Appealing Arbitration Decisions

Two cases recently fit in one of my favorite categories: those awards that get “un-vacated.”  These cases went through arbitration, had that arbitration award vacated by a district court, only to have the award later resurrected by an appellate court.  In today’s edition, the whiplash happens in both state and federal court.

In Caffey v. Lees, 2018 WL 327260 (R.I. Jan. 9, 2018), Lees was the winner after bringing a personal injury case in arbitration. He was awarded nearly $200,000.  Caffey moved to vacate the award, arguing every possible basis under the Rhode Island arbitration statute.  The trial court granted the motion to vacate, based on the initial failure of Lees’ counsel to disclose a document from its expert.  Not just any document, of course, but an early assessment that contradicted the expert’s eventual opinion about causation.  The trial court found that omission meant the award was procured by “undue means.”

On appeal, the Supreme Court of Rhode Island noted it had not addressed “undue means” since 1858.  It looked to more recent definitions from federal circuit courts of the phrase — noting that proving undue means involves proving “nefarious intent or bad faith” or “immoral” conduct.   It found that standard was not met in this case, since the losing party had the critical document well before it submitted its final brief to the arbitrator.  Indeed, the issue of the untimely disclosure was placed before the arbitrator, and the expert explained the discrepancy.  Because the expert had a plausible explanation, the court could not agree that Lees’ counsel obtained the award through underhanded or conniving means.  The Supreme Court reinstated the award.

A case in the Ninth Circuit followed the same path.  In Sanchez v. Elizondo, 2018 WL 297352 (9th Cir. Jan. 5, 2018), an investor won a $75,000 award in a FINRA arbitration.  The district court granted the broker’s motion to vacate based on an argument that the arbitrator exceeded his powers.  In particular, the arbitrator allowed the arbitration to proceed with a single arbitrator, even after the claimant had submitted a pre-hearing brief increasing its damage request to just over the FINRA line that requires a three-arbitrator panel.  (The FINRA rules provide that claims over $100,000 must be heard by three arbitrators.  The claimant had initially requested exactly $100,000, so was assigned the single arbitrator, but then sought $125,000 in the pre-hearing brief, without amending the claim.)

The Ninth Circuit reinstated the award.  After first establishing that it had appellate jurisdiction, it considered the arbitrator’s powers.  Importantly, the court affirmed that arbitrators have discretion on matters of substance as well as matters of procedure.  In this case, FINRA rules explicitly gave the arbitrator power to interpret the FINRA Code and rules. Furthermore, the arbitrator asked the parties to address the issue of the increased damage amount, considered their arguments, and interpreted the rule to reference the amount initially claimed in the demand, instead of any amount later sought in the arbitration.  Because the arbitrator had power to interpret the rule and did so, the court found he did not exceed his powers.

These don’t seem like hard cases to me.  Given the standard for vacating awards, these arbitration awards should have been straightforward to confirm.  The fact that they weren’t suggests either that the speed of development under the FAA is difficult for advocates and judges to keep up with, or that there may be some judicial hostility toward arbitration coloring the application of the standard for vacatur.

What could be a better subject for a Black Friday weekend post than the Cabbage Patch Kids??!  Especially if you are old enough to remember the 1980s…  Whether you loved or hated the smushed-face dolls, the point of this post is that the 11th Circuit confirmed an arbitration award in their favor, showing significant deference to the arbitrator.  Original Appalachian Artworks, Inc. v. Jakks Pacific, Inc., 2017 WL 5508498 (11th Cir. Nov. 17, 2017).

The dispute was between the company that owns the Cabbage Patch Kids (CPK) brand and a company to which it licensed the intellectual property during 2012-2014 (the licensee).  As the end of the license agreement was approaching, CPK selected a new company to receive the license in 2015, and let them get started creating the new line of toys, so that the new line could launch right away in 2015.  The licensee claimed that was a breach of the agreement and started an arbitration.

The arbitrator concluded that CPK had not breached the agreement and ordered that the licensee had to repay CPK over a million dollars in unpaid royalties.  The licensee moved to vacate the award.  Curiously, it made arguments under both the Georgia Arbitration Code and the FAA, and the 11th Circuit considered them all.  [Maybe showing that New Hampshire was onto something in declaring the FAA does not preempt state law on vacatur?]

Under the Georgia Code, the licensee argued the arbitrator had manifestly disregarded the law by ignoring the parol evidence rule (and accepting extrinsic evidence regarding the agreement).  [Manifest disregard is a statutory basis for vacatur under the Georgia act, unlike the federal act.]  The court found there was no concrete evidence that the arbitrator purposely disregarded the law, which is the standard.  Instead, the transcript and award showed the arbitrator had understood Georgia law as instructing that the purpose of contract interpretation is to effectuate the parties’ intent, and that’s what he tried to do in reviewing the extrinsic evidence.  So, even “assuming the arbitrator incorrectly applied the parol evidence rule,” the court found he “simply made a mistake.”  That does not rise to the level of manifest disregard.

Under the FAA, the licensee separately argued that the arbitrator had exceeded his powers.  After quoting the standard from Sutter, the court quickly concluded that because the arbitrator did interpret the parties’ contract, it does not matter “whether he got its meaning right or wrong,” the award must be confirmed.

The Nebraska Supreme Court recently had the unenviable task of determining whether the three month time period that the FAA provides for vacating an arbitration award is a statute of limitation (subject to tolling) or is jurisdictional.  In Karo v. Nau Country Ins. Co., 2017 WL 4185426 (Neb. Sept. 22, 2017), it found that the time periods for both confirming and vacating awards are jurisdictional.

The consequence for the parties in Karo was significant.  The party who lost in arbitration waited four months to bring their petition to vacate the award.  Nevertheless, the district court vacated the award, finding the arbitrator had exceeded his powers and manifestly disregarded the law.  On appeal, however, the state’s high court took up the issue of jurisdiction.  After analyzing the statutory language, it held that “Congress intended that a party’s failure to serve notice of the application…within mandatory time limits would have jurisdictional consequences.”  Therefore, the high court found the district court’s order was void.  [How does that square with the Ninth Circuit finding the three-month period was equitably tolled for five years in this case??!]

In other arbitration news

  • The Supreme Court of Alabama agrees that just because a defendant wins a motion to compel arbitration, it does not obligate that defendant to then initiate the arbitration.  Nation v. Lydmar Revocable Trust, 2017 WL 4215891 (Ala. Sept. 22, 2017).
  • Seeing that the Senate could not be counted on to block the rule, the Chamber of Commerce and a coalition of bankers started a lawsuit challenging the CFPB’s arbitration rule.  (Absent a court injunction or Senate action, that rule takes effect in just over a month.)’
  • SCOTUS heard argument today on the big showdown over whether employees can be forced to waive their rights to class actions.  Coverage by SCOTUSblog here.

In a decision that is very skinny on the facts, a unanimous Nevada Supreme Court recently un-vacated a significant arbitration award in a dispute over dental franchises.  In Half Dental Franchise, LLC v. Houchin, 2017 WL 3326425 (Nev. Aug. 3, 2017), the court found the arbitrators did not exceed their power in exercising authority over non-signatories.

The dispute began when Half Dental Franchise filed an arbitration demand against Precision Dental Professionals and Robert Houchin (among others).  They asserted breaches of contract and tort claims (including tortious interference with contract and usurping corporate opportunities).  A three-arbitrator panel found that both those respondents were proper parties, and granted Half Dental about $6.7M in damage.  Houchin filed a motion to vacate the arbitration award  The district court granted the motion, finding that the arbitrators exceeded their power in finding authority over Houchin, and vacated the award.

On appeal, the Nevada Supreme Court found that the district court improperly conducted a de novo review of the arbitrator’s decision finding Houchin bound to the arbitration agreement by estoppel.  (Precision Dental was also a non-signatory to the franchise agreement that the arbitrator found was bound to arbitrate based on estoppel.)  The court noted that under Nevada’s state arbitration statutes, the district court should have asked simply whether there was “colorable justification for the outcome.”  Finding that the arbitrator’s citation to contemporaneous documents provided at least colorable justification for estoppel, the appellate court found no basis for vacatur.  The “colorable justification” standard was especially appropriate because the parties’ arbitration agreement contained a delegation clause, authorizing the arbitrator to “decide any questions relating in any way to the parties’ agreement or claimed agreement to arbitrate.”  (Otherwise, the question of whether non-signatories are bound is presumptively for a court to determine.)  For those reasons, the supreme court reversed the district court’s decision.

What’s the lesson here?  It might be that dentistry is a very competitive field, but it is also that if an award is vacated at the trial court, it’s usually worth bringing an appeal.

 

The “Summer of Arbitration” continues. In this edition, I focus on four big recent cases from the Second Circuit.  One vacated an arbitrator’s certification of a class action.  A second refused to vacate an award, despite an allegation of perjury.  And the last two relate to nearly 1.7 billion dollars worth of international arbitration awards.  (Although I refuse the designation of “flyover country” for my beloved Midwest, I do have to acknowledge that the New York courts get much sexier arbitration cases than we do, and more of them.)

With all the buzz about class action waivers in arbitration clauses (and the CFPB trying to end their use in the financial industry), it is easy to forget that it is possible for class actions to go forward in arbitration.  In Jock v. Sterling Jewelers, Inc., 2017 WL 3127243 (2d Cir. July 24, 2017), the arbitrator certified a class of plaintiffs that included “absent” class members.  The district court concluded that it was “law of the case” that the arbitrator had the necessary authority to do that, based on a 2011 decision from the Second Circuit in the same matter.  However, the Second Circuit found that the district court misunderstood – it had only ruled that the arbitrator had authority to determine whether some class arbitration was permissible – but had not ruled on the question of whether individuals who had not expressly opted into the class could be part of the class.  So, this case goes back to the district court; a continuation of its seven-year class action purgatory.

In another case seeking vacatur, the Second Circuit had the opportunity to clarify when a party’s alleged fraud is sufficient to vacate an arbitration award. It held that for “fraud to be material within the meaning of Section 10(a)(1) of the FAA, petitioner must demonstrate a nexus between the alleged fraud and the decision made by the arbitrators, although petitioner need not demonstrate that the arbitrators would have reached a different result.” Odeon Capital Group, LLC v. Ackerman, __ F.3d__ (2d Cir. July 21, 2017).  In this case, that meant that the employer was not able to vacate the $1.4 M award in favor of the employee, based on the employee’s alleged perjury, because the topic of the perjury had nothing to do with the claim on which he was awarded damages.  (The general damage to his credibility was not sufficient.)

The two cases on international arbitration are better served by a blog focused on that topic. (I read enough cases as it is!  I am sticking with my exclusive arrangement with the FAA.)  But, the executive summary is that the Second Circuit declared that an opposing party deserves personal service of a petition seeking judgment on a $1.6 billion dollar award, not just ex parte proceedings under New York state law. Mobil Cerro Negro, Ltd. V. Bolivarian Republic of Venezuela, 2017 WL 2945603 (2d Cir. July 11, 2017).  It also declared that district courts should grant “significant weight to considerations of international comity” in the rare instance that the winner in arbitration properly confirms a judgment in the U.S., but the award is later nullified (well after the deadline) by courts in another nation, and the loser in arbitration makes a Rule 60 motion to vacate that judgment. Thai-lao Lignite Co. v. Government of the Lao People’s Democratic Republic, __ F.3d__ (July 20, 2017).

While the Supreme Court has put off hearing a more contentious arbitration case until the fall (presumably in hopes that it will have nine justices by then), tomorrow it will hear the nursing home arbitration case from Kentucky.  I look forward to listening to the questions and trying to figure out why the Justices granted a review on the merits…  Instead of repeating my analysis of the Kentucky case, here are some recent state court arbitration cases of interest (in addition to the three I posted about a few weeks ago).

West Virginia.  Remember when West Virginia was the thorn in the FAA’s side?  When it was the leader of the pack of anti-arbitration states?  Well, not in West Virginia CVS Pharmacy v. McDowell Pharmacy, Inc., 2017 WL 562826 (W. Va. Feb. 9, 2017).   The lower court had refused to compel arbitration of disputes between retail pharmacies and a pharmacy benefit management company.  Applying West Virginia law, the lower court found there was no arbitration agreement, because the parties did not validly incorporate the manual that contained the arbitration provision.   The West Virginia Supreme Court, however, applied Arizona law, as provided in the contract, and that made all the difference.  It found the arbitration agreements were adequately incorporated, and that their reference to AAA rules was sufficient to delegate questions of arbitrability to the arbitrator.  No cert likely here.

Missouri.  The Supreme Court of Missouri took a safe bet in siding (partially) against the arbitrator in State ex rel Greitens, 2017 WL 587296 (Mo. Feb. 14, 2017), since the Supreme Court has denied cert petitions in many cases stemming from the master settlement agreement between states and tobacco companies.  (E.g., this most recent one.)  In this case, the state’s highest court found the arbitration panel exceeded its power when it deprived Missouri of its share of $50 Million in tobacco settlement payments for 2003.  The case is too complicated to explain in this post, but know that this is one of those rare examples of a court modifying an arbitration award, as opposed to just confirming or vacating it.  No cert likely here either.

Iowa.  I never get to write about Iowa (which my daughter called “why-owa” after a long road trip through farm country), but its supreme court issued a decision in late 2016 about nursing home arbitration that merits mention here.  In Roth v. Evangelical Lutheran Good Samaritan Society, 886 N.W.2d 601 (Iowa 2016), Iowa’s highest court answered a certified question from the federal district court.  In short, it found that Iowa’s statutes do not require judicial resolution of loss of consortium cases, and in this case the children of the decedent were not bound by the decedent’s arbitration clause because the “claims belong to the adult children and they never personally agreed to arbitrate.”  (Hard to make a bet on certiorari in this case, since it is headed back to federal trial court…)

Alabama.  In Hanover Ins. Co. v. Kiva Lodge Condominium Owners’ Assoc., 2016 WL 5135201 (Ala. Oct. 21, 2016), the Supreme Court of Alabama found that when the parties adopted the following addendum to their contract, the first party who filed an action was able to dictate the forum: “Notwithstanding anything in this Addendum to the contrary, either party may pursue any claim or dispute in a court of law, or through mediation and arbitration.”  That amended language was added to the parties’ A201 General Conditions, right after language indicating that “any claim arising out of or related to the Contract… may at the election of either party…be subject to arbitration.”  After the condo association brought their claims in court and requested a referral to arbitration, the defendants argued that the case should stay in court.  The trial court sent the claims to arbitration and the supreme court affirmed that result, finding “the addendum provides that once a party elects arbitration as a method for resolution of a dispute…the other party cannot neutralize that choice by insisting on litigation in court…In short, Kiva Lodge has proven the existence of a binding mandatory arbitration agreement between the parties.”  This will not end up at the Supreme Court, but it’s an important drafting lesson for all of us.

Three state supreme courts tackled arbitration law in recent weeks: Alabama, North Carolina, and Rhode Island.  Rhode Island reversed a construction arbitration award because it disagreed with the arbitrator’s analysis.  North Carolina found that an arbitration agreement in a doctor-patient setting was unenforceable as a breach of the doctor’s fiduciary duty.  And Alabama strictly enforced an arbitral venue, even though that precluded class action.

Continuing its streak of hewing closely to the lead of federal courts on arbitration, the Supreme Court of Alabama held that plaintiffs have to arbitrate with the Better Business Bureau, even though the BBB does not conduct class action arbitration proceedings.  University Toyota & University Chevrolet Buick GMC v. Hardeman, _ So. 3d __, 2017 WL 382651 (Ala. Jan. 27, 2017).  The plaintiffs were a putative class of customers harmed by two car dealerships’ decision to stop honoring their earlier agreement to provide free oil changes.  The arbitration clause between the dealerships and purchasers called for arbitration of all disputes pursuant to the FAA, and said “either party may demand arbitration by filing with the Better Business Bureau.”  When the plaintiffs filed their demand, the BBB responded that it did not conduct class arbitrations.    The plaintiffs then withdrew their demand and filed in court, asking either to keep their fight in court or go to a forum that allowed class arbitration.  The trial court sent the plaintiffs to the AAA to decide whether class actions were available.  On appeal, the supreme court reversed in a 7-1 decision.  The majority quoted heavily from SCOTUS decisions stating that arbitration agreements should be enforced according to their terms, and found that the BBB forum was an integral part of the arbitration agreement that must be given effect.  The lone dissenter argued that, because the availability of class arbitration was for the arbitrator, it should be decided by a forum that at least retains that option.

Without any consideration of the Federal Arbitration Act, the Supreme Court of Rhode Island vacated an arbitration award.  Nappa Construction Management, LLC v. Flynn, __ A.3d __, 2017 WL 281812 (R.I. Jan. 23, 2017). (Maybe an allergy to the FAA is contagious… remember nearby New Hampshire last year?)  In a dispute between the owners of a automobile repair facility and the construction company that was hired to build it, the arbitrator issued an award that analyzed the parties’ contract and found the construction company was owed money.  The trial court refused to vacate the award, finding the arbitrator grounded his analysis in the contract and did not manifestly disregard the law.  On appeal, the Supreme Court of Rhode Island cited only cases from its own court, including labor cases, and found that the arbitrator had exceeded his authority (and the award failed to draw its essence from the agreement) by finding that the owners had effectively terminated the contract, when there was no evidence that the owners actually terminated the contract.  The court also accused the award of reaching an “irrational result.”  Two justices dissented, noting the “exceptionally deferential standard of review” for arbitration awards.  They did not, however, cite to the line from Sutter, as I would have, that even “grave error” by an arbitrator is not sufficient to vacate an award if the arbitrator in fact analyzed the contract.  (Maybe no one argued the FAA applied?  A commercial construction contract would almost certainly involve interstate commerce…)

Finally, the Supreme Court of North Carolina refused to enforce the arbitration agreement between a doctor and patient, finding that the agreement “was obtained as a result of defendants’ breach of fiduciary duty that they owed to” the patient.  King v. Bryant, __ S.E.2d __, 2017 WL 382910 (N.C. Jan. 27, 2017).  The patient had brought a medical malpractice action against his surgeon, and the surgeon tried to enforce the arbitration agreement between them.  The arbitration agreement called for application of the FAA and arbitration under health care procedures of the AAA.

The N.C. trial court refused to compel arbitration, finding the agreement was only an “agreement to agree,” and started off a crazy game of appeals court-district court ping pong involving this case.  The court of appeals reversed and remanded.  On second thought, the trial court refused to enforce the agreement because the surgeon had a fiduciary duty to disclose the arbitration agreement to his patient as a material term, and because he did not it was unenforceable.  The court of appeals affirmed, noting the application of the FAA, but finding the agreement unconscionable.  The supreme court then remanded to the trial court for further findings of fact regarding the existence of a physician-patient relationship when the agreement was signed, and the trial court complied.  Finally, the case returned to the supreme court, which held that the doctor owed a fiduciary duty to the patient and breached it “by failing to make full disclosure of the nature and import of the arbitration agreement to him at or before the time that it was presented for his signature.”  Recognizing the possibility of an argument that its holding is preempted by the FAA, the court noted “we would have reached the same result on these facts with respect to any agreement that substantially affected [the patient’s] substantive legal rights.”  However, the opinion cites no N.C. cases to support that statement, which may be fatal under the DirecTV analysis.  Two justices wrote separate dissents, based largely on FAA preemption.  (“This jiggery-pokery is precisely the type of impermissble ‘rationalization’ admonished by the United States Supreme Court. Such a tortured attempt to obviate the FAA fails.”)

What is the take away here?  It is that there is still a huge amount of variation in how a given arbitration dispute will be handled, depending on what court hears the dispute.  And the preemption rules set out in Concepcion and DirecTV are either not well understood, or are being intentionally avoided.

A per curiam opinion from the 8th Circuit last week highlights that even if an arbitration goes off the rails, the only remedy is vacating (or confirming) the award.  The parties cannot recover from the administrator of the arbitration.

In Owens v. American Arbitration Association, Inc., 2016 WL 6818858 (8th Cir. Nov. 18, 2016), a terminated CEO filed for arbitration against his former company.  The AAA administrated the arbitration and a three member panel was chosen.  One of the arbitrators disclosed that he had been consulted in a different matter handled by the same firms that were representing the CEO and the company.  No party objected to that arbitrator’s continued involvement or asked follow up questions.

The panel issued an initial award of over $3 million to the former CEO.  At that point, the company moved to remove the arbitrator who had made the disclosure, alleging the disclosure was incomplete.  The AAA did not have a rule or published procedure for addressing the removal of an arbitrator.  It allowed the CEO to respond, but did not inform any of the arbitrators that a motion had been made or allow the arbitrator whose disclosure was at issue to respond.  The AAA eventually removed the arbitrator who made the disclosure, and the remaining two arbitrators issued a final award in favor of the CEO.

The company moved to vacate the award, and a state court trial judge granted the motion.  At that point, the CEO sued the AAA in Minnesota state court for “breach of contract, unjust enrichment, [and] tortious interference with contract.”  The AAA removed the case to federal court, and the federal district court dismissed the claims based on arbitral immunity.

On appeal, the 8th Circuit made quick work of this messy case.  It first recognized that arbitrators, like judges, have immunity.  And, that immunity can extend to “organizations that sponsor arbitrations” and all of the acts within the arbitral process.  Second, it cited a previous case in which the 8th Circuit concluded that “arbitral immunity bars claims against a sponsoring organization based on the appointment of a biased arbitrator.”  (Even if the organization failed to follow its own rules in appointing the arbitrator.)  Third, it extended that rule, concluding that the removal of arbitrators is also protected by arbitral immunity.

p.s. In honor of the all-Minnesota nature of this case, I give you a photo I took of the prize-winning giant pumpkins at the Minnesota State Fair.  Happy Thanksgiving!

In most circumstances, the Federal Arbitration Act requires that the losing party move to vacate an arbitration award within three months.  However, the Ninth Circuit recently ruled that the three-month timeline can be tolled, especially for something as significant as the chair lying about being a licensed attorney.

In Move, Inc. v. Citigroup Global Markets, Inc., 2016 WL 6543522 (9th Cir. Nov. 4, 2016), Move started a FINRA arbitration against Citigroup, alleging the mismanagement of $131 million.  Move expressed its strong desire to have an experienced attorney as chair, given the complexity of the claims.  So, it gave top ranking to “James H. Frank,” who certified to FINRA that he had a law degree and was licensed in three states.  Mr. Frank then served as the chair of the three person panel, signing a unanimous award denying Move’s claims in December of 2009.

However, the person who served as chair had lied about his qualifications and was not even a licensed attorney.  (He was impersonating a retired California attorney.)  Move discovered that fact in 2014.  (By reading The AmLaw Litigation Daily, which should now use this in its subscription sales pitches.)  Move then filed a motion to vacate the arbitration award.

The district court denied the motion, but the Ninth Circuit reversed.  First, it held “that the FAA is subject to equitable tolling.”  It appears to be the first federal appellate court to reach that result, with the Fifth Circuit having held the opposite in an unpublished case in 1993.  Although part of the lure of arbitration is its finality, the court noted “the general pro-arbitration policy relies on the assumption that the forum is fair, and therefore cannot justify special deference to arbitration outcomes in the face of a colorable claim that the forum was unfair in a particular case.” (Citing the 6th Circuit.)

Having concluded that it could address the substance of the vacatur motion, the court then found that the false information about the chairperson’s professional qualifications  constituted “misbehavior by which the rights of any party have been prejudiced” and therefore the award should be vacated under Section 10(a)(3).  Because Move made clear in the selection process that having an attorney as chair was critical, and the chair was “an impostor,” the parties’ contractual rights to arbitrate before a panel of three qualified FINRA arbitrators was prejudiced and Move “was deprived of a fundamentally fair hearing.”  The court was not swayed by arguments that the other two members of the panel had voted for the award as well, noting that “there is simply no way to determine” whether the chair influenced the other panelists.

Although I trust that it is a very unusual case for arbitrators to lie about their qualifications, it may be that their disclosure forms list lesser inaccuracies.  What if it was simply that the chair had let his licensure lapse in one of the states?  What lessons does this case offer for lesser types of inaccuracies?  For advocates, it suggests it is useful to make a clear record of what arbitrator qualifications are important during the selection process, so that if there is a problem you can show prejudice.  For arbitrators, it suggests you must be exceedingly careful in the accuracy of the bio you provide.  And for arbitration administrators, like JAMS, AAA and FINRA, it shows that having a system for double-checking arbitrator qualifications is very important.  It is part of the service you are providing the parties.

In an atmosphere in which a federal judge has blocked the CMS rule precluding arbitration in nursing home agreements, and we have a president-elect who seems likely to roll back the other agency regulations of arbitration, we may see courts policing the fundamental fairness of arbitration proceedings more often.  It will be one way to address the public sentiment that arbitration is unfair and stacked in favor of large companies (see this recent editorial by Gretchen Carlson).

While I was busy blogging out listicles and “think pieces” last month, my stack of unread arbitration cases grew exponentially.  August was apparently a very busy month for publishing arbitration opinions.  Maybe most surprisingly, the federal appellate courts vacated three arbitration awards in recent weeks.  So I will start there, and end with two headline-worthy awards that got confirmed.

First, in Bankers Life & Cas. Ins. Co. v. CBRE, Inc., __ F3d __, 2016 WL 4056400 (7th Cir. July 29, 2016), the Seventh Circuit vacated an arbitration award after finding the panel of arbitrators “exceeded its authority.”  The panel had concluded that a real estate broker did not violate its listing agreement with a client when the broker provided an inaccurate cost-benefit analysis to the client.  The panel said that because the cost-benefit analysis had a disclaimer on it, the broker was not responsible.  The district court had confirmed the award.  Writing for the Seventh Circuit, Judge Posner found that because the panel was only authorized to interpret the contract, not the cost-benefit analysis, “[t]he panel’s reliance on the disclaimer in the CBAs was … unjustified.”  One bit of helpful context here is that the court found the Illinois Uniform Arbitration Act applied.  I don’t think this result would fly under the FAA or Sutter .

Second, in Star Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 2016 WL 4394563 (6th Cir. Aug. 18, 2016), the Sixth Circuit vacated an arbitration award pursuant to the arbitration act in Michigan.  Although the district court had confirmed the award, the appellate court reversed due to one arbitrator’s ex parte communications with the party who selected that arbitrator.  That communication violated the parties’ agreement to arbitrate as set forth in the scheduling orders.

Third, although not exactly a vacatur, in Linde Health Care Staffing, Inc. v. Claiborne County Hospital, __ So.3d __, 2016 WL 4245435 (Miss. Aug. 11, 2016), the Mississippi Supreme Court refused to recognize a Missouri judgment based on an arbitration award.  It found the losing party was not a party to the arbitration agreement.  Intriguingly, the winning party claimed that the three months for vacating the award had already passed, so the judgment could not be set aside.  The court refused to apply the FAA, however, asking “How can the Hospital be bound by the FAA’s procedural rules if it never entered a contract with an arbitration clause?  The simple answer is it cannot.”

On the other hand, two very interesting arbitration cases were confirmed.

In one, a famous football player had the arbitration award against him un-vacated.  The district court around the corner from my office had found Adrian Peterson was not fairly on notice of the potential penalty against him.  The Eighth Circuit reversed, concluding:

As applied to Peterson’s case, therefore, the arbitrator thought the terms of the Agreement, the law of the shop, and the Personal Conduct Policy gave the Commissioner discretion to impose a six-game suspension and fine if he concluded that shorter suspensions in prior cases had been inadequate.  The arbitrator’s decision on this point was grounded in a construction and application of the terms of the Agreement and a specific arbitral precedent.  It is therefore not subject to second-guessing by the courts.

Nat’l Football League Players Assoc. v. Nat’l Football League, __ F.3d__, 2016 WL 4136958 (8th Cir. Aug 4, 2016).

Another fun case confirming an arbitration award involved a significant award for a Mexican subsidiary of KBR and quite the international legal dispute.  Corporacion Mexicana de Mantenimiento Integral v. Pemex-Exploracion y Produccion, __F.3d__, 2016 WL 4087215 (2d Cir. Aug. 2, 2016).  The losing party in that arbitration happened to be an oil and gas company “acting on behalf of the Mexican government.”  Three years into the arbitration proceeding, the Mexican Congress vested exclusive jurisdiction for disputes over public contracts in its Tax & Administrative Court.  And nearly five years into the arbitration proceeding, the Mexican Congress “ended arbitration” for the claims.  After KBR’s subsidiary won big, it confirmed the award in SDNY.  But a court in Mexico ordered that the award be annulled.  The Second Circuit was having none of that.  It found the district court was right to confirm the award “notwithstanding invalidation of the award in the Mexican courts,” due to four “powerful considerations” including waiver of sovereign immunity, the “repugnancy of retroactive legislation that disrupts contractual expectation,” the need for legal claims to have a forum, and the “prohibition against government expropriation without compensation.”

What can we take away from these decisions?  Maybe that losing parties in arbitration have a better chance of vacating an award under state arbitration acts, that the 8th Circuit is not sympathetic to wealthy football players, and the Second Circuit will not allow a foreign government to legislate its way out of an arbitration award.