Grounds For Vacatur | Loree Reinsurance and Arbitration Law Forum

Archive for the ‘Grounds for Vacatur’ Category

Fourth Circuit Vacates Securities Arbitration Award: Raymond James Financial Services, Inc. v. Bishop

March 2nd, 2010 Arbitrability, Authority of Arbitrators, Awards, Grounds for Vacatur, Securities Arbitration, United States Court of Appeals for the Fourth Circuit 1 Comment »

I. Introduction

Arbitration is not a perfect process for resolving disputes, but neither is court adjudication. One advantage of court adjudication is a fairly rigorous standard of review: appellate courts generally review the trial court’s factual findings for clear error and legal conclusions de novo. By contrast, courts review arbitration awards under the very deferential standards of review prescribed by Sections 10 and 11 of the Federal Arbitration Act. The trade-off is one of informality, speed and reduced expense for a heightened risk that the decision maker will commit unreviewable legal and factual errors — even some pretty egregious ones.

But every so often an arbitration award can be so far off the mark that one of the parties is deprived of the benefit of the bargain it made when it agreed to arbitrate. These are not cases where the arbitrators merely did a shoddy job, but ones where the arbitrators did not do the job the parties asked them to do. These are the cases that Section 10(a)(4) of the Federal Arbitration Act was designed to address: ones where “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final award on the subject matter was not made.”

Today we take a brief look at Raymond James Financial Serv., Inc. v. Bishop, ___ F.3d ___, No. 09-1038, slip op. (4^th Cir. Feb. 22, 2010), a recent example of one of those rare cases. And we’ll see how how confusion about the scope of Section 10(a)(4) resulting – quite unintentionally – from the United States Supreme Court decision in Hall Street Assoc., L.L.C. v. Mattel , Inc, 552 U.S. ___, slip op. at __ (March 25, 2008) apparently motivated the United States Court of Appeals for the Fourth Circuit to decide the case solely on the ground that the arbitrators were not authorized to rule on the claim on which they admittedly based their award. (See, generally, “Hall Street Meets Pearl Street: Stolt-Nielsen and the Federal Arbitration Act’s New Section 10(a)(4).”)

The Court reached the right result, but its decision is of limited utility in future cases. For under many broad arbitration agreements and submissions the arbitrators have authority to rule on pretty much any claim that is related to the subject matter of the parties’ dispute. Abitrators may have the authority to resolve a claim, but may do so in a way that has not even a barely colorable justification under the law and facts.

We would have liked to see the Court rule not only on the authority issue, but also on two other grounds relied upon by the district court: manifest disregard of the law and the award’s failure to “draw its essence” from the parties’ agreements. As we have said before, we believe that those grounds are statutorily permitted by Section 10(a)(4), and that they provide a useful safety valve for addressing those (thankfully) rare cases where the arbitrators resolve a dispute within the scope of their authority, but do so in a way that completely deprives one of the parties of the benefit of its arbitration agreement. Continue Reading »

Ninth Circuit Approves Ex Parte Hearing Procedures in Reinsurance Case: United States Life Ins. Co. v. Superior Nat’l Ins. Co.

February 7th, 2010 Authority of Arbitrators, Awards, Grounds for Vacatur, Practice and Procedure, Procedural Misconduct, United States Court of Appeals for the Ninth Circuit No Comments »

I. Introduction

Back in January the Ninth Circuit decided United States Life Ins. Co. v. Superior National Ins. Co., ___ F.3d ___, slip op. (9^th Cir. Jan. 4, 2010), a Federal Arbitration Act Section 10(a)(3) procedural misconduct decision that affords reinsurance and other arbitrators a good deal of leeway to devise and implement nontraditional procedures for resolving complex problems. The case centered around a rather unusual procedure the arbitrators ordered and implemented to determine whether the cedents improperly handled some 12,604 contested workers compensation claims. It also concerned the authority of arbitrators to interpret the scope of the submission and to award a disgorgement of investment income remedy in addition to pre-award interest. Continue Reading »

Arbitration Nuts & Bolts: Vacating Arbitration Awards – Part III.A: Evident Partiality (Expectations of the Parties)

January 4th, 2010 Awards, Evident Partiality, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure 5 Comments »

Introduction

In this Part III of our Nuts & Bolts feature on vacating arbitration awards (Parts I and II here and here) we consider the second statutory ground for vacating an award under the Federal Arbitration Act: “where there was evident partiality…in the arbitrators…” 9 U.S.C. 10(a)(2). What constitutes “evident partiality” or arbitral bias has been the subject of numerous judicial decisions setting forth various standards and applying them to a wide range of fact patterns. The decisions are not easy to reconcile (some may, indeed, be irreconciliable) and generally the standards are of limited utility in practice. Matters are complicated by judicially-created rules concerning disclosure of potential conflicts of interest and the consequences that may or may not flow from a breach of those rules. To say “evident partiality” is an elusive subject understates the case. Continue Reading »

Arbitration Nuts & Bolts: Vacating Arbitration Awards — Part II: Corruption, Fraud and Undue Means

December 19th, 2009 Awards, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Uncategorized 5 Comments »

In this Part II of our Nuts & Bolt feature on vacating arbitration awards (Part I is here) we briefly look at the first statutory ground for vacating an award under the Federal Arbitration Act: where “[t]he award was procured by corruption, fraud, or undue means. . . .” 9 U.S.C. 10(a)(1). Cases vacating awards on Section 10(a)(1) are rare, probably because the circumstances that would trigger relief are themselves rare.

Section 10(a)(1) is an excellent expression of how Section 10 is designed to provide relief in situations where putting a court’s imprimatur on an award would deprive one of the parties of the benefit of its freely-bargained-for arbitration agreement. It says that corruption, fraud, or undue means in the procurement of an award, whether perpetrated by the arbitrators or a party, spoils the award (assuming the aggrieved party timely moves to vacate). There is nothing particularly controversial about that; we suspect few would contend that parties who agree to arbitrate impliedly consent to arbitration resulting in an award procured through outright chicanery. Continue Reading »

Interesting Article on Arbitrator Power to Retain Jurisdiction

December 17th, 2009 Association of Insurance and Reinsurance Run-Off Companies (AIRROC), Authority of Arbitrators, Awards, Commercial and Industry Arbitration and Mediation Group, Grounds for Vacatur, functus officio No Comments »

On June 28, 2009 we published a post concerning an article we wrote for AIRROC Matters about KX Reinsurance Co. v. General Reinsurance Corp., 08 Civ. 7807 (SAS), 2008 WL 4904882 (S.D.N.Y. Nov. 18, 2008) (Scheindlin, J.), where the court held that an arbitration panel exceeded its authority when, after resolving all the issues the parties submitted, it nevertheless retained jurisdiction. A copy of our post is here.

Around the time we published that post, my friend, colleague and fellow LinkedIn Commercial and Industry Arbitration and Mediation Group member, Theresa Hajost, told me that she had an article in the works that would treat in a very comprehensive fashion the issue of arbitrator authority to retain jurisdiction. (For those of you who do not already know her, Theresa is a partner at the Washington, D.C. office of Halloran & Sage LLP, where she practices insurance and reinsurance litigation and arbitration.) I thought that was a great idea and told her so.

Theresa recently published the article, Does An Arbitrator’s Retention of Jurisdiction After The Issuance of a Final Award Subject That Award To Vacatur?, in ADR Choices (Volume I Issue 10) (published by DRI). We highly recommend it as it surveys and discusses cases from all over the country on the issue of an arbitrator’s authority to retain jurisdiction, organizes those cases into helpful categories and offers insightful comments on the subject. It is an excellent resource for anyone who is interested in arbitral power, or who is confronted with a scenario where there is a question concerning an arbitration panel’s authority to remain constituted post award. You can read the article using the link Halloran & Sage has kindly provided here.

Great job, Theresa!

Arbitration Nuts & Bolts: Vacating Arbitration Awards — It’s All in the Agreement

December 8th, 2009 Awards, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Reinsurance Arbitration 2 Comments »

Part I: Introduction

An arbitration award is effectively a contract resulting from a contract. Two parties agree to appoint arbitrators, submit their dispute to arbitration and abide by the award. The parties ordinarily consent to entry of judgment on the award, and it can be confirmed under Section 9 of the Federal Arbitration Act (or a state law equivalent when the Federal Arbitration Act doesn’t apply). Alternatively it may be enforced through the plenary and summary procedures applicable to ordinary contracts (subject to any special rules governing arbitration awards).

So what happens when things go awry — or at least seem to have gone awry — and the arbitration award is or appears to be fundamentally unfair, divorced from the contract or the result of fraud, bias, or some form of prejudicial misconduct on the part of the arbitrators? Section 10 of the Federal Arbitration Act provides a safety net in the form of a motion or petition to vacate the award. (State arbitration statutes and law applicable in actions to enforce arbitration awards generally provide similar recourse, but our focus here is on the Federal Arbitration Act.) Continue Reading »

Burlage Update: On Rehearing California Court of Appeal Affirms Trial Court Decision Vacating Award

October 24th, 2009 California State Courts, Grounds for Vacatur, Procedural Misconduct 1 Comment »

On October 15, 2009 we discussed the controversy about the California Court of Appeal, Second Appellate District’s decision in Burlage v. Superior Court of Ventura Cty., ___ Cal. App. 4^th ___, slip op. (Cal. App. 2d Dist. Aug. 31, 2009), opinion following rehearing ___ Cal. App. 4th ___, slip op. (Cal. App. 2d Dist. October 20, 2009) (A copy of the August 31, 2009 opinion is here, and a copy of our post is here.) We are happy to report that on October 20, 2009 the Court issued its opinion following rehearing, which affirms the trial court’s decision vacating the award. (A copy of the opinion following rehearing is here.)

The opinion following rehearing is substantially the same as the August 31, 2009 opinion, save for a few additional paragraph the majority added to respond further to Perren, J.’s dissenting opinion. Perren, J.’s dissent was reissued without material change.

The additional paragraphs the majority added to address the dissenting opinion are set forth for our readers’ convenience below:

We disagree with the dissent’s suggestion that the arbitrator considered the lot-line adjustment evidence in the in limine motion. In the context of the case, we agree with the discerning comments of our colleagues in Gonzales v. Interinsurance Exchange (1978) 84 Cal.App.3d 58, 63: ”One cannot ‘consider’ what one has refused to ‘hear.’ Legally speaking the admission of evidence is to hear it, and the weighing of it is to give it consideration.”

The situation here is different than that in Hall v. Superior Court, supra, 18 Cal.App.4th 427. In Hall, a party wished to reopen the arbitration hearing with additional evidence. After hearing the party’s offer of proof, the arbitrator announced that his decision would be the same even with the proffered evidence. The appellate court concluded the arbitrator did not prevent the losing party from fairly presenting his defense. (Id. at p. 439.) The trial court’s ruling to vacate the arbitration award was reversed, however, because “[w]here . . . a party complains of excluded material evidence, the reviewing court should generally focus first on prejudice, not materiality. To find substantial prejudice the court must accept, for purposes of analysis, the arbitrator’s legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed.” (Ibid.) Unlike Hall, the trial court here found on substantial evidence that “[t]he Arbitrator’s refusal to admit these subsequent circumstances directly affected the issue of damages, thereby substantially prejudicing Defendant’s [Spencer's] ability to dispute the amount of damage suffered by Plaintiffs [the Burlages].”

It may be argued that to avoid the imposition of section 1286.2, arbitrators will simply admit evidence to insulate their decisions from review. We do not subscribe to this cynical view. It is through judicial review that the law is shaped and developed. Arbitrators do not subvert this process because a court might vacate an award. Arbitrators base their decisions on a careful analysis of the law and facts. They, like the arbitrator here, are professionals who conduct themselves according to the canons of ethics and the high degree of integrity their profession demands.

Slip op. at 6-7 (opinion following rehearing).

We shall keep readers apprised of any further developments as and when they occur.

SCOTUS Denies Certiorari in All Three Federal Arbitration Act Manifest Disregard Cases Considered at Last Week’s Conference

October 5th, 2009 Awards, Grounds for Vacatur, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Sixth Circuit, United States Supreme Court No Comments »

Last week we reported that the United States Supreme Court was considering three petitions for certiorari concerning whether manifest disregard of the law remains a viable ground for vacating or modifying an arbitration award after Hall Street Assoc., L.L.C. v. Mattel , Inc, 552 U.S. ___, slip op. (March 25, 2008) (post here). Today the Court denied certiorari in all three cases: The Coffee Beanery, Ltd. v. WW, LLC, 300 Fed. Appx. 415 (6th Cir. 2008) (08-1396); Grain v. Trinity Health, 551 F.3d 374 (6th Cir. 2008) (08-1446); and Improv West Associates v. Comedy Club, Inc., 553 F.3d 1277 (9th Cir. ) (08-1529).

Seventh Circuit Says Panel did not Exceed its Powers by Appointing a Replacement Arbitrator in a Manner not Specified in the Parties’ Agreement: WellPoint, Inc. v. John Hancock Life Ins. Co.

September 9th, 2009 Authority of Arbitrators, Awards, Grounds for Vacatur, Reinsurance Arbitration, United States Court of Appeals for the Seventh Circuit No Comments »

The Seventh Circuit recently decided an important case concerning what happens when Party A asks its party-appointed arbitrator to resign, the agreement is silent on how the vacancy should be filled, the remaining two arbitrators devise and implement a procedure for appointing a replacement, Party B (whose arbitrator did not resign) reserves its right to challenge the replacement procedure, and the Panel ultimately renders an award in favor of Party A. The Court held that the Panel did not exceed its powers by adopting and implementing — in the face of the agreement’s silence, and in the absence of Party B seeking court intervention under Federal Arbitration Act Section 5 – a procedure that allowed Party A to replace its party-appointed arbitrator and continue with the arbitration. See WellPoint, Inc. v. John Hancock Life Ins. Co., ___ F.3d ___, slip op. (7^th Cir. August 7, 2009) (Slip op. here). Continue Reading »

KX Reinsurance Company v. General Reinsurance Corp.: Arbitrators May Not Retain Jurisdiction After Deciding All Submitted Issues

June 28th, 2009 Association of Insurance and Reinsurance Run-Off Companies (AIRROC), Authority of Arbitrators, Awards, Grounds for Vacatur, Practice and Procedure, Reinsurance Arbitration, United States District Court for the Southern District of New York, functus officio 1 Comment »

Arbitration clauses in reinsurance contracts typically recognize either expressly or impliedly that an arbitration proceeding has a beginning and an end. The process usually begins with a demand for arbitration and the selection of an arbitration panel, and ends with the arbitrators holding a hearing on the merits and issuing a final award. At that point the parties generally expect that the arbitrators will step down, and that any future dispute will be the subject of a new arbitration proceeding, perhaps with a different panel. Continue Reading »