Courts Continue To Resist Confidentiality in Filing Arbitral Vacatur/Confirmation Proceedings; Other Rulings Lead To Confirmation of Award

By Louis M. Solomon, Partner, Cadwalader, Wickersham & Taft LLP

Harper Ins. Ltd. v. Century Indemnity Co., 10 Civ. 7866 (S.D.N.Y. July 2011)(NRB) (Free Download), addresses cross-petitions to vacate and confirm an arbitral award.  The case addresses several typical issues arising in such proceedings but also others of note to topics we have posted about recently and that are important to international litigation and dispute resolution. (Lexis.com subscribers can access the Lexis enhanced version of the Harper Ins. Ltd. v. Century Indem. Co., 2011 U.S. Dist. LEXIS 84112 (S.D.N.Y. July 27, 2011) decision with summary, headnotes, and Shepard's.

The proceeding arises out of the reinsurance arbitrations related to the "unanticipated flood" of asbestos bodily injury cases filed in the 1990s-early 2000s.   The reinsurance treaty at issue contained standard language for such contracts that "liability of the Reinsurers shall follow that of the [insurance] Company in every case".  The arbitration clause, also typical, not only provided for arbitration but directed that the arbitrators "shall interpret this Agreement as an honorable agreement and shall make their award with a view to effecting the general purpose of this Agreement in a reasonable manner, rather than in accordance with a literal interpretation of the language".  But the Agreement also mandated that the "arbitration law of New York State shall govern such arbitration".

Among the noteworthy discussions in the decision affecting international practice are:

First, the Court upheld the panel's importation of a clause into one of the contracts even though it was absent from the language.

Second, the Court discussed but did not decide the issue whether New York's Civil Practice Law and Rules or the Federal Arbitration Act's time period applied for when a petition needed to be filed to challenge the award.  Under the CPLR an application to vacate needs to be filed within 90 days after issuance (or perhaps delivery, if different) of the award.  The Court did not identify a time period by which an award need be challenged under the FAA.  Ultimately the Court found no grounds to vacate and so didn't decide the issue.

Third, in reiterating the narrow grounds for challenging an arbitral award under either New York or FAA law, the Court stated that "neither party suggests that the application of the CPLR would materially alter our substantive standard of review".  The Court found that the New York Convention's standard applied since the award "arises out of a commercial relationship not entirely between citizens of the United States".

Fourth, the Court confirmed that "[i]t is indisputable that arbitrators have no authority to rule on an issue not submitted to them".  For this the Court cited First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) ("arbitration is 'a way to resolve those disputes - and only those disputes - that the parties have agreed to submit to arbitration'").

Fifth, when the Court denied the petition to vacate, the Court simultaneously confirmed the award.  That, the Court said, is the law both under the CPLR and the FAA.  N.Y.:  C.P.L.R. § 7511(e)16 ("[U]pon the denial of a motion to vacate or modify, [a court] shall confirm the award.").  FAA:  Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) ("On application for an order confirming the arbitration award, the court 'must grant' the order 'unless the award is vacated, modified, or corrected as prescribed [by the FAA]...There is nothing malleable about 'must grant,' which unequivocally tells courts to grant confirmation in all cases, except when one of the 'prescribed' exceptions applies.") (quoting 9 U.S.C. § 9).

Sixth, in one of the most timely parts of the decision, which addresses the issue of whether confidential arbitrations remain confidential once they become judicial proceedings to confirm or vacate or enforce (on which we have posted here and here), the Court stated:

We note that petitioners believed that they would be able to bring this case under seal and entirely outside of the public's eye.  While we ultimately allowed the parties to redact their publicly-filed submissions, we rejected their attempt to use the court system in a private manner.  In recent years, judges in this Court have become more sensitive to these issues. See, e.g., Standard Chartered Bank Int'l (Americas) v. Calvo, 757 F. Supp. 2d 258 (S.D.N.Y. 2010) (opinion by Part I Judge rejecting attempt to file action to enjoin arbitration under seal); Century Indem. Co. v. Certain Underwriters at Lloyd's, et al., No. 11 Civ. 1034 (NRB) (Part I Judge rejecting attempt to file petition to confirm arbitration award under seal). It is worth noting, however, that petitioners opted to continue with this case even after we made it clear that the record would not remain sealed.

The Court didn't address the question of how much choice the parties has to "to continue with this case  . . .," when the alternative is either not to move to vacate or not to move to confirm the arbitral award.

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