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Archive for the ‘Attorney Fees and Sanctions’ Category

SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.B.4: The Panel’s Remedial Authority

May 20th, 2015 Arbitrability, Arbitration Agreements, Arbitration Provider Rules, Attorney Fees and Sanctions, Authority of Arbitrators, Awards Comments Off on SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.B.4: The Panel’s Remedial Authority

Introduction: Remedial Powers of Arbitrators under the Federal Arbitration Act

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The third issue the Armstrong Panel addressed was: “What jurisdiction, if any, does this Tribunal have to award sanctions?” This was a question of the Panel’s remedial authority — assuming the Panel had the authority to decide the dispute, what remedies were the arbitrators authorized to award?

The Panel determined that Armstrong had committed fraud and testified falsely, and had by those unlawful means procured the Settlement Agreement and Consent Award. All else equal, had the Armstrong Parties testified truthfully, and been prepared to do so from the outset of the dispute, then presumably the Armstrong Parties: (a) would not have claimed the $7.5 million in prize money; or (b) would have submitted to arbitration the question whether the Armstrong Parties’ use of performance enhancing drugs barred them from recovering the prize money under their contracts with the SCA Parties. If the Armstrong Parties chose option (a) above, then the SCA Parties would not have incurred any time or money costs dealing with the Armstrong Parties’ Claims. Had the Armstrong Parties chosen option (b), then the SCA Parties’ time and money costs would likely have been pretty modest, and in any event, nowhere near what they turned out to be.

Given that the Panel identified a breach of duty that caused harm, the next question from the standpoint of the merits was: what (if anything) should be the remedy? The SCA parties apparently argued that the Panel should grant a sanctions remedy, which the Panel apparently viewed as serving both deterrent and compensatory purposes.

Where, as here, an arbitration panel that has the authority to resolve a dispute is considering what relief (if any) it should award to the prevailing party, that raises a remedial authority question: what remedies have the parties authorized the Panel to award? Under a broad arbitration agreement, remedial authority questions are typically not controversial, for parties ordinarily tend to seek standard remedies: damages, declaratory relief or traditional forms of equitable relief (such as rescission or reformation).  One party asks for the relief in its submission in the arbitrators and the other party doesn’t object because there is no reason to do so.

But where other non-standard forms of relief are requested—and particularly where the parties’ contract express a clear intent to limit remedial powers—then remedial authority can become more controversial.

The Armstrong Arbitration involved a claim for sanctions arising in unusual circumstances. While the parties’ contracts did not purport to limit the Panel’s remedial authority, the Armstrong Parties challenged the Panel’s authority to award sanctions and the Panel addressed that challenge in a reasoned award.

This segment of our Armstrong-Award Anatomy series focuses exclusively on whether the Panel had the authority to make an award of sanctions. It reviews the general rules concerning arbitrator remedial authority, considers the standard of review that a court reviewing the award will presumably apply if the Armstrong Parties contest the Panel’s remedial authority in court, discusses the Panel’s analysis and conclusions concerning sanctions and explains why we think it unlikely that a court will find that the Panel exceeded its authority by making an award of sanctions.

Our next Armstrong Arbitration Award Anatomy segment will address the related—but analytically distinct—issue whether the Panel had the authority to make a $10,000,000.00 sanctions award in the circumstances.

General Rules Governing Arbitrator Remedial Authority

yay-974131-e1425250054241As a general rule, where the parties have agreed to require each other to submit to arbitration a broad range of a disputes that might arise out of or relate to their legal relationship, the law presumes they intended to confer equally broad remedial powers on the arbitrators. See, e.g., ReliaStar Life Ins. Co. v. EMC Nat’l Life Co., 564 F.3d 81, 86-87 (2d Cir. 2009) (citing cases). Sometimes, arbitration-provider rules—such as Rule 47 of the American Arbitration Association Commercial Rules (formerly Rule 43)—expressly confer broad remedial authority on arbitrators. Rule 47, for example, states: Continue Reading »

SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.B.3: Panel Issue No. 2: Whether the Panel Could Bind Nonsignatory Mr. Stapleton to the Armstrong Arbitration Award

April 13th, 2015 Arbitrability, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, Rights and Obligations of Nonsignatories, State Courts Comments Off on SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.B.3: Panel Issue No. 2: Whether the Panel Could Bind Nonsignatory Mr. Stapleton to the Armstrong Arbitration Award

 Part III.B.3

Panel’s Analysis of Whether it Had the Authority to Bind Nonsignatory Mr. Stapleton to the Lance Armstrong Arbitration Award (Panel Issue No. 2)

yay-7966136-digitalIn Part III.B.2 we explained why we believe the Panel’s analysis of whether the parties agreed to arbitrate their dispute about sanctions (Panel Issue No. 1) was on the mark, and why the state court considering the issue de novo should find it helpful in the event the Armstrong parties challenge the panel’s jurisdiction. Today we briefly examine the Panel’s decision on Panel Issue No. 2: “Which parties are properly subject to this Tribunal’s jurisdiction?” (Award at 5)

The issue arose because the SCA Parties contended that Mr. William Stapleton was bound by the arbitration agreement and award because he executed the Settlement Agreement, albeit apparently only in his capacities as an officer of Tailwind and an authorized agent of Armstrong.  (See Award at 7.)

Like Panel Issue No. 1—whether the parties agreed to arbitrate SCA’s sanctions claims—Panel Issue No. 2 is a question of arbitrability. See Howsam v. Dean Whitter Reynolds, Inc., 537 U.S. 79, 84 (2002); First Options of Chicago v. Kaplan, 514 U.S. 938, 941, 946-47 (1995). So, as discussed in Parts III.B.1 and III.B.2, the Court would presumably decide it independently—that is, without according deference to the Panel’s decision— were it necessary for it to decide it in the first place.

The SCA Parties, however, wisely chose to confirm the award as a whole rather than attempt to vacate it in part and confirm it in part, for as the Panel’s decision made very clear, there was no basis for finding Mr. Stapleton to be bound by the award. But even though the Court will presumably not have to address the issue, it is helpful for those interested in learning more about arbitration law to understand why the Panel got it right, and why the Texas Court would likely agree. Continue Reading »

SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.B.2: Panel’s Authority to Decide the SCA Parties’ Sanctions Claims

April 2nd, 2015 Arbitrability, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Contract Interpretation, Functus Officio, Judicial Review of Arbitration Awards, Practice and Procedure, State Arbitration Law, State Arbitration Statutes, State Courts, United States Supreme Court 1 Comment »

Part III.B.2

Panel’s Analysis of the Merits of the Arbitrability Issue (Panel Issue No. 1)

Now that we’ve discussed why we think the Court will review the arbitrator’s threshold arbitrability decision de novo, let’s take a closer look at the Panel’s analysis of the arbitrability issue and whether the Texas state courts will conclude that the Panel had the jurisdiction to decide the SCA Parties’ sanctions claims.

yay-15706730-digitalThe procedural posture of  the jurisdictional issue before the Panel is unusual because the Panel, with the parties’ consent, had previously made a partial final award expressing its views on jurisdiction. The intent was to permit expedited judicial review of the issue. The Panel’s 2-1 ruling finding jurisdiction was confirmed by the trial court, which means that the trial court will almost certainly reject Armstrong’s putative challenge to the Panel’s jurisdiction.

The Armstrong Parties’ appeal to the intermediate court of appeals was dismissed for lack of appellate jurisdiction, presumably because the intermediate court of appeals concluded that the trial court’s order confirming the partial final award was not a final order or judgment from which an appeal could be taken. The Armstrong Parties sought temporary relief and mandamus review in the Texas Supreme Court, but the Supreme Court denied those requests.

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Issue No. 1 is simply whether the parties agreed  to submit to arbitration the SCA Parties’ claims against Armstrong relating to Armstrong’s alleged procurement of the consent award through perjury, fraud and other deceptive means. The key question is whether the SCA Parties’ disputes fell within the broad scope of the parties’ arbitration agreement. And the answer is driven in large part by the presumption in favor of arbitration, under which ambiguities about the scope of an arbitration agreement are resolved in favor of arbitration.

By comparison, recall that the answer to the question who decides arbitrability questions was driven by a presumption against arbitration: courts presume that arbitrability questions are for the court to decide unless the parties “clearly and unmistakably” agree to delegate those questions to the arbitrators. The whole point of agreeing to arbitrate is to have arbitrators decide disputes about the merits, and so when the question is whether the parties empowered the arbitrators to decide the merits of a party’s claim for relief, courts presume those questions are for the arbitrators to decide.

The presumption of arbitrability applies to case governed by the Federal Arbitration Act as well as cases falling under the Texas General Arbitration Act. It provides that ambiguities in the scope of an arbitration agreement are to be resolved in favor of arbitration. See, e.g., Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); Mitsubishi Motors v. Soler Chrysler Plymouth, 473 U.S. 614, 626 (1985); G.T. Leach Builders, LLC v. Sapphire V.P. LP, No. 130497, at *21-22 & nn. 14 & 16 (Tex. Mar. 20, 2015); Branch Law Firm, L.L.P. v. Osborn, 447 S.W.3d 390, 394-98 & n.10 (Tex. App. 14 Dist. 2014). That means that if the scope provision of an arbitration agreement is susceptible to more than one interpretation, and at least one of those interpretations would require the dispute to be submitted to arbitration, then the court, as a matter of law, must find that the parties agreed to submit the dispute to arbitration. Continue Reading »

SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.B.1: Panel Issue No. 1: the Panel’s Authority to Decide the SCA Parties’ Sanctions Claims

March 29th, 2015 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Grounds for Vacatur, Practice and Procedure, State Courts, United States Supreme Court 1 Comment »

Part III.B.1

Panel Issue No. 1: the Armstrong Panel’s Authority to Decide the SCA Parties’ Sanctions Claims

Introduction

Part III.A of our Lance Armstrong Arbitration Award series identified (a) the categories of issues (the “Issue Categories”) that a court can address on a motion to vacate an arbitration award on the ground the arbitrators exceeded their powers (the “Issue Categories”); and (a) the four specific issues that the Panel addressed in its award (the “Panel Issues”).

Panel Issue No. 1 was, as phrased by the arbitrators: “Does this Arbitration Tribunal have the jurisdiction or authority to decide and resolve the existing disputes between the named parties?” That issue falls into Issue Category No. 1: Issues concerning whether the parties delegated to the arbitrators—or were required to delegate to the arbitrators—the power to decide particular disputes.

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Whether or not the Panel had the authority to decide the SCA Parties’ claims against  Armstrong and Tailwind (the “Armstrong Parties”) depends on whether at least one 0f the parties requested the arbitrators to adjudicate those claims; and the other party either: (a) expressly or impliedly consented to the arbitrators deciding the dispute; or (b) objected to the request, but the claims were within the scope of the parties’ written pre- or post-dispute arbitration agreement.   Disputes what issues the parties submitted—or were required to be submit—to arbitration present questions of arbitrability. See, e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-86 (2002); First Options of Chicago, Inc. v. Kaplan, 543 U.S. 938, 942-45 (1995).

Relationship Between Arbitrability and the Post-Award Standard of Judicial Review

Ordinarily, questions of arbitrability are— in the allocation-of-decision-making-power scheme of things—for the court to decide, unless the parties have clearly and unmistakably agreed to delegate them to arbitrators. See, e.g., First Options, 543 U.S. at 944-45. Under a typical broadly-worded pre-dispute arbitration agreement, the vast majority of disputes that may arise between the parties—including disputes about arbitration procedure—are presumptively arbitrable, that is, they are subject to arbitration unless the parties clearly a nd unmistakably exclude them from arbitration. But when a dispute presents a question of arbitrability, then it is presumptively for the court to decide, that is, they are not subject to arbitration unless the parties clearly and unmistakably include them within the universe of disputes that must be submitted to arbitration.

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Where as here, an arbitrability issue arises at the award enforcement (or back-end) stage of the proceedings—rather than the pre-arbitration,  arbitration-agreement-enforcement (or front-end) stage (i.e., on a motion to compel arbitration or stay litigation)—then whether or not an issue is a question of arbitrability affects the standard of review. The standard of review is, in essence, the degree of deference to  which a court pays the arbitrators’ decisions on matters that are material to applications to confirm, vacate or modify arbitration awards. Continue Reading »

SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.A: What are the Issues?

March 26th, 2015 Arbitrability, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Grounds for Vacatur 2 Comments »

SCA v. Armstrong: Anatomy of the Armstrong Arbitration Award

Part III.A: What are the Issues?

In Part II we discussed applicable arbitration law, so now let’s take a look at what issues the Court may need to address in the event the Armstrong Parties contend that the arbitration panel (the “Panel”)’s award exceeded its powers under the Federal Arbitration Act (a/k/a the “FAA”) and the Texas General Arbitration Act (the “TAA “).

summer-15198434-digitalpowerThe Federal Arbitration Act (a/k/a the “FAA”) and the Texas General Arbitration Act (the “TAA “) both authorize courts to vacate awards where arbitrators exceed their powers. See 9 U.S.C. § 10(a)(4) (2014); Tex. Civ. Prac. & Rem. Code § 171.088 (a)(3)(A) (Vernon 1997). If the New York Convention applies by way of Chapter 2 of the Federal Arbitration Act, then Chapter 1 of the Federal Arbitration Act would continue to apply because the Award was made in the U.S. And in any event, Article V of  the Convention permits parties to defend against the enforcement of an arbitration award falling under the Convention on the ground that the arbitrators exceeded their powers. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards at Art. V.(c) & V.(d). Continue Reading »

SCA v. Armstrong: Anatomy of an Arbitration Award—Part I

February 23rd, 2015 Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, State Courts Comments Off on SCA v. Armstrong: Anatomy of an Arbitration Award—Part I

Armstrong Arbitration Award: Introduction

yay-15106666-digitalArmstrong-e1424717219396On Monday morning, February 16, 2015 attorneys for SCA Promotions, Inc. (“SCA”) and SCA Insurance Specialists, Inc. (“SCA Insurance”) (collectively, the “SCA Entities”) filed a petition in a Dallas County, Texas state court to confirm a $10,000,000.00 arbitration award recently made in the Matter of the Arbitration between Lance Armstrong and SCA Promotions, Inc. Ordinarily something like that is an event accompanied with all the fanfare of a tree falling in a deserted forest.

But this petition is different. It seeks to confirm an arbitration panel’s award of $10,000,000.00 in sanctions levied against cyclist Lance Armstrong for having lied under oath to the arbitration panel and the SCA Entities in an earlier arbitration proceeding. So its filing was widely reported and discussed by major national and international media providers.

Here’s a condensed and simplified version of the background: Continue Reading »

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 2 Comments »

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 »

Fifth Circuit Says District Court That Compelled Arbitration Does Not Have Inherent Power to Impose Sanctions on Counsel for Arbitration Misconduct

September 17th, 2010 Arbitration Practice and Procedure, Attorney Fees and Sanctions, Practice and Procedure, United States Court of Appeals for the Fifth Circuit Comments Off on Fifth Circuit Says District Court That Compelled Arbitration Does Not Have Inherent Power to Impose Sanctions on Counsel for Arbitration Misconduct

Introduction

An arbitration panel acting under a broad, unrestricted arbitration agreement can generally impose sanctions on a party.  But if a federal district court compels arbitration, and retains jurisdiction, can it impose sanctions on counsel who allegedly misbehave during the arbitration proceedings?  On September 13, 2010 the United States Court of Appeals for the Fifth Circuit held 3-0 that the answer is “no,” unless the conduct was in direct defiance or disobedience of the district court’s orders or otherwise threatened the district court’s own judicial authority or proceedings.  See Positive Software Solutions Inc. v. New Century Mtg. Corp., No. 09-10355, slip op. (5th Cir. September 13, 2010). 

Background

Positive Software Solutions arose out of arbitration between Positive Software Solutions, Inc. and New Century Mortgage Corp.  A district court in Texas compelled arbitration and retained jurisdiction.  Positive Software lost, and sought to vacate the award on evident partiality grounds, which were ultimately rejected by the Fifth Circuit en bancSee Positive Software Solutions Inc. v. New Century Mtg. Corp., 476 F.3d 278 (5th Cir. 2007) (en banc).  After the Fifth Circuit remanded the award for confirmation, New Century declared bankruptcy, the parties settled, and the American Arbitration Association administratively closed the proceedings. 

As part of the settlement, New Century waived the attorney-client privilege, and turned over to Positive Software its arbitration files, which Positive Software would use in support of a motion in the district court for sanctions against New  Century’s arbitration counsel, Ophelia Camiña, a partner at Susman, Godfrey, LLP (“Susman Godfrey”); Susman Godfrey; and Barry Barnett (apparently another lawyer who represented New Century).   On March 2008 Positive Software filed its motion for sanctions pursuant to Fed. R. Civ. P. 37, 28 U.S.C. § 1927, and the court’s inherent power. 

In February 2009 the district court imposed pursuant to its inherent power $10,000 in sanctions against Camiña, which represented a portion of Positive Software’s attorney fees incurred during arbitration.  The district court ruled that the sanctions were for conduct that “took place in connection with the arbitration, not in connection with discovery under the Court’s supervision.” 

Camiña appealed, and the Fifth Circuit reversed. Continue Reading »