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Archive for the ‘Procedural Misconduct’ 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 Misconduct

I. 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 »

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

I.          Introduction

Back in January the Ninth Circuit decided United States Life Ins. Co. v. Superior National Ins. Co., ___ F.3d ___, slip op. (9th 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 »

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.

The Burlage Controversy: Did the Court Usurp Arbitral Power or did the Arbitrator Prejudice the Defendant by Excluding Evidence Material to the Controversy?

October 15th, 2009 Awards, California State Courts, Procedural Misconduct 3 Comments »

 Introduction

Section 10(a)(3) of the Federal Arbitration Act authorizes courts to vacate awards “where the arbitrators were guilty of misconduct.  .  . in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced.”  California’s arbitration statute says courts “shall” vacate an award where a party’s rights “were substantially prejudiced . . . by the refusal of the arbitrators to hear evidence material to the controversy . . . .”  Cal. Civ. Code § 1286.2(a)(5) (here). 

On August 31, 2009 the California Court of Appeal, Second Appellate District decided Burlage v. Superior Court of Ventura Cty., ___ Cal. App. 4th ___, slip op. (Cal. App. 2d Dist. Aug. 31, 2009), petition for rehearing granted.  (A copy of the opinion is here.)  At the time we viewed Burlage as an excellent and relatively easy to understand example of how courts should – and do – deal with those relatively rare situations where a party is prejudiced by an arbitrator refusing to hear evidence material to the controversy, whether under the Federal Arbitration Act Section 10(a)(3) or a state law equivalent like California Civil Code Section 1286.2(a)(5).  While we still believe that the court correctly affirmed the trial court decision vacating the arbitration award, the decision has proved to be more controversial than we initially suspected it would be.   Continue Reading »