Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_16-cv-01864/USCOURTS-cand-3_16-cv-01864-5/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

MIKE ROSE'S AUTO BODY, INC.,

Plaintiff,

v.

APPLIED UNDERWRITERS CAPTIVE 

RISK ASSURANCE COMPANY, INC.,

Defendant.

Case No. 16-cv-01864-EMC 

ORDER RE PLAINTIFF’S MOTION 

TO CONFIRM ARBITRATION 

AWARD AND DEFENDANT’S 

MOTION TO VACATE ARBITRATION 

AWARD

Docket Nos. 62, 64

Plaintiff Mike Rose’s Auto Body, Inc. (“MRAB”) entered into two contracts with 

Defendant Applied Underwriters Captive Risk Assurance Company, Inc. (“AUCRA”), pursuant to 

which AUCRA provided workers’ compensation insurance to MRAB. MRAB brought suit over 

fees AUCRA attempted to charge in relation to the two contracts. The parties engaged in 

arbitration that resulted in a final arbitration award (“Final Award”) in March 2018. MRAB 

moved to confirm the Final Award. Because an outstanding issue remained regarding the second 

contract, this Court remanded the issue to the arbitrator to resolve in the first instance. In January 

2019, the arbitrator issued a decision on remand (“Remand Order”). MRAB now moves to 

confirm the Final Award and Remand Order, whereas AUCRA moves to vacate the Remand 

Order. See Docket Nos. 62 (“Pl. Mot.”), 64 (“Def. Mot.”).

For the reasons discussed below, the Court GRANTS in part and DENIES in part both 

motions. The Final Award, as supplemented by the Remand Order, is confirmed in full with the 

exception of the Remand Order provision increasing the interest rate applied to sums owed under

the first RPA.

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I. BACKGROUND

A. Factual Background

MRAB entered into two Reinsurance Participation Agreements (“RPAs”) for workers’ 

compensation insurance with AUCRA. The first RPA was entered into on October 1, 2009, and 

the second on October 1, 2012. Docket No. 1 (“Compl.”) ¶¶ 11, 19. Each RPA had a three-year 

term. See Docket No. 68-2, Exh. A (2009 RPA), Exh. B (2012 RPA). Under the RPAs, MRAB 

deposited money into a “cell” to pay employees’ workers’ compensation claims. Compl. ¶ 13. 

In February 2013, following the expiration of the first RPA and the closing of all claims it 

covered, MRAB demanded that AUCRA reimburse the $79,167 remaining in the cell. Id. ¶ 17. 

AUCRA refused. 

In 2015, following the expiration of the second RPA, AUCRA sent a statement informing 

MRAB that it owed $361,000 in additional collateral. Id. ¶ 23. The statement explained that the 

amount was “due based on [MRAB’s] actual claims applying run-off Loss Development Factors 

(LDFs) and an additional capital deposit of $44,441.” Id. “Loss Development Factors” are factors 

AUCRA uses to calculate the potential costs associated with workers’ compensation claims that 

may continue to accrue after the end of the active period of the RPA. Id. ¶¶ 12, 23–24. Once an 

RPA expires, AUCRA applies LDFs to each open and closed claim to determine whether the 

employer needs to pay additional collateral to cover the potential future costs of claims. At this 

time, two claims under the second RPA remain active. See Remand Order at 3. MRAB refused to 

pay the $361,000 requested by AUCRA. Compl. ¶ 23.

B. Procedural Background

In April 2016, MRAB filed a complaint against AUCRA seeking a declaration that both 

RPAs are void and unenforceable, that MRAB is entitled to rescission, that MRAB owes AUCRA 

no money, and that AUCRA owes MRAB $79,167. See Compl. at 7–12. The complaint also 

sought disgorgement of the money MRAB paid to AUCRA under the RPAs and damages for 

fraud, breach of contract, and unfair business practices. See id. AUCRA moved to compel 

arbitration pursuant to the arbitration clause in the RPAs. Docket No. 12. This Court granted 

AUCRA’s motion to compel arbitration. Docket No. 29.

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1. Interim Order

In December 2017, the arbitrator issued an interim order in which he ruled, inter alia, that 

the RPAs were valid and enforceable. See Docket No. 62-1, Exh. A (“Interim Order”) at 3. 

2. Final Award

On March 19, 2018, the arbitrator issued the Final Award, which expressly incorporated by 

reference the Interim Order. Id., Exh. B at 3. The Final Award ordered the following: 

(1) AUCRA shall pay MRAB $79,167.00 and any return premium due on the first 

RPA.

(2) AUCRA’s claim for $361,024.41 on the second RPA is denied.

(3) AUCRA is prohibited from using “Run-off Loss Development Factors” to calculate 

the amount owed by MRAB for claims under the second RPA. Instead, AURCA 

must calculate the amount owed using “Weekly Open Claims and Closed Claims 

Loss Development Factors.” Any return premium generated by the application of 

the revised LDF calculation will be paid to MRAB. 

(4) The amounts specified were due January 10, 2018, and subject to a 5% simple 

interest rate accruing beginning at January 10, 2018. 

(5) Each party will bear the cost of its own legal fees. 

(6) The administrative fees and expenses of the arbitration proceeding, totaling 

$5,750.00, and the compensation and expenses of the arbitrator, totaling 

$21,250.00, shall be borne by both parties equally. Therefore, MRAB shall 

reimburse AUCRA the sum of $1,125.01, representing the portion of said fees and 

expenses in excess of the apportioned costs previously incurred by AUCRA.

Id. at 3–4.

AUCRA did not comply with the Final Award, and MRAB moved to confirm it. Docket 

No. 56. However, the parties continued to dispute how to perform the LDF calculations for the 

second RPA. The Court accordingly denied MRAB’s motion to confirm the Final Award without 

prejudice and remanded the dispute to the arbitrator for the limited purpose of resolving the 

outstanding issue: 

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[T]he matter is remanded to the arbitrator to resolve in the first 

instance the Parties’ dispute over specific calculations for claims 

under the second Reinsurance Participation Agreement (Plan Period 

10/1/12 to 10/1/15) discussed on page 3 of the Interim Order and 

pages 3–4 of the Final Award. Accordingly, Plaintiff’s petition to 

confirm the arbitration award . . . is DENIED as premature, and 

without prejudice to a further petition once the arbitrator has 

addressed the instant dispute and concluded all matters before him.

Docket No. 60.

3. Remand Order

On remand, the arbitrator conducted an initial conference call in which he discussed with 

the parties “the scope of the remand and the general status of the case, along with claims status 

and billing related to the second plan.” Docket No. 68-2 ¶ 2. Over the course of December 2018 

and January 2019, the arbitrator sent several emails to the parties requesting information about the 

mechanics of the RPAs. See Docket No. 68-1, Exhs. 17, 25, 27. During this period, AUCRA 

thrice suggested that the arbitrator schedule a hearing to address the issues raised in his emails. 

Id., Exhs. 29, 30, 39. The arbitrator declined to hold a hearing, indicating that he “believe[s] [he] 

has sufficient information to rule on this matter.” Id., Exh. 41 at 2.

On January 25, 2019, the arbitrator issued the Remand Order. Docket No. 62-1, Exh. D 

(“Disposition of Application and Remand”). The arbitrator stated that in the Final Award, he had 

“erred in assuming that only the Run-Off Loss Development Factors . . . could increase the 

amount potentially due under AUCRA’s calculations.” Id. at 2. In fact, “[t]wo other factors 

potentially come into play,” including whether it was appropriate to “[a]pply[] the LDFs in 

schedule 1 of the second RPA beyond the 36-month cut-off.” Id. The arbitrator determined that 

“the LDFs in Schedule 1 of the RPA do not apply past 36 months”—that is, AUCRA cannot apply 

LDFs in calculating ultimate claim costs for any claims older than 36 months. Id.

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Accordingly, the arbitrator declined to apply LDFs to claims older than 36 months under 

the second RPA and recalculated the current charges under the second RPA as follows:

Total Paid by MRAB $1,439,090 

Outstanding Loss Reserves ($179,585) 

Paid Losses ($649,920) 

Base Fee to AUCRA ($438,853) 

Taxes and Assessments ($66,904) 

Total Deductions ($1,335,262) 

Funds available to be returned to MRAB $103,828

Id. at 2–3. The figure in the last row of the table reflects that MRAB paid $103,828 into the plan 

that was not needed to cover any claims or plan costs. 

The Remand Order ultimately ordered the following:

1. AUCRA’s request for additional collateral of $360,535.16 is 

denied; 

2. Within thirty (30) days from the date of transmittal of this 

Disposition of Application and Remand to the parties, AUCRA 

will pay MRAB the award owed from the first RPA period of 

$79,167, plus 5% interest from January 10, 2018. If not paid 

when due, the interest rate will become 10% simple interest per 

annum, until paid;

3. At the time of this award, AUCRA held $103,828 in additional 

funds above and beyond the two claim reserves. Within thirty 

(30) days from the date of transmittal of this Disposition of 

Application and Remand to the parties, AUCRA will pay 

MRAB $103,828. If AUCRA chooses to delay the payment of 

this amount, for additional collateral reasons, this amount will 

accrue at 10% simple interest from such date, until paid;

4. MRAB is not excused from fulfilling its contract if the second 

period of the RPA develops beyond the amounts currently 

reserved by AUCRA. AUCRA will have the right to reduce the 

amount due to be returned to MRAB by any additional paid 

losses above and beyond the amounts that currently exist 

(approximately $179,585). MRAB shall also benefit from any 

recovery above and beyond the current loss reserves, if any; 

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5. Within thirty (30) days from the date of transmittal of this 

Disposition of Application and Remand to the parties, AUCRA 

will return any capital deposits not returned or contained within 

the amounts stated in item #2 and #3 above. This amount (if any) 

will accrue at 10% simple interest from such date, until paid; 

6. Article 11(L) of the RPA allows for the awarding of attorney 

fees, the cost of the arbitration and arbitration fees. Within thirty 

(30) days from the date of transmittal of this Disposition of 

Application and Remand to the parties, AUCRA will reimburse 

MRAB for attorney fees and expenses spent since March 19, 

2018 pursuing its recovery, which are specifically associated 

with this application;

7. The administrative fees of the ICDR were waived and the 

compensation of the arbitrator totaling US$3,825.00 shall be 

borne by AUCRA. Therefore, AUCRA shall reimburse MRAB 

the sum of US$1,912.50, representing that portion of said 

compensation in excess of the apportioned costs previously 

incurred by MRAB.

Id. at 3–4.

AUCRA filed a motion to correct what it perceived as erroneous calculations underlying 

the Remand Order pursuant to the International Centre for Dispute Resolution (“ICDR”) 

Procedures. See ICDR Art. 33.1 (“Within 30 days after the receipt of an award, any party, with 

notice to the other party, may request the arbitral tribunal to interpret the award or correct any 

clerical, typographical, or computational errors . . . .”); Docket No. 68-1, Exh. 46. The arbitrator 

denied the motion without comment. Docket No. 68-1, Exh. 53. 

4. MRAB’s Motion to Confirm and AUCRA’s Motion to Vacate

On April 23, 2019, MRAB once more moved to confirm the Final Award, as supplemented 

by the Remand Order. See Pl. Mot. AUCRA opposed the motion, and separately filed a motion to 

vacate the Remand Order. See Docket No. 68; Def. Mot. Both motions are currently before the 

Court. AUCRA only moves to vacate the Remand Order; it does not seek to disturb any aspect of 

the Final Award. See Def. Mot. at 1. 

II. LEGAL STANDARD

The Federal Arbitration Act (“FAA”) governs the role of federal courts in reviewing 

arbitration decisions. Section 9 of the FAA provides that a federal district court “must” confirm 

an arbitration award “unless the award is vacated, modified, or corrected as prescribed in sections 

10 and 11 of this title.” 9 U.S.C. § 9. Judicial review of an arbitration award is thus “both limited

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and highly deferential.” Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1288 (9th Cir. 

2009) (quoting Poweragent Inc. v. Elec. Data Sys. Corp., 358 F.3d 1187, 1193 (9th Cir. 2004)). 

“Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court 

review” of an arbitration award under the FAA. Aspic Eng’g & Constr. Co. v. ECC Centcom 

Constructors LLC, 913 F.3d 1162, 1166 (9th Cir. 2019) (quoting Bosack v. Soward, 586 F.3d 

1096, 1102 (9th Cir. 2009)).

The “burden of establishing grounds for vacating an arbitration award is on the party 

seeking it.” U.S. Life Ins. Co. v. Superior Nat’l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010). 

Section 10 of the FAA permits a court to vacate an award “where the arbitrators were guilty of 

misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear 

evidence pertinent and material to the controversy; or of any other misbehavior by which the 

rights of any party have been prejudiced.” 9 U.S.C. § 10(a)(3). 

Vacatur is also warranted “where the arbitrators exceeded their powers, or so imperfectly 

executed them that a mutual, final, and definite award upon the subject matter submitted was not 

made.” Id. § 10(a)(4). The Ninth Circuit has held that arbitrators “exceed their powers” when the 

award is “completely irrational” or exhibits a “manifest disregard of the law.” Kyocera Corp. v. 

Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997 (9th Cir. 2003) (internal citations 

omitted). An award is “completely irrational” “only where the arbitration decision fails to draw its 

essence from the agreement.” Comedy Club, 553 F.3d at 1288. An arbitration award “draws its 

essence from the agreement” if the award is derived from the agreement, viewed “in light of the 

agreement’s language and context, as well as other indications of the parties’ intentions.” Bosack, 

586 F.3d at 1106. Under this standard of review, the district court does not assess the “rightness 

or wrongness” of the arbitrator’s contract interpretation. Id. (quoting Pacific Reinsurance Mgmt. 

Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1024 (9th Cir. 1991)).

III. DISCUSSION

AUCRA asserts two grounds for vacating the Remand Order. First, AUCRA believes the 

arbitrator violated § 10(a)(3) when he denied AUCRA “an opportunity to be heard regarding the 

enforceability of the LDFs or the calculation of program charges if LDFs were ignored.” Def. 

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Mot. at 12. Second, AUCRA argues the arbitrator violated § 10(a)(4) in “disregarding contract 

terms, ruling upon issues beyond the scope of the remand, and issuing an attorney fee award that 

failed to comply with [American Arbitration Association] rules.” Id. at 15.

A. Refusing to Hear Evidence

A court can vacate an arbitration decision “where the arbitrator[] w[as] guilty of 

misconduct in refusing to . . . hear evidence pertinent and material to the controversy.” 9 U.S.C. 

§ 10(a)(3). AUCRA complains that the arbitrator refused to hear pertinent evidence before ruling 

in the Remand Order that no LDFs can be applied to claims older than 36 months, and gave no 

indication to the parties that he was intending to so rule. Def. Mot. at 12. According to AUCRA, 

had the arbitrator signaled that he was concerned about the enforceability of the LDFs, AUCRA 

would have submitted pertinent materials addressing “whether this interpretation is reasonable in 

light of the contract language as a whole and the circumstances of the case,” “extrinsic evidence 

that could bear on interpretation of the RPA,” “the parties’ course of dealing and course of 

performance,” and “trade usages in the industry.” Id. at 13–14. 

Arbitrators enjoy “wide discretion to require the exchange of evidence, and to admit or 

exclude evidence, how and when they see fit,” so long as they give “each of the parties to the 

dispute an ‘adequate opportunity to present its evidence and arguments.’” U.S. Life Ins., 591 F.3d 

at 1175 (quoting Sunshine Mining Co. v. United Steelworkers of Am., 823 F.2d 1289, 1295 (9th 

Cir. 1987)). The arbitrator acted within his discretion in admitting evidence relevant to the 

proceedings on remand, and at no point did he exclude any evidence. To begin with, in the 

extensive proceedings leading up to the Final Award, the parties had already engaged in written 

discovery, agreed to submit written briefs in lieu of conducting an in-person hearing, and 

submitted evidence in response to specific requests by the arbitrator. Pl. Mot. ¶¶ 15–17. Thus, 

although AUCRA faults the arbitrator for not conducting a full hearing on remand, the arbitrator 

already had the benefit of thorough factual and evidentiary development about the workings of the 

RPAs in the course of the prior proceedings. 

The record further demonstrates that, far from refusing to hear evidence regarding the 

enforceability of the LDFs, the arbitrator specifically alerted the parties to his concern about 

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applying LDFs to claims older than 36 months and gave both parties an opportunity to respond. 

On December 16, 2018, the arbitrator emailed counsel asking: “Schedule 1, Table A shows LDF 

factors through Claim Age 36 months. What determines factors used by Applied for Claim Age 

months greater than 36 months?” Docket No. 68-1, Exh. 25. In response, counsel for AUCRA 

stated that “[t]he Weekly LDFs listed in the RPA stay the same after 36 months. Thus, after 36 

months, they stay at 2.357 for open claims, and 1.032 for closed claims.” Id., Exh. 26. Counsel 

for MRAB disputed this explanation: 

[C]ontrary to the representation of counsel, Schedule 1 of the [RPA] 

. . . does not state that ‘the Weekly LDFs listed in the RPA stay the 

same after 36 months.’ It states the Weekly Loss Development 

Factors from month 00 to month 36, and is silent with respect to 

month 37 and thereafter. AUCRA is attempting to enforce an 

obligation not set forth in the contract. 

Id., Exh. 28. Counsel for AUCRA responded by bringing up, among other points, the course of 

dealing between the parties:

[T]here is nothing improper with respect to the LDFs used to 

calculate reserves, including those applied to claims older than 36 

months. It makes no sense to assume that the LDFs will just fall 

away after three years considering that workers’ compensation 

claims have a long tail. Mike Rose also has received Plan Analyses 

for multiple years showing LDFs being applied to claims older than 

36 months. In addition, the RPA expressly states that the LDFs will 

be applied to all claims, and that the LDFs are subject to change 

without notice. . . . Under the circumstances, Mike Rose cannot 

reasonably argue that LDFs may not be used after 36 months.

Id., Exh. 30.

AUCRA therefore had ample opportunity to address the contention that LDFs cannot be 

applied beyond 36 months and make the case for its interpretation of the RPA. The Remand 

Order reflects that the arbitrator did not ignore the parties’ arguments. To the contrary, after 

hearing the parties’ arguments, he endorsed MRAB’s reading of the RPA, concluding that “the 

LDFs in Schedule 1 of the RPA do not apply past 36 months.” Remand Order at 2.

Tellingly, AUCRA does not allege that it sought to submit any evidence that the arbitrator 

refused to consider. See Schoenduve Corp. v. Lucent Techs., Inc., No. C03-03523 RMW, 2004 

WL 5573951, at *9 (N.D. Cal. Feb. 27, 2004) (denying motion to vacate under § 10(a)(3) where 

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the movant “fail[ed] to point to any evidence that the arbitrator actually refused to hear”) 

(emphasis in original), aff’d, 442 F.3d 727 (9th Cir. 2006). Nor does AUCRA point to any facts 

indicating that the arbitrator’s decision not to hold a full hearing amounts to “misconduct” within 

the meaning of § 10(a)(3). See Immersion Corp. v. Sony Computer Entm’t Am. LLC, 188 F. Supp. 

3d 960, 974 (N.D. Cal. 2016) (“To meet the standard for vacating the award, the arbitrator’s 

refusal to hear evidence ‘must demonstrate bad faith or be so gross as to amount to affirmative

misconduct.’”) (quoting United Paperworkers Int’l Union, AFLCIO v. Misco, Inc., 484 U.S. 29, 

40 (1987)). In fact, the arbitrator did not deny AUCRA’s hearing request out of hand. He 

acknowledged the request and asked for MRAB’s view. See Docket No. 68-1, Exh. 32. MRAB’s 

counsel stated that he “does not believe a hearing is necessary.” Id., Exh. 37. The arbitrator then 

informed counsel, “I believe I have sufficient information to rule on this matter.” Id., Exh. 41. He 

nevertheless gave the parties one more chance to submit additional materials: “I plan to declare the 

hearing record closed tomorrow and deny the request for a hearing. If anyone has anything further 

to add to the record, I will postpone this.” Id. AUCRA did not supplement the record further.

Thus, AUCRA had an “adequate opportunity to present its evidence and arguments.” U.S. 

Life Ins., 591 F.3d at 1175. None of the cases cited by AUCRA suggest that it was entitled to 

anything more. For instance, in U.S. Life Insurance, the arbitration panel consulted neutral experts 

in an ex parte meeting outside of the presence of the parties to resolve certain issues in dispute. 

Id. at 1171–72. The Ninth Circuit held that the arbitration process did not violate § 10(a)(3) 

because the parties were subsequently allowed to review the experts’ written conclusions, submit 

briefing addressing the conclusions, and question the experts about their qualifications and 

conclusions. Id. at 1174–75. But court nowhere indicated that the procedures there—which were 

necessitated by unique factual circumstances—were mandated under the FAA. In Teamsters 

Local 312 v. Matlack, Inc., 118 F.3d 985 (3d Cir. 1997), the Third Circuit found that “the 

arbitrator made a fundamental procedural error in deciding the merits of the controversy after 

advising the parties that he would not do so until after he decided the procedural issues and until 

[appellee] had an opportunity to present its case on the merits.” Id. at 996. Unlike that arbitrator, 

the arbitrator here did not “t[ell] the parties one thing and . . . d[o] another.” Id. In Teamsters, 

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Chauffeurs, Warehousemen & Helpers, Local Union No. 506 v. E.D. Clapp Corp., 551 F. Supp. 

570 (N.D.N.Y. 1982), after the arbitration hearing “ended abruptly due to disturbances,” one side 

was “not given an opportunity to complete its presentation of proof.” Id. at 577–78. In this case, 

in contrast, MRAB and AUCRA both were given the opportunity to present their arguments 

regarding the LDF issue. Finally, in Harvey Aluminum (Inc.) v. United Steelworkers of Am., AFLCIO, 263 F. Supp. 488 (C.D. Cal. 1967), the arbitrator erred by excluding the testimony of a 

witness based on evidentiary rules he had never notified the parties would be applied. Id. at 493. 

The arbitrator here did not exclude any evidence submitted by AUCRA, much less do so without 

fair warning.

The record belies AUCRA’s claim that the arbitrator, in declining to apply any LDFs to 

claims older than 36 months, was “guilty of misconduct in refusing to . . . hear evidence pertinent 

and material to the controversy.” 9 U.S.C. § 10(a)(3). Accordingly, AUCRA’s motion to vacate 

on this ground is DENIED.

B. Exceeding Arbitrator’s Authority

An arbitration award can be also vacated “where the arbitrators exceeded their powers.” 9 

U.S.C. § 10(a)(4). Arbitrators “exceed their powers” when their decision is “completely 

irrational” or exhibits a “manifest disregard of the law.” Kyocera, 341 F.3d at 997. AUCRA 

claims that the arbitrator exceeded his powers in issuing the Remand Order by “disregarding 

contract terms, ruling upon issues beyond the scope of the remand, and issuing an attorney fee 

award that failed to comply with [American Arbitration Association] rules.” Def. Mot. at 15.

1. Disregarding the Terms of the RPA

AUCRA contends that the arbitrator disregarded the terms of the RPA in calculating the 

program charges in the Remand Order in two ways. First, he did not apply any LDFs to claims 

older than 36 months even though the “RPA states that [LDFs] would be applied to all claims, and 

that the LDFs are subject to change without notice.” Id. at 16. Second, “in calculating program 

charges without using LDFs, the arbitrator disregarded the RPA’s capital deposit requirement and 

failed to take into account how the change in loss ratios would affect the base fee.” Id. At bottom, 

these arguments take issue with the arbitrator’s substantive interpretation of the RPA. The

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arguments are unpersuasive.

a. Applying LDFs to Claims Older Than 36 Months

It is apparent from the Remand Order that the arbitrator determined that LDFs cannot be 

applied past 36 months by interpreting and applying the terms of the RPA, not by disregarding 

them. As discussed in the previous section, the arbitrator noted that “Schedule 1, Table A [of the 

second RPA] shows LDF factors through Claim Age 36 months,” but ended at 36 months. Docket 

No. 68-1, Exh. 25. He therefore asked the parties, “What determines factors used by Applied for 

Claim Age months greater than 36 months?” Id. AUCRA responded that the same LDFs applied 

between 34 to 36 months continue to apply after 36 months, and submitted records showing that 

this was how AUCRA had been applying the LDFs to MRAB’s claims. See id., Exhs. 26, 30. 

MRAB disputed this characterization, and echoed the arbitrator’s observation that the RPA “is 

silent with respect to month 37 and thereafter,” and alleged that “AUCRA is attempting to enforce 

an obligation not set forth in the contract.” Id., Exh. 28. 

The arbitrator ultimately concluded that “the LDFs in Schedule 1 of the RPA do not apply 

past 36 months.” Remand Order at 2. It is clear that his conclusion turned on the express terms of 

the RPA—that, on the face of Schedule 1, the LDFs do not extend past 36 months. AUCRA 

complains the arbitrator did not explicitly address its arguments about the parties’ course of 

dealing in the Remand Order, but an arbitrator’s award “may be made without explanation of the 

reasons and without a complete record of [the] proceedings.” Biller v. Toyota Motor Corp., 668 

F.3d 655, 666 (9th Cir. 2012). 

AUCRA claims that the arbitrator disregarded an express provision of the RPA that makes

clear that the LDFs continue to be applicable beyond 36 months. That provision merely states that 

AUCRA “will calculate loss development factors (‘LDF’s’) for each loss under the Policies.” 

Docket No. 62-1, Exh. G, Sched. 1 ¶ 1(b). It does not specify that LDFs will be applied to each 

claim indefinitely. It makes the commonsense point AUCRA will calculate LDFs for each claim, 

which it undisputedly does for claims between 0 and 36 months. AUCRA also points out that the 

same provision cautions that “LDF’s are subject to change without notice.” Id. However, the 

arbitrator observed that the RPA specifically provides that “any Schedules hereto may not be 

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modified, amended or supplemented in any manner except in writing signed by the parties.” Id. § 

4 (emphasis added). Thus, to extend the LDF schedule past 36 months (as opposed to merely 

changing the LDF rates), a written amendment would have been required. See Remand Order at 2. 

Because “[n]o such amendment has been produced in this matter,” the arbitrator concluded that 

AUCRA cannot simply apply LDFs to claims older than 36 months without notice to MRAB. Id. 

In short, the arbitrator did not disregard express terms of the RPA, but rather disagreed 

with AUCRA’s interpretation of them. This case is thus different from Aspic Engineering on 

which AUCRA heavily relies. There, the Ninth Circuit held that an arbitrator had exceeded his 

authority and issued an “irrational” award because he “disregarded specific provisions of the plain 

text [of the contracts at issue] in an effort to prevent what the Arbitrator deemed an unfair result.” 

Aspic Eng’g, 913 F.3d at 1168. The arbitrator in Aspic Engineering acknowledged that an express 

contractual provision obligated the plaintiff to comply with certain federal regulations, but refused 

to give effect to the provisions because he considered it “unjust” to enforce the regulations against 

“a seemingly less sophisticated contractor.” Id. In contrast, the arbitrator here did not displace 

express terms of the RPA with his own notions of fairness. His decision drew its essence from the 

RPA, as § 10(a)(4) requires.

b. Calculating Charges Without LDFs

AUCRA next argues that the arbitrator disregarded terms of the RPA in calculating two 

other charges MRAB owed to AUCRA under the second RPA—the “capital deposit,” and the 

“base fee.” Per the RPA, the capital deposit is 10% of the “Estimated Annual Loss Pick 

Containment Amount.”1 Docket No. 62-1, Exh. G, Sched. 1 ¶ 3. The base fee is “equal to the 

premium earned under the Policies in excess of the Loss Pick Containment Amount multiplied by 

the applicable Exposure Group Adjustment Factor multiplied by the Allocation Factor.”2 Id. ¶ 2. 

There is no dispute that MRAB was required to pay AUCRA a capital deposit and base fee. 

 

1 The “Loss Pick Containment Amount” is the estimated total cost of MRAB’s workers’ 

compensation claims over the course of a year. Docket No. 62-1, Exh. G, Sched. 1 ¶ 1(a). 

2 The “Exposure Group Adjustment Factor” and “Allocation Factor” are both listed in Table B of 

Schedule 1. 

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However, AUCRA contends that in the Remand Order, the arbitrator: (1) neglected to include the 

capital deposit at all, and (2) failed to account for the fact that eliminating LDFs for claims older 

than 36 months affects the calculation for the base fee. After the Remand Order issued, AUCRA 

moved the arbitrator to correct these “computational errors.” Docket No. 68-1, Exh. 46 at 6. The 

arbitrator denied the request. Id., Exh. 53. AUCRA now argues that these computational errors 

reflect that the arbitrator exceeded his authority in issuing the Remand Order.

The capital deposit issue is fairly straightforward. Per AUCRA’s uncontroverted 

calculation, the capital deposit for the second RPA should be $44,429 (i.e., 10% of the Loss Pick 

Containment Amount of $444,287). Def. Mot. at 9. The breakdown of charges in the Remand 

Order for the second RPA does not contain an individual line item for the capital deposit. See 

Remand Order at 3. However, as MRAB noted, the breakdown does include an item denoted 

“Taxes and Assessments” for an amount of $66,904. Id. After AUCRA moved the arbitrator to 

recalculate the charges, MRAB pointed out that “Taxes and Assessments” appeared to subsume 

the capital deposit, as no other charge could account for that item. Docket No. 68-1, Exh. 50 at 3. 

MRAB made a request to the arbitrator that “the Disposition be modified to delete the ‘Taxes and 

Assessments’ amount and to include the capital deposit” if in fact that item did not include the 

capital deposit. Id. The arbitrator did not modify the Remand Order, suggesting that MRAB’s 

understanding that the capital deposit was already included within the “Taxes and Assessments” 

amount was correct. 

The base fee issue is more complicated. In the Remand Order, the arbitrator did not apply 

LDFs in calculating the collateral owed by MRAB under the second RPA because the two 

remaining active claims were both older than 36 months. However, the arbitrator did not then 

adjust the base fee. AUCRA sets forth at length why it believes this was error. See Def. Mot. at 

9–11. Summarized briefly, AUCRA contends the base fee is calculated in part by reference to the 

Exposure Group Adjustment Factor, which in turn depends on the “loss ratio,” which depends on 

the “ultimate loss,” which depends on the LDFs. Thus, the arbitrator’s decision not to apply the 

LDFs to the outstanding claims has a trickle-down effect on the other components of the base fee 

calculation and ultimately corresponds to a higher base fee ($499,442 instead of $438,853). Id. at 

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10–11. 

AUCRA presented the same calculations to the arbitrator, who declined to modify the 

Remand Order to conform to them. Although the arbitrator did not explain why he did not adopt 

AUCRA’s accounting, he could well have concluded that it would be inappropriate to 

retroactively adjust the base fee for a contract that had already ended. MRAB told the arbitrator 

that AUCRA’s recalculation of the base fee is effectively “a new claim for a new amount of 

additional administrative fees requested approximately 40 months after the end of the coverage 

period.” Docket No. 68-1, Exh. 50 at 2. 

In any event, the arbitrator’s decision is a matter of contract interpretation, because the 

calculation of the base fee turns on the interpretation of Schedule 1 of the RPA. “If on its face, the 

[arbitration] award presents a plausible interpretation of the contract, judicial inquiry ceases and 

the award must be enforced.” Sovak v. Chugai Pharmaceutical Co., 280 F.3d 1266, 1271 (9th Cir.

2002). The Court has “no authority to vacate an award solely because of an alleged error in 

contract interpretation.” Employers Ins. of Wausau v. Nat’l Union Fire Ins. Co., 933 F.2d 1481, 

1485 (9th Cir. 1991). “As long as the arbitrator is even arguably construing or applying the 

contract and acting within the scope of his authority, that a court is convinced he committed 

serious error does not suffice to overturn his decision.” Id. The arbitrator here was 

unquestionably acting within the scope of his authority in applying the RPA to calculate program 

charges. Accordingly, the arbitrator’s decision not to retroactively adjust the base fee is not a 

basis for vacating the Remand Order. See Thule AB v. Advanced Accessory Holding Corp., No. 09 

CIV. 91 (PKC), 2009 WL 928307, at *3 (S.D.N.Y. Apr. 2, 2009) (finding that where a party 

disagreed with the arbitrator’s calculation methods, but the arbitrator “clearly had the power to 

reach the issue of the calculation,” “[w]hether the [arbitrator]’s calculation . . . was correct is 

beyond the reach of Section 10(a)(4)”).

2. Exceeding the Scope of the Remand

In the Final Award, the arbitrator ordered AUCRA to return $79,167 that MRAB had paid 

under the first RPA plus 5% interest. Final Award at 3–4. In the Remand Order, the arbitrator 

reaffirmed that AUCRA owed MRAB $79,167 on the first RPA, but ordered that the 5% interest 

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on that sum would increase to 10% if AUCRA did not make payment within 30 days. Remand 

Order at 3. AUCRA argues that the arbitrator exceeded his authority in modifying the interest rate 

because the scope of this Court’s remand was limited to the calculation of return premiums 

AUCRA owed on the second RPA. Def. Mot. at 17. 

AUCRA is correct. In revisiting an issue he had already completely resolved in the Final 

Award, the arbitrator ran afoul of the common law doctrine of functus officio. As the Ninth 

Circuit has explained, 

It is [a] fundamental common law principle that once an arbitrator 

has made and published a final award his authority is exhausted and 

he is functus officio and can do nothing more in regard to the subject 

matter of the arbitration. The policy which lies behind this is an 

unwillingness to permit one who is not a judicial officer and who 

acts informally and sporadically, to re-examine a final decision 

which he has already rendered, because of the potential evil of 

outside communication and unilateral influence which might affect a 

new conclusion.

Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFL-CIO, Local 631 v. 

Silver State Disposal Serv., Inc., 109 F.3d 1409, 1411 (9th Cir. 1997) (quoting La Vale Plaza, Inc. 

v. R.S. Noonan, Inc., 378 F.2d 569, 572 (3d Cir. 1967)) (alteration in original). The functus officio 

doctrine recognizes three exceptions: “an arbitrator can correct a mistake which is apparent on the 

face of his award, complete an arbitration if the award is not complete, and clarify an ambiguity in 

the award.” Id. (citation omitted).

In this case, the arbitrator’s March 19, 2018 decision expressly stated that it was the “Final 

Award” and was “in full settlement of all claims and counterclaims submitted to this Arbitration.” 

Final Award at 4. It was thus final for the purposes of the functus officio doctrine. See BridgeLux, 

Inc. v. Ensure Enter., Inc., No. C 08-04576 JW, 2009 WL 10709801, at *4 (N.D. Cal. Mar. 6, 

2009) (holding that arbitrator was functus officio where his decision “expressly stated that it was 

his ‘Final Award’ and was ‘in full settlement of all claims submitted to this Arbitration’”). This 

Court’s subsequent remand did not trigger any of the exceptions to the doctrine. The purpose of 

the remand was not to allow the arbitrator to correct a mistake or to complete an incomplete 

award. Remand was ordered for the arbitrator to clarify a narrow aspect of the Final Award: how 

to calculate the return premium AUCRA owed to MRAB on the second RPA. See Docket No. 60 

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(“[T]he matter is remanded to the arbitrator to resolve in the first instance the Parties’ dispute over 

specific calculations for claims under the second [RPA].”). And although the functus officio 

doctrine allows an arbitrator to revisit an award to “clarify an ambiguity,” Int’l Bhd., 109 F.3d at

1411, that exception did not come into play here because the interest rate applicable to the first 

RPA had nothing to do with the issue the arbitrator was asked to clarify on remand. There was no 

ambiguity to clarify.

The Ninth Circuit’s decision in San Diego AFL-CIO Bus Drivers Local Div. 1309 of 

Amalgamated Transit Union v. San Diego Transit Corp., 972 F.2d 1342 (9th Cir. 1992) (Table), 

although unpublished, is instructive. In San Diego, the arbitration board issued a final award, then 

superseded it with a “corrected” award. Id. The Ninth Circuit recognized that “the Board did 

have authority to reopen the proceeding in order to clarify an ambiguity on the face of the award.” 

However, the court found that “the Board overstepped its authority and did more than clarify an 

ambiguity in the award” because it also “redetermined issues that had already been decided.” Id. 

And because the Board “redetermined the merits” of a provision of the award that did not require 

clarification, its “corrected award concerning this provision was in violation of the functus officio

doctrine.” Id. 

The Fifth Circuit’s decision in Brown v. Witco Corp., 340 F.3d 209 (5th Cir. 2003) is also 

on point. There, the district court remanded a final award to the arbitrator to clarify how to 

determine an “average wage” for the purposes of computing a back-pay award. Id. at 214. Instead 

of resolving just the “average wage” issue, however, the arbitrator on remand revised other aspects 

of the back-pay determination. Id. at 214–15. The district court “vacated those parts of the 

arbitrator’s remand decision that exceeded the scope of his limited authority on remand.” Id. at 

215. The Fifth Circuit affirmed under the functus officio doctrine:

Once a court of competent jurisdiction has confirmed that an 

arbitration decision is unambiguous and binding on the parties, the 

arbitrator becomes functus officio with respect to that portion of the 

arbitration award and lacks authority to reconsider those aspects of 

his decision that are unambiguous and binding. . . . It follows, 

therefore, that if the arbitrator exceeds the scope of a limited remand 

order, then the court may vacate those portions of the arbitrator’s 

decision on remand that go beyond his limited authority to clarify, 

complete, or correct the award that he has already made.

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Id. at 221 (internal citations omitted).3

Here, too, the arbitrator went beyond clarifying a specific ambiguity in redetermining an 

issue that had already been decided. Accordingly, the arbitrator exceeded his authority in 

modifying the interest rate applied to sums owed on the first RPA. However, this error does not 

provide a basis for vacating the Remand Order in its entirety. “If an arbitrator exceeded the scope 

of his authority in issuing an award, and that award is divisible, we may vacate part of 

the award and leave the remainder in force.” Comedy Club, 553 F.3d at 1288 (citations omitted); 

Coutee v. Barington Capital Grp., L.P., 336 F.3d 1128, 1134 (9th Cir. 2003) (“A federal court 

may vacate an arbitration award, or a portion thereof, if the arbitrators acted beyond their 

authority.”) (citing 9 U.S.C. § 10). Because the interest rate for sums owed on the first RPA is not

connected to the other issues clarified in the Remand Order, only the portion of the Remand Order 

increasing the interest rate is VACATED.

3. Improperly Awarding Attorneys’ Fees

Finally, AUCRA contends that the arbitrator failed to comply with the governing 

arbitration rules in awarding attorneys’ fees to MRAB and therefore exceeded his authority. Def. 

Mot. at 17–18. Article 34 of the ICDR Rules provides that “[t]he arbitral tribunal shall fix the 

costs of arbitration in its award(s)” and “may allocate such costs among the parties,” including 

“the reasonable legal and other costs incurred by the parties.” In the Remand Order, the arbitrator 

ordered AUCRA to “reimburse MRAB for attorney fees and expenses spent since March 19, 2018 

. . . specifically associated with this application.” Remand Order at 4. Because the arbitrator did 

not specify a dollar amount for the fee award, AUCRA argues that he “did not fix the amount” as 

 

3 Notwithstanding the language in Brown about an arbitrator becoming functus officio after 

confirmation of an award, the doctrine is triggered as soon as the final award is issued, and does 

not require court confirmation to apply. See Int’l Bhd., 109 F.3d at 1411 (“[O]nce an arbitrator 

has made and published a final award his authority is exhausted and he is functus officio and can 

do nothing more in regard to the subject matter of the arbitration.”) (citation omitted). The Third 

Circuit’s decision Colonial Penn Ins. Co. v. Omaha Indem. Co., 943 F.2d 327 (3d Cir. 1991)

illustrates this point. The arbitration panel there had issued a final award then, before 

confirmation, purported to issue a corrected final award in response to one party’s request for 

clarification. Id. at 330. The Third Circuit held that the arbitration panel was functus officio with 

respect to the original award once it issued and had no authority to “correct” it. Id. at 333. 

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required by Article 34. Def. Mot. at 17. 

As an initial matter, the arbitrator stated that he was awarding fees pursuant to “Article 

[13](L)4of the RPA,” not Article 34 of the ICDR Rules. Remand Order at 4. Article 13(L) of the 

RPA provides that “[t]he arbitrator(s) may . . . in their discretion award such other costs and 

expenses as they deem appropriate, including, but not limited to, attorneys’ fees.” Docket No. 62-

1, Exh. G § 13(L). There is no requirement that the arbitrator must “fix” fees. “[A]rbitration is a 

matter of contract” and the FAA “requires courts to enforce [arbitration agreements] according to 

their terms.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). The arbitration clause in 

the RPA confers broad discretion on the arbitrator to award fees. The arbitrator did not exceed his 

authority in exercising his discretion to award attorneys’ fees to MRAB. Moreover, the ICDR 

Rules do not define what it means to “fix the costs of arbitration.” AUCRA cites no authority in 

support of its contention that an arbitrator’s failure to specify the exact dollar amount of the fees 

violates Article 34 of the ICDR Rules or provides a basis for vacatur of an award under the FAA.

The Court thus concludes that the arbitrator did not exceed his authority in issuing the fee 

award. However, the arbitrator retains authority to resolve any disagreement between the parties 

about the fee amount requested by MRAB. Accordingly, to the extent there is a dispute about the 

fee amount, the Court REMANDS the matter to the arbitrator for the limited purpose of resolving 

that dispute.

IV. CONCLUSION

For the foregoing reasons, the Court GRANTS in part and DENIES in part both 

MRAB’s motion to confirm and AUCRA’s motion to vacate. The provision of the Remand Order 

increasing the interest rate applied to sums owed under the first RPA is vacated. Otherwise, the 

Final Award, as supplemented by the Remand Order, is confirmed in full. 

The Clerk of Court shall enter judgment in favor of MRAB for: (1) $79,167 owed under 

the first RPA plus 5% simple interest accruing from January 10, 2018; (2) $103,828 owed under 

the second RPA plus 10% simple interest accruing from 30 days after the Remand Order was 

 

4 The Remand Order cites Article 11(L), but this appears to be a typographical error, as there is no 

Article 11(L) in the RPA.

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issued; (3) any capital deposits not returned or contained within the amounts stated in (1) and (2) 

plus 10% simple interest accruing from 30 days after the Remand Order was issued; (4) attorneys’ 

fees and expenses incurred since March 19, 2018, in an amount to be determined by the arbitrator; 

and (5) $1,912.50 in administrative and arbitration fees. As stated in the Remand Order, “if the 

second period of the RPA develops beyond the amounts currently reserved by AUCRA[,] 

AUCRA will have the right to reduce the amount due to be returned to MRAB by any additional 

paid losses above and beyond the amounts that currently exist (approximately $179,585).” 

Remand Order at 3–4.

This order disposes of Docket Nos. 62 and 64.

IT IS SO ORDERED.

Dated: June 17, 2019

______________________________________

EDWARD M. CHEN

United States District Judge

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