As we predicted in prior posts, the United States Supreme Court reversed the judgment of the United States Court of Appeals for the Second Circuit in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., holding (5-3) that it was inconsistent with the Federal Arbitration Act to impose class arbitration on parties whose agreements were concededly silent on that point. We are in the process of analyzing the decision (copy here), and intend to post a comprehensive, critical analysis soon.
Archive for the ‘Grounds for Vacatur’ Category
Arbitration Nuts & Bolts: Vacating Arbitration Awards — Part IV: Federal Arbitration Act Section 10(a)(3) – Procedural Misconduct
April 26th, 2010 Arbitration Practice and Procedure, Grounds for Vacatur, Procedural Misconduct, Reinsurance Arbitration Comments Off on Arbitration Nuts & Bolts: Vacating Arbitration Awards — Part IV: Federal Arbitration Act Section 10(a)(3) – Procedural MisconductI. Introduction
In this part IV of our Nuts & Bolts vacatur feature, we focus on Section 10(a)(3) of the Federal Arbitration Act, which provides in pertinent part (with bracketed numbering and text added for convenience):
[An arbitration award may be vacated:]
where the arbitrators were guilty [(1)] of misconduct [(a)] in refusing to postpone the hearing, upon sufficient cause shown, or [(b)] in refusing to hear evidence pertinent and material to the controversy; or [(2)] of any other misbehavior by which the rights of any party have been prejudiced[.]
Section 10(a)(3) might be referred to as a procedural due process provision, and courts sometimes suggests it defines the level of due process that must be present in an arbitration for a court to confirm the award without violating constitutional due process requirements. We do not find that line of reasoning to be particularly helpful, and its validity is debatable. But Section 10(a)(3) certainly prescribes a baseline level of procedural protection to parties who agree to arbitrate without expressly specifying procedural protections. And it imposes a no-harm-no-foul rule: procedural misconduct or misbehavior — including not following agreed procedural rules — does not undermine an award unless the misconduct or misbehavior prejudiced the challenging party. 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 »
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. 4th ___, 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.
