Arbitral Power | Loree Reinsurance and Arbitration Law Forum

Posts Tagged ‘Arbitral Power’

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 8th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, Reinsurance Arbitration, United States Supreme Court 6 Comments »

Part IV

A. Introduction

In Part I (here) we explained why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice. And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, we explained how the Court has established for itself and the lower courts a fairly searching standard of review. Part II (here) explored the legal and practical implications of that standard of review.

Part III (here) turned to the other key area that will likely change because of Stolt-Nielsen — consolidated reinsurance-arbitration practice — and discussed the state of consolidation law pre-Stolt-Nielsen. This Part IV discusses Stolt-Nielsen’s rationale for finding that imposing class arbitration on parties whose agreements are silent on that point is inconsistent with the Federal Arbitration Act, and explores how the Court’s ruling may affect consolidated reinsurance-arbitration practice in general.

B. The Supreme Court’s Decides that Imposing Class Arbitration on Parties whose Contracts are Silent on that Score is Inconsistent with the Federal Arbitration Act

When we last left Stolt-Nielsen, the Court had determined that the arbitrators exceeded their authority by issuing an award that was based on their own notions of public policy gleaned from other arbitral decisions imposing class arbitration in the face of silence. When a court vacates an award it has to decide whether to remand the matter to the arbitrators, for Section 10(b) of the Federal Arbitration Act authorizes a court to “direct a rehearing by the arbitrators.” The Court decided not to remand, because “there can be only one possible outcome on the facts,” that is, where the parties’ contracts are undisputedly silent on class arbitration, save for the parties’ agreement to a broad arbitration clause. The Court then set about to explain why that was so. Continue Reading »

The Agency Model of Arbitral Power: University of Chicago Law School Law and Economics Professor Tom Ginsburg Explains Why Deferential Review Does Not Necessarily Make Arbitration an Effective Substitute for Adjudication

April 7th, 2010 Authority of Arbitrators, Awards, Grounds for Vacatur, United States Court of Appeals for the Seventh Circuit, United States Supreme Court No Comments »

In George Watts & Son v. Tiffany & Co., 248 F.3d 577 (7^th Cir. 2001), then Circuit Judge (now Chief Judge) Frank H. Easterbrook of the United States Court of Appeals for the Seventh Circuit said: “What the parties may do, the arbitrator as their mutual agent may do.” 248 F.3d at 581. Chief Judge Easterbrook made this statement in the course of defining the “manifest disregard” standard of review. Applying his “agency model,” he concluded that “the ‘manifest disregard’ principle is limited to two possibilities: an arbitral order requiring the parties to violate the law. . . , and an arbitral order that does not adhere to the legal principles specified by contract, and hence unenforceable under § 10(a)(4).” Id.

Chief Judge Easterbrook’s “agency” model of arbitral authority is instructive. Just as agents derive their authority by the consent of the principal (subject to the rules of apparent and implied authority), arbitrators derive their authority from the parties via the arbitration agreement and the submission. Subject to any restrictions in the arbitration agreement, the arbitrators’ powers to resolve a dispute under a broad arbitration agreement are arguably co-extensive with those of the parties that appointed them.

But the model is not perfect. First, unlike agents, arbitrators are not subject to the control of their principals and owe them no fiduciary duties. Second, analogizing arbitrators as agents of the parties in the way Chief Judge Easterbrook does effectively empowers arbitrators not only to decide cases, but to negotiate settlements that the parties could have entered into. It therefore does not require arbitrators to even arguably interpret the contract or apply the law: As long as the arbitrators do not require the parties to violate the law, and as long as the arbitrators are at least arguably faithful to the parties’ expressed choice-of-law, if any, they can reach whatever decision they wish, whether by application of facts to legal norms or by a compromise settlement that may or may not be rooted in the parties’ agreement. That arguably does not comport with the parties’ presumed, legitimate expectations. For the arbitrator’s job is to decide cases; settlement is a matter for the parties, and should be subject to the parties’ control.

University of Chicago Law School Professor Tom Ginsburg has written an excellent white paper that argues that the deferential standard of review espoused by Watts and other courts does not necessarily make arbitration an attractive substitute for litigation. See Tom Ginsburg, John M. Olin Law & Economics Working Paper No. 502 (2d Series), The Arbitrator as Agent: Why Deferential Review Is Not Always Pro-Arbitration (Dec. 2009) (copy available here). He argues that a more searching standard of review would make the market for arbitrators more transparent, and thus more effective. He advocates using Chief Judge Easterbrook’s agency model as an analytical framework for allowing parties to choose whether they prefer a very deferential standard of review, like that prescribed in Watts; something akin to de novo review, like that available in litigation; or something in between the two. Professor Ginsburg is in the process of publishing in the University of Chicago Law Review an article based on his white paper. Continue Reading »

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 »

Global Arbitration Review Publishes Article on Hansen v. Everlast and Quotes Philip J. Loree Jr.

November 3rd, 2009 Arbitrability, Authority of Arbitrators, Awards, New York Court of Appeals, Nuts & Bolts: Arbitration, Uncategorized, United States Court of Appeals for the Second Circuit, functus officio No Comments »

Readers may recall our recent post on the New York Court of Appeals’ decision in Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009), 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. A copy of our post is here.

On November 2, 2009 Kyriaki Karadelis of the U.K.-based trade publication Global Arbitration Review (“GAR”) (website here) wrote what I thought was a concise and insightful article on the case. And we would have said that even if she had not quoted some of our comments in her article! But she did, and we’re flattered by that.

With Global Arbitration Review’s permission, and with the required copyright disclaimer, we have posted the article as a “Slide Share Presentation” in my LinkedIn profile, which you can view by clicking here. Also posted there (again with GAR’s permission and the required disclaimer) is a Global Arbitration Review Article on the United States Court of Appeals for the Second Circuit’s decision in ReliaStar Life Ins. Co. v. EMC National Life Co., ___ F.3d ___, ___ (2009) (Raggi, J.) (blogged here and here), in which the United States Court of Appeals for the Second Circuit held that an arbitration panel was authorized to award under the bad faith exception to the American Rule attorney and arbitrator fees to a ceding company in a case where the parties had agreed that “[e]ach party shall bear the expense of its own arbitrator. . . and related outside attorneys’ fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.” We reported on GAR’s article concerning ReliaStar case here, which also quotes some of our comments on that case.

We ask our readership to remember that GAR is a subscription-only publication and that it has copyrights in these posted materials. GAR has authorized us to post them online and distribute them for marketing purposes, but that authorization does not extend to others not similarly situated. Please do the right thing and respect GAR’s copyrights – GAR has to make a living just like the rest of us!

Posts Tagged ‘Arbitral Power’

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

The Agency Model of Arbitral Power: University of Chicago Law School Law and Economics Professor Tom Ginsburg Explains Why Deferential Review Does Not Necessarily Make Arbitration an Effective Substitute for Adjudication

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

Global Arbitration Review Publishes Article on Hansen v. Everlast and Quotes Philip J. Loree Jr.

Recent Posts

Archives

Categories

Blogroll