More Supreme Arbitration? Top Court Will Consider Revisiting Manifest Disregard (Nov. 24).
November 24, 2010
The U.S. Supreme Court is reviewing a case with multiple arbitration issues, leaving open the possibility that another hot ADR case could be examined by the nation's top Court, perhaps even later in this current 2010-2011 term.
The Court has scheduled an examination of Certain Underwriters at Lloyds, London v. Lagstein, No. 10-534, on Dec. 10. It could issue an order agreeing to hear the matter, or denying certification, soon after.
The filing came into focus at the Supreme Court level when Scotusblog, a website that closely watches Court issues, profiled the request to hear the case as its "Petition of the Day" on Nov. 11.
Lagstein, filed Oct. 21, first raises the issue of whether, in light of Hall Street Associates, L.L.C. v. Mattel Inc., 552 U.S. 576 (2008), an arbitration award can still be reviewed by a court for “manifest disregard of the law” or “complete irrationality.” Hall Street Associates appeared to overrule the Court-driven standard for overturning arbitration awards in dicta.
Lagstein originated from an arbitration over a rejected claim for “total disability” insurance benefits. Two of the three arbitrators awarded original plaintiff Lagstein disability benefits for $900,000, the full value of his policy, and an additional $1.5 million for “emotional distress.” He also was awarded $4 million in punitive damages, as well as $350,000 in attorney's fees.
But according to the petition, the respondent had returned to work soon after his surgery and was earning millions of dollars a year in his cardiology-consulting practice.
The case had not gotten a lot of notice, although insurance blogs picked up the story last spring after the Ninth U.S. Circuit Court of Appeals overturned a federal district court's vacatur of the award. Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634 (June 10, 2010). You can read blog takes on the case here and here.
The petition also raises the issue of whether the FAA requires vacatur of an award when arbitrators fail to disclose material facts bearing on their integrity and their relationships with each other.
According to the petitioner, the panel members failed to disclose to the parties that “one of the arbitrators in the majority had resigned from the state-court bench to avoid federal prosecution for judicial misconduct and was subject to a lifetime ban from state judicial service.”
Another tribunal member, “when a member of the state supreme court," the petition charged, "had unlawfully sought to frustrate the State's investigation into his co-arbitrator's judicial misconduct.”
The petition asks whether arbitrators “exceed their powers” under the FAA when they issue an award after the deadline expressly agreed to by the parties. According to the petition, the parties stipulated, at the panel's request, that the award would be issued no later than Sept. 1, 2006.
On that date, the panel issued an award holding that Lloyds had breached the “disability insurance contract” and awarded Lagstein damages for “lost” benefits and “emotional distress.” The panel then ordered the parties to attend a second hearing “months later,” without further agreement by the parties, to award punitive damages.
A direct link to the petition, which is posted by Scotusblog, can be found here.