Posts Tagged ‘Andros Maritima S.A. v. Marc Rich & Co’

Arbitration FAQs: When is an Arbitrator Considered Neutral in a Federal-Arbitration-Act-Governed Arbitration?

April 16th, 2020 Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Ethics, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Small and Medium-Sized Business Arbitration Risk, Small Business B-2-B Arbitration, United States Court of Appeals for the Second Circuit, Vacate Award | Evident Partiality, Vacatur Comments Off on Arbitration FAQs: When is an Arbitrator Considered Neutral in a Federal-Arbitration-Act-Governed Arbitration?
neutral neutrality evident partiality

Single arbitrators are required under the Federal Arbitration Act to be neutral unless the parties otherwise agree. See, e.g., Morelite v. N.Y.C. Dist. Council Carpenters, 748 F.2d 79, 81-85 (2d Cir. 1984). In tripartite arbitration, one arbitrator (usually designated the umpire or chair) is ordinarily required to be neutral, while party-appointed arbitrators are presumed to be non-neutral, except to the extent otherwise required by the parties’ arbitration agreement. See Certain Underwriting Members London v. Florida Dep’t of Fin. Serv., 892 F.3d 501, 510-11 (2d Cir. 2018); Sphere Drake Ins. v. All American Life Ins., 307 F.3d 617, 622 (7th Cir. 2002); Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.), 631 F.3d 869, 872-74 (7th Cir. 2011). Arbitration provider rules, which may govern arbitrator qualifications in appropriate cases, often provide that all three arbitrators of a tripartite panel are required to be neutral.

Section 10(a)(2) of the Federal Arbitration Act—which authorizes federal district courts to vacate arbitration awards “where there was evident partiality…in the arbitrators…”—imposes in part and enforces these neutrality requirements. Section 10(a)(2) establishes that parties who agree to arbitrate can legitimately expect that neutral arbitrators will meet a certain minimal standard of arbitral impartiality, and that arbitrators not appointed as neutrals can, in appropriate circumstances, be held to a substantial, material breach of a stipulated arbitrator qualification requirement related-to, but not necessarily coextensive with, neutrality. See Certain Underwriting Members, 892 F.3d at 510-11; Sphere Drake, 307 F.3d at 622; Trustmark, 631 F.3d at 872-74.

The requirement that an arbitrator be “neutral” can be divided into three, distict  components. The arbitrator must be (a) impartial; (b) disinterested; and (c) independent.

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Arbitration and Mediation FAQs: I Received an Arbitration Award in my Favor but my Adversary Refuses to Pay it. What can I do?

June 14th, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Final Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, State Arbitration Statutes, State Courts, Statute of Limitations Comments Off on Arbitration and Mediation FAQs: I Received an Arbitration Award in my Favor but my Adversary Refuses to Pay it. What can I do?

Favorable arbitration awards are wonderful things, but they are not self-enforcing. Sometimes the other side voluntarily complies, but if not, there is really not much of anything the arbitrator can do to help.

Arbitrators are not judges and thus do not have the authority to garnish wages, seize property,  foreclose on encumbered property, freeze bank accounts, impose contempt sanctions and so forth. Parties can delegate to arbitrators broad adjudicatory and remedial authority, but that is relevant only to the nature and scope of their awards, and does not confer power on the arbitrators to enforce their awards coercively.

Apart from its potential preclusive effect in subsequent litigation, an arbitration award stands on the same footing as any other privately prepared legal document, such as a contract. It may be intended by the arbitrators and at least one of the parties to have legal effect, but it is up to a court to say what legal effect it has, and,  if necessary, to implement that legal effect through coercive enforcement. A judgment, by contrast, is an official decree that not only can be coercively enforced through subsequent summary proceedings in the same or other courts (including courts in other states and federal judicial districts), but is, to some extent, self-enforcing. A judgment, for example, can ordinarily be filed as a lien on real property, and applicable state or federal law may, for example, authorize attorneys to avail their clients of certain judgment-enforcement-related remedies without prior judicial authorization.

But that doesn’t mean you’re out of luck; it means you need a court to enter judgment on the award, that is, to “confirm” it. Once an award has been reduced to judgment, it can be enforced to the same extent as any other judgment. See, e.g., 9 U.S.C. § 13 (Under Federal Arbitration Act, judgment on award “shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered”); Fla. Stat. § 682.15(1)( “The judgment may be recorded, docketed, and enforced as any other judgment in a civil action.”); N.Y. Civ. Prac. L. & R. § 7514(a) (“A judgment shall be entered upon the confirmation of an award.”).

The Federal Arbitration Act (the “FAA”), and most or all state arbitration statutes, authorize courts to confirm awards in summary proceedings. State arbitration-law rules, procedures, limitation periods and the like vary from state to state and frequently from the FAA, and state courts may apply them to FAA-governed awards (provided doing so does not frustrate the purposes and objectives of the FAA).

But let’s keep things simple, and take a brief look at the FAA’s requirements for confirmation applicable in federal court when there is no prior pending action related to the arbitration, and  there are no issues concerning federal subject matter jurisdiction, personal jurisdiction, sufficiency or service of process, venue (i.e., whether suit should have been brought in another federal judicial district) or the applicability of the FAA.  We’ll also discuss how applications to confirm are supposed to be summary proceedings, why timing of an application is important, and how courts go about deciding them. Continue Reading »

Arbitration and Mediation FAQs: Can I Appeal an Arbitration Award in Court?

May 21st, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Awards, Drafting Arbitration Agreements, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure Comments Off on Arbitration and Mediation FAQs: Can I Appeal an Arbitration Award in Court?

Introduction

When a party is on the wrong end of an arbitration award that he, she or it thinks is fundamentally unfair, tainted by impropriety, or disconnected from the agreement the arbitrator was supposed to interpret and apply, the first question that comes to mind is whether there might be some form of recourse available. In court,  the usual avenue of relief from an adverse judgment or order is an appeal.

Can a losing party to an arbitration award governed by the Federal Arbitration Act (the “FAA”) appeal it in court? Since private arbitration is an alternative to public, government-sponsored court litigation, since the court system plays an important role in enforcing arbitration agreements, since both arbitration and court litigation share at least some of the same attributes and since in the U.S. procedural due process and the primacy of the rule of law are as dear to us as baseball and apple pie, it is natural to assume that one should be able to appeal an adverse arbitration award.

But one cannot—in any meaningful sense of the word—“appeal” an arbitration award to a court. In court litigation an appeal involves judicial review by an appellate court under which a panel of judges reviews trial-court rulings on questions of law independently—that is, as if the appellate court were deciding the question for itself in the first instance. The appellate court reviews the trial court’s findings of fact on a “clearly erroneous” or “clear error” standard of review, that is, paying a certain degree of deference to the finder of fact (the jury or trial judge). While appellate review thus does not involve a retrial on the merits, it is broad and searching, particularly where outcomes turn solely on questions of law.

The FAA does not authorize courts to review arbitration awards under an appellate standard of review, even if the parties consent to a court applying such a standard. Parties can agree before or after a dispute arises to an arbitration procedure that empowers another arbitrator or panel of arbitrators to review an award under an appellate or some other standard of review, but arbitration awards are subject to very limited and deferential review by courts and then only on a few narrow grounds.

The FAA Award-Enforcement Process

The FAA award enforcement process permits either party to make an application to vacate, modify or correct an award, or an application to “confirm” it, that is, enter judgment on it. Since the deadline for applying to vacate, modify or correct an award is considerably shorter than that for confirming an award, in many cases, parties who are seeking relief from the award make the initial application. If a putative challenging party does not timely seek relief, and the other party seeks confirmation after the expiration of the deadline for making an application to vacate, modify or correct the award, then the challenging party is time-barred from asserting grounds for vacatur or modification, even simply as affirmative defenses to confirmation. (See, e.g., L. Reins. & Arb. Law Forum post here.)

Let’s assume a party makes a timely motion to vacate an award. What will likely then happen is the other party will cross-move to confirm the award. The burden on the party seeking confirmation is pretty modest. Generally the party moving to confirm will need to show that the parties: (a) agreed to arbitrate; (b) consented to entry of judgment on the award; (c) appointed an arbitrator or panel of arbitrators; and (d) submitted the dispute to the arbitrators, who issued the award. The award is presumed valid and the court does not review its outcome or substance.

Once the modest prerequisites for confirmation have been established by a properly supported petition or motion to confirm an award, then the court “must grant” confirmation “unless the award is vacated, modified or corrected” under FAA Sections 10 or 11. 9 U.S.C. § 9. Thus, apart from those relatively rare cases where a party can show that the parties never agreed to arbitrate at all (and that the challenging party did not waive that defense), or perhaps never even impliedly consented to entry of judgment on the award, the only grounds on which the losing party can oppose confirmation are those set forth in Section 10 and 11.

The only exception might be if the award interprets the contract in a way that causes it to violate a well-defined and explicit public policy, or if the remedy the arbitrator awards violates the criminal law or requires one of the parties to do so. For example, one would not expect a court to enter judgment on an award that purported to authorize the prevailing party to inflict bodily harm on the losing party or vice-versa. That principle is simply an application of the contract-law rule that courts will not enforce contracts that violate public policy. See, generally, W. R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983); United Food & Commercial Workers Int’l Union v. King Soopers, 743 F.3d 1310, 1315 (10th Cir. 2014).

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