As promised in Tuesday’s edition, here are the remainder of last week’s Court of Appeals cases, along with one that was issued on Monday. If you are in the Second, Ninth, or Eleventh Circuits, this edition may be of particular interest. 

Also, since there are always more cases than there is space, I will close each edition of “Highlights” with quick hits on opinions which do not merit a full review, but still consider relevant issues.  Those short notes will include the topic of the opinion, case citation, judge’s name, and short summary of the holding.  If you see something of interest or which is relevant to an issue on your desk, you can use the blurb to move forward.  I hope you find it useful; please let me know.

Improperly Selected Arbitrators; Objection

The lesson from McEachern v. E.R.J. Insurance Group, Inc., 2025 U.S. App. LEXIS 2239 (11^th Cir. January 31, 2025)(per curiam)(Jordan, Luck, and Marcus, C.J.s) is clear.  If the arbitration agreement provides a method for selecting arbitrators, follow it.

The case arises from a dispute over Allstate’s payment of commissions claimed by Plaintiffs after the alleged assignment of the relevant Agency Agreement.[1]  The arbitration  agreement provided for a three-member panel and set forth a selection method under which each party would have the right initially to appoint one arbitrator; if it did not do so, the other party could appoint two members to the panel.  Regardless of the method used for the selection of the first two panel members, however, they would appoint a third.  The arbitration was subject to the Commercial Rules of the American Arbitration Association, and a dispute arose as to whether the Plaintiffs’ two appointees met the requirements for appointment under those rules.  Ultimately, the matter proceeded before a panel composed of only two arbitrators, both of whom were appointed by Plaintiffs. (The opinion lays out the selection process in detail).  That panel entered an award in favor of Plaintiffs for approximately $3.5 million.

The District Court vacated the award on the basis that the panel was constituted in violation of the provisions of the arbitration agreement.  The Eleventh Circuit affirms.

The opinion begins with the universal premise that “arbitration is a matter of contract.”  “Ultimately, arbitrators derive their power from the parties’ agreement.” (Citations omitted).  As the panel states, quoting the Federal Arbitration Act, “where a method for appointment is set out in the arbitration agreement, the agreed-upon method ‘shall be followed.’ 9 U.S.C. § 5.”  Accordingly, since this panel was established in violation of the agreed upon procedure and the party seeking vacatur made a timely objection to that alternative selection process, the court holds that the award exceeds the arbitrators’ authority and must be vacated.

The court rejects Plaintiffs’ argument that Defendants waived their objection. The court distinguishes those cases in which “a party failed to clearly object to the arbitration panel members prior to the arbitral award.” (Emphasis added; citations omitted).  Defendants here “clearly and repeatedly objected at virtually every critical point to the composition of the arbitration panel.”  In fact, the court finds that they objected at least eight times before the issuance of the award. “This was not a situation where Allstate sat idle throughout the arbitration process, thereby waiving their objections.”

There are two lessons in this case.  First, never cut corners on the appointment of the panel.  Read the arbitration clause and follow it exactly.  If there is a dispute regarding the method of appointment, get a judicial resolution.  It is much better to invest legal fees up front than it is to go through an arbitration, lose, and spend money at the back end seeking a risky vacatur. (Remember the Fram Oil Filter ad – “you can pay me now or you can pay me later.”)  Second, as with any procedural issue which you believe might be wrongly decided, OBJECT; do it quickly, often, and clearly.  Do not run the risk of waiver.

New York Convention; Enforcement; Delegation of Gateway Questions of Arbitrability

Valentino S.P.A. v. Mrinalini, Inc., 2025 U.S. App. LEXIS 2099 (2^nd Cir. January 30, 2025)(Summary Order)(Livingston, C.C.J. and Nardini and Menashi, C.J.), addresses whether the New York Convention allows a party to enforce an award during the pendency of an appeal in the primary jurisdiction.  The panel holds that a District Court may do so and affirms the lower court’s confirmation of the subject award.

The New York Convention is an international agreement, adopted by 172 state parties, which governs the recognition of arbitration awards in jurisdictions other than the seat of the arbitration. Article V of the Convention sets forth limited grounds upon which secondary jurisdictions may refuse to enforce an award.  One basis for denying enforcement exists when the award “has not yet become binding on the parties, or has been set aside or suspended by a competent authority in which, or under the laws of which, that award was made,” New York Convention, Article V(1)(e).

In Valentino, an appeal from the Italian arbitral panel’s final award was pending before the Milan Court of Appeals.  The Second Circuit opines that the Italian court “had explicitly confirmed the enforceability of the award by refusing to provisionally suspend its effect pending its decision.” In other words, although the Milan court might eventually set the award aside at the conclusion of the appeal before it, that tribunal had not yet done so.  Accordingly, the Second Circuit holds, the quoted prerequisites of Article V for denying confirmation have not been met.

In one of several footnotes, fn 1, the panel notes that the party against whom the award is rendered can ask the enforcing U.S. court for a stay while an appeal is pending in the primary jurisdiction. “The pendency of [the Italian] appeal may still warrant a stay under Article VI even if it does not qualify as a defense to confirmation under Article V(1)(e).”  It is unclear from the opinion whether Plaintiffs sought such a stay in this case, as the District Court dismissed the case as “moot.”

The court touches briefly on delegation issues.  The parties’ agreement provided for arbitration of “any dispute that may arise connected to the Agreement as well as associated or connected to its . . . interpretation. “ (Ellipsis in the opinion). That language, the panel holds, delegated questions of arbitrability to the arbitral panel.  Applying an “extremely deferential” standard of review, the court confirms the arbitrator’s decision that the dispute was “within the terms of the submission to arbitration.”

Mandamus to Challenge an Order Compelling Arbitration

Under the provisions of the Federal Arbitration Act, there is ordinarily no interlocutory appeal from an order compelling arbitration, 9 U.S.C. § 16(b)(3). (There is an exception allowing an appeal pursuant to 28 U.S.C. §1292(b), but those intricacies are beyond this comment).  In In re: Saige, 2025 U.S. App. LEXIS 2343 (9^th Cir. February 3, 2025)(Mem.)(Fletcher, W. and Callahan, C.J.; and Marquez, D.J., sitting by designation), the court provides a narrow path for end running that prohibition.  The District Court granted Defendant’s motion to compel the arbitration of this dispute with its warehouse workers. The Court of Appeals holds that, under 9^th Circuit precedent, those workers fall within the “transportation worker” exception to the FAA; therefore, the lower court committed “clear error” in compelling arbitration under that statute.  Further, the plaintiffs “have no other adequate means to attain their desired relief because appeal is not available with the case in its present posture.  The FAA does not authorize interlocutory appeals for orders compelling arbitration. . . . “  Finally, Plaintiffs will be damaged if they must arbitrate. “If forced to arbitrate, Petitioners will have no adequate means of ensuring that they can continue as class representatives.” (Internal citations omitted).  Having found that Plaintiffs met all the requirements for the issuance of a writ of mandamus, the panel vacates the District Court’s order granting Defendants’ motion to compel and remands for further proceedings.

Quick Hits –

The Question of Whether the Parties Agreed to Arbitrate Is for the Court

Wassmund v. Red Bull North America, Inc., 2025 U.S. Dist. LEXIS 20060 (C.D. Cal. February 3, 2025)(Hsu, J.) – lays out the evidence upon which the District Court determined which of two agreements governs the dispute resolution process.

Sanctions for Failing to Mediate in Good Faith

United Pool Distribution, Inc. v. Custom Courier Solutions, Inc., 2025 U.S. Dist. LEXIS 19851 (W.D.N.Y. February 4, 2025)(Geraci, J.) – Party sanctioned under Fed. R. Civ. P. Rule 16 for failing to participate in good faith with a court-ordered mediation where it did not disclose before the mediation session that its prior settlement offers had been unauthorized and were withdrawn.

Delegation of Arbitral Scope by the Application of Institution Rules

Trilogy Federal, LLC v. General Dynamics Information Technology, Inc., 2025 U.S. Dist. LEXIS 19761 (D.D.C. February 4, 2025)(Howell, J.) –  Language in a dispute resolution provision stating that a dispute “may” be resolved under the AAA’s rules delegates issues of the scope of arbitration to the arbitrator.

New York Convention; Denying a Stay of Confirmation, even though There  Were Confirmation Proceedings Pending Elsewhere

Sirketi v. State of Libya, 2025 U. S. Dist. LEXIS 19756 (D.D.C. February 4, 2025)(Cobb, J.) –  No stay of enforcement in the U.S. where a court in the primary jurisdiction (Switzerland) has confirmed the award, even though confirmation proceedings are already ending in other secondary jurisdictions (Turkey and Curaçao).

Snow, again, here in Connecticut last night.  If you need an arbitrator or mediator somewhere warm, please let me know.  Seriously, though, I do not bill for travel time, hotel, air, meals or other expenses for arbitrations or mediations anywhere in the continental United States. I view those expenses as part of my overhead. Please let me know if I can help you or your clients resolve disputes either through mediation or arbitration.

Have a good weekend. .        

David A. Reif
Reif ADRDreif@reifadr.com
Reifadr.com

[1] “Allstate” is the name which the court uses to refer collectively to the Defendants.