force it to do so now.

Slip op. at 10-11.

Circuit Court Judge David William McKeague dissented, arguing that the “court does not need to infect [A] with a ‘contagion theory of arbitration’ to bar his claims with res judicata. It merely needs to hold him to the basic terms of his contract. Any infection that [A] O’Neil has acquired is its own doing.” That was so, claimed the dissent, because:

[The AB arbitration was] eventually expanded to include [C]. Moreover, in [subcontractor A’s] contract with [construction manager B], [A] agreed to arbitrate his grievances with [B] and further agreed in a standard ‘flowthrough’ provision to be ‘bound by the procedures, decision and determinations resulting from any dispute resolution process’ in the contract between [B] and [the owner].  The contract between [B] and the [owner] required all disputes, among all contractors, to be submitted to binding arbitration.

Slip op. at 13 (emphasis in original) (McKeague, J., dissenting).

All three judges appeared to agree that res judicata does not turn on whether the first proceeding would have barred the second had the first been a plenary court proceeding. The difference of opinion between the majority and dissent was that the dissent was prepared to find A’s agreement to consolidated arbitration was the functional equivalent of an agreement arbitrate its claims against any person who might consent to join such a consolidated arbitration, even if A had no contractual relationship with that person, let alone a written agreement to arbitrate.

We think the majority’s read of the relevant contractual provisions gave effect to the parties expressed intent, whereas the dissent’s view of what the parties agreed did not. But to appreciate why, you’ll need to take a closer look at the Sheply facts, which in substance are much like (but not identical to) those in our hypothetical. Continue Reading »

Americo Part II: Sometimes Hard Cases Make Good Law

September 3rd, 2014 American Arbitration Association, Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Confirmation of Awards, State Courts, Texas Supreme Court No Comments » By Philip J. Loree Jr.

 

Introduction

On August 5, 2014 we critiqued (here) the Texas Supreme Court’s June 20, 2014 decision in Americo Life, Inc. v. Myer, ___ S.W.3d __, No. 12-0739, slip op. (Tex. June 20, 2014), which held that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement. Five Justices of the nine-member Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the American Arbitration Association (the “AAA”) had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See slip op. at 10.   

The Americo award was not a legitimate by product of the parties’ arbitration agreement, and so, ruled the majority, it had to be vacated. The majority resisted a temptation that the four dissenting Justices apparently could not: “interpreting” the parties’ agreement in a hyper-technical fashion to justify confirming the award, even though that outcome, as desirable as it might otherwise seem, would have required the majority to reach a conclusion about party intent that was, at best, implausible.

Make no mistake about it, the Texas Supreme Court was faced with a tough case, and we think the majority made the right call.  Had a similar issue been presented in a garden-variety contract interpretation case, we doubt it would have been such a tough case and would not be particularly surprised if the outcome would have been unanimous, not split.

What made the case so tough was that this was not only an arbitration case, but one where the interpretive issue was justiciable only at the post-award stage. The law says that should make so difference and that, in any event, subject to a few special arbitration-law rules, the Federal Arbitration Act (the “FAA”) requires courts to put arbitration agreements on the same footing as all other contracts. But in post-award practice there a number of objective and subjective considerations that not infrequently result in courts reaching decisions in favor of confirming awards based on very doubtful, and sometimes, as here, implausible, conclusions about party intent.

That did not happen in Americo, and strange as it may seem, the majority’s decision that the award had to be vacated was a very pro-arbitration decision. A majority of the Justices enforced the parties’ arbitration agreement, which is the whole point of the FAA. And by doing so, they made arbitration all the more an attractive alternative to litigation.

Today’s post examines in greater detail what transpired in Americo, including the reasoning the majority and dissent articulated in support of their conclusions, and concludes with a few parting observations.  Continue Reading »

Gateway Keeping: The Third Circuit Joins the Sixth in Holding that Courts get to Decide whether Parties Consented to Class Arbitration

August 28th, 2014 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consent to Class Arbitration, Consolidation of Arbitration Proceedings, Drafting Arbitration Agreements, Existence of Arbitration Agreement, Judicial Review of Arbitration Awards, Practice and Procedure, Stay of Litigation, United States Court of Appeals for the Sixth Circuit, United States Court of Appeals for the Third Circuit, United States Supreme Court No Comments » By Philip J. Loree Jr.

On June 10, 2013 the U.S. Supreme Court in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) considered whether an arbitrator exceeded his powers under Federal Arbitration Act (“FAA”) Section 10(a)(4) by finding that a fairly run-of-the-mill arbitration agreement authorized class arbitration. Applying the deferential, manifest-disregard-of-the-agreement outcome-review standard authorized by FAA Section 10(a)(4), the Court upheld an arbitrator’s determination that an arbitration agreement authorized class arbitration because the arbitrator had, at least arguably, interpreted the arbitration agreement, albeit in a highly creative and doubtful way. (See Loree Reins. & Arb. L. Forum posts here, here, here & here.)

In a footnote, the Court explained that it “would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.’” 133 S. Ct. at 2068 n.2. The Court said that Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 680 (2010), “made clear that this Court has not yet decided” whether class-arbitration-consent presents a question of arbitrability. But “Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures[,]” and “Oxford submitted that issue to arbitrator not once, but twice—and the second time after Stolt-Nielsen flagged that it might be a question of arbitrability.” 133 S. Ct. at 2068 n.2. (emphasis added)

Had Oxford opted to request the Supreme Court to determine whether class- arbitration consent presented a question of arbitrability, and had the Court determined that it was such a question, then the Court would have determined independently—that is, without deferring to the arbitrator’s decision—whether the parties consented to class arbitration. See BG Group plc v. Republic of Argentina, No. 12-138, slip op. at 6 (U.S. March 5, 2014); First Options of Chicago, Inc. v. Kaplan, 543 U.S. 938, 942 (1995). And we doubt that a majority of the Supreme Court would have upheld the Oxford award had it reviewed the class-arbitration-consent determination de novo. See, e.g., Oxford, 133 S. Ct. at 2071 (Alito, J., concurring) (“If we were reviewing the arbitrator’s interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred “[a]n implicit agreement to authorize class-action arbitration … from the fact of the parties’ agreement to arbitrate.”) (quoting Stolt-Nielsen, 559 U.S. at 685).  

Those who have been tracking developments in class and consolidated arbitration since the turn of this century no doubt recall that, after a plurality of the Court determined in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003), that a class-arbitration-consent-related dispute did not present a question of arbitrability, but merely a procedural question, parties began to submit routinely and unreservedly class-arbitration-consent questions to arbitration.

But after Stolt-Nielsen, and, no doubt with renewed vigor after Oxford, class arbitration opponents began to argue that class-arbitration-consent presented a question of arbitrability for the Court to decide. And U.S. Circuit Courts of Appeals are beginning to rule on those challenges.

The first one to do so was the U.S. Court of Appeals for the Sixth Circuit in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), where the Court in November 2013 held “that the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved for judicial determination unless the parties clearly and unmistakably provide otherwise.” 734 F.2d at 599 (quotation and citation omitted).

The second, and most recent Circuit Court of Appeals to rule on the issue, was the U.S. Court of Appeals for the Third Circuit in Opalinski v. Robert Half Int’l Inc., ___ F.3d ___, No. 12-4444, slip op. (3rd Cir. July 30, 2014), which on July 30, 2014 “join[ed] the Sixth Circuit Court of Appeals in holding that.  .  .  “the availability of” class arbitration “is a substantive gateway question rather than a procedural one[,]” and thus “is a question of arbitrability.” Slip op. at 15, 16-17.  The Court’s decision turned on “the critical differences between individual and class arbitration and the significant consequences of that determination for both [a] whose claims are subject to arbitration[;] and [b] the type of controversy to be arbitrated.” Slip op. at 15 (emphasis added). Where, as in Opalinski, the arbitration agreement did not “mention” class arbitration, the Court “believ[ed] the parties would have expected a court, not an arbitrator, to determine the availability of class arbitration[,]” and that was “especially so given the critical differences between individual and class arbitration and the significant consequences” of the class-arbitration-consent determination as respects “whose claims are subject to arbitration and the type of controversy to be arbitrated.” slip op. at 16-17.

The Third Circuit’s Opalinski decision, like the Sixth Circuit’s in Reed Elsevier, is well reasoned and reaches the conclusion we likewise think is required by the Supreme Court’s long-line of arbitrability jurisprudence, and by its post-Bazzle class-arbitration cases, beginning with Stolt-Nielsen. We suspect that other circuits will, for largely the same reasons, that class-arbitration-consent presents a question of arbitrability.

Let’s have a look at what transpired in Opalinski.  .  .  . Continue Reading »

Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

August 5th, 2014 American Arbitration Association, Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, Party-Appointed Arbitrators, Practice and Procedure, State Courts, Texas Supreme Court No Comments » By Philip J. Loree Jr.

Introduction  

Anyone versed in arbitration-law basics knows that “arbitration is a matter of consent, not coercion.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted). That is the “first principle” of arbitration law (the “First Principle”) set forth in the Steelworkers’ Trilogy.[1] See, e.g., Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 295 & n.7, 294 n.6 (2010); AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 648 (1986).

The First Principle is integrally intertwined with “the central or primary purpose of the [Federal Arbitration Act (“FAA”)][,]” which is “to ensure that  private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen, 559 U.S. at 679 (citations and quotations omitted). To “enforce” an arbitration agreement “courts and arbitrators must give effect to the contractual rights and expectations of the parties.” Id. When courts do not give effect to the parties’ contractual rights and expectations, they violate the First Principle.

Courts and arbitrators are supposed to apply the First Principle faithfully and rigorously whenever  they interpret or apply material arbitration-agreement-terms, and in “doing so [they] must  not lose sight of the purpose of the exercise: to give effect to the intent of the parties.” See Stolt-Nielsen, 559 U.S. at 679-81. And if that admonition applies with special force in any particular context, it would be in the interpretation and enforcement of arbitrator selection and qualification provisions.

Arbitrator selection provisions are what Circuit Court Judge Richard A. Posner once dubbed the “cornerstone” of the parties’ agreement: “Selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.” Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.); see, e.g., 9 U.S.C. § 5 (“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed.  .  .  .”); Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V(1)(d), June 10, 1958, 21 U.S.T. 2519, T.I.A.S. No. 6997 (a/k/a the “New York Convention”) (implemented by 9 U.S.C. §§ 201, et. seq.) (award subject to challenge where “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”); Stolt-Nielsen, 559 U.S. at 668, 670 (one of the FAA’s “rules of fundamental importance” is parties “may choose who will resolve specific disputes”) (emphasis added; citations omitted); Encyclopaedia Universalis S.A. v. Encyclopaedia Brittanica, Inc., 403 F.3d 85, 91-92 (2d Cir. 2005) (vacating award by panel not convened in accordance with parties’ agreement); Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223, 226 (4th Cir. 1994) (same); Avis Rent A Car Sys., Inc. v. Garage Employees Union, 791 F.2d 22, 25 (2d Cir. 1986) (same).

Americo Life, Inc. v. Myer

On June 20, 2014, a divided Texas Supreme Court in Americo Life, Inc. v. Myer, ___ S.W.3d __, No. 12-0739, slip op. (Tex. June 20, 2014), adhered to and correctly applied the First Principle by holding that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement.  Five Justices of the nine-member Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the American Arbitration Association (the “AAA”) had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See Slip op. at 10. Continue Reading »

LinkedIn’s Commercial and Industry Arbitration and Mediation Group is now over 3,660 Members Strong!

July 2nd, 2014 ADR Social Media, Commercial and Industry Arbitration and Mediation Group No Comments » By Philip J. Loree Jr.

On May 19, 2009 the Loree Reinsurance and Arbitration Law Forum, Karl Bayer’s Disputing blog, Don Philbin Jr., Robert Bear and others formed a LinkedIn group called the Commercial and Industry Arbitration and Mediation Group. On May 21, 2009 we reported (here) that the group had “29 members with diverse backgrounds, all of whom are interested in commercial and industry ADR.” On October 28, 2010, we reported that the group was “now 1,008 members strong and is growing by the week.  Many different industries are represented, including the insurance and reinsurance industry.  The group enables members to share information; discuss and debate issues.  .  .; and network with others in the domestic and international ADR community.” (See here.)

Today the group has more than 3,660 members, and continues to discuss actively issues pertaining to domestic and international ADR, and continues to feature a distinguished and internationally-diverse membership of arbitrators, mediators, business people, attorneys, law professors, students, and other persons interested in ADR.

The group is co-managed by Don Philbin, Jr.Karl Bayer, Robert Bear and Philip J. Loree Jr. We welcome new members, and encourage (but do not require) active participation. The only requirement for membership is a bona fide interest in ADR.  The group is not a forum for, and does not permit, advertising or blatant self-promotion, so our members need not be concerned about being subject to sales pitches and the like.

If you are already a member of LinkedIn, please click here to apply for membership in the group.  If you are not a LinkedIn member, click here, and you will be guided through the process of creating a profile (which does not need to be completed in one step).  Once your profile is started, and you have a user name and password, you can apply for membership in the group (which entails no more than clicking on a button).  Joining LinkedIn is free, as is joining the group.

We hope you’ll join up!

 

Arbitration and Mediation FAQs: I Received an Arbitration Award in my Favor but my Adversary Refuses to Pay it. What can I do?

June 14th, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Final Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, State Arbitration Statutes, State Courts, Statute of Limitations 1 Comment » By Philip J. Loree Jr.

Favorable arbitration awards are wonderful things, but they are not self-enforcing. Sometimes the other side voluntarily complies, but if not, there is really not much of anything the arbitrator can do to help.

Arbitrators are not judges and thus do not have the authority to garnish wages, seize property,  foreclose on encumbered property, freeze bank accounts, impose contempt sanctions and so forth. Parties can delegate to arbitrators broad adjudicatory and remedial authority, but that is relevant only to the nature and scope of their awards, and does not confer power on the arbitrators to enforce their awards coercively.

Apart from its potential preclusive effect in subsequent litigation, an arbitration award stands on the same footing as any other privately prepared legal document, such as a contract. It may be intended by the arbitrators and at least one of the parties to have legal effect, but it is up to a court to say what legal effect it has, and,  if necessary, to implement that legal effect through coercive enforcement. A judgment, by contrast, is an official decree that not only can be coercively enforced through subsequent summary proceedings in the same or other courts (including courts in other states and federal judicial districts), but is, to some extent, self-enforcing. A judgment, for example, can ordinarily be filed as a lien on real property, and applicable state or federal law may, for example, authorize attorneys to avail their clients of certain judgment-enforcement-related remedies without prior judicial authorization.

But that doesn’t mean you’re out of luck; it means you need a court to enter judgment on the award, that is, to “confirm” it. Once an award has been reduced to judgment, it can be enforced to the same extent as any other judgment. See, e.g., 9 U.S.C. § 13 (Under Federal Arbitration Act, judgment on award “shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered”); Fla. Stat. § 682.15(1)( “The judgment may be recorded, docketed, and enforced as any other judgment in a civil action.”); N.Y. Civ. Prac. L. & R. § 7514(a) (“A judgment shall be entered upon the confirmation of an award.”).

The Federal Arbitration Act (the “FAA”), and most or all state arbitration statutes, authorize courts to confirm awards in summary proceedings. State arbitration-law rules, procedures, limitation periods and the like vary from state to state and frequently from the FAA, and state courts may apply them to FAA-governed awards (provided doing so does not frustrate the purposes and objectives of the FAA).

But let’s keep things simple, and take a brief look at the FAA’s requirements for confirmation applicable in federal court when there is no prior pending action related to the arbitration, and  there are no issues concerning federal subject matter jurisdiction, personal jurisdiction, sufficiency or service of process, venue (i.e., whether suit should have been brought in another federal judicial district) or the applicability of the FAA.  We’ll also discuss how applications to confirm are supposed to be summary proceedings, why timing of an application is important, and how courts go about deciding them. Continue Reading »