NAOMI REICE BUCHWALD, District Judge.
Petitioner General Security National Insurance Company ("General Security") has petitioned this Court for an order confirming an arbitration award pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. In opposition, respondent AequiCap Program Administrators ("AequiCap") contends that this Court should deny General Security's petition and should vacate a portion of the arbitration award. Specifically, AequiCap argues that the arbitration panel exceeded its authority and acted in manifest disregard of clear law by awarding attorney's fees to General Security.
For the reasons stated herein, we reject AequiCap's arguments and grant General Security's petition to confirm the arbitration award.
Petitioner General Security is an insurance company that is organized under the laws of Delaware and has its principal place of business in New York. Respondent AequiCap is an insurance managing general agency that is organized under the laws of, and has its principal place of business in, Florida. (Petition to Confirm Arbitration Award ("Pet.") ¶¶ 1-2.) On June 20, 2003, General Security and AequiCap entered into the Amended Contingent Commission Agreement ("ACCA"). The ACCA provides, among other things, that AequiCap will reinsure General Security's losses and specifies a payment formula. (Pet. Ex. 1.)
Paragraph 13 of the ACCA provides that: "[a]ny disputes arising under this Agreement are subject to the arbitration clause in the Underwriting Agreement." The Underwriting Agreement was a preexisting agreement, which was entered into by General Security, General Security Property and Casualty Company, and AequiCap on January 1, 1997.
Section XII (C) of the Underwriting Agreement, which is incorporated into the ACCA, sets forth the parties' agreement to arbitrate ("Arbitration Clause"). The Arbitration Clause provides that:
(Pet. ¶ 6 & Ex. 2.)
The ACCA itself does not include a choice of law provision. However, the Underwriting Agreement includes such a provision, which is set forth in section XII(I) of the Underwriting Agreement. The choice of law provision recites that:
(Declaration of Emily A. Hayes in Support of Memorandum of Law in Opposition to Petition to Confirm Arbitration Award ("Hayes Decl.") Ex. B.)
On November 10, 2009, General Security made a demand for arbitration pursuant to the Arbitration Clause. In its demand, General Security sought reimbursement of $426,802, an amount that it alleged AequiCap owed to it under the ACCA. (Pet. ¶ 7.) After General Security submitted its demand for arbitration, AequiCap asserted a counterclaim, in which AequiCap alleged that General Security and/or its third-party claim administrator negligently handled claims. (Pet. ¶ 10.)
On February 26, 2010, a three-person arbitration panel, which included two party-appointed arbitrators and a neutral umpire, was constituted ("Panel"). (Pet. ¶¶ 8-9.) According to the Petition, in the months that followed, the parties conducted discovery on General Security's claim and on AequiCap's counterclaim. (Pet. ¶ 11.)
Thereafter, General Security filed a motion for summary judgment on its claim. In connection with the motion, the Panel conducted a hearing and received briefing from the parties.
(Pet. ¶¶ 11-12 & Ex. 3.) The Panel did not address AequiCap's counterclaim in its October 18, 2010 award. However, on October 21, 2010, the Panel issued an order permitting AequiCap to withdraw its counterclaim without prejudice. (Pet. ¶¶ 12-13.)
On October 25, 2010, the Panel conducted a hearing to determine the amount of the attorney's fees to be awarded to General Security. At the hearing, AequiCap moved for reconsideration of the fee award, arguing for the first time that the Panel lacked authority to award attorney's fees. (Pet. ¶ 14; Hayes Decl. Ex. D; Friedman Aff. Ex. 1.) The Panel did not rule on AequiCap's motion during the hearing. However, on October 27, 2010, the Panel issued an order directing both parties to furnish written submissions regarding the propriety of the fee award. (Pet. ¶¶ 15-16.) On November 16, 2010, after receiving both parties' supplemental submissions, the Panel denied AequiCap's motion for reconsideration and awarded General Security $239,946 as compensation for "attorneys' fees and disbursements incurred" in connection with the arbitration. (Pet. ¶ 16.)
General Security filed the instant petition to confirm the arbitration award the following day. As noted above, AequiCap opposed General Security's petition and specifically requested in its opposition that the Court vacate the Panel's attorney's fee award.
To date, AequiCap has not made payment on the arbitration award, including on the undisputed portion of the award.
"It is well established that courts must grant an arbitration panel's decision great deference." Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 388 (2d Cir.2003); see also Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir.1993) ("Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation."). Indeed, "confirmation of an arbitration award `is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.'" D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir.2006) (quoting Florasynth, Inc. v. Pickholz, 750 F.2d 171, 176 (2d Cir.1984)).
Under the Federal Arbitration Act, a court "must grant" a petition to confirm an arbitration award "unless the award is vacated, modified, or corrected." 9 U.S.C. § 9.
9 U.S.C. § 10(a); see also AT & T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S.Ct. 1740, 1752, 179 L.Ed.2d 742 (2011) ("[R]eview under § 10 focuses on misconduct rather than mistake."); Duferco, 333 F.3d at 388 ("The Federal Arbitration Act... permits vacatur of an arbitration award in only four specifically enumerated situations, all of which involve corruption, fraud, or some other impropriety on the part of the arbitrators.").
Additionally, § 11 of the Federal Arbitration Act enumerates the bases for modifying or correcting an arbitration award. That section provides that a court may modify or correct an award:
9 U.S.C. § 11.
In addition to the express grounds for vacating, modifying, or correcting an arbitration award, the Second Circuit has recognized an implied basis for such action where an award is in "manifest disregard" of the law. See T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d Cir.2010). Awards are vacated on the grounds of manifest disregard only in "those exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent." Duferco, 333 F.3d at 389; see also T.Co, 592 F.3d at 339.
AequiCap contends that there are two applicable — and related — grounds for vacating the Panel's award: first, AequiCap argues, under § 10(a)(4), that the Panel exceeded its authority by awarding attorney's fees; and second, AequiCap contends that the Panel acted in manifest disregard of the law when it awarded attorney's fees to General Security.
First, AequiCap argues that this Court should vacate the award under § 10(a)(4) of the Federal Arbitration Act because the Panel lacked authority under the Arbitration Clause to award attorney's fees.
Section 10(a)(4) authorizes vacatur of an arbitral award "where the arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). This ground for relief is limited; the Second Circuit has "`consistently accorded the narrowest of readings' to this provision of law." ReliaStar Life Ins. Co. v. EMC Nat'l Life Co., 564 F.3d 81, 85 (2d Cir.2009) (quoting Banco de Seguros del Estado v. Mut. Marine Office, Inc., 344 F.3d 255, 262 (2d Cir.2003)). This strict limit on a reviewing court's power to vacate is intended to "facilitate the purpose underlying arbitration: to provide parties with efficient dispute resolution, thereby obviating the need for protracted litigation." T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 342 (2d Cir.2010); see also ReliaStar, 564 F.3d at 85.
In considering AequiCap's challenge pursuant to § 10(a)(4), "`the principal question for the reviewing court is whether the arbitrator's award draws its essence' from the agreement to arbitrate, `since the arbitrator is not free merely to dispense his own brand of industrial justice.'" ReliaStar, 564 F.3d at 85 (quoting 187 Concourse Assocs. v. Fishman, 399 F.3d 524, 527 (2d Cir.2005)). As the Second Circuit held in ReliaStar:
564 F.3d at 85-86 (internal citations and quotations omitted; second alternation in original).
Finally, "[w]here an arbitration clause is broad, arbitrators have the discretion to order such remedies as they deem appropriate." ReliaStar, 564 F.3d at 86 (citing Banco de Seguros, 344 F.3d at 262). Specifically, a broad arbitration clause "confers inherent authority on arbitrators to sanction a party that participates in the arbitration in bad faith and that such a sanction may include an award of attorney's or arbitrators' fees." ReliaStar, 564 F.3d at 86.
AequiCap argues that the Arbitration Clause is not broad and that the Panel exceeded the authority conferred to it by the parties. General Security, on the other hand, argues that the parties drafted a broad arbitration provision. Because the Arbitration Clause is broad, General Security contends, the Panel had inherent authority to award attorney's fees, as squarely determined in ReliaStar.
As a threshold matter, arbitration provisions that specify that "any disputes" shall be determined by arbitration are typically deemed to be "broad" arbitration provisions. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59-61 & n. 7, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) (concluding that a provision that provided that "any controversy" arising out of transactions between
Here, we conclude that the Arbitration Clause was indeed a broad provision. The parties used expansive language to define the types of disputes to be submitted to arbitration and they declined to carve out or limit the types of relief that the Panel was entitled to award. Notably, in drafting the Arbitration Clause, the parties failed to signal that they intended to limit the authority conferred upon the Panel by restricting the types of relief that the Panel could award. In light of the breadth of the contractual language, and in the absence of any contracted-for limitations, we conclude that the Panel had the inherent authority to award attorney's fees.
Additionally, under § 10(a)(4), we do not consider whether the Panel correctly decided the underlying issue in other words, we will not address "whether the arbitrators correctly identified bad faith conduct or whether the amount of the fees awarded was an appropriate sanction for that conduct." ReliaStar, 564 F.3d at 86.
Thus, we decline to vacate the Panel's award on the grounds that the Panel exceeded its authority by awarding attorney's fees to General Security.
Next, AequiCap contends that New York law governed the arbitration, New York law unambiguously prohibits fee awards in arbitrations, and therefore the Panel acted in manifest disregard of the law.
As noted above, AequiCap bears a "heavy burden" in its endeavor to vacate the Panel's award on this ground. See T.Co Metals, LLC v. Dempsey Pipe &
This Circuit has identified a three-step inquiry into whether an arbitration award should be vacated on the grounds of manifest disregard:
T.Co, 592 F.3d at 339 (quoting Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., 548 F.3d 85, 93 (2d Cir.2008), rev'd on other grounds, ___ U.S. ___, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010); Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389-90 (2d Cir.2003)).
In support of its position that this Court should vacate the Panel's award, AequiCap argues that New York law applies to the dispute and that New York law prohibits the award of attorney's fees in an arbitration. Specifically, AequiCap contends that, pursuant to section 7513 of New York's Civil Procedure Law and Rules ("C.P.L.R."), attorney's fees may not be awarded by arbitrators unless the parties expressly agree that such an award is proper.
In its opposition papers, AequiCap cites authority in support of the proposition that the C.P.L.R. prohibits attorney's fee awards. See, e.g., McLaughlin, Piven, Vogel Secs., Inc. v. Ferrucci, 67 A.D.3d 405, 406, 889 N.Y.S.2d 134, 135 (N.Y.App. Div. 1st Dep't 2009) (noting the general principle that, because a fee award is not permitted by statute, such an award is unauthorized under New York law if it is not expressly authorized in the arbitration agreement or not requested by both parties during the arbitration); In re Stewart Tabori & Chang, Inc., 282 A.D.2d 385, 386, 723 N.Y.S.2d 492, 494 (N.Y.App. Div. 1st Dep't 2001) (same); Kidder, Peabody & Co., Inc. v. McArtor, 223 A.D.2d 502, 503, 637 N.Y.S.2d 99, 101 (N.Y.App. Div. 1st Dep't 1996) (same). AequiCap further
By contrast, General Security makes a series of arguments in support of its position that the fee award was authorized and that the Panel did not manifestly disregard clear and applicable law. Among other things, General Security argues: (1) that only the Arbitration Clause, and not the choice of law provision in the Underwriting Agreement, was incorporated into the ACCA, and thus New York law was inapplicable to the arbitration; (2) that even if New York law were to apply, the choice of law provision only incorporates substantive legal principles, as opposed to procedural limits on an arbitrator's authority such as C.P.L.R. 7513; (3) that the language of the Arbitration Clause is broad and confers the Panel with the authority to award attorney's fees; (4) that both parties expressly requested that the Panel award attorney's fees, and therefore the parties authorized the award by their conduct during the arbitration; and (5) that AequiCap is judicially estopped from arguing that New York law applies because it argued that Florida law should apply when it urged the Panel to permit it to withdraw its counterclaim without prejudice. (Reply Memorandum of Law in Further Support of Petition to Confirm Arbitration Award; Friedman Aff. Ex. 1.)
We reject AequiCap's argument that the Panel acted in manifest disregard of the law. Specifically, we conclude that AequiCap cannot satisfy the first step of this Circuit's three-step inquiry. Although AequiCap directs our attention to authority that could support its position, it cannot establish that the law the Panel allegedly ignored was clear and was in fact applicable to the present issue.
Indeed, a number of arguments raised by General Security during the arbitration and in connection with this petition would justify the Panel's decision. For example, in Mastrobuono v. Shearson Lehman Hutton, Inc., the Supreme Court of the United States reversed the Seventh Circuit, which had affirmed the vacatur of a punitive damage award in a similar context. 514 U.S. 52, 53-55, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995). In that case, the petitioners, individual investors, had opened a securities trading account with the respondents, and the relationship was governed by an agreement that contained both an arbitration clause and a New York choice of law provision. Id. at 54-55, 115 S.Ct. 1212. Prior to litigating, the parties submitted a dispute to arbitration, and the arbitrators granted the petitioners an award that included punitive damages. Id. at 54, 115 S.Ct. 1212. Thereafter, the respondents filed a motion in district court to vacate the punitive damages portion of the award. The district court granted the motion, concluding that the contract contained a New York choice of law provision and that, under New York law, arbitrators lacked authority to award punitive damages. Id. The Seventh Circuit affirmed on similar grounds. Id. at 54-55, 115 S.Ct. 1212.
In reversing the lower courts, the Supreme Court addressed the import of both the arbitration clause and the choice of law provision. The court concluded that the arbitration clause — which provided that "any controversy" arising out of transactions between the parties "shall be settled by arbitration" — was sufficiently broad to contemplate a remedy of punitive damages. Id. at 58-61, 115 S.Ct. 1212. With respect to the choice of law provision, the Supreme Court concluded that the provision "may reasonably be read as merely a
Id. at 63-64, 115 S.Ct. 1212 (emphasis added).
In PaineWebber Incorporated v. Bybyk, the Second Circuit was presented with a similar task of determining the remedies available to parties who had entered into an agreement with an arbitration clause and a New York choice of law provision. 81 F.3d 1193, 1195-96 (2d Cir.1996). On appeal, PaineWebber argued that "the Bybyks may not submit their claim for attorneys' fees to arbitration because the Agreement provides that it and its enforcement 'shall be governed by the laws of the State of New York.'" Id. at 1202. PaineWebber further argued that, pursuant to C.P.L.R. 7513, a request for attorney's fees may not be submitted to an arbitrator unless expressly authorized by the arbitration agreement. Id. The Second Circuit, relying on Mastrobuono, concluded that the choice of law provision in the contract only incorporated New York substantive law, not New York rules limiting the authority of arbitrators. Id. at 1200 (citing Mastrobuono, 514 U.S. at 64, 115 S.Ct. 1212). The Second Circuit further reasoned that:
Bybyk, 81 F.3d at 1202.
Presented with this authority, the Panel reasonably could have reached the conclusion, urged by General Security during the arbitration and in connection with this proceeding, that a fee award was proper. Specifically, the Panel could have concluded that the choice of law provision was broad enough on its face to contemplate a fee award, that the choice of law provision only incorporated substantive principles of New York law, that C.P.L.R. 7513 and the case law cited by AequiCap did not apply, and that a fee award was proper under Mastrobuono and Bybyk.
Alternatively, the Panel could have accepted General Security's argument that the parties authorized the fee award when they both requested such an award during the pendency of the arbitration. Indeed, even the cases cited by AequiCap uniformly support the proposition that parties may acquiesce to a fee award by demanding attorney's fees during an arbitration. See, e.g., McLaughlin, 67 A.D.3d at 406, 889 N.Y.S.2d at 135 (noting that a fee award would be proper when both parties request attorney's fees during an arbitration); In re Matza v. Oshman, Helfenstein & Matza, 33 A.D.3d 493, 494, 823 N.Y.S.2d 47, 48 (N.Y.App. Div. 1st Dep't 2006) (same); Bear Stearns & Co., Inc. v. Fulco, 21 Misc.3d 823, 830 (Sup.Ct. N.Y.Cnty. Sept. 23, 2008) (same) (collecting cases). Here, the Panel could have accepted General Security's argument that AequiCap requested attorney's fees no fewer than three times during the arbitration (Friedman Aff. Ex. 1 at 17-18), and
For these reasons, we reject AequiCap's argument that the Panel acted in manifest disregard of the law. Although AequiCap has cited authority in support of its argument that attorney's fees are unauthorized under New York law, General Security points to ample authority that supports the Panel's decision and far exceeds the requirement that there be a barely colorable justification for the Panel's outcome. Accordingly, AequiCap cannot establish that the Panel was aware of and disregarded clear and applicable law; at best, AequiCap may be able to establish that the law was unclear, but misapplication of unclear or ambiguous law cannot, by definition, be the basis for vacating an arbitration award on the grounds of manifest disregard.
Because AequiCap has failed to establish grounds for vacating, modifying, or correcting the arbitration award, we must grant General Security's petition to confirm the arbitration award. See 9 U.S.C. § 9.
For the foregoing reasons, we grant General Security's petition and direct the Clerk of the Court to close this case.
N.Y. C.P.L.R. 7513 (emphasis added).
