Sometimes you learn something later that you believe would have made a big difference in a dispute resolved earlier. When that dispute was resolved by arbitration the ability to raise a newly discovered issue faces some serious obstacles. In a recent case, a reinsurer tried without success to use new allegations to avoid a judgment on an arbitration award. Although the effort failed, the lessons from the case are worth some discussion.
The cedent and the reinsurer arbitrated over the billing of asbestos claims. The reinsurer demanded and the cedent opposed requests for documents involving other reinsurers. Ultimately, the cedent prevailed in the arbitration, petitioned the court to confirm the arbitration award, which was granted after the parties notified the court of a stipulation by which the reinsurer agreed not to oppose confirmation.
Some months later, the reinsurer communicated with other reinsurers on the same reinsurance contract and obtained a document that the reinsurer believed demonstrated that the cedent committed fraud on the arbitration panel. Essentially, the document allegedly set forth the reinsurance broker’s views on how a specific clause was interpreted, which allegedly was consistent with the interpretation the reinsurer made at the arbitration. The reinsurer confronted the cedent and demanded access to all documents. The cedent had considered the very document and had objected to its production and opposed the reinsurer’s request for documents as an overbroad audit request.
The reinsurer moved under Federal Rules of Civil Procedure 60(b)(3) to relieve itself of the judgment confirming the arbitration award based on fraud, misrepresentation or misconduct by an opposing party and for post-judgment discovery. The court denied the motions. Arrowood Indemn. Co. v. Equitas Ins. Ltd., No. 13cv7680 (DLC), 2015 U.S. Dist. LEXIS 63643 (S.D.N.Y. May 14, 2015).
In denying the motions, the court explained that Rule 60(b)(3) cannot be used as an end-around the provisions of the Federal Arbitration Act (“FAA”) on vacating or modifying an arbitration award. The court noted that here the judgment was entered to confirm an arbitration award and that the FAA controlled over any conflicting civil procedures. The grounds for challenging an arbitration award are set forth in Section 10 of the FAA. The reinsurer acknowledged that Rule 60(b)(3) cannot be used to challenge arbitration proceedings or the award, but argued that the alleged misconduct extended to the judicial proceeding to confirm the award.
The court saw the reinsurer’s argument as a way to escape the three-month limitation period imposed by the FAA on motions to vacate an arbitration award. The court rejected this argument. Essentially, because the proceeding to confirm an arbitration award is a summary affair and because the real challenge by the reinsurer was to the arbitration proceeding not the judicial proceeding, the reinsurer was out of luck. The court outlined other cases with similar results. These courts all found that a party cannot attack an arbitration award through the Rule 60(b)(3) procedural mechanism. The strong presumption in favor of arbitration and deference to the arbitral process cannot be upended by claims of alleged misconduct in an arbitration proceeding by using Rule 60(b)(3).
The long-standing federal policy in favor of arbitration makes it extremely difficult–if not impossible–to use procedural or judicial methods outside the FAA to challenge an arbitration award. Here, the reinsurer learned of information it wished it had obtained during the arbitration and tried to use that information to upset the consent judgment confirming the arbitration award. The court noted that the reinsurer had never asked the arbitration panel to compel production of the very documents that the reinsurer obtained after the arbitration award had been confirmed. If the reinsurer had asked the arbitration panel to order production of other reinsurer documents and the panel refused would the Rule 60(b)(3) challenge have worked? That seems to be a closer question, but from the language of this court and the other cases cited, it seems likely that the same result would have occurred.