Today I present a collection of recent state and federal appellate court decisions that vacate or un-vacate arbitration awards. The seven opinions below emphasize how difficult it is to prove that an arbitrator exceeded his or her power and suggest that the surest way to vacate an arbitration award is still by presenting evidence that an arbitrator had significant ties to the opposing party.
The Supreme Court of Alabama vacated an award for evident partiality. Municipal Workers Compensation Fund, Inc. v. Morgan Keegan & Co., Inc., __ So. 3d __, 2015 WL 1524911 (Ala. Apr. 3, 2015). Alabama has determined, under the FAA, that arbitration awards may be vacated if the evidence shows a “reasonable impression of partiality” by the arbitrators. In this case, the court found that one of the three FINRA arbitrators did not disclose the significant relationship between his financial firm and the respondent’s firm (including co-underwriting equity and debt issuances and being co-defendants in lawsuits). Even though there was no evidence that the arbitrator was aware of those business relationships, the court found the FINRA arbitration rules obligated the arbitrator to discover those relationships and he did not satisfy that duty. Therefore, the arbitration award was vacated for evident partiality.
The Federal Circuit vacated an arbitration award because the arbitrator had improperly dismissed an employee’s labor dispute. In Garcia v. Dept. of Homeland Security, __ F.3d __, 2015 WL 1087880 (Fed. Cir. Mar. 13, 2015), the arbitrator construed the limitation period within the collective bargaining agreement and found the employee’s claims were too late. Noting that courts may interpret CBA provisions de novo, the court found the employee’s request was timely. (That should be seen as a labor-specific result. It does not comply with the standard in Oxford Health Plans.)
At least three appellate courts have recently un-vacated arbitration awards that lower courts had vacated.
My favorite of these is Raymond James Fin. Servs., Inc. v. Fenyk, __ F.3d__, 2015 WL 1055385 (1st Cir. Mar. 11, 2015), in which the court found the arbitration award “perplex[ing]” and possibly erroneous, but not “unsustainable.” In that case, a discharged employee initially asserted claims that the employer violated Vermont state law. At the hearing, however, the employee asked to add a claim under the federal Americans with Disabilities Act. And, in his post-hearing brief, he asked to add claims under New York and Florida law. The arbitration panel applied Florida law and awarded the employee damages over $600,000. The employer moved to vacate the award, arguing that the panel exceeded its power by ruling on a claim that the employee only submitted after the hearing and ignored Florida’s statute of limitations for that claim. The district court agreed and vacated the award. The First Circuit reversed, noting that the arbitrators were empowered to resolve claims under Florida law, and that Florida’s law on the statute of limitation was ‘evolving” at the time of the arbitration, so “any error by the panel in refusing to dismiss” the claims cannot justify vacatur.
The Supreme Court of Connecticut also un-vacated an award under its state arbitration act in Burr Road Operating Co. II, LLC v. New England Health Care Employees Union, Dist. 1199, __ A.3d__, 2015 WL 1894398 (Conn. May 5, 2015). In a dispute over the proper punishment for an employee who delayed reporting her suspicion that a nursing home resident had been abused, the arbitrator reduced the punishment from termination to a one month unpaid suspension. The employer moved to vacate the award and the trial court denied it. The intermediate appellate court, however, found the arbitration award violated well-defined public policy against delayed reporting of abuse and vacated the award. The Supreme Court of Connecticut then un-vacated the award. After clarifying the factors a reviewing court should consider on claims that an arbitration award violated public policy, it concluded that the award in this case did not violate public policy.
The Fifth Circuit un-vacated an award (using the Texas state arbitration act) in Campbell Harrison & Dagley, LLP v. Hill, __ F.3d __, 2015 WL 1501059 (5th Cir. April 2, 2015). Two law firms were awarded $28 million in an arbitration with their former clients, but the district court vacated the portion of the award that was based on the contingency fee agreement, finding it unconscionable. The Fifth Circuit found the district court “misapplied” the highly deferential standard of review due to arbitration awards under Texas law and substituted its judgment for that of the arbitrators. The Fifth Circuit affirmed the entire award for the law firms.
Two other decisions address, and shoot down, interesting arguments for vacatur.
The Fourth Circuit found that the death of one member of a three-member arbitration panel is not sufficient to vacate the award for “exceeding its authority”, without absolute proof that the third arbitrator failed to participate in deliberation in the case. Although billing records for the arbitrator’s time ceased before issuance of the award, the district court found he participated in and signed the award prior to his death. PNGI Charles Town Gaming, LLC v. Mawing, 2015 WL 898559 (4th Cir. Mar. 4, 2015).
In the area of reinsurance, the First Circuit agreed that vacatur was not appropriate in First State Ins. Co. v. National Casualty Co., __ F.3d __, 2015 WL 1263147 (1st Cir. Mar. 20, 2015). After the arbitration award declared the parties obligations under the reinsurance contracts, the insured party asked the federal court to vacate the award because the arbitrator’s exceeded their authority. The district court and appellate court both refused to vacate the award. The First Circuit noted that the text of the award shows the arbitrators based their award on the terms of the agreements so that there was “no doubt that the arbitrators were arguably construing those agreements.” Plus, the agreements had “an honorable engagement provision,” which relieved arbitrators of “strict rules of law” and directed them to consider the agreements as “an honorable engagement rather than merely a legal obligation.” The court found that provision empowered the arbitrators to grant equitable remedies that depart from strict readings of the agreements.
If you made it all the way to the bottom of this post you deserve a prize. Today, that prize is this collection of awesome words from the First Circuit opinion in First State Insurance Co.: defenestrate, ultracrepidarian, and adumbrated. Plus, the court quoted Shakespeare!