Posts Tagged ‘Manifest Disregard of the Agreement’

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 »

Will 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.

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Can Arbitrators Exceed their Powers by Making an Award in Manifest Disregard of the Parties’ Agreement?

April 17th, 2019 Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Challenging Arbitration Awards, Confirmation of Awards, Contract Interpretation, Contract Interpretation Rules, Exceeding Powers, Grounds for Vacatur, Manifest Disregard of the Agreement, Nuts & Bolts, Nuts & Bolts: Arbitration, Outcome Risk, Practice and Procedure, United States Court of Appeals for the Eighth Circuit, United States Supreme Court, Vacatur Comments Off

Suppose arbitrators decide an issue within the scope of their authority but do so in manifest disregard the parties’ contract. Do they exceed their authority by making an award that has not even a barely colorable basis in the parties’ contract or in applicable law?

The answer to that question, is, of course, “yes,” and over the years we’ve discussed in a number of posts how arbitrators can exceed their powers under Federal Arbitration Act Section 10(a)(4) or Section 301 of the Labor Management Relations Act by making awards in manifest disregard of the parties’ agreement. (See Loree Reinsurance and Arbitration Law Forum Posts here, here, here, here, here, here, here, here, and here.) As discussed in those posts, the U.S. Supreme Court has on multiple occasions ruled that commercial and labor arbitrators can exceed their powers by making an award that manifestly disregards—or does not “draw its essence” from—the parties’ agreement. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Inc., 130 S.Ct. 1758, 1768-70 (2010); Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2067, 2068 (2013); Eastern Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62 (2000); Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599 (1960); Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987).

In our April 12, 2019 post (here) we reviewed how it is that the limited review powers courts have to vacate commercial and labor arbitration awards are designed to provide a limited, but very important, safety net to protect parties against egregious, material violations of arbitration agreements. Without that limited protection, the risks associated with agreeing to arbitrate would be intolerably high and parties would be much less apt to opt for arbitration over court litigation.

Courts vacate arbitration awards where arbitrators act outside the scope of their authority by ruling on issues that the parties did not agree to submit to them. That’s what happened in Brock Indus. Servs., LLC v. Laborers’ Int’l Union., __ F.3d ___, No. 17-2597, slip op. (7^th Cir. April 8, 2019), which we discussed in our April 12, 2019 post here.

But to obtain vacatur of an award based on manifest disregard of the agreement, however, an award challenger must satisfy an exceedingly demanding standard. We’ve addressed the parameters of that standard in a number of other posts. (See, e.g., here, here, here, here, here, here, here, here, and here. Our blog has also tried to give a feel for how Courts apply (or are supposed to apply) the standard by comparing the U.S. Supreme Court decision in Stolt-Nielsen, which held that an award should be vacated for manifest disregard of the agreement, to the Supreme Court decision in Oxford, which held that an award should not be vacated under that manifest disregard standard. (See Loree Reinsurance and Arbitration Law Forum posts here, here, and here.) And from time-to-time we’ve reported on other cases that have applied the standard.

While challenges to awards based on manifest disregard of the agreement are not uncommon, a very large majority of those challenges are either virtually certain to fail or at least highly unlikely to succeed. It is a relatively small universe of remaining, close cases that pose the biggest challenges for parties and courts.

Today we’ll look at one of those close cases, which was decided by the Eighth Circuit Court of Appeals and explain why the case failed to satisfy the demanding standard, even though, at least at first glance, it may be difficult to square the arbitration award with the parties’ agreement.

The Fourth Circuit: What Constitutes a Final Award and Who Makes the Call?

August 3rd, 2018 Appellate Practice, Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Exceeding Powers, Federal Arbitration Act Enforcement Litigation Procedure, Grounds for Vacatur, Judicial Review of Arbitration Awards, Manifest Disregard of the Agreement, Manifest Disregard of the Law, United States Court of Appeals for the Fourth Circuit 1 Comment »

Final Award 2

What constitutes a “final arbitration award” for purposes of the Federal Arbitration Act is important because it bears on whether an award can be confirmed, vacated, or modified under Sections 9, 10, or 11 of the Federal Arbitration Act (the “FAA”). We addressed the basics concerning final awards in a 2009 post, here.

In Northfolk Southern Railway Co. v. Sprint Communications Co., L.P., 883 F.3d 417 (4^th Cir. 2018), the U.S. Court of Appeals for the Fourth Circuit was faced with the question whether an award (the “Appraisal Award”), convened under an agreement’s appraisal clause, and issued by three appraisers, was a final arbitration award under the FAA. The unusual procedural posture of the case raised an additional, related question: whether under the FAA an arbitration panel, convened under the arbitration provision of the parties’ agreement, had the authority to declare the Appraisal Award to be a final award. That question matters, for if an arbitration panel has that power, then its decision concerning finality is subject only to the very highly deferential review permitted by Section 10 of the FAA. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-43 (1995); Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068-69 (2013).

Concededly with the benefit of 20/20 hindsight, we wonder whether a different litigation and appellate strategy might have yielded a different outcome. The Court held that the Appraisal Award was not final, and remanded the matter back to the appraisers. But the Court did not, for the reasons set forth below, definitively answer the “who” question. The Court’s decision that the Appraisal Award was not final was unquestionably correct if one considers from a purely objective standpoint, without deference to the Arbitration Award, which declared that the Award was final. But the correct outcome would be considerably less certain had the Railroad sought confirmation of the Arbitration Award and urged the Court to accord deference to the arbitrators who made it.

Background: Northfolk Southern Railway Co. v. Sprint Communications Co., L.P., 883 F.3d 417 (4^th Cir. 2018)

Final Award 1

The dispute between Northfolk Southern Railway Co. (the “Railroad” or the “Appraisal Award Defending Party”) and Sprint Communications Co., L.P. (the “Carrier” or the “Appraisal Award Challenging Party”) arose out of a 25-year-term 1987 licensing agreement (the “Agreement”) under which the Carrier’s predecessor licensed from the Railroad’s predecessor the right to use for fiber-optics-cable purposes certain parts of the Railroad’s rights of way. The Carrier renewed that Agreement for an additional 25-year term (the “renewed Agreement term”), and a dispute arose about the renewal price. Continue Reading »

First Circuit Court of Appeals Decides Close Case in Favor of Confirming FINRA Arbitration Panel Award: Raymond James Financial Services, Inc. v. Fenyk

May 1st, 2015 Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Choice-of-Law Provisions, Confirmation of Awards, Federal Courts, Grounds for Vacatur, Judicial Review of Arbitration Awards, Manifest Disregard of the Agreement, Manifest Disregard of the Law, Securities Arbitration, Statute of Limitations, United States Court of Appeals for the First Circuit Comments Off

Introduction

Probably most of the Federal Arbitration Act Section 10(a)(4) outcome-review challenges that parties file are disposed of pretty easily because the applicable highly-deferential standard of review forecloses relief as long as the arbitrators were at least arguably interpreting the parties’ agreement, the applicable law or both. The most challenging cases are those falling either on or close to that imaginary, blurry line dividing arguable interpretation from clear disregard of the contract. Cf. Chicago Typographical Union v. Chicago Sun-Times, 935 F.2d 1501, 1506 (7^th Cir. 1991) (“The zanier the award, the less plausible it becomes to ascribe it to a mere error in interpretation rather than to a willful disregard of the contract. This approach can make the line between error and usurpation waver.”).

In Raymond James Financial Services, Inc. v. Corp. v. Fenyk, No. 14-1252, slip op. (3rd Cir. Mar. 11, 2015), the U.S. Court of Appeals for the First Circuit addressed one of those challenging cases. The panel in a FINRA arbitration (the “FINRA Arbitration Panel” or “Panel”) awarded a discharged stock broker $600,000.00 in back pay for wrongful termination, but the district court vacated the arbitration award because it concluded that the FINRA Arbitration Panel did not have the authority to award back pay in the circumstances. On appeal the First Circuit reversed, explaining in clear and cogent terms why the case, while close, was not one warranting Section 10(a)(4) vacatur.

Facts

Mr. Fenyk served as a Raymond James Financial Services (“Raymond James” or “James”) securities broker for seven years. His career there began in New York City, but he worked in Vermont beginning in 2004, managing a small branch office. He had an independent contractor agreement with Raymond James, entitled “Independent Sales Associate Agreement,” which stipulated that Florida law would govern any disputes. He also executed a Business Ethics Policy, which required him to arbitrate disputes “arising out of the independent contractor relationship.”

In May 2009 Raymond James, during a routine client-communication review, discovered an e-mail sent to Fenyk’s former domestic partner, which suggested that Fenyk had an alcohol problem. The e-mail referred to “Fenyk’s ‘slip’ and his ‘need [for] meetings and real sobriety for a dialoug [sic] with you.'” The e-mail also explained that “Fenyk’s ‘new AA friend was very hard on [him] last night.'” Slip op. at 3.

Raymond James terminated its relationship with Fenyk after it learned about Fenyk’s apparent alcohol problem. About two years later, Fenyk filed suit “in Vermont state court alleging that he had been fired on account of his sexual orientation and his status as a recovering a recovering alcoholic, in violation of Vermont’s Fair Employment Practices Act (“VFEPA”), Vt. Stat. Ann. tit. 21, § 495.” Slip op. at 4. Fenyk subsequently agreed to dismiss his complaint and commence a Financial Industry Regulatory Authority (“FINRA”) arbitration, as required by his agreement with Raymond James. Continue Reading »

The First Department Affirm’s Citigroup’s Motion to Vacate an Award based on Manifest Disregard of the Law

April 22nd, 2015 Appellate Practice, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Manifest Disregard of the Agreement, Manifest Disregard of the Law, New York Court of Appeals, New York State Courts, Practice and Procedure, United States Court of Appeals for the Second Circuit Comments Off

Earlier this month, New York’s Appellate Division, First Department affirmed a New York County Supreme Court, Commercial Division judgment vacating an arbitration award for manifest disregard of the law under the Federal Arbitration Act. See Citigroup Global Markets, Inc. v. Fiorilla, No. 14-747, slip op. (1st Dep’t April 9, 2015). The Court’s characteristically brief opinion does not delve very deeply into the facts or explain the Court’s reasoning in detail, but there’s enough there to make the decision worth noting.

The Court affirmed the trial court’s order vacating the award because the arbitrators apparently denied without explanation one of the parties’ motions to enforce a settlement even though the moving party informed the arbitrators of controlling, New York case law requiring the enforcement of settlement agreements. “Although,” said the Court, “arbitrators have no obligation to explain their awards, when a reviewing court is inclined to hold that an arbitration panel manifestly disregarded the law, the failure of the arbitrators to explain the award can be taken into account.” Slip op. at 1 (citing and quoting Matter of Spear, Leeds & Kellogg v. Bullseye Sec., 291 A.D.2d 255, 256 (1st Dep’t 2002) (quotations omitted)).

While the Court does not directly address the question, it appears that the case arose under the Federal Arbitration Act, because cases interpreting arbitration statute (CPLR Article 75) do not recognize “manifest disregard of the law” as a ground for vacating an award. Under Article 75, the only “outcome review” standards are those that permit vacatur of awards that are irrational, violate a strong public policy or exceed clearly an express limitation on the arbitrators’ authority. See, e.g., Wein & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 477-78 (2006); Matter of New York City Transit Auth. v. Transport Workers’ Union of Am., 6 N.Y.3d 332, 336 (2005).

New York cases interpreting the Federal Arbitration Act, however, recognize manifest disregard as a ground for vacating an award. While New York state courts need defer only to the United States Supreme C0urt on federal-law questions, the New York Court of Appeals has traditionally tended to follow established Second Circuit precedent on such issues in Federal Arbitration Act cases. Since the Second Circuit recognizes manifest disregard of the law as a ground for vacating an award under Section 10 of the Federal Arbitration Act, so too have the New York State courts, even though the U.S. Supreme Court has left the question open. See Hall Street Associates, LLC v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008); see, e.g., T. Co Metals v. Dempsey Pipe & Supply, 592 F.3d 329, 339-40 (2d Cir. 2010) (manifest disregard of the law survives Hall Street); Wein, 6 N.Y.3d at 480-81 (pre-Hall Street New York Court of Appeals follows Second Circuit authority on manifest disregard of the law in Federal Arbitration Act governed case); Tullett Prebon Financial Serv. v. BGC Financial, L.P., 111 A.D.3d 480, 481-82 (1st Dep’t 2013) (applying manifest disregard of the law standard to Federal Arbitration Act governed case post-Hall Street).

One question the First Department decision prompts is whether resort to manifest disregard of the law was even necessary. The U.S. Supreme Court has unequivocally endorsed post-Hall Street what some refer to in shorthand as the “manifest disregard of the agreement” standard, or “essence from the agreement” standard, under which a court may vacate an award where the arbitrators do not even arguably interpret the agreement. See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2098 (2013); Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1767 (2010).

Presumably what happened in this case (though the opinion does not say) is that the parties had an agreement that contained an arbitration agreement, and the dispute arose out of or related to that main agreement. One or both parties demanded arbitration, the parties agreed to settle and one of the parties sought to enforce that agreement, which obviously arose out of or related to the main agreement, and was within the scope of issues that the parties agreed to submit and submitted to arbitration.

Under these circumstances it makes little sense to say that the manifest disregard of the agreement standard does not apply because the agreement that was manifestly disregarded was not the main agreement. And if, as the Court said, the arbitrators simply denied the motion to enforce the settlement agreement without comment, it seems to us that it did not even arguably interpret the settlement agreement and thus manifestly disregarded the parties’ agreement.

The opinion, however, relies solely on manifest disregard of the law. Given the uncertainty surrounding whether manifest disregard is a viable ground for vacatur, and the corresponding certainty that manifest disregard of the agreement is a valid basis for vacating an award under Section 10(a)(4) of the Federal Arbitration Act, that sole reliance has the potential to cause relying solely on that standard without any explanation might confuse litigants who are not well-versed in Federal Arbitration Act practice and procedure. We are quite certain, however, that was not the Court’s intention, and there may well be good reasons why the court did not rely on manifest disregard of the agreement as at least an alternative basis for its sound conclusion.

Photo Acknowledgements:

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Arbitrator-Imposed Claims Protocols, Honorable Engagement and Access-to-Records: First State Ins. Co. v. National Cas. Co.

April 10th, 2015 Access to Records, Arbitration Practice and Procedure, Arbitrator-Imposed Claims Protocols, Authority of Arbitrators, Claims Handling, Follow-the-Settlements/Follow-the Fortunes, Grounds for Vacatur, Honorable Engagement, Judicial Review of Arbitration Awards, Practice and Procedure, Reinsurance Arbitration, Reinsurance Claims, United States Court of Appeals for the First Circuit Comments Off

Introduction

At first glance the U.S. Court of Appeals for the First Circuit’s opinion in First State Ins. Co. v. National Cas. Co., No. 14-1644, slip op. (1^st Cir. Mar. 20, 2015) appears to be an honorable engagement clause case, but it is really an arbitrator-imposed-claims-payment-protocol case. First State concerned a claims protocol (the “Claims Protocol”) which said claims payments “may be made subject to an appropriate reservation of rights by [the reinsurer] in instances where it has or does identify specific facts which create a reasonable question regarding coverage under the subject reinsurance agreement(s).” It also explained that “[p]ayment obligations on the part of [the reinsurer] are not conditioned upon the exercise of its right to audit or the production of additional information or documents, other than those provided by [the cedent] as described . . .[in the portion of the protocol specifying the cedent’s proof-of-loss requirements].” Slip op. at 3.

The reinsurer contended the protocol’s reservation-of-rights procedure impaired its contractual rights to access of records, including its right to recoup claim payments in circumstances where, as of the time the Claims Protocol required the reinsurer to pay a claim, the reinsurer had not yet been given the opportunity to inspect the cedent’s records concerning the claim and thus would not have the opportunity to determine whether there were “specific facts which create a reasonable question regarding coverage. . . ” That, argued the reinsurer, denied or effectively impaired its contractual rights in a least two ways: (a) once it paid a claim as required by the Protocol without reserving its rights based on “specific facts” creating a reasonable question about coverage, then the Cedent could refuse to provide it access to its records of the claim; and (b) even if the cedent provided post-payment access-to-records, and even if the reinsurer’s post-payment audit uncovered for the first time specific facts demonstrating the claim was invalid, the Protocol’s reservation of rights feature would foreclose the reinsurer from obtaining recoupment of the claim unless the reinsurer somehow had knowledge of those specific facts, and asserted them at the time it was required to pay the claim.

Had the reinsurer’s interpretation of the Claims Protocol’s reservation of rights procedure been the only one to which it was susceptible, then the reinsurer’s Section 10(a)(4) challenge might have succeeded. As it turned out, there was at least one other interpretation of the Protocol, and under that interpretation, the reinsurer’s access-to-records and recoupment rights were not foreclosed by the reinsurer not making a Claims-Protocol-compliant reservation of rights.

So the Court quite correctly affirmed the district court’s decision to confirm the award. But National Casualty did not walk away empty handed. As we’ll see, the Court’s opinion confers upon National Casualty a deserved benefit that is arguably as valuable as would have been a decision reversing the district court’s judgment with instructions to vacate the arbitration award.

Let’s first briefly review what transpired in First State, and what the Court, in Senior Circuit Court Judge Bruce M. Selya’s sometimes arcane and colorful—but always clear, concise and well-organized— prose, had to say about it. Continue Reading »

SCA v. Armstrong: Anatomy of the Lance Armstrong Arbitration Award—Part III.A: What are the Issues?

March 26th, 2015 Arbitrability, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Grounds for Vacatur Comments Off

SCA v. Armstrong: Anatomy of the Armstrong Arbitration Award

Part III.A: What are the Issues?

In Part II we discussed applicable arbitration law, so now let’s take a look at what issues the Court may need to address in the event the Armstrong Parties contend that the arbitration panel (the “Panel”)’s award exceeded its powers under the Federal Arbitration Act (a/k/a the “FAA”) and the Texas General Arbitration Act (the “TAA “).

The Federal Arbitration Act (a/k/a the “FAA”) and the Texas General Arbitration Act (the “TAA “) both authorize courts to vacate awards where arbitrators exceed their powers. See 9 U.S.C. § 10(a)(4) (2014); Tex. Civ. Prac. & Rem. Code § 171.088 (a)(3)(A) (Vernon 1997). If the New York Convention applies by way of Chapter 2 of the Federal Arbitration Act, then Chapter 1 of the Federal Arbitration Act would continue to apply because the Award was made in the U.S. And in any event, Article V of the Convention permits parties to defend against the enforcement of an arbitration award falling under the Convention on the ground that the arbitrators exceeded their powers. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards at Art. V.(c) & V.(d). Continue Reading »

National Children’s Center, Inc. v. Service Employees Int’l Union: What Happens when an Arbitrator Interprets a Contract, but does not even Arguably Apply the Interpretation to the Parties’ Dispute?

October 20th, 2014 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, United States District Court for the District of Columbia, United States Supreme Court Comments Off

Introduction

The deferential Enterprise Wheel/Stolt-Nielsen/Oxford contract-based outcome review standard the U.S. Supreme Court has applied to both labor arbitration awards under Section 301 of the Labor Management Relations Act, and commercial arbitration awards falling under the Federal Arbitration Act, is fairly simple to articulate yet often difficult to apply, especially in close cases.

In National Children’s Center, Inc. v. Service Employees Int’l Union, No. 13-1036, slip op. (D.D.C. Sep’t 19, 2014), United States District Court for the District of Columbia was faced with such a case, and the district court judge had to make a tough call. Applying the sometimes elusive standard, the Court concluded that the award had to be vacated. It was a close call— so close, in fact, that others may disagree and support their conclusions with what may appear to be compelling arguments.

On balance, we think the Court did the right thing given the somewhat unusual circumstances the case presented. But at least on some level it doesn’t matter. The district court judge did exactly what a good judge should do: she followed the law and, faced with the task of applying the law to a rather odd set of circumstances, she did so in the way she thought (and we agree) the law should be applied, even though the result was overturning an award.

It is quite likely that on remand the arbitrator will issue an award reaching the same conclusion and that the second award will be judicially enforced. While some might argue that vacatur should have been denied for expediency’s sake, that would not only have been the wrong decision, but a shortsighted one. Continue Reading »

Gateway Keeping: The Third Circuit Joins the Sixth in Holding that Courts get to Decide whether Parties Consented to Class Arbitration

August 28th, 2014 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consent to Class Arbitration, Consolidation of Arbitration Proceedings, Drafting Arbitration Agreements, Existence of Arbitration Agreement, Judicial Review of Arbitration Awards, Practice and Procedure, Stay of Litigation, United States Court of Appeals for the Sixth Circuit, United States Court of Appeals for the Third Circuit, United States Supreme Court Comments Off

On June 10, 2013 the U.S. Supreme Court in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) considered whether an arbitrator exceeded his powers under Federal Arbitration Act (“FAA”) Section 10(a)(4) by finding that a fairly run-of-the-mill arbitration agreement authorized class arbitration. Applying the deferential, manifest-disregard-of-the-agreement outcome-review standard authorized by FAA Section 10(a)(4), the Court upheld an arbitrator’s determination that an arbitration agreement authorized class arbitration because the arbitrator had, at least arguably, interpreted the arbitration agreement, albeit in a highly creative and doubtful way. (See Loree Reins. & Arb. L. Forum posts here, here, here & here.)

In a footnote, the Court explained that it “would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.’” 133 S. Ct. at 2068 n.2. The Court said that Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 680 (2010), “made clear that this Court has not yet decided” whether class-arbitration-consent presents a question of arbitrability. But “Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures[,]” and “Oxford submitted that issue to arbitrator not once, but twice—and the second time after Stolt-Nielsen flagged that it might be a question of arbitrability.” 133 S. Ct. at 2068 n.2. (emphasis added)

Had Oxford opted to request the Supreme Court to determine whether class- arbitration consent presented a question of arbitrability, and had the Court determined that it was such a question, then the Court would have determined independently—that is, without deferring to the arbitrator’s decision—whether the parties consented to class arbitration. See BG Group plc v. Republic of Argentina, No. 12-138, slip op. at 6 (U.S. March 5, 2014); First Options of Chicago, Inc. v. Kaplan, 543 U.S. 938, 942 (1995). And we doubt that a majority of the Supreme Court would have upheld the Oxford award had it reviewed the class-arbitration-consent determination de novo. See, e.g., Oxford, 133 S. Ct. at 2071 (Alito, J., concurring) (“If we were reviewing the arbitrator’s interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred “[a]n implicit agreement to authorize class-action arbitration … from the fact of the parties’ agreement to arbitrate.”) (quoting Stolt-Nielsen, 559 U.S. at 685).

Those who have been tracking developments in class and consolidated arbitration since the turn of this century no doubt recall that, after a plurality of the Court determined in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003), that a class-arbitration-consent-related dispute did not present a question of arbitrability, but merely a procedural question, parties began to submit routinely and unreservedly class-arbitration-consent questions to arbitration.

But after Stolt-Nielsen, and, no doubt with renewed vigor after Oxford, class arbitration opponents began to argue that class-arbitration-consent presented a question of arbitrability for the Court to decide. And U.S. Circuit Courts of Appeals are beginning to rule on those challenges.

The first one to do so was the U.S. Court of Appeals for the Sixth Circuit in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), where the Court in November 2013 held “that the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved for judicial determination unless the parties clearly and unmistakably provide otherwise.” 734 F.2d at 599 (quotation and citation omitted).

The second, and most recent Circuit Court of Appeals to rule on the issue, was the U.S. Court of Appeals for the Third Circuit in Opalinski v. Robert Half Int’l Inc., ___ F.3d ___, No. 12-4444, slip op. (3rd Cir. July 30, 2014), which on July 30, 2014 “join[ed] the Sixth Circuit Court of Appeals in holding that. . . “the availability of” class arbitration “is a substantive gateway question rather than a procedural one[,]” and thus “is a question of arbitrability.” Slip op. at 15, 16-17. The Court’s decision turned on “the critical differences between individual and class arbitration and the significant consequences of that determination for both [a] whose claims are subject to arbitration[;] and [b] the type of controversy to be arbitrated.” Slip op. at 15 (emphasis added). Where, as in Opalinski, the arbitration agreement did not “mention” class arbitration, the Court “believ[ed] the parties would have expected a court, not an arbitrator, to determine the availability of class arbitration[,]” and that was “especially so given the critical differences between individual and class arbitration and the significant consequences” of the class-arbitration-consent determination as respects “whose claims are subject to arbitration and the type of controversy to be arbitrated.” slip op. at 16-17.

The Third Circuit’s Opalinski decision, like the Sixth Circuit’s in Reed Elsevier, is well reasoned and reaches the conclusion we likewise think is required by the Supreme Court’s long-line of arbitrability jurisprudence, and by its post-Bazzle class-arbitration cases, beginning with Stolt-Nielsen. We suspect that other circuits will, for largely the same reasons, that class-arbitration-consent presents a question of arbitrability.

Let’s have a look at what transpired in Opalinski. . . . Continue Reading »

Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.B

August 18th, 2013 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, United States Supreme Court Comments Off

Part II.B: To what Extent, if at all, will Oxford Likely Influence FAA Law and Practice?

While Oxford is uncontroversial in the sense that it does not purport to change the standard of review applicable to Federal-Arbitration-Act (“FAA”)-governed arbitration awards, it will likely influence FAA arbitration law and practice concerning the judicial review of arbitration awards under FAA Section 10(a)(4) in at least three ways. Continue Reading »

Posts Tagged ‘Manifest Disregard of the Agreement’