OldCastle Precast, Inc. v. Liberty Mutual Insurance Company, Metra Industries, Inc.

Issue Discussed: The standard to vacate an arbitration award based upon manifest disregard of the law; whether the arbitrator’s behavior rose to the level of “misconduct” under 9 U.S.C. Sec. 10 (a)(3) where it is claimed the arbitrator ignored uncontroverted evidence and replaced it with his own view.

Submitted by Sylvia Kaminsky

Date Promulgated: March 9, 2021

Date Decision Promulgated: March 9, 2021

Issues Discussed: The standard to vacate an arbitration award based upon manifest disregard of the law; whether the arbitrator’s behavior rose to the level of “misconduct” under 9 U.S.C. Sec. 10 (a)(3) where it is claimed the arbitrator ignored uncontroverted evidence and replaced it with his own view.

Oldcastle Precast, Inc. v. Liberty Mutual Insurance Company, No 19-868-cv, United States Court of Appeals, Second Circuit

Court: United States Court of Appeals, Second Circuit

Issues Decided: Whether an arbitrator’s award is subject to vacatur based upon manifest disregard of the law when the arbitrator allegedly required proof of actual damages rather than proof of damages to a “reasonable certainty:” was the arbitrator guilty of misbehavior where it was claimed that he substituted his own “extra-evidentiary musings” which amounted to a fundamentally unfair proceeding where the evidence was unrebutted.

Holding: The United States Court of Appeals for the Second Circuit held that (a) an arbitrator is entitled to weigh the evidence in making his factual determination and that a federal court may not reassess the evidentiary record; and (b) an arbitrator’s determination that the evidence was unreliable even when unrebutted does not require that such unrebutted evidence be true or conclusive on a matter of fact such that an arbitrator’s decision should be overturned.

Case Description: Liberty Mutual Insurance Company and Metra Industries, Inc. (collectively “Metra”) appealed from a judgment of the U.S.D.C. for the Southern District granting Plaintiff-Appellee, Oldcastle Precast, Inc.’s (“Oldcastle”) motion to confirm an arbitration award in which it was granted monetary relief and pre and post-judgment interest. Metra cross moved for partial vacatur of the award. In the arbitration, Metra had counterclaimed for damages with a list of each component of its damages. The arbitrator did not award Metra the full amount of its counterclaim finding insufficient proof to establish actual damages sustained for certain items. The arbitrator stated that he found the damage calculations proffered by Metra to be unreliable. Metra claimed that the arbitrator manifestly disregarded the law in requiring proof of actual damages rather than establishing its damages to a “reasonable certainty” and that it was required to accept Metra’s claim in full. Additionally, Metra argued that it was unfair for the arbitrator not to award it damages which were not challenged by Oldcastle.

The Court held that when a party challenges a District Court’s review of an arbitral award under the manifest disregard standard, it reviews the application of the standard de novo. It stated that, “A litigant seeking to vacate an arbitration award based upon manifest disregard of the law bears a heavy burden as the grounds exist in exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent…That impropriety has been interpreted clearly to mean more than error or misunderstanding with respect to the law…Rather, the award should be enforced, despite a court’s disagreement with it on the merits, if there is a colorable justification for the outcome reached…The Court held that it would not overturn the award as the arbitrator was entitled to weigh the evidence in making his factual findings which should not be reassessed by the Court.

Separately, the Court found that the arbitrator did not apply the correct pre-judgment interest rate which was specifically provided for in the contract. The Court did not entertain Plaintiff-Appellee’s request for attorneys’ fees and costs for defending the appeal leaving the District Court on remand to consider that argument and its merits.

Accordingly, the Court affirmed the arbitration in part and vacated it in part.

*Sylvia Kaminsky is a certified ARIAS arbitrator and umpire. She is a member of the ARIAS Board of Directors and co-chairs the Arbitrators and Law Committees. She is an attorney, was General Counsel of a reinsurance company and was in private legal practice counsel advising clients on all aspects of coverage and representing them in litigation and in arbitration.