Court Opinion

ID: 9557611
Source: CourtListenerOpinion
Date Created: 2023-08-21 16:53:19.01225+00
Date Added: 2024-06-11T09:06:04.758533
License: Public Domain

POOLER, Circuit Judge,
dissenting:
This Court has apparently never decided a case raising the precisely identical issue presented by the instant appeal. Nevertheless, the general principle which I believe should govern our decision here is *90pellucid: “[V]acatur [of an arbitral award] is appropriate only if the arbitral award contradicts an express and unambiguous term of the contract [between the parties] or if the award so far departs from the terms of the agreement that it is not even arguably derived from the contract.” Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 222 (2d Cir.2002).
I believe that the majority has disregarded this principle and in so doing fails to acknowledge that the arbitral award at issue here plainly contradicts an express and unambiguous term of the contract entered into by ReliaStar and EMC. Specifically, the arbitral award could not properly include an award of attorney’s fees to ReliaStar, even if that award was based upon the arbitral panel’s reasonable conclusion that EMC should be sanctioned for bad faith conduct during the arbitration proceedings, because the contract between ReliaStar and EMC divested the arbitral panel of any authority to make an award of attorney’s fees. Thus, I believe that this portion of the award was in excess of the arbitrator’s authority and should be vacated pursuant to Section 10(a)(4) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a)(4). I must therefore respectfully dissent.
Arbitration is of course a matter of contract and, as the Supreme Court has recently reaffirmed, parties are free to design “many features of arbitration by contract, including the way arbitrators are chosen, what their qualifications should be, which issues are arbitrable, along with procedure and choice of substantive law.” Hall St. Assocs., LLC v. Mattel, Inc., — U.S. -, 128 S.Ct. 1396, 1404, 170 L.Ed.2d 254 (2008).1 Thus, “[t]here is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of agreements to arbitrate.” Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).
The parties here chose to arbitrate under a set of procedural rules, including the following rule set forth in Section 10.3 of the reinsurance contract: “Each party shall bear the expense of its own arbitrator ... and related outside attorneys’ fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.” The majority terms this “a general statement.” Opinion at 2. This characterization implies that Section 10.3 admits of certain exceptions. It does not; it is unqualified. The majority also speaks of “the proper construction” of Section 10.3. Opinion at 11. But Section 10.3 is no more susceptible to construction than is Article II, Section I of the U.S. Constitution which provides that no person shall be eligible to be President “who shall not have attained to the Age of thirty five years.”2 I there*91fore think that the district court was merely declaring the obvious in stating that Section 10.3 “is clear as a bell.” Reliastar Life Ins. Co. of N.Y. v. EMC Nat’l Life Ins. Co., 473 F.Supp.2d 607, 609 (S.D.N.Y. 2007).
Given the clarity of the meaning of Section 10.3, the proper disposition of the instant appeal seems to me to be close to self-evident. As recently stated by a district court of our Circuit in a labor arbitration case, an arbitral panel’s authority to fashion relief is bounded by the intent of the parties whose contract created the arbitral panel:
“An arbitrator’s authority to settle disputes under a collective bargaining agreement is contractual in nature, and is limited to the powers that the agreement confers.” Leed Architectural Prods., Inc. v. United Steelworkers of Am., Local 6674, 916 F.2d 63, 65 (2d Cir.1990). The arbitrator “ ‘may not impose a remedy which directly contradicts the express language of the collective bargaining agreement.’ ” Id. (quoting Bruno’s, Inc. v. United Food and Commercial Workers Int’l Union, Local 1657, 858 F.2d 1529, 1531 (11th Cir. 1988)).
Beth Israel Med. Ctr. v. 1199/S.E.I.U. United Healthcare Workers East, 530 F.Supp.2d 610, 614 (S.D.N.Y.2008). In other words, as the majority itself recognizes, Opinion at 11, this Court has made it clear that “arbitrators have the discretion to order remedies they determine appropriate, so long as they do not exceed the power granted to them by the contract itself.” Banco de Seguros del Estado v. Mut. Marine Office, Inc., 344 F.3d 255, 262 (2d Cir.2003) (emphasis added).
“Thus, just as a private agreement may vest decision-making authority in an arbitrator, so may it deprive an arbitrator of that authority.” Hoeft v. MVL Group, Inc., 343 F.3d 57, 66 (2d Cir.2003), overruled on other grounds by Hall Street Assocs., 128 S.Ct. at 1403-04. We have therefore repeatedly held that arbitrators cannot award forms of relief which are plainly in contradiction with the authority afforded them under the contract between the parties, even when the relief appears to be in furtherance of the arbitrator’s reasonable notion of what fairness or good sense requires. See, e.g., Porzig v. Dresdner, Kleinwort, Benson, North America, LLC, 497 F.3d 133, 140-41 (2d Cir.2007) (arbitration panel had no authority to fashion award of attorney’s fees which required attorney to reimburse his client because attorney was not a party to arbitration agreement); 187 Concourse Assocs. v. Fishman, 399 F.3d 524, 527 (2d Cir.2005) (where arbitration agreement clearly provided that employee could be terminated for just cause, arbitrator had “no authority ... to fashion an alternative remedy” which directed that employee be reinstated for probationary period); Katz v. Feinberg, 290 F.3d 95, 98 (2d Cir.2002) (per curiam) (in case involving sale of firm, arbitral panel erred in computing firm’s value where parties’ sale agreement explicitly afforded firm’s accountants with sole and final authority to assess its value); United States v. Am. Soc’y of Composers, Authors and Publishers, 32 F.3d 727, 732-33 (2d Cir.1994) (arbitral panel could not set new rate of payment to composers of advertising jingles because *92“nothing in [the parties’ contract] gives an arbitration panel authority to modify any rule or regulation.... If a rule is found by an arbitration panel to be arbitrary, it may declare such rule void.... Thus, the panel’s authority was exhausted after it declared the three-percent rule void.”); Harry Hoffman Printing, Inc. v. Graphic Communications Int’l Union, Local 261, 950 F.2d 95, 99 (2d Cir.1991) (arbitral panel erred in relying upon “the concept of ‘elementary due process’ ” in holding that workers must be afforded notice before dismissal because “[n]either Section 4.2 nor 39.1 [of the parties’ contract], the only provisions discussed by the Panel in concluding that notice was necessary, provide for such a broad concept as ‘due process’ ”); Marine Pollution Serv., Inc. v. Local 282, Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of America, 857 F.2d 91, 95 (2d Cir.1988) (“In the instant case, the arbitrator breached his responsibility to the parties by importing his notions of equity into the arbitration proceeding. His award was not drawn from the contract but from his concern that Transit Mix drivers be allowed some opportunity for employment while their own employer restructured its operations.”); see also Missouri River Servs., Inc. v. Omaha Tribe of Nebraska, 267 F.3d 848 (8th Cir.2001) (arbitration panel exceeded its authority by ordering that its award be satisfied out of profits of Indian tribe’s Iowa casino because arbitration agreement specifically provided that any award would be satisfied out of profits from tribe’s Nebraska casino); Swift Indus., Inc. v. Botany Indus., Inc., 466 F.2d 1125, 1127-28 (3rd Cir.1972) (arbitrator erred in awarding large cash bond to protect a party from possible future tax liability when contract only allowed for cash remedies for liabilities already “incurred or suffered”); J.P. Greathouse Steel Erectors, Inc. v. Blount Bros. Constr. Co., 374 F.2d 324, 325 (D.C.Cir.1967) (“arbitrators exceeded their authority” when they “required Greathouse to pay all the expense of the arbitration, although the subcontract provided that ‘Each party shall pay one-half the expense’ ” of the arbitration proceeding).
The majority makes three attempts to invest the arbitral panel with the authority which Section 10.3 plainly denies it. First, it relies upon two cases in which arbitrators awarded attorney’s fees to a party as a sanction for its adversary’s bad faith conduct during the arbitration proceeding. Opinion at 8-9 (discussing Synergy Gas Co. v. Sasso, 853 F.2d 59 (2d Cir.1988) and Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d 1056 (9th Cir.1991)). But this reliance is misplaced because there is no indication in either of these opinions that the arbitral award of attorney’s fees was in conflict with any contractual provision setting forth the parties’ intent with respect to attorney’s fees.3
Second, the majority asserts that Section 10.3 sets forth “the American Rule” to the effect that each party is responsible for its own attorney’s fees and that “bad faith is a well-recognized exception to the Amer*93ican Rule.” Opinion at 13. This is uncontroversial. But the majority provides no authority for the proposition that an exception which is properly recognized by a court is equally recognizable by an arbitrator. Indeed, District Judge Marrero of our Circuit has rejected the argument that the judicial authority to sanction bad faith conduct inheres in arbitrators:
The Court cannot identify, nor did the Arbitrator provide, any authority that supports an arbitrator’s ability to award attorney’s fees against an attorney appearing before him. While a court clearly can award attorney’s fees against an attorney as a sanction in certain circumstances, there is no authority supporting the Arbitrator’s decision to sanction [the respondent’s attorney] in this case.
InterChem Asia 2000 Pte. Ltd. v. Oceana Petrochemicals AG, 373 F.Supp.2d 340, 355-56 (S.D.N.Y.2005). Judge Marrero’s position strikes me as perfectly correct.4 As applied to the instant case, I cannot see any justification for holding that an arbitrator has the authority to apply an exception to the American Rule, even if it is a well-recognized one, in disregard of the contract between the parties which provides without exception that the American Rule should apply.
Finally, the majority relies upon the scope of the general arbitration clause in the agreement between the parties, Section 10.1, which is correctly characterized as “applying] broadly to every dispute arising under their agreement.” Opinion at 87. The majority concludes that an arbitration clause of this breadth “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 arbitrator’s fees.” Opinion at 86. I am troubled by this statement first of all because it is a flat contradiction in terms. That is, inherent authority is authority which is not conferred; inherent authority is possessed regardless of the intentions of those who have the power to confer authority. More importantly, the majority’s conclusion contradicts this Court’s recognition “of the dominance of specific over general arbitration provisions.” Katz v. Feinberg, 290 F.3d at 96. In Katz, a case involving the sale of a firm, we held that a broad arbitration clause did not give arbitrators to the authority to compute the value of the firm where the agreement also contained a specific provision assigning that task to the firms accountants:
The parties’ Purchase Agreement includes both a specific provision, § 2(b), assigning determination of the Final Share Price to the Company Accountants, and a generally worded arbitration provision, § 14(g), assigning all claims arising from the agreement to an arbitrator. Under existing law, we find that the more specific assignment should govern.
Id. at 98. The application of this principle to the instant case is beyond dispute. The specific provision, Section 10. 3, providing that the parties shall bear their own attor*94ney’s fees, precludes any reliance upon the general arbitration provision, Section 10.1, as a source of an award of attorney’s fees to EMC.
In addition, I must note my unease with concept of what the majority terms “the arbitrators’ inherent authority to sanction bad faith participation in the arbitration.” Opinion at 88. Beyond the fact that the majority has made little effort to define the scope and limits of this authority, the notion of authority inhering in an arbitral panel, whose authority is derived from the agreement of the parties before it, is problematic. I would again point to the sound reasoning of Judge Marrero:
[Fjinding that the Arbitrator had inherent authority to sanction [the respondent’s attorney] would directly contradict the principle that an arbitrator’s authority is circumscribed by the agreement of the parties. That principle flows from the basic understanding that arbitration is a consensual arrangement meant to reflect a mutual agreement to resolve disputes outside of the courtroom. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (“[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration.”)....
InterChem Asia 2000 Pte. Ltd., 373 F.Supp.2d at 358.
I must also express my disagreement with the majority’s attempt to dismiss Section 10.3 as mere boilerplate:
Parties to commercial arbitration agreements may choose explicity to reference the American Rule for any number of reasons unrelated to the scope of the arbitrators’ sanction authority. For example, some arbitrators may not be attorneys and, thus, may be unfamiliar with the American Rule. Still other arbitrators may come from jurisdictions that employ the “English Rule” where prevailing party’s fees are routinely paid by an unsuccessful opponent.
Opinion at 88.
But the limitation of Section 10.3 to these anodyne purposes must be rejected as pure surmise. On the contrary, it is easily imaginable that the explicit provision for the American Rule in an arbitration agreement might be a consideration in a party’s strategic approach to an arbitration proceeding. For example, a party may believe that its position in the dispute to be arbitrated is unlikely to prevail and knowing that it will bear its own attorney’s fees, might inform its attorneys to refrain from exerting undue efforts on the case. In any event, this Court has no basis upon which to conclude that the parties’ inclusion of Section 10.3 in their agreement was a matter of little consequence to them.
In conclusion, I certainly do not wish my disagreement with the majority to be construed as in any way condoning or excusing bad faith conduct in arbitration proceedings.5 It is an interesting question as *95to whether or not the arbitral panel might have awarded a sanction against EMC other than the award of attorney’s fees to ReliaStar. I tend to think it could because “while an arbitrator may not award relief expressly forbidden by the agreement of the parties, an arbitrator may award relief not sought by either party, so long as the relief lies within the broad discretion conferred by the FAA.” Telenor Mobile Communications AS v. Storm LLC, 524 F.Supp.2d 332, 359 (S.D.N.Y.2007). In any event, the source of such an award would not be the “inherent authority” of the arbitrator, a concept not recognized by the FAA. But the arbitral panel here clearly awarded relief expressly forbidden by the agreement of the parties. I must therefore respectfully dissent.

. In Hall Street Assocs., the Supreme Court held that the judicial review provisions of the FAA are exclusive and that parties are therefore not free to draft an arbitration provision which purports to give federal courts a broader scope for review of arbitration awards than that set forth in the Act. (Specifically, the arbitration agreement at issue allowed a district judge to vacate an arbitral award upon a finding that it was not supported by substantial evidence or that the arbitrator's conclusions of law were erroneous. 128 S.Ct. at 1400.) Although the decision therefore announces a limit on the ability of parties to draft arbitration agreements as they choose, it has no relevance to the instant appeal because the FAA certainly does not preclude parties from choosing to bear their own arbitration fees and costs.

. See John Hart Ely, Democracy and Distrust: A Theory of Judicial Review 13 (1980) (“Constitutional provisions exist on a spectrum ranging from the relatively specific to the *91extremely open-textured. At one extreme— for example the requirement that the President 'have attained to the Age of thirty five years — the language is so clear that a conscious reference to purpose seems unnecessaiy.”). Similarly, the language of Section 10.3 is so clear that, as will be discussed below, the majority’s attempt to divine its purpose is unwarranted.

. In Synergy Gas Co., in light of the arbitrator's lack of authority under New York law to award punitive damages, it is not clear that this Court even considered the award of attorney's fees as the imposition of a sanction: “Rather, the award can be considered compensatory because if Synergy has not acted in bad faith, then Brown would have been reinstated more than six years ago and the attorney’s fees would not have been incurred.” 853 F.2d at 66. There is nothing in the arbitral award in the instant case which suggests that the arbitrators viewed the award of attorney's fees as compensatory. On the contrary, as the majority recognizes, the award was made “without explanation.” Opinion at 85.

. In contrast, Judge Marrero upheld the arbitrator’s sanction of attorney's fees as to'the respondent itself. But this was not because of the arbitrator’s authority to sanction, but because the parties’ arbitration agreement provided for the application of the rules of the American Arbitration Association, which themselves provide for the awarding of attorney’s fees if the parties request them. 373 F.Supp.2d at 354. The award was therefore upheld in spite of the arbitrator’s lack of authority to impose sanctions: "The Arbitrator's reference in one part of the Arbitration Award to his award of attorney’s fees as an imposition of sanctions does not change the fact that such an award was within the scope of the Arbitrator’s authority.” Id.

. On the other hand, it should not be forgotten that a major feature of arbitration is that it is a less rule-governed proceeding than is litigation in a judicial forum and that, as a result, it is likely to have something of a rough and tumble character. But the relatively unstructured nature of arbitration should certainly not serve as a basis for a federal court’s post-bellum application of the standards of a litigation proceeding upon an arbitration which may have fallen short of those standards. On the contrary, “the recognition that arbitration procedures are more streamlined than federal litigation is not a basis for finding the forum somehow inadequate; the relative informality of arbitration is one of the chief reasons that parties select arbitration. Parties ’trad[e] the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition *95of arbitration.’ " 14 Penn Plaza, LLC v. Pyett, - U.S. -, 129 S.Ct. 1456, 173 L.Ed.2d 398, 2009 WL 838159 at *13 (Apr. 1, 2009) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 634, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)).