January 12th, 2010
Awards, Evident Partiality, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure
Introduction
Part III.A of the evident partiality segment of this series discussed the parties’ reasonable expectations of neutrality. Today we consider how those expectations are enforced.
“Evident partiality” challenges typically arise out of one of two scenarios. First, there are “presumed bias” cases in which the arbitrator’s relationship to the parties or the controversy would lead a reasonable person to conclude that the arbitrator was biased, even though the challenger cannot prove actual bias. Second, there are evident partiality challenges based on allegations of actual bias. For example, suppose a neutral said on the record during the proceedings prior to deliberations: ”Party A, frankly I have distrusted your company’s business motives for many years, but hearing your witnesses’ testimony has simply confirmed what I’ve suspected all along.” While the chances of an arbitrator making such a statement (let alone on the record) are exceedingly slim to non-existent, it would provide the basis for an evident partiality challenge (which would probably succeed) based on proof of actual bias.
The difference between “presumed” and “actual” bias is simply one of proof. One is based on circumstantial evidence and the other on direct evidence. Our focus will be on “presumed bias” cases, because they arise with greater frequency. Actual bias is very difficult to prove, and if it or something approaching it can be established, then that proof would in any (or most any) event meet the standards necessary to establish evident partiality. Continue Reading »
January 4th, 2010
Awards, Evident Partiality, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure
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 »
December 19th, 2009
Awards, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Uncategorized
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 »
December 8th, 2009
Awards, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Reinsurance Arbitration
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 »
November 20th, 2009
Appellate Practice, Contract Interpretation, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance
Introduction
In Part I of this two-part post (here) we discussed the background and procedural history of Gulf/Transatlantic and how New York’s Appellate Division, First Department resolved the issues of: (a) the amount of reinsurance accepted by Gerling; and (b) whether the trial court should have granted Gerling’s motion for summary judgment on Gulf’s reformation claim. This Part II covers the remaining three issues whether: (a) the 1998 First Union Policy “attached” to the 1999 Treaty; (b) Gerling reinsured the policies Gulf issued to a subsidiary of the General Electric Company; and (c) Gerling established a question of material fact concerning whether it was entitled to rescind the 1999 Treaty. Continue Reading »
November 17th, 2009
Appellate Practice, Contract Interpretation, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Rescission and Reformation
Introduction
Today we look at a reinsurance case recently decided by the New York Supreme Court, Appellate Division, First Department, New York’s intermediate appellate court for cases originating in New York County (Manhattan) and certain other counties in the New York metropolitan area. We would not characterize Gulf Ins. Co. v Transatlantic Reins. Co., ___ A.D.3d ___, 2009 NY Slip Op. 06788 (1st Dep’t Oct. 1, 2009) (copy here), as a ground-breaker, but it involves a number of interesting issues, including the interpretation and construction of a quota share treaty, course of performance, reformation and rescission.
Substantive reinsurance cases are a relatively rare breed to begin with (especially in recent years), and cases that discuss a broad range of issues in some depth are rarer still. That makes Gulf/Transatlantic worthy of some attention, especially to those interested in learning a few reinsurance law basics. Hat tip to my friend and former colleague James P. Tenney for bringing the case to our attention.
Continue Reading »
October 26th, 2009
Arbitrability, Authority of Arbitrators, New York Court of Appeals, Nuts & Bolts, Nuts & Bolts: Arbitration, Reinsurance Arbitration, Reinsurance Claims, functus officio
On October 15, 2009 The New York Court of Appeals decided Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009) (here), a case which demonstrates how important the parties’ submission is in determining arbitral authority. The Court held that, after an award, a party cannot reopen an arbitration proceeding to request that the arbitrators decide an issue that had not previously been submitted to the arbitrators.
The power of arbitrators appointed to resolve a particular dispute or disputes is defined by the submission, not the arbitration agreement. The scope of the agreement to arbitrate tells us only what must be submitted to arbitration. It is the submission itself that “serves not only to define, but to circumscribe the authority of the arbitrators.” Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987) (here).
As the United States Court of Appeals for the Fifth Circuit explained, a predispute arbitration agreement generally is “not self-executing” — “[b]efore arbitration can … proceed, it is necessary for the parties to supplement the agreement to arbitrate by defining the issue to be submitted to the arbitrator and by explicitly giving him the authority to act.” Piggly Wiggly Operators’ Warehouse Inc v. Piggly Wiggly Operators’ Warehouse Independent Truck Drivers Union, 611 F2d 580 (5th Cir. 1980) (here). The disputes presented to the panel for resolution without objection constitute the submission, which may be embodied in a formal submission agreement or determined from the arbitration demand in conjunction with the arguments and contentions made by the parties during the proceeding. Continue Reading »
June 1st, 2009
Nuts & Bolts, Nuts & Bolts: Reinsurance
Introduction
I remember when I first heard the term “aggregate extension clause.” I was a couple of years out of law school and just getting my feet wet in reinsurance law and practice. Naturally, I had no idea of what an aggregate extension clause was or, for that matter, why someone would want to call something an “aggregate extension clause” in the first place, unless the principal objective was to confuse the reader. I envisioned some densely worded, obtuse, complex and hopelessly confusing provision designed to accomplish some obscure yet important purpose, the relevance of which was surely beyond my ken. I decided that I could read up on the clause, or ask a colleague about it, but I feared that the explanation – written or oral – would be at least as difficult to decipher as the clause itself, and probably more so. So I did my best to avoid even having to think about aggregate extension clauses — let alone deal with them — for as long as possible.
Eventually, of course, I had to face my fears and grapple with the seemingly elusive concept of “aggregate extension.” I quickly learned that my initial assessment was only partly correct: aggregate extension clauses are indeed densely worded, but the purpose of the clause is far more straightforward than I once assumed. Once I learned a little bit about the clause, I realized (or at least thought) that I could impress – or perhaps awe – my less experienced colleagues with it, and might even be able to use it to show my more experienced colleagues that I knew something about reinsurance. While I can’t say I obtained as much mileage out of my newfound knowledge as I expected, I am nevertheless glad that I invested a little time into learning about aggregate extension clauses.
In this Reinsurance Nuts & Bolts post we briefly discuss in very simple and basic terms what an aggregate extension clause is, and what it does. We also provide the reader with an example of some of the operative wording of an aggregate extension clause. Our discussion is not intended to be comprehensive; if anything, it is oversimplified. But it should give the reader a basic understanding of the topic. Continue Reading »
May 18th, 2009
Arbitrability, Authority of Arbitrators, Nuts & Bolts, Nuts & Bolts: Reinsurance, Reinsurance Arbitration
Introduction
In today’s Nuts & Bolts post we take a brief look at honorable engagement clauses, which are sometimes referred to as “honorable undertaking” clauses. Honorable engagement clauses are, for practical purposes, a species of choice of law clause. Generally, they confer upon arbitration panels a degree of freedom to depart from the strict rules of law and evidence, and to interpret the contract as an honorable engagement rather than literally according to its terms. They are premised on the now arguably outmoded historical concept that a reinsurance contract is more than a contract, but an honorable undertaking, a deal that is closed when the parties shake hands over a cocktail (or three), and one by which the parties are honor-bound to abide. They also recognize that reinsurance is an arcane business with its own peculiar set of customs, practices and norms, and that, if the parties so agree, arbitrators should be reasonably free to apply these norms in deciding a case, even if a court faced with the same facts would or could not.
Honorable engagement clauses are more common in older reinsurance contracts than in those written today. But many reinsurance disputes arise out of long-tail asbestos or environmental claims arising out of decades-old contracts, a great many of which contain these clauses. And the clauses can have some significant implications in those disputes. Continue Reading »
May 1st, 2009
Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure
Introduction
Today we briefly review the limitation periods applicable to applications to vacate, modify, correct and confirm arbitration awards. Our discussion is limited to domestic awards falling solely under Chapter 1 of the Federal Arbitration Act and is not intended to be exhaustive. In a future Nuts & Bolts feature we will discuss the rules applicable to nondomestic awards falling under Chapters 2 and 3 of the Federal Arbitration Act. Our discussion is also limited to the rules that apply in federal courts within the United States Court of Appeals for the Second Circuit in diversity cases where the Federal Arbitration Act governs arbitration matters and New York law governs all other matters. The rules may be interpreted differently by other circuits and, even within the Second Circuit, outcomes may vary depending on which state’s law applies.
Limitation periods under the Federal Arbitration Act and New York’s arbitration statute are construed quite strictly and practitioners should carefully abide by them. Sometimes it is unclear whether a limitation period has accrued or been tolled. In that event practitioners should err on the side of caution. If there is a question whether the period for filing an application has accrued, assume that it has, and file and serve your papers within the shortest allotted period. If there is a question whether the period has been tolled, assume that it has not, and do whatever it takes to toll it. Continue Reading »
