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Overturning Arbitration Awards based on Clear Mistakes of Historical Fact or Conceded Nonfacts: Some Further Thoughts (Part IV): Will the Seventh Circuit Reverse the UpHealth District Court?

November 14th, 2024 Appellate Practice, Application to Vacate, Arbitration Agreements, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Vacated, Awards, Challenging Arbitration Awards, Exceeding Powers, FAA Section 10, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Judicial Review of Arbitration Awards, Manifest Disregard of the Agreement, Manifest Disregard of the Law, Outcome Review, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Standard of Review, United States Court of Appeals for the Seventh Circuit, United States District Court for the Northern District of Illinois, United States Supreme Court, Vacate, Vacate Award | 10(a)(4), Vacate Award | Manifest Disregard of the Law, Vacatur for Conceded Nonfact or Clear Mistake of Historical Fact No Comments »

Seventh CircuitWill the Seventh Circuit reverse the judgment in the UpHealth case?

In our October 7, 2024, post, “Can a Court under Section 10(a)(4) Overturn an Award Because it was Based on a Clear Mistake of Historical Fact or a Conceded Nonfact?”, we discudssed UpHealth Holdings, Inc. v. Glocal Healthcare Sys. PVT, No. 24-cv-3778, slip op. (N.D. Ill. Sept. 24, 2024), which granted partial vacatur of an arbitration award because it was, said the Court, based on a “nonfact.” Our October 18, 2024 post, Overturning Arbitration Awards based on Clear Mistakes of Historical Fact or Conceded Nonfacts: Some Further Thoughts (Part I), identified five questions relating to UpHealth designed to shed further light on the case and the arbitration award vacatur standard on which the Court relied.

The first four of those questions were answered in our October 18, October 21, and November 12, 2024, posts. This November 14, 2024, post answers the fifth question: “If there is a [United States Court of Appeals for the] Seventh Circuit appeal of the UpHealth decision, is it likely the decision will be overturned on appeal, and if so, on what grounds?”

We explained in our November 12, 2024, post that UpHealth has appealed the district court decision to the Seventh Circuit. And if you’ve been reading our prior UpHealth posts, then you’ve probably already guessed that the answer is “yes,” it seems likely the Seventh Circuit will reverse the UpHealth decision.

In terms of the grounds, for such a reversal, we think the Seventh Circuit will probably conclude that the only forms of outcome review the Seventh Circuit recognizes is manifest disregard of the contract and violation of public policy, and that UpHealth involves neither of those grounds. That is all the more so where, as here, there is no agreement or concession concerning the allegedly mistaken fact. (See November 12, 2024, post.)

We think the Seventh Circuit may also conclude that recognizing vacatur based on a clear mistake of historical fact or a conceded nonfact would embroil courts in review of the arbitrator’s fact findings, including the sufficiency of evidence. Under Seventh Circuit and U.S. Supreme Court authority, the FAA does not authorize such review.  Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 566-70 (2013); Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671-72, 676-77 (2010). Major League Baseball Players Assoc. v. Garvey, 532 U.S. 504, 509-10, 511 (2001); Hill v. Norfolk & Western Ry., 814 F.2d 1192, 1194-95 (7th Cir. 1987) (citations omitted) (Posner, J.); American Zurich Ins. Co. v. Sun Holdings, Inc., 103 F.4th 475, 477-78 (7th Cir. 2024) (Easterbrook, J.); Affymax, Inc. v. Ortho-McNeil-Janssen Pharms., Inc., 660 F.3d 281, 284 (7th Cir. 2011) (citing George Watts & Son, Inc. v. Tiffany & Co., 248 F.3d 577 (7th Cir.2001); Eljer Mfg., Inc. v. Kowin Development Corp., 14 F.3d 1250, 1254, 1256 (7th Cir. 1994).

We discussed all of these shortcomings in the UpHealth Court’s analysis in our October 7, 18, 21, and November 12, 2024, posts. We believe that the Seventh Circuit will probably also conclude that the UpHealth court erred by vacating the award in part, particularly since the Seventh Circuit recognizes outcome review in extremely narrow circumstances only and none of those circumstances are present here—where the district court has, for intents and purposes, second-guessed the arbitrator’s fact finding.

It will be interesting to see how the appellee (Damodaran) attempts to square the district court’s decision with Seventh Circuit and Supreme Court authority. We will continue to watch the appeal and report on significant developments.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has nearly 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The image featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

Overturning Arbitration Awards based on Clear Mistakes of Historical Fact or Conceded Nonfacts: Some Further Thoughts (Part II)

October 21st, 2024 Application to Vacate, Arbitration Practice and Procedure, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Vacated, Awards, Exceeding Powers, FAA Chapter 1, FAA Section 10, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Manifest Disregard of the Agreement, Manifest Disregard of the Law, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, United States Court of Appeals for the Seventh Circuit, United States District Court for the Northern District of Illinois, Vacate, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacatur, Vacatur for Conceded Nonfact or Clear Mistake of Historical Fact No Comments »

clear mistakeIn our October 7, 2024, post, “Can a Court under Section 10(a)(4) Overturn an Award Because it was Based on a Clear Mistake of Historical Fact or a Conceded Nonfact?”, we discussed UpHealth Holdings, Inc. v. Glocal Healthcare Sys. PVT, No. 24-cv-3778, slip op. (N.D. Ill. Sept. 24, 2024), which granted partial vacatur of an arbitration award because it was based on a “nonfact.”  We promised to take a closer, analytical look at UpHealth and its “clear mistake of historical fact or conceded nonfact” vacatur standard, and, in our October 18, 2024 post, Overturning Arbitration Awards Based on Clear Mistakes of Historical Fact or Conceded Nonfacts: Some Further Thoughts (Part I), identified five questions relating to UpHealth that help shed further light on the case and the arbitration award vacatur standard on which it relied:

  1. What is the difference, if any, between a “clear mistake of historical fact” and a “conceded nonfact?”
  2. What is or should be required to establish a “clear mistake of historical fact” or a “conceded nonfact?”
  3. Assuming Section 10(a)(4) authorizes courts to vacate awards based on a “clear mistake of historical fact” or a “conceded nonfact,” did the UpHealth district court err by holding that the award against Damodaran was based on a nonfact?
  4. Assuming that the district correctly applied the “conceded nonfact” standard, does it comport with the FAA?
  5. If there is a Seventh Circuit appeal of the UpHealth decision, is it likely the decision will be overturned on appeal, and if so, on what grounds?

That October 18, 2024 post went on to address questions 1 and 2. This Part II address the third question: “Assuming Section 10(a)(4) authorizes courts to vacate awards based on a “clear mistake of historical fact” or a “conceded nonfact,” did the UpHealth district court err by holding that the award against Damodaran was based on a nonfact?” The author thinks the answer is “yes.” One or more subsequent posts will answer questions 4 and 5.

Discussion

 

Assuming Section 10(a)(4) Authorizes Courts to Vacate Awards Based on a “Clear Mistake of Historical Fact” or a “Conceded Nonfact,” did the UpHealth District Court Err by Holding that the Award against Damodaran was Based on a Nonfact?

The UpHealth Court’s application of the “mistake of historical fact” or “conceded nonfact” standard raises serious questions about whether the Court substituted its judgment for that of the arbitrators. On balance, the author thinks it did for the reasons set forth below (which presume familiarity with our October 7, 2024, and our October 18, 2024, posts).

There are at least three flaws in the Court’s analysis: Continue Reading »

Overturning Arbitration Awards Based on Clear Mistakes of Historical Fact or Conceded Nonfacts: Some Further Thoughts (Part I)

October 18th, 2024 Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Award Fails to Draw Essence from the Agreement, Awards, Challenging Arbitration Awards, FAA Chapter 1, FAA Section 10, Federal Arbitration Act Section 10, Grounds for Vacatur, Imperfectly Executed Award or Powers, Judicial Review of Arbitration Awards, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, United States Court of Appeals for the Seventh Circuit, United States District Court for the Northern District of Illinois, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacatur, Vacatur for Conceded Nonfact or Clear Mistake of Historical Fact 1 Comment »

Historical factIn our October 7, 2024, post, “Can a Court under Section 10(a)(4) Overturn an Award Because it was Based on a Clear Mistake of Historical Fact or a Conceded Nonfact?”, we promised  some further analysis of UpHealth Holdings, Inc. v. Glocal Healthcare Sys. PVT, No. 24-cv-3778, slip op. (N.D. Ill. Sept. 24, 2024), the principal case discussed in that post, which held warranted  partial vacatur of an award because the award was based in part on a “nonfact.”  In this and at least one other post, let’s take a closer, analytical look at UpHealth’s  “clear mistake of historical fact or conceded nonfact” vacatur standard, consider whether UpHealth comports with the Federal Arbitration Act (“FAA”), and take an informed guess about how the U.S. Court of Appeals for the Seventh Circuit might decide the case if there is an appeal.

We’ll focus on the following questions and our answers will presume familiarity with the October 7, 2024, UpHealth post, here:

  1. What is the difference, if any, between a “clear mistake of historical fact” and a “conceded nonfact?”
  2. What is or should be required to establish a “clear mistake of historical fact” or a “conceded nonfact?”
  3. Assuming Section 10(a)(4) authorizes courts to vacate awards based on a “clear mistake of historical fact” or a “conceded nonfact,” did the UpHealth district court err by holding that the award against Damodaran was based on a nonfact?
  4. Assuming that the district correctly applied the “conceded nonfact” standard, does it comport with the FAA?
  5. If there is a Seventh Circuit appeal of the UpHealth decision, is it likely the decision will be overturned on appeal, and if so, on what grounds?

This Part I addresses questions 1 and 2. One or more subsequent posts will address questions 3 through 5.

Discussion

 

What is the Difference, if any, between a “Clear Mistake of Historical Fact” and a “Conceded Nonfact?”

 The standard adopted in UpHealth—which was derived from Electronics Corp. of Am. v. International Union of Elec., Radio and Mach. Workers, 492 F.2d 1255 (1st Cir. 1974); National Post Office, Mailhandlers, Watchmen, Messengers & Grp. Leaders Div, Laborers Int’l Union of N. Am., AFL-CIO v. United States Postal Serv., 751 F.2d 834, 843 (6th Cir. 1985) (Stewart, Associate Justice (ret.), sitting by designation), and Mollison-Turner v. Lynch Auto Grp., No. 01 6340, 2002 WL 1046704, at *3 (N.D. Ill. May 23, 2002)—authorizes vacatur of awards based on: (a) a “clear mistake of historical fact” or (b) a “conceded nonfact.” Both of these bases for vacating an award may, at least to some, suggest a fairly broad authorization to vacate awards that is not already encompassed within the manifest disregard of the agreement (a/k/a “essence of the agreement”) standard. That is especially so of vacatur based on a “clear mistake of historical fact.” Continue Reading »

Can a Court under Section 10(a)(4) Overturn an Award Because it was Based on a Clear Mistake of Historical Fact or a Conceded Nonfact? 

October 7th, 2024 Application to Confirm, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Award Fails to Draw Essence from the Agreement, Award Irrational, Award Vacated, Awards, Exceeding Powers, FAA Chapter 1, FAA Section 10, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Labor Arbitration, LMRA Section 301, Petition to Vacate Award, Practice and Procedure, Section 10, United States District Court for the Northern District of Illinois, Vacate, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacate Award | Public Policy, Vacatur, Vacatur for Conceded Nonfact or Clear Mistake of Historical Fact 3 Comments »

nonfact | clear historical factCan a court vacate an award because it was based on a clear mistake of historical fact or on a conceded nonfact? Some might consider asking that question to be akin to using fighting words, but it is one that the U.S. Court of Appeals for the Seventh Circuit may ultimately answer if an appeal of the UPHealth Holdings, Inc. v. Glocal Healthcare Sys. PVT, No. 24-cv-3778, slip op. (N.D. Ill. Sept. 24, 2024) is taken.

In vacating in part the award in that case the UpHealth district court took a rather bold step, albeit one that has support in two circuit court labor arbitration cases (decided in 1974 and 1985), Electronics Corp. of Am. v. International Union of Elec., Radio and Mach. Workers, 492 F.2d 1255 (1st Cir. 1974); National Post Office, Mailhandlers, Watchmen, Messengers & Grp. Leaders Div, Laborers Int’l Union of N. Am., AFL-CIO v. United States Postal Serv., 751 F.2d 834, 843 (6th Cir. 1985) (Stewart, Associate Justice (ret.), sitting by designation), and at least one district court case, decided under the Federal Arbitration Act (the “FAA”) in 2002, Mollison-Turner v. Lynch Auto Grp., No. 01 6340, 2002 WL 1046704, at *3 (N.D. Ill. May 23, 2002). It vacated in part an award because the Court determined the arbitrators strongly relied on a conceded nonfact. Whether UpHealth will withstand appellate review is unclear at this juncture, but at least for the time being, it provides award challengers with some additional support for vacating a very narrow class of questionable but rare awards that feature the kind of unusual circumstances present in UpHealth, Electronics Corp., National Post Office, and Mollison-Turner. Each of these cases presented a situation where an award was based on a clear mistake of historical fact, a conceded nonfact, or both.

This post reviews what transpired in UpHealth. In one or more later posts we shall subject the Court’s decision to analytical scrutiny and consider whether, and if so, to what extent, the notion that an award can be vacated based on a mistake of historical fact or a conceded nonfact will likely gain traction in future cases. We may also consider whether, and if so, to what extent, vacatur on that ground comports with Federal Arbitration Act (“FAA”) principles, and discuss in more detail Electronics Corp., National Post Office, and Mollison-Turner. 

Legal Background: Outcome Review of Arbitration Awards

Manifest Disregard of the Agreement and Manifest Disregard of the Law

Under the Federal Arbitration Act (“FAA”), and in labor arbitration cases, courts can vacate Continue Reading »

Sanctions: Seventh Circuit Awards $40,000 in FRAP 38 Fees and Costs in Zurich v. Sun Holdings Case

August 28th, 2024 American Arbitration Association, Appellate Practice, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Attorney Fee Shifting, Attorney Fees and Sanctions, Authority of Arbitrators, Award Confirmed, Challenging Arbitration Awards, Confirm Award | Exceeding Powers, Exceeding Powers, FAA Chapter 1, FAA Section 10, FAA Section 9, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 9, Judicial Review of Arbitration Awards, Petition or Application to Confirm Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, Section 9, United States Court of Appeals for the Seventh Circuit, Vacate Award | 10(a)(4), Vacate Award | Attorney Fees, Vacate Award | Attorney's Fees, Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacatur No Comments »

sanctionsWe previously discussed the Seventh Circuit’s decision in American Zurich Ins. Co. v. Sun Holdings, Inc., 103 F.4th 475 (7th Cir. 2024) (Easterbrook, J.), in which the award challenger Sun Holdings, Inc. (“Sun Holdings”) claimed that the arbitrators exceeded their powers by imposing as sanctions a $175,000.00 attorney fee award, which they claimed, among other things, was barred by the language of the contract. (See our prior post, here.) The problem was that the arbitrators at least arguably interpreted the language in question and concluded that it did not bar the award of attorney fees in question. And the attorney fee  award comported with New York law and the American Arbitration Association Commercial Rules, both of which the parties made part of their agreement.

The challenger further undermined its position by not acknowledging the existence of controlling Seventh Circuit and U.S. Supreme Court authority and engaging in the arbitration proceedings what the Seventh Circuit believed was recalcitrant behavior. The challenger compounded that by attempting to second guess various determinations made by the arbitrators.

That this strategy backfired, exposing Sun Holdings to sanctions, is not surprising. It resulted in the Court issuing an order to show cause providing the challenger 14 days “to show cause why sanctions, including but not limited to an award of attorneys’ fees, should not be imposed for this frivolous appeal.” Zurich, slip op. at 5 (citing Fed. R. App. P. 38).

The Court,  on July 1, 2024,  after considering Sun Holdings challenger’s response to the order to show cause, determined that Fed. R. App. P. (“FRAP”) 38 sanctions were warranted.  The Court “conclude[d] that Sun Holdings must compensate American Zurich for the legal fees and other costs that it was unnecessarily forced to incur by Sun’s unnecessary appeal.” July 3, 2024, Order, No 23-3134, Dkt. 42 at 1 of 2 (7th Cir. July 3, 2024) (available on PACER).

In response to the Order to Show Cause, Sun Holdings argued “that it did not litigate in bad faith because it was entitled to contest the Second Circuit’s understanding of New York law, as represented in ReliaStar Life Insurance Co. v. EMC National Life Co., 564 F.3d 81, 86-89 (2d Cir. 2009).” Dk. 42 at 1 of 2. (Our posts on ReliaStar are here and here.)

“But[,]” said the Court, “the dominant theme of [Sun Holdings’] brief in this court was that we should review and reject the arbitrators’ interpretation of its contract with American Zurich. That line of argument is incompatible with an agreement to arbitrate, as our opinion explains.” Dk. 42 at 1 of 2. The Court proceeded to quote in further support the following passage from its opinion:

[A]s if to highlight the fact that it disdains the limits on judicial review of arbitral awards, Sun wants us to reexamine the arbitrators’ conclusion that it engaged in frivolous conduct (it was “just putting on a defense,” Sun insists) and wants us to say that the arbitrators overestimated the amount of excess fees that American Zurich was compelled to incur. These arguments are unrelated to contractual meaning. They are unabashed requests to contradict the arbitrators’ findings, something the Federal Arbitration Act forbids.

Dk.42 at 2 of 2 (quoting  American Zurich Ins. Co. v. Sun Holdings, Inc. 103 F.4th 475, 478 (7th Cir. 2024) (Easterbrook, J.)).

The Court said “Sun Holdings’ response to our order to show cause does not address that baseless aspect of its appellate argument.” Dk. 42 at 2 of 2. Sanctions, concluded the Court, would be imposed.

Having determined that FRAP 38 sanctions were warranted, the Court ordered American Zurich “to file a statement of the fees and costs incurred in defending its judgment,” giving Sun Holdings an opportunity to respond.

American Zurich originally sought $46,300.30 in fees and costs, but amended its statement to seek $75,250.80. August 21, 2024, Fees and Costs Order, No 23-3134, Dkt. 47 at 1 -2 of 2 (7th Cir. August 21, 2024) (available on PACER).

But the Court ordered Sun Holdings to “pay $40,000 to American Zurich as compensation for this frivolous appeal.” Dkt. 47 at 2 of 2. The Court said that it “declined to award the full amount sought by American Zurich[]” because “[a]n award exceeding [$40,000.00] is difficult to justify, given that much of the legal work should have preceded the appeal and we are not awarding fees for legal work in the district court.” Dkt. 47 at 2 of 2.

Contacting the Author

If you have any questions about this article, arbitration, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has nearly 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

 Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

D.C. Circuit Says it has No Subject-Matter Jurisdiction over Competing Claims to Confirm or Vacate Award Made Pursuant to Collective Bargaining Agreement   

August 21st, 2024 Application to Confirm, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Judicial Review of Arbitration Awards, Labor Arbitration, Labor Law, LMRA Section 301, LMRA Section 301(a), Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Rights and Obligations of Nonsignatories, United States Court of Appeals for the D.C. Circuit Comments Off on D.C. Circuit Says it has No Subject-Matter Jurisdiction over Competing Claims to Confirm or Vacate Award Made Pursuant to Collective Bargaining Agreement   

Subject-Matter JurisdictionWe’ve made over the last several months months a point of discussing arbitration-enforcement litigation cases addressing the subject-matter jurisdiction because—particularly in the context of the Federal Arbitration Act (the “FAA”)—it is not only complex but frequently  counterintuitive. (See here, here, and here.) This case— International Union, United Mine Workers of Am. v. Consol Energy Inc., ___ F.4d ___, No. 22-7110, slip op. (D.C. Cir. August 9, 2024)—caught our eye because the Court held that that it lacked subject-matter jurisdiction over the plaintiff on one ground and over the defendants’ counterclaim on an independent ground, Article III standing.

Background

The United Mine Workers of America (the “Union”) and coal mining companies (the “Mining Companies”), all subsidiaries of  Consol Energy, Inc. (“Consol”), signed a collective bargaining agreement (the “CBA”)  but Consol did not. The CBA provided for arbitration of grievances. It also provided to Union members lifetime health care benefits. The Union claims that the Mining Companies could not reduce benefits unilaterally, even if a member no longer mined coal.

For its part Consol was the Mining Companies’ health care administrator. Prior to the CBA’s expiration date, Consol informed the Mining Companies’ mining employees that Consol would consider modifying miner benefits once the CBA expired.

That prompted a retired miner to file a grievance against Consol, an arbitration followed, and with the support of the Union, the miner obtained an award in his favor. The arbitrators determined they had jurisdiction over Consol, a nonsignatory to the CBA, which by the time the arbitration took place, had expired. They also determined that the proposed benefit modifications would violate the CBA and made an award that prohibited Consol from making them.

The Union brought against Consol and the Mining Companies an action in district court to confirm the award, invoking Labor Management Relations Act (“LMRA”) Section 301(a)’s grant of subject-matter jurisdiction over actions “for violation of contracts between an employer and a labor organization.” 29 U.S.C. § 185(a). Consul and the Mining Companies brought a separate action to vacate the award, and the district court consolidated the two cases.

Prior to the district court reaching its decision Consol was split into two successor entities and otherwise ceased to exist. One of the two was joined but the district court dismissed it because its business did not concern coal mining. The other successor entity (the parent of the Mining Companies) was never made a party. The Mining Companies remained parties to the consolidated action.

The district court dismissed on standing grounds the Union’s confirmation action. It found the Union suffered no injury because there was no CBA violation. While Consul proposed to modify benefits it never did so. But the district court nevertheless determined on the merits that there was no basis for vacating the award, either. An appeal by both parties followed.

Subject-Matter Jurisdiction: The D.C. Circuit’s Decision

The D.C. Court of Appeals determined that “[n]o party in this appeal has shown that federal courts have jurisdiction over its claim.” United Mine Workers, slip op. at 8. It therefore affirmed the district court’s dismissal of Union’s claim, vacated the district court’s determination on the merits of the vacatur counterclaim, and remanded the counterclaim with instructions to dismiss it on standing grounds. Id.

The District Court had No Subject-Matter Jurisdiction to Confirm the Award

Continue Reading »

Manifest Disregard of the Agreement: Third Circuit Says Arbitrator Rewrote the 10-Day Time Limit For Grievance Filing and Affirms District Court Judgment Vacating Award

July 19th, 2024 Application to Vacate, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Irrational, Award Vacated, Awards, Challenging Arbitration Awards, Enforcing Arbitration Agreements, Exceeding Powers, FAA Chapter 1, FAA Section 10, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, First Principle - Consent not Coercion, Grounds for Vacatur, Judicial Review of Arbitration Awards, Labor Arbitration, LMRA Section 301, Manifest Disregard of the Agreement, Petition to Vacate Award, Practice and Procedure, Section 10, U.S. District Court for the District of New Jersey, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Third Circuit, Vacate, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacatur 1 Comment »

disregard of the agreementAn arbitration award may be vacated for “manifest disregard of the agreement” if the award does not draw its essence from the contract and instead reflects the arbitrator’s own notions of economic or industrial justice. (See, e.g., here, here,  here,  here.)  Such an award exceeds the arbitrator’s powers within the meaning of Section 10(a)(4) of the Federal Arbitration Act. 9 U.S.C. § 10(a)(4) and federal common law in Labor Management Relations Act Section 301 cases (which tracks Section 10(a)(4)).

Arbitration awards do not qualify for vacatur under this manifest disregard of the agreement standard unless the arbitrator did not even arguably interpret the agreement. And if you have any doubts about how much extensive leeway arbitrators have to “arguably interpret” contracts, go back and review the U.S. Supreme Court’s decision in  Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 566-70 (2013).

The margins for a reasonable argument for manifest disregard of the agreement vacatur are slim, for once the arbitrator offers—or the award is otherwise susceptible to—an even barely plausible interpretation supporting the arbitrator’s award, then it’s game over, even if the barely plausible interpretation is one a court would almost certainly not adopt as its own.

But in StoneMor, Inc. v. The Int’l Bhd. Of Teamsters, Local 469, ___ F.4d ___, No. 23-1489, slip op. (3d Cir. July 10, 2024), the Third Circuit reminds everyone that, while it is “‘a steep climb to vacate an . . . award[,]’” slip op. at 6 (quoting France v. Bernstein, 43 F.4th 210, 219 (3d Cir. 2022)), the Court’s “review is ‘not toothless,’ and [it] will reverse if the arbitrator ‘rewrites the contract[.]’” Slip op. at 6 (quoting Independent Lab’y Employees’ Union, Inc. v. ExxonMobil Research & Engineering Co., 11 F.4th 210, 219 (3d Cir. 2021)). (You can read our France v. Bernstein post here.)

The award before the Court in StoneMor, was the product of an arbitrator who “did just that[,]” and the Court affirmed the district court’s judgment vacating that award—an award which resulted from manifest disregard of the agreement. Slip op. at 6 & 3. Because the Court was able to conclude that the award was not based on—and did not otherwise reflect—an even barely colorable interpretation of the contract, vacatur was warranted. Continue Reading »

Attorney Fees: Seventh Circuit to Consider Whether Exceeding Powers Challenge to Arbitrators’ Attorney’s Fees Award Warrants FRAP 38 Sanctions

June 19th, 2024 Appellate Practice, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Attorney Fee Shifting, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Bad Faith, Challenging Arbitration Awards, Confirmation of Awards, Exceeding Powers, FAA Chapter 1, FAA Section 10, FAA Section 11, FAA Section 9, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 9, Insurance Contracts, Judicial Review of Arbitration Awards, Petition or Application to Confirm Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Retrospectively-Rated Premium Contracts, Section 10, Section 11, Section 9, Uncategorized, United States Court of Appeals for the Seventh Circuit, Vacate, Vacate Award | 10(a)(4), Vacate Award | Attorney Fees, Vacate Award | Attorney's Fees, Vacatur 1 Comment »

Introduction

Attorney's Fees | Contract InterpretationMost challenges to arbitration awards—including attorney fees awards— fail because the standards of review are so demanding. The bar is exceedingly high by design. Otherwise—the reasoning goes—courts would “open[] the door to the full-bore legal and evidentiary appeals that can rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process and bring arbitration theory to grief in post-arbitration process.” Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 588 (2008) (citations and quotations omitted; some parenthetical material in original).

But the narrow margin for success is not a free pass for challengers to advance arguments that do not, in a court’s view, have a legitimate, good faith basis in the facts and the law, or in a reasonable argument for reversal or modification of the law.

A recent case in point is Circuit Judge Easterbrook’s decision in American Zurich Ins. Co. v. Sun Holdings, Inc., No. 23-3134, slip op. at 1 (7th Cir. June 3, 2024) (Easterbrook, J.). The award challenger claimed the arbitrators exceeded their power by imposing as a sanction an award of $175,000.00 in attorney fees because the contract allegedly barred such an attorney fees award. The problem was that the arbitrators at least arguably interpreted the language in question and concluded that it did not bar the award of attorney fees in question. Moreover,  the attorney fees  award comported with New York law and the American Arbitration Association Commercial Rules, both of which the parties made part of their agreement.

The Seventh Circuit has signaled that it believes there was no good faith basis for the challenge and that the challenger has offered none, apart from its insistence that its interpretation was the only one even barely plausible. The challenger appears to have further undermined its litigation position by engaging in what the Seventh Circuit believes was recalcitrant behavior in the arbitration proceedings, and, according to the Court, not acknowledging the existence of controlling Seventh Circuit and U.S. Supreme Court authority controverting its position. The challenger compounded that by asserting—contrary to FAA Sections 10 and 11— additional award challenges that the Court concluded were simply attempts to second guess various determinations made by the arbitrators.

That this strategy backfired should come as no surprise. It resulted in the Court issuing an order to show cause providing the challenger 14 days “to show cause why sanctions, including but not limited to an award of attorneys’ fees, should not be imposed for this frivolous appeal.” Zurich, slip op. at 5 (citing Fed. R. App. P. 38). At the time of this writing no decision has been made by the Court concerning whether it will, in fact, impose sanctions.

Background: The Award of Attorney Fees

Petitioner Sun Holdings, Inc. (“Sun” or the “Award Challenger”) is a Texas- Continue Reading »

New York Arbitration Law Focus: Appellate Division, Second Department Vacates Attorney’s Fee Award Because it was Irrational and Violated New York Public Policy

December 7th, 2023 Application to Confirm, Application to Vacate, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Attorney Fee Shifting, Attorney Fees and Sanctions, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Irrational, Award Vacated, Awards, Challenging Arbitration Awards, CPLR Article 75, Enforcing Arbitration Agreements, Exceeding Powers, Grounds for Vacatur, Judicial Review of Arbitration Awards, Making Decisions about Arbitration, New York Arbitration Law (CPLR Article 75), New York State Courts, Outcome Risk, Petition or Application to Confirm Award, Petition to Vacate Award, Policy, Practice and Procedure, Public Policy, Second Department, State Arbitration Law, State Arbitration Statutes, State Courts, Vacate, Vacate Award | Attorney Fees, Vacate Award | Attorney's Fees, Vacate Award | Public Policy, Vacatur Comments Off on New York Arbitration Law Focus: Appellate Division, Second Department Vacates Attorney’s Fee Award Because it was Irrational and Violated New York Public Policy

Attorney's FeesThe question before the Appellate Division, Second Department in In re D & W Cent. Station Fire Alarm Co. v. Flatiron Hotel, ___ A.D. 3d ___, 2023 N.Y. Slip Op. 6136 (2d Dep’t Nov. 29, 2023), was whether an arbitration award had to be vacated because the amount of fees the arbitrator awarded was irrational and excessive and therefore exceeded the arbitrator’s powers under N.Y. Civ. Prac. L. & R. (“CPLR”) 7511(b)(1)(iii). The arbitrator awarded fees that were 13.5 times the amount the prevailing party’s attorney said it charged its client on an hourly basis. The fee award was 44% of the amount the arbitrators awarded for the prevailing party’s claim. See 2023 N.Y. Slip Op. 6136 at *1.

The Court concluded that the fee award was irrational and violative of New York’s strong public policy against the enforcement of contracts or claims for excessive legal fees. It therefore reversed the trial court’s judgment granting the motion to confirm and denying the motion to vacate, and remanded the matter back to the trial court. See 2023 N.Y. Slip Op. 6136 at *2.

Flatiron Hotel is of particular interest because it shows that there is authority under New York arbitration law for challenging successfully awards of legal fees that are authorized by the parties’ contract but are off the rails in their amount. While not a high-stakes arbitration involving hundreds of thousands of dollars in legal fees, it was one where the losing party was socked with a fee that was so far out of proportion of what it consented to pay that there was nothing whatosever in the record to support it.

Fortunately for the appellant in Flatiron Hotel, the Appellate Division set aside the fee award even though the standard of review for granting such relief is highly deferential. While decisions vacating awards are understandably quite rare, this was one where vacatur was quite appropriate, as we shall see. Continue Reading »

Fourth Circuit Says Labor Arbitrator Spoiled Award by Ignoring CBA’s Procedural Rules

June 29th, 2023 Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Vacated, Challenging Arbitration Awards, Contract Interpretation, Exceeding Powers, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Judicial Review of Arbitration Awards, Labor Arbitration, Procedural Arbitrability, Section 10, United States Court of Appeals for the Fourth Circuit, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacatur Comments Off on Fourth Circuit Says Labor Arbitrator Spoiled Award by Ignoring CBA’s Procedural Rules

Failure to Follow Procedural Rules: Introduction

Procedural Rule not Followed and Award VacatedUnder both the Federal Arbitration Act (the “FAA”) and Section 301 of the National Labor Relations Act (the “NLRA”), arbitrators exceed their powers by making awards that do not “draw [their] essence” from the parties’ agreement. See Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 568-69 (2013) (FAA); Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 671-72 (2010) (FAA); Eastern Associated Coal v. United Mine Workers, 531 U.S. 57, 62 (2000) (NLRA). (See, e.g., here, here, here, and here.)

In a case arising under Section 301 of the NLRA, the U.S. Court of Appeals for the Fourth Circuit “determine[d] whether an arbitration award failed to draw its essence from the agreement when an arbitrator ignored the parties’ agreed upon procedural rules for conducting the arbitration.” Advantage Veterans Servs. of Walterboro, LLC v. United Steel, Paper & Forestry, Rubber, Mfg. Energy, Allied Indus. & Serv. Workers Int’l, Local 7898, No. 22-1268, slip op. at 2 (4th Cir. June 15, 2023). The Fourth Circuit said, “[u]nder the language of the agreement here, the answer is yes[,]” and— reversing the district court’s order—vacated the award. Slip op. at 2 & 12.

Advantage Veterans is a proverbial breath of fresh air for those who wish—by way of clear, unambiguous, and precise contract language—to circumscribe the authority of arbitrators by conditioning the enforceability of an award on compliance with certain clear procedural rules. That is not to say it authorizes vacatur of an award every time the arbitrator does not comply with a clear procedural rule set forth in (or incorporated by) an arbitration agreement.  The doctrine of procedural arbitrability counsels deference to an arbitrator’s procedural decisions that even arguably represent the arbitrator’s interpretation of the contract, and disputes concerning arbitrator failure to comply with procedural provisions are frequently disposed of on that basis. See, e.g., BG Grp. PLC v. Republic of Argentina, 572 U.S. 25, 27-29, 33-36 (2014).

But at least where parties expressly condition enforceability of an award on compliance with a clear procedural rule, Advantage Veterans gives life to the parties’ clearly expressed intent that an arbitration to take place only as explicitly prescribed. Continue Reading »

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