What today’s case load lacks in quantity it makes up for in quality, as a well-researched and written opinion discusses both choice of law and FAA scope issues.  Whether you agree with the case’s conclusion, it is a valuable addition to arbitration jurisprudence.  

Is an “appraisal” an “arbitration;” choice of laws

A provision in many property insurance policies provides that a panel of appraisers resolves disputes over damages payable in the event of a loss.  Martinique Properties, LLC v. Certain Underwriters at Lloyd’s London, 2021 U.S. Dist. LEXIS 199497 (D. Neb. October 15, 2021), addresses whether that procedure constitutes an arbitration and, accordingly, is subject to the provisions of the Federal Arbitration Act and New York Convention.

The case arises out of hail and wind damage for which Martinique made a claim under an insurance policy issued by defendants.  The policy provided that, in the event that the parties could not agree on the amount of the policyholder’s damages, each of them would appoint an appraiser; those two would, in turn, appoint a third. After a hearing, two of the appraisers appointed in this matter agreed upon a damage computation; the appraiser appointed by the property owner did not sign the decision letter.  The policy holder, then,  commenced this action, seeking amounts in addition to those determined by the panel.  Defendant moved to dismiss.  Its argument centered on a claim that the appraisal process was an “arbitration.”  Therefore, Lloyd’s contended, the policyholder’s action should be treated as a petition to vacate an award, be found to be time-barred, and be subject to the deference given to an arbitral panel’s decision.

Judge Buescher agrees.  He begins with a choice of laws consideration.  Distinguishing Recold, S.A. de C.V. v. Monfort of Colorado, Inc., 893 F. 2d 195 (8^th Cir. 1990), he finds that the Eighth Circuit has not determined whether state law or federal common law “governs the definition of ‘arbitration.’”  After considering authorities outside the Circuit, the court opts for the federal approach, finding that it would be “counter-intuitive to look to state law to define a term in a federal statute on a subject as to which Congress has declared the need for national uniformity,” (quoting Evanston Insurance Company v. Cogswell Properties, LLC, 683 F. 3d 684 (6^th Cir. 2012)).  Then, again referencing a dearth of Eighth Circuit law, Judge Buescher extensively reviews federal authorities to define “arbitration” and to determine whether an insurance damage appraisal falls within that definition. He eventually adopts a three-part test.   Does the relationship  “identif[y] the dispute, submit[] the dispute to a third party, and make[] the third party’s resolution binding on the parties?”  If so, the proceeding “constitutes arbitration under the FAA.”  Finding that this claim meets that standard, the court holds that, although Martinique characterizes its action as one for breach of contract, the complaint should be viewed as a petition to vacate under the New York Convention and FAA. The opinion relies heavily to the Second Circuit’s opinion in Milligan v. CCC Information Services, Inc., 920 F. 3d 146 (2^nd Cir. 2019), but cites extensively to cases around the country.

Invoking general principles of arbitration review, Judge Buescher rejects Martinique’s claim. Finding that the defenses available under Section 10 of the FAA are “strictly applied and narrowly viewed,” the court applies the usual “extraordinary level of deference” granted arbitrators’ awards and holds that Martinique failed to demonstrate either arbitral misconduct or that the panel exceeded its powers.  Accordingly, he grants Lloyd’s motion to dismiss.

For anyone who litigates first party property damages claims, this is a crucial case to put into their litigation notebook.  Treating an appraisal proceeding as an arbitration affects both the timing of any challenge (an issue which Judge Beuscher opines that he need not reach) and the standard for review.  The opinion cites authorities from around the country and, therefore, serves as a good starting point for research, regardless of the venue of one’s dispute.  For more general arbitration practitioners, it is valuable reading on the application of state v. federal common law in interpreting terms within the FAA and New York Convention.

Literature

The current issue “Litigation,” the magazine of the ABA’s Litigation Section,  has two articles on ADR that are worth reading.  Although written before the Supreme Court’s dismissal of Servotronics, an article on Section 1782 provides a good summary of the issues raised, Ferguson, U.S. Discovery for Use in Foreign Proceedings: Navigating Cross-Border Discovery under 28 U.S.C. § 1782, 48 Litigation Magazine 1, p. 15 (Fall 2021). While Zoom mediations may become less frequent, they are here to stay in some form. Joseph Esposito’s article, Practical Advice for Virtual Mediation, 48 Litigation Magazine 1, p. 12 (Fall 2021) deals with the problems remote mediation raises, both in the drafting of mediation agreements and the execution thereof.

Have a good weekend.

David A. Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com