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Posts Tagged ‘Practice and Procedure’

Belz v. Morgan Stanley Smith Barney: Does a Petition to Vacate an FAA-Governed Award Timely Commenced in State Court Become Time-Barred Simply Because it is Removed to Federal Court?

April 6th, 2014 Arbitration Practice and Procedure, FAA Preemption of State Law, Grounds for Vacatur, Nuts & Bolts: Arbitration, Practice and Procedure, State Arbitration Law, Statute of Limitations, United States Supreme Court Comments Off on Belz v. Morgan Stanley Smith Barney: Does a Petition to Vacate an FAA-Governed Award Timely Commenced in State Court Become Time-Barred Simply Because it is Removed to Federal Court?

Part I

Belz v. Morgan Stanley Smith Barney, LLC, No. 3:13-cv-636-J-34 (MCR), slip op. (M.D. Fla. March 5, 2014), is one of those deceptively complex cases. The petitioner, successor trustee of a family trust (the “Trustee”), timely commenced under the Florida Arbitration Code (the “FAC”) in Florida state court  a petition to vacate an arbitration award by filing it within the 90-day period allowed by state law, but did not serve it until a few days after the three-month period required to vacate an award under Section 10 of the Federal Arbitration Act (the “FAA”) had elapsed. Compare Fla. Stat. §§ 682.13(2) & 682.17 with 9 U.S.C. §§ 6, 10 & 12.[1]. The petition requested an order vacating the award under both the FAA and the FAC, which allows service to be effected after expiration of the 90-day filing deadline. See Fla. Stat. §§ 682.13 & 682.17.

The respondent, a well-known securities broker-dealer (the “Broker-Dealer”), removed the case to the United States District Court for the Middle District of Florida based on the court’s diversity jurisdiction. In federal court the Broker-Dealer argued that the petition was time-barred because service was not effected within the FAA Section 12’s three-month deadline. The district court agreed and dismissed the petition as time-barred.

The district court apparently thought that, once a court determines that an arbitration agreement falls within the scope of the FAA, all of its provisions—whether substantive, procedural or a combination of the two—supersede their state law counterparts if they conflict in any way with them, irrespective of whether the conflict frustrates the purposes and objectives of the FAA. The court also seems to have thought that the state of Florida could not, independently from the FAA, declare an arbitration agreement falling under the FAA to be valid, irrevocable and enforceable under Florida substantive arbitration law, and enforce that arbitration agreement through Florida’s own statutory, summary procedures that are, for the most part, identical to those provided by the FAA, and, in any event, do not frustrate the purposes and objectives of the FAA.

Belz is deceptively complex because at first glance the case seems relatively straightforward: (a) the FAA applied to the arbitration agreement and award; (b) the FAA’s three-month statute of limitations for vacating an award is not tolled until service is effected; (c) the court determined service was not timely under the FAA; (d) the FAC’s statute of limitations, which requires only that an application for vacatur be filed within the 90-day period, did not apply because the FAA applied; and (d) therefore, the application to vacate was untimely.

But in Belz there was an “elephant in the room,” albeit one well-camouflaged by its inherent complexity: federalism—a principle reflected in the text of the FAA, in the Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

July 20th, 2010 Arbitration Practice and Procedure, Consolidation of Arbitration Proceedings, Practice and Procedure, Reinsurance Arbitration, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part V.C

A.   Introduction

As was evident from Parts V.A and V.B (here and here), Stolt-Nielsen has dramatically changed the legal landscape on consolidated arbitration.  In this Part V.C. we explore the practical and strategic implications of that change.

B.   Reinsurers Will Likely Regain the Tactical Advantage They Had Pre-Bazzle   

For the last several years since Bazzle, cedents and reinsurers have treated consolidation of arbitration proceedings largely as a given.  Courts would usually delegate the consolidation question to the arbitrators, and, in turn, arbitrators would usually order consolidation.  After a while, consolidation became something that the parties frequently agreed upon, because in most cases there was little or no point in opposing it.  (See Part III, here.) 

The advent of large, consolidated proceedings redounded mostly to the cedents’ benefit.   In the consumer-class-arbitration context, the theme is usually the many against the one — the consumers versus the company.  But in reinsurance arbitration the tables are turned, and the theme is usually the one against the many – the cedent versus the reinsurers participating in one or more treaties.   

Consolidated arbitration allowed a cedent to, among other things, aggregate its claims against several reinsurers participating in a multi-year treaty program.  Without consolidated arbitration the dollar amounts associated with each claim might be too small to warrant a serious collection effort.  But the ability to aggregate ensured that even relatively small balances could be pursued. 

Collections were fairly straightforward, and reinsurers who might otherwise have multiple chances before multiple panels to assert certain defenses were forced to make their arguments before a single arbitration panel.    The ability of cedents to compel consolidated arbitration probably contributed to reinsurers settling certain claims that they might otherwise have disputed. 

Now that courts may be the gatekeepers when a party demands consolidated arbitration, and now that the Supreme Court has imposed some fairly strict standards for establishing consent to class or consolidated arbitration, reinsurers probably have regained the tactical advantage.  And the strategy adapted may well be of the “divide and conquer” variety – reinsurers may in appropriate cases force the cedent to commence multiple proceedings and, among other things, obtain multiple bites at the apple on their defenses before multiple panels.  Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 18th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part V.A

A.   Introduction

In this Part V.A of our consolidated-reinsurance-arbitration series, we delve into Stolt-Nielsen’s legal implications on consolidated reinsurance-arbitration practice, focusing on how courts are likely to decide the allocation-of-power question:  Who gets to decide whether the parties consented to consolidated arbitration?  In Part V.B we shall examine Stolt-Nielsen’s other specific legal and practical implications, focusing on what a party will likely need to show to obtain consolidated arbitration and how frequently consolidated arbitration is likely to be granted after Stolt-Nielsen.    

B.   Who Gets to Decide Whether the Parties Consented to Consolidated Arbitration?

Readers will recall from Part III (here) that courts interpreted Bazzle  as governing the allocation-of-power issue.  Now that the Court has said Bazzle never commanded a majority on that issue, and that it remains open, courts must reconsider it not only in the class-, but in the consolidated-arbitration context.   

Consolidated arbitrations, like class arbitrations, raise two types of questions:  Common-dispute and party-consent questions.  We think that courts will likely conclude that both are questions of arbitrability for the court to decide in the first instance, unless the parties clearly and unmistakably agree otherwise.   Arbitrators may play a role in resolving contractual ambiguities identified by the court.  

1.      Who Gets to Decide Common-Dispute Questions?

All consolidated-arbitration questions concern whether at least one arbitration agreement encompasses not only disputes concerning one, but all other contracts at issue.  We call this the “common-dispute” question.    

In some consolidated-arbitration disputes the “common dispute” question is the only one presented.  Suppose reinsurer R  enters into two treaties with cedent C, Contracts A and B, each of which incept on the same date and are in force for one year.  Contract A’s limits are $1 million per occurrence excess a $500,000 retention.  Contract B has per occurrence limits of $2 million excess of $1.5 million.  Both contain broad arbitration clauses under which the parties agreed to arbitrate “any dispute arising out of or relating to this contract.” Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 8th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, Reinsurance Arbitration, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part IV

A.   Introduction

In Part I (here) we explained why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice.  And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, we explained how the Court has established for itself and the lower courts a fairly searching standard of review.  Part II (here) explored the legal and practical implications of that standard of review.    

Part III (here) turned to the other key area that will likely change because of Stolt-Nielsen — consolidated reinsurance-arbitration practice — and discussed the state of consolidation law pre-Stolt-Nielsen.  This Part IV discusses Stolt-Nielsen’s rationale for finding that imposing class arbitration on parties whose agreements are silent on that point is inconsistent with the Federal Arbitration Act, and explores how the Court’s ruling may affect consolidated reinsurance-arbitration practice in general. 

B.   The Supreme Court’s Decides that Imposing Class Arbitration on Parties whose Contracts are Silent on that Score is Inconsistent with the Federal Arbitration Act

When we last left Stolt-Nielsen, the Court had determined  that the arbitrators exceeded their authority by issuing an award that was based on their own notions of public policy gleaned from other arbitral decisions imposing class arbitration in the face of silence.  When a court vacates an award it has to decide whether to remand the matter to the arbitrators, for Section 10(b) of the Federal Arbitration Act authorizes a court to “direct a rehearing by the arbitrators.”  The Court decided not to remand, because “there can be only one possible outcome on the facts,” that is, where the parties’ contracts are undisputedly silent on class arbitration, save for the parties’ agreement to a broad arbitration clause.   The Court then set about to explain why that was so.  Continue Reading »

Why Bother with Arbitration Law?

April 13th, 2010 Arbitration Practice and Procedure, Ethics, Nuts & Bolts: Arbitration, Reinsurance Arbitration 4 Comments »

Readers are excruciatingly aware of the amount of time and energy we expend on what seems at first blush to be a relatively arcane area of the law:  practice and procedure under the Federal Arbitration Act.  It is a practice area that arises under a single federal statute that consists of three chapters and a handful of rather skeletal provisions.   Why is this stuff so important?    

If you hold yourself out to be a commercial litigator who handles arbitration proceedings arising under the Federal Arbitration Act, then you need to know arbitration law cold (or co-counsel with someone who does).  If you do not, then you have no business representing clients in arbitration proceedings.

In one sense, arbitration law is to the lawyer handling an arbitration what civil procedure law is to the lawyer handling a litigation.  No lawyer cognizant of his or her ethical obligations and professional responsibility would represent a client in a litigation without a good, working knowledge of the applicable procedural code and cases construing it.  Doing so would be a recipe for professional disaster. 

Yet commercial litigators with no experience or expertise in arbitration law sometimes believe their knowledge of court procedure qualifies them to represent parties in arbitration proceedings.  Arbitration is more informal than litigation, so if you know how to litigate, you can certainly arbitrate, right?  Wrong.

Arbitration law is what ensures that arbitration agreements will be enforced, whether that means confirming or vacating an award, compelling arbitration, staying litigation, or what have you.  Without it, arbitration would be, for the most part, an empty gesture.  Parties would have to commence cumbersome plenary actions to enforce awards and obtain specific performance of arbitration agreements, arbitrators would lack subpoena power and breakdowns in the arbitrator selection process could not be remedied (or would be very difficult to remedy).   In short, arbitration would lose much of its appeal because it would be difficult and expensive to enforce, and some aspects of it might not be enforceable at all. 

Perhaps in a perfect world arbitration law would be spelled out for us in great detail in a user-friendly and comprehensive statute or administrative code, which would contain all or most of the answers to the multitude of enforcement-related questions that arise at various stages of arbitration proceedings.  But our world is far from perfect, and in many domestic cases our sole source of statutory guidance is contained in the first chapter of the Federal Arbitration Act, which contains only 16 provisions, 15 of which have been on the books without material revision since 1925.  In “non-domestic domestic cases” — you have to love that informative moniker — which involve, for example, arbitrations taking place in the United States between domestic and international parties, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and its enabling provisions set forth in Chapter 2 of the Federal Arbitration Act, usually come into play, but the Convention and its enabling legislation does not directly answer that many questions. 

So in our imperfect world, the answers must come from the courts.  That would all be well and good if we lived in a country with a single court system, but we do not.  We have a multi-circuit federal court system (over which the United States Supreme Court presides) and a multi-jurisdiction state court system (over which the Supreme Court has limited jurisdiction to hear certain types of appeals).  And the substantive provisions of the Federal Arbitration Act are applicable in, and construed by, both state and federal courts. 

Cases involving arbitration law are constantly being decided.  There are currently three-arbitration-law-related cases pending before the United States Supreme Court, and the Court usually decides at least one or two each term.   The federal district and circuit courts regularly churn out decisions on arbitration law, as do state trial, intermediate appellate and supreme courts. 

If state and federal court decisions from various jurisdictions and circuits were fairly uniform on Federal Arbitration Act issues, then perhaps things would be simpler.  But courts are split on a number of issues, and even in situations where different courts might reach the same result on a given set of facts, the rationale each court applies may be different, leading to different outcomes if the facts are changed slightly.   

Apparently someone somewhere decided that things were not quite complicated enough.  So it was necessary to interject some other variables:  horizontal (state-versus-state) and vertical (state versus federal) choice of law issues.  Not all arbitration proceedings are governed solely by the Federal Arbitration Act — it applies only to written arbitration agreements “in maritime transaction[s] or.  .  . contract[s] evidencing.  .  .  transaction[s] involving commerce.  .  .  .”  9 U.S.C. § 2.  When the Federal Arbitration Act does not apply, then the arbitration law of some state will generally apply.  Choice-of-law rules will determine which state’s law applies in a multi-jurisdictional case. 

Even when the Federal Arbitration Act applies, the parties may have agreed that state arbitration law applies, or at least there may be a substantial question whether state arbitration law applies.  Federal and state arbitration law may conflict, and it is necessary to determine which applies.  And sometimes there is a question whether the Federal Arbitration Act pre-empts state arbitration, or substantive contract, law.  In other cases there may be a question whether state arbitration law fills a gap in federal arbitration law. 

Arbitration-law-related issues can and do arise at all stages of an arbitration proceeding, and arbitration practitioners must keep in mind that litigation under the Federal Arbitration Act may be necessary to enforce a client’s rights or that such litigation may be brought by the other party.  In the beginning stages of an arbitration, for example, issues may arise as to what the arbitration was intended to cover.  A party may demand arbitration on a few claims, but there may be other actual or potential disputes which, if submitted, would fall within the scope of the arbitration agreement.  Depending on what those claims are, and other considerations, the party against whom arbitration is demanded will want to ensure that the arbitration does or does not encompass those claims.  That requires the party to carefully tailor its own submissions and, if necessary, to object to the other party submitting additional issues once the proceedings are underway. 

The party resisting an arbitration demand may have arguments that some or all of the issues that are the subject of the demand are outside the scope of the arbitration clause.  Those arguments must be carefully preserved, and sometimes it is necessary to seek an order staying the arbitration in whole or in part. 

The party seeking arbitration may need to compel arbitration if the other party is resisting arbitration.  That requires court intervention and both parties must be prepared to brief the applicable law and facts.  Or perhaps the arbitration clause is self-executing, allowing a party to appoint a defaulting party’s arbitrator and proceed ex parte.  In that case, the non-defaulting party may be unable to compel arbitration, but must take special care to ensure that the resulting default award is enforceable. 

Arbitrator selection is another area where arbitration-law issues arise.  It might be necessary to compel a party to participate in arbitration selection or request that a court appoint an arbitrator.  If, at some point in the proceedings, one of the arbitrators dies or resigns, a number of important issues must be addressed.  The process of arbitrator disclosure is yet another area where arbitration law must guide strategy.   

Confirming or vacating awards requires knowledge of arbitration law and careful attention to strategy long before an award is rendered.  There may be grounds for vacating an award, but those grounds generally must be preserved during the proceedings.  There are also important deadlines that must be met and those deadlines may be triggered with respect to certain interim final awards long before the arbitration proceeding itself is concluded.  

Once an award is issued issues may arise as to whether it is ambiguous or whether it may be modified by the arbitrators.  Or arbitrators may purport to retain jurisdiction when they are not entitled to do so.  Dealing with these issues requires careful attention to arbitration law.   

When Federal Arbitration Act litigation is necessary, counsel need to know how to address the various procedural issues that arise, including subject matter jurisdiction, service, personal jurisdiction, the necessity of treating the proceeding as a motion and a host of other matters.   And counsel must know the extent to which procedural rules are supplied by the Federal Arbitration Act itself, state arbitration law, the Federal Rules of Procedure or state procedural rules. 

This is just a broad overview:  There are literally dozens of issues that may arise, including ones implicating state general contract law, the Federal Arbitration Act itself, state arbitration law, choice-of-law rules, and federal preemption doctrine.  Handling arbitration-related litigation demands special expertise, just as handling the underlying arbitration demands such expertise.  Practitioners and clients that fail to pay careful attention to this ever-evolving area of the law do so at their peril.