Introduction
We recently reported on ReliaStar Life Ins. Co. v. EMC National Life Co., ___ F.3d ___, ___ (2009) (Raggi, J.) (blogged 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.” This post takes a critical look at ReliaStar.
The Second Circuit is one of the most influential and respected Circuit Courts of Appeal in the United States, yet on occasion even this prestigious court renders a decision that is open to question. ReliaStar is one of those decisions. The majority opinion lost sight of what the parties agreed about the arbitrators’ power to award attorney fees. Rather than adhere to the plain meaning of the parties’ agreement as required by New York law, the Court construed an unambiguous limitation on arbitral authority to mean something other than what it said.
No doubt that the Court believed that its decision would encourage resort to arbitration by construing arbitral authority broadly. But the Court would have done a far better job encouraging resort to arbitration had it simply enforced the parties’ agreement as written. One of the most attractive features of arbitration is that parties get to dictate how they want their dispute decided, including, among other things, how best to allocate the costs, fees and expenses of deciding it. But that feature falls by the wayside if courts cannot be relied upon to enforce arbitration agreements as written. Continue Reading »
