Today’s lead cases include reminders that if “you snooze, you lose” and that the wall of deference to an arbitrator’s award in collective bargaining grievances is higher than any faced on TV’s “American Ninja Warrior.”
Panama Convention; Public Policy Defense
Most post-award arbitration law in the international arena arises under the New York Convention. However, Tecnicas Reunidas de Talara S.A.C. v. SSK Ingeneria y Construccion S.A.C., 2021 U.S. LEXIS 197584 (S.D. Fla. October 13, 2021), is governed by the Panama Convention, as both parties are Peruvian entities and Peru has ratified that convention. So, while there may be little substantive difference between the Panama and New York Conventions, the standard for setting aside the award is governed by the Panama agreement, and the case provides a rare insight into those procedures.
The gravamen of the motion to vacate arises from an unusual change in Petitioner’s representation at the arbitration. After the final hearing, but before post-hearing submissions were due, two of Petitioner’s attorneys, purportedly without the consent of Tecnicas Reunidas (“TRT”), joined the new Chilean office of the firm representing the Respondent, SSK. That move, TRT asserts, created “a direct, material, adverse, and non-waivable conflict of interest” and “clear violation of well-established rules of professional conduct. . . .” As such, it argues, the $40 Million award in favor of SSK must be set aside under the Panama Convention’s public policy defense.
Before reaching the merits of the argument, the Court addresses two collateral issues. First, Chief Judge Altonaga addresses a procedural aspect of the case. Citing to precedent from various Circuits, the court treats SSK’s motion to dismiss the application to vacate as an application to confirm the award. Second, the court considers whether the “public policy” doctrine applies to errors in the process before the arbitration’s tribunal or merely to the effect of the award itself. Rejecting Ninth Circuit precedent holding that the court must focus only on the award, Southern California Gas Co. v. Utility Workers Union of America, Local 132, 265 F 3d 787 (9th Cir. 2001), and citing in a footnote to contrary authority in the D.C., Second, Fifth, Seventh Circuits, Chief Judge Altonaga holds that the defense contemplates “serious defects in arbitral proceedings.”
On the merits, the court holds that TRT waited too long to raise its challenge. Since TRT did not raise counsel’s change of firm until after the close of the arbitration and the issuance of the award, the court opines that Petitioner must show actual prejudice, a burden which it did not meet. In a single sentence, the court disposes of Petitioner’s argument that, as a practical matter, it cannot demonstrate what prejudice it may have suffered, as it is impossible to know the full effect of counsel crossing the courtroom with a party’s full case in his or her mind. “Although courts irrefutably presume confidences are disclosed in the prophylactic context of a motion to disqualify [citation omitted], that is not the standard after judgment, or similarly, as here after an arbitral award is entered.”
In addition, the court holds that TRT’s delay in raising the conflict issue until after it lost the arbitration constituted a waiver of any claim which it may have had. The Court finds that, although Petitioner learned of its counsel’s change of firms almost a year before the arbitration panel issued its award, it “made no objection.” Since, the court opines, attorney disqualification is a question for the arbitrator to resolve, the issue should have been raised in that forum. Even if, as some courts have held, a disqualification motion must be made to the court, not the panel, such a motion needs to be filed before the arbitration closes. Waiting would allow a petitioner to “stay silent until after an award is entered in an effort to posture the case as ‘[h]eads I win, tails you lose.’”
Litigation lesson – As this and other cases discussed in “Highlights” demonstrate, when you see a problem in the arbitration process, act immediately. Don’t wait, don’t dither. Make your objection at every opportunity and make it clearly.
Deference to the arbitrator in a CBA arbitration
Collins v. The National Football League, 2021 U.S. Dist. LEXIS 196329 (E.D. Tex. October 12, 2021)(Mazzant, J.), should interest two audiences. For pro football fans, it is a look into the NFL’s drug testing protocols and various levels of discipline. For arbitration geeks, it is a reminder of the extreme deference given to arbitration awards arising out of a collective bargaining agreement.
The case relates to a series of random drug tests scheduled for La’el Collins (LSU, 2015; Dallas Cowboys, OL). On September 9, 2021, an arbitrator upheld the NFL’s five-game suspension of Collins, finding that, after missing three consecutive toxicology appointments, Collins offered a sample collector $5,000 or $10,000 to see if “there was something that ‘we could do’” about the sampling process. Significantly, the arbitrator “did not reach the issue of whether Collins also engaged in an intentional effort to evade or avoid testing by his failures to appear.” Although he had already served three games of the five-game suspension, Collins here sought a temporary injunction against enforcement of the suspension pending his challenge to the award. The opinion goes into detail about the language of the NFL’s Collective Bargaining Agreement that is not needed here, but which might be interesting to any fan and is important to anyone citing the case. For our purposes, however, the decision is a striking example of the deference that a court must give to a grievance arbitration award. Judge Mazzant could not make it clearer that he disagrees with the arbitrator’s decision – “[i]f the Court had greater authority to review the arbitrator’s award, it would supplant its aforementioned reading of the Policy;” “[t]hough the Court may disagree with the arbitrators conclusions, such conclusions must stand;” and “[t]he Court takes no comfort in enforcing an arbitration award that upholds a punishment that, arguably, is not permissible under the parties’ CBA.” However, the court holds that the award “draws it essence from the CBA,” and the court’s analysis provides a valuable set of touchstones for making such a determination. Per the court, the arbitrator “considered the arguments on both sides, outlined those arguments in his report, and analyzed the 202 Policy. After completing this systematic approach, the arbitrator arrived at a reasonable interpretation of the 202 Policy that stems from its text and structure.” (Emphasis added).
Collins will miss this week’s game against the Patriots, but, after an off week, will return in Week Eight against the Vikings.
Sealing of arbitration documents
While a petition for arbitration and response thereto are considered public documents in an application to vacate or confirm an award, Markowitz v. KBI Services, 2021 U.S. Dist. LEXIS 196487 (S.D.N.Y. October 7, 2021)(Schofield, J.), holds that, where the documents “have no relevance to the issue presented”, but merely establish that an arbitration took place, they may be sealed.
Delegation of threshold issues
Ross v. Shutterfly Lifetouch, LLC, 2021 U.S. Dist. LEXIS 197502 (N.D. Cal. October 13, 2021)(Freeman, J.), breaks no new ground, but is a refresher on the distinction between the question of whether the parties ever formed an agreement to arbitrate, which is always resolved by the court, and other challenges to the agreement, which the parties may delegate to the arbitrator. It also touches on the “container theory” set forth in Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010), under which, in the face of a delegation clause, an unconscionability challenge to the entire agreement is resolved by the arbitrator; the court only steps in if the challenge relates directly to the arbitration clause itself.
The timing of a petition to vacate an award
Shellito v. The Travelers Companies, Inc., 2021 U.S. Dist. LEXIS 195885 (E.D. Pa. October 12, 2021)(McHugh, J.), is a painful reminder that an application to vacate an award under the FAA must be served, not merely filed, within three months of the date the award was “filed or delivered.” Here, the filing of the application to vacate was made within that three-month window, but service was made three days after the window closed. Opining that, “if a party failed to serve the motion to vacate within the three-month statutory period, that ‘party forfeits the right to judicial review of the award,’”(citations omitted), the court dismisses the application to vacate. The opinion is a good source for citations on the issue.
The leaves are changing here in Southern New England as fall weather approaches. Wherever you are, I hope you have a good weekend. See you Monday.
David A. Reif