Because “allowing boundless re-litigation would call all arbitral awards into doubt and subvert the FAA,” a party may not bring a collateral action attacking a confirmed arbitration Award well past the time allowed by the FAA, the Southern District of New York holds.
Complex Fact Pattern
The basic facts in Arrowood Indemnity Co. v. Equitas Insurance Ld., et al., 13cv7680, NYLJ 1202734872654, at *1 (S.D.N.Y. July 30, 2015), are as follows. The parties arbitrated their insurance dispute, with an Award being issued against Equitas (“Underwriters”) in Arrowood’s favor in 2013. The Award was subsequently confirmed by the Southern District of New York in early 2014; Underwriters satisfied the nearly $45 million initial Award and made about $17 million in post-Award payments. In January 2015, after finding new evidence that it contended Arrowood improperly withheld in the arbitration, Underwriters moved under Federal Rule of Civil Procedure 60(b)(3) to set aside the Order confirming that award (ed: “the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons… : fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party”). In May 2015, that motion was denied as an impermissible collateral attack on the Award. However, while the Rule 60 motion was pending, Underwriters in February started a second arbitration proceeding regarding the alleged misconduct by Arrowood in procuring the Award. Arrowood then moved to: 1) enjoin the new arbitration; 2) enforce the Award judgment; and 3) hold respondents in contempt.
FAA does not Permit an “Arbitral Mulligan”
The Court begins its analysis by noting that section 10 of the Federal Arbitration Act (“FAA”) establishes the exclusive grounds for challenging an arbitration Award and that section 12 requires such challenges to be brought within three months after the Award is delivered. While the FAA allows parties to pursue arbitration under a broad PDAA, “courts may intervene if the ‘ultimate objective…is to rectify the alleged harm’ a party suffered from an unfavorable arbitration award ‘by attempting to arbitrate [its] claims in a separate second arbitration proceeding.’ Such arbitral mulligans (ed: a golf term, meaning a “do-over”) are forbidden by the FAA, which is ‘the exclusive remedy for challenging acts that taint an arbitration award…’” (citations omitted). Here, the second arbitration “amounts to a collateral attack on the merits of the Award. In practical effect, Underwriters seek to vacate the Award on the ground that it was wrong to impose the obligation in the first place. In the same way that a Rule 60(b)(3) motion cannot be used to bring an untimely challenge to an arbitral award on a ground enumerated in the FAA, the FAA does not permit a second arbitration demand to be used to nullify an arbitral award, in whole or in part, on the same untimely ground.”
(ed: *Because the second arbitration is enjoined, the Court finds it unnecessary to enforce the first judgment confirming the Award. It also denies the contempt motion, because Underwriters’ second arbitration filing “does not constitute the sort of conduct that would justify an order of contempt.” **“Second bite” arbitrations are sometimes filed at FINRA. Our experience is that FINRA staff will not decide whether the new case filing is the same as the first one, and will instead defer the issue to the arbitrators or a court. If, as a result of the Dispute Resolution Task Force’s activities, the forum considers additional grounds for a motion to dismiss before hearings are concluded, we think this should be one of them. This general subject is on the group’s list of consensus topics. ***Is this result at odds with the Second Circuit’s holding in Citigroup v. Abu Dhabi Investment Authority, SLA 2015-04, where injunctive relief regarding a second “repeat” arbitration was deemed unavailable, pursuant to the All Writs Act?) (SAC Ref. No. 2015-31-03)
Like what you see here?
Twice a week we present blog posts consisting of one write-up from each of our two flagship weekly online Alert services. Consider a subscription to these publications to receive the full array of coverage right on your desktop every week. Give it a try and sign up for a free trial to the Securities Arbitration Alertand the Securities Litigation Alert.