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Posts Tagged ‘Motion to Confirm’

Look Through: Second Circuit Holds that District Courts Must “Look Through” a Section 9 Petition to Confirm to Ascertain Subject Matter Jurisdiction

May 13th, 2019 Amount in Controversy, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Diversity Jurisdiction, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Look Through, Petition to Modify Award, Petition to Vacate Award, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit Comments Off on Look Through: Second Circuit Holds that District Courts Must “Look Through” a Section 9 Petition to Confirm to Ascertain Subject Matter Jurisdiction
Look Through

In Landau v. Eisenberg, ___ F.3d ___, No. 17-3963, slip op. (May 1, 2019) (per curiam), the U.S. Court of Appeals for the Second Circuit recently held that district courts must “look through” a Section 9 petition to confirm an arbitration award to determine whether the court has subject matter jurisdiction to adjudicate the petition. District courts must therefore ascertain whether the district court would, absent an arbitration agreement, have had subject matter jurisdiction over the underlying controversy that resulted in the arbitration, and ultimately the award.

While the Second Circuit ruled in a per curiam decision, the issue it decided was of first impression. But it followed on the heels of, and heavily relied on, Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 379-89 (2d Cir. 2016), which held that district courts should look through a Section 10 or 11 petition to ascertain the existence of federal subject matter jurisdiction. Doscher instructed federal courts to focus not on whether the Section 10 and 11 FAA award review and enforcement process presented substantial federal questions, but on the same thing they would have focused on had they been asked to compel arbitration of the controversy: whether the underlying controversy, in keeping with the well-pleaded complaint rule, would have been within the Court’s subject matter jurisdiction had it not been submitted to arbitration. See Doscher, 882 F.3d at 379-89.  

While Eisenberg and Doscher concerned the question whether federal-question subject matter jurisdiction exists over FAA Sections 9, 10, and 11 petitions, the reasoning of those cases also applies to the question whether there is federal subject matter jurisdiction over such petitions based on the diversity jurisdiction.

The Problem Addressed by Eisenberg and Doscher

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The Federal Arbitration Act is “something of an anomaly in the realm of federal legislation: It bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties’ dispute.” Vaden v. Discover Bank, 556 U.S. 49, 59 (2009).

Section 4 of the FAA, which governs motions to compel arbitration, provides that to determine the “independent jurisdictional basis” the court must ascertain whether “save for such agreement, [the district court] would have jurisdiction. . . of the subject matter of a suit arising out of the controversy [claimed to be arbitrable][:]”

[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.


9 U.S.C. § 4 (emphasis added).

The Supreme Court held in Vaden that “§ 4 of the FAA does not enlarge federal court jurisdiction,” 556 U.S. at 66, and district courts must “look through” the petition to the controversy between the parties to ascertain whether the court had subject matter jurisdiction over the controversy. 556 U.S. at 62. District courts must therefore “assume the absence of the arbitration agreement and determine whether it would have jurisdiction under title 28 without it.” Id. at 63.

But section 4 of the FAA expressly specifies the circumstances under which a federal district court will have jurisdiction over an application to compel arbitration, whereas Sections 9, 10, and 11 of the FAA—which address applications to confirm, vacate, and modify awards—say nothing about subject matter jurisdiction. The availability of relief under those portions of the FAA is not conditioned on either the existence of a lawsuit over which the Court already has subject matter jurisdiction (and which may have been stayed pending arbitration under Section 3 of the FAA) or on a party having previously invoked the court’s jurisdiction by filing a proceeding to compel arbitration under Section 4.

Sections 9, 10, and 11 of the FAA do not in and of themselves vest jurisdiction in a district court simply because they are part of a federal statute—the FAA requires an independent basis for federal subject matter jurisdiction. But what determines subject matter jurisdiction, the nature of the petition to confirm, vacate, or modify the award, or the nature of the underlying dispute that ultimately resulted in the arbitration award?   

Continue Reading »

Can a Party Obtain Post-Judgment Relief from a Confirmed Arbitration Award Procured by Fraud?

May 26th, 2015 Arbitration Practice and Procedure, Arbitration Risks, Asbestos-Related Claims, Bad Faith, Confirmation of Awards, Corruption or Undue Means, Definition of Occurrence, Federal Courts, Federal Rules of Civil Procedure, Final Awards, Grounds for Vacatur, United States Court of Appeals for the Second Circuit, United States District Court for the Southern District of New York Comments Off on Can a Party Obtain Post-Judgment Relief from a Confirmed Arbitration Award Procured by Fraud?

Introduction

Relief from an Arbitration Award Procured by Fraud

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Section 10(a)(1) of the Federal Arbitration Act authorizes Courts to vacate arbitration awards that were “procured by fraud, corruption or undue means.”  9 U.S.C. § 10(a)(1). (For a discussion of Section 10(a)(1), see L. Reins. & Arb. Law Forum post here.) But a motion to vacate an arbitration award procured by fraud (or otherwise) is subject to a strict three-month deadline, and Section 10, unlike certain of its state-law counterparts, does not provide for tolling of the three-month deadline on the ground the challenging party did not know or have reason to know it had grounds to allege the arbitration award was procured by fraud. Compare 9 U.S.C. § 10(a)(1) with 2000 Revised Uniform Arbitration Act § 23(b) (Uniform Law Comm’n 2000) (If “the [movant] alleges that the award was procured by corruption, fraud, or other undue means, [then, in that].  .  .   case the [motion] must be made within 90 days after the ground is known or by the exercise of reasonable care would have been known by the [movant].”);  1955 Uniform Arbitration Act § 12(b) (Uniform Law Comm’n 1955) ( “[I]f predicated upon corruption, fraud or other undue means, [the motion to vacate] shall be made within ninety days after such grounds are known or should have been known.”).

Once an award has been confirmed, it has the same force and effect as any other judgment of the court. See 9 U.S.C. § 13. Federal Rule Civ. P. 60(b) provides that “[o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or
proceeding for the following reasons:.  .  .  (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.  .  .  .” Fed. R. Civ. P. 60(c) provides that “[a] motion under Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3) [i.e., fraud, misrepresentation or misconduct] no more than a year after the entry of the judgment or order or the date of the proceeding.” Fed. R. Civ. P. 60(c).

So can a challenging party obtain relief from a confirmation judgment if: (a) an award-challenging party contends the Court entered judgment oin an arbitration award procured by fraud; (b) by extension, the judgment confirming the award was itself procured by fraud; (c) the award-challenging party did not know or have reason to know it was at the wrong end of an arbitration award procured by fraud until after the three-month statute of limitations for vacating an award had elapsed; and (d) the award-challenging party makes a timely motion for post-judgment relief under Fed. R. Civ. P. 60(b)? According to a district court judge of the U.S. District Court for the Southern District of New York, the answer is “no.”

 

Arrowood Indem. Co. v. Equitas Insurance Ltd., No. 13-cv-7680 (DLC), slip op. (S.D.N.Y. May 14, 2015)

No Post-Judgment Relief from Arbitration Award Procured by Fraud (Alleged or Otherwise)

Background

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Arrowood arose out of an excess-of-loss treaty Arrowood’s predecessor(s) in interest had entered into with Underwriters at Lloyd’s in the 1960s. The terms of the treaty were apparently part of, or incorporated into, a “Global Slip,” which the Court, without much elaboration, described as “a complex contractual  reinsurance program.” The Global Slip was first negotiated in 1966 and effective January 1, 1967 through December 31, 1968. It was apparently renewed a number of times thereafter, though the court does not say for what period or periods. The renewal agreements were “substantially similar” although they “contain[ed] new contractual language.” Slip op. at 2.

The Global Slip covered (apparently among other things) losses in excess of $1 million incurred under Arrowood’s casualty insurance policies under three different types of coverage. At issue was “Common Cause Coverage,” which covered losses arising out of an “occurrences” during the contract term, provided the occurrence or occurrences were the “probable common cause or causes” of more than one claim under the policies. The Global Slip also contained a “First Advised” clause, which said that “this Contract does not cover any claim or claims arising from a common cause, which are not first advised during the period of this Contract.”

yay-1299629-digitalLike so many other liability insurers, Arrowood began receiving, adjusting and settling asbestos bodily injury claims beginning in the 1980s. Underwriters at Lloyd’s London insisted that Arrowood present its asbestos reinsurance claims on a per claimant per exposure-year basis, absorbing one $1 million retention each year against the total asbestos claim liabilities allocated to that year under the Underwriters’ per claimant per exposure-year allocation methodology.

In 2008 Arrowood, after reviewing the contract language, stopped using exclusively the Underwriters-prescribed asbestos personal-injury claim reinsurance allocation methodology, which it had followed for almost 25 years, and began presenting a number of claims under the Common Cause Coverage provision of the Global Slip . Because those claims were not, “first advised” in the years 1967 or 1968, the Underwriters denied them.

The Arbitration and Confirmation Proceedings

One of the parties demanded arbitration in October 2010, and a tripartite panel was appointed. The Underwriters argued, among other things, that: (a) the parties’s 25-year course of dealing evidenced a binding agreement on how asbestos claims would be presented to the Underwriters; (b) some claims fell exclusively under employer’s liability coverage; and (c) Common Cause Coverage  did not apply because the requirements of the First Advised Clause were not satisfied. Continue Reading »

The Fifth Circuit’s PoolRe Decision: Captives, Insurance, Reinsurance, Arbitration, Multiple Parties, Multiple Contracts, Conflicting Arbitration Agreements: Does it Get any Better than this?! (Part II)

April 21st, 2015 Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Risks, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Captive Insurance Companies, Grounds for Vacatur, Judicial Review of Arbitration Awards, Making Decisions about Arbitration, Managing Dispute Risks, Practice and Procedure, Small and Medium-Sized Business Arbitration Risk, Small Business B-2-B Arbitration, United States Court of Appeals for the Fifth Circuit Comments Off on The Fifth Circuit’s PoolRe Decision: Captives, Insurance, Reinsurance, Arbitration, Multiple Parties, Multiple Contracts, Conflicting Arbitration Agreements: Does it Get any Better than this?! (Part II)

Part II

Analysis of the Pool Re Decision

If you read Part I you know the arbitration program in PoolRe case was, to put it mildly, inadequate to meet the needs of the multi-party, multi-contract dispute that arose out of the parties’ legal relationships. Perhaps the saving grace is that the both the district court and the Fifth Circuit Court of Appeals vacated the award, which is what Sections 5 and 10 of the  Federal Arbitration Act require.

yay-12688786 - WavebreakmediaThe Fifth Circuit addressed whether the district court erred by: (a) vacating the arbitration award on the ground the arbitrator exceeded his powers; (b) vacating the entire award; and (c) denying the motion to compel arbitration of the Phase II Claims. Finding no error, the Fifth Circuit affirmed the district court’s judgment in its entirety.

The District Court Correctly Concluded that the Arbitrator Exceeded his Powers

 

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The Fifth Circuit held that the arbitrator exceeded his powers because the Arbitrator: (a) was not properly appointed under the terms of the Reinsurance Agreement’s arbitrator selection provisions, which required him to be “selected by the Anguilla, B.W.I. Director of Insurance;” and (b) decided the dispute under the American Arbitration Association’s rules when the Reinsurance Agreement required arbitration under International Chamber of Commerce (“ICC”) Rules.

Arbitrator not Selected as Required by the Reinsurance Agreement’s Arbitrator Selection Provisions

 

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The district court held vacatur was required  because the Arbitrator “was not ‘the actual decisionmaker that [PoolRe and the Captives] selected as an integral part of their agreement.'” Slip op. at 9 (quoting district court). The Fifth Circuit held that “the district court properly vacated the arbitrator’s award with regard to the claims against PoolRe[,]” because the Arbitrator “was appointed in the manner provided in the [Engagement Agreement’s] Billing Guidelines — to which PoolRe was not a party — but was appointed in a manner contrary to that provided in the Reinsurance Agreements between PoolRe and the Captives, which required ‘select[ion] by the Anguilla, B.W.I. Director of Insurance.'” Slip op. at 10-11. The Capstone Entities “submitted [their] original arbitration demand to [the Arbitrator][,]” but “PoolRe,” said the Court, “only intervened in that arbitration after [the  Anguilla Financial Services Commission] notified Pool Re that no Director of Insurance existed.” Slip op. at 10-11. The Arbitrator thus “had not been ‘selected according to the contract specified method’.  .  .  when he  decided the dispute between Pool Re and the Captives.” Slip op. at 11 (quoting Bulko v. Morgan Stanley DW Inc., 450 F.3d 622, 625 ((5th Cir. 2006)).

The Fifth Circuit’s decision is fully consistent with the Federal Arbitration Act, under which “arbitration is a matter of consent, not coercion.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted). Courts are supposed to enforce arbitration agreements according to their terms, and among the most important terms of an arbitration agreement are those concerning arbitrator selection. See Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.) (“Selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.”); see, e.g., 9 U.S.C. § 5 (“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed.  .  .  .”); Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V(1)(d), June 10, 1958, 21 U.S.T. 2519, T.I.A.S. No. 6997 (a/k/a the “New York Convention”) (implemented by 9 U.S.C. §§ 201, et. seq.) (award subject to challenge where “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”); Stolt-Nielsen, 559 U.S. at 668, 670 (one of the FAA’s “rules of fundamental importance” is parties “may choose who will resolve specific disputes”) (emphasis added; citations omitted); Encyclopaedia Universalis S.A. v. Encyclopaedia Brittanica, Inc., 403 F.3d 85, 91-92 (2d Cir. 2005) (vacating award by panel not convened in accordance with parties’ agreement); Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223, 226 (4th Cir. 1994) (same); Avis Rent A Car Sys., Inc. v. Garage Employees Union, 791 F.2d 22, 25 (2d Cir. 1986) (same).

Arbitrator Exceeded his Powers by Deciding the Disputes between Pool Re and the Captives under the AAA Rules Rather than under the ICC Rules

 

 

The Fifth Circuit also held that the Arbitrator exceeded his powers by deciding the disputes between Pool Re and the Captives under the AAA Rules because the Reinsurance Agreements required “all disputes [to] ‘be submitted for biding, final, and nonappealable arbitration to the [ICC] under and in accordance with its then prevailing ICC Rules of Arbitration.'” Slip op. at 10-11. The Court explained that it “interpret[s] clauses providing for arbitration in accordance with a particular set of rules as forum selection clauses.” Slip op. at 10-11 (quotation and citations omitted). And “[i]f the parties’ agreement specifies that the laws and procedures of a particular forums shall govern any arbitration between them, that forum-selection clause  is an important part of the arbitration agreement, and, therefore, the court need not compel arbitration in a substitute forum if the designated forum becomes unavailable.” Slip op. at 11 (quotations and citations omitted). By applying the “the AAA rules [instead  of the ICC Rules] to the dispute[,]” the Arbitrator “acted contrary to an express contractual provision,” and therefore exceeded his powers within the meaning of Section 10(a)(4) of the Federal Arbitration Act. Slip op. at 11 (quotation, citation and brackets omitted). Continue Reading »

Nuts & Bolts: Limitation Periods for Motions to Vacate, Modify, Correct and Confirm Domestic Arbitration Awards Falling Under Chapter 1 of the Federal Arbitration Act

May 1st, 2009 Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure Comments Off on Nuts & Bolts: Limitation Periods for Motions to Vacate, Modify, Correct and Confirm Domestic Arbitration Awards Falling Under Chapter 1 of the Federal Arbitration Act

Introduction

Today we briefly review the limitation periods applicable to motions to vacate, modify, correct and confirm arbitration awards.  Our discussion is limited to domestic awards falling solely under Chapter 1 of the Federal Arbitration Act and is not intended to be exhaustive.  In a future Nuts & Bolts feature we will discuss the rules applicable to non-domestic awards falling under Chapters 2 and 3 of the Federal Arbitration Act.   Our discussion is also limited to the rules that apply in federal courts within the United States Court of Appeals for the Second Circuit in diversity cases where the Federal Arbitration Act governs arbitration matters and New York law governs all other matters.   The rules may be interpreted differently by other circuits and, even within the Second Circuit, outcomes may vary depending on, among other things, which state’s law applies.

Limitation periods for motions to vacate or for other forms of relief under the Federal Arbitration Act and New York’s arbitration statute are construed quite strictly and practitioners should carefully abide by them.  Sometimes it is unclear whether a limitation period has accrued or been tolled.  In that event practitioners should err on the side of caution.  If there is a question whether the period for filing an application has accrued, assume that it has, and file and serve your papers within the shortest allotted period.  If there is a question whether the period has been tolled, assume that it has not, and do whatever it takes to toll it.  Continue Reading »