Partial Arbitration Award Dangers
There are good reasons for dividing some arbitrations. For instance, the case is unable to settle because the parties hold widely differing views on winning that they cannot contemplate losing. If they knew what the decision would be on the merits, they probably would agree to settling the case while damages would take a lot of time and money to prove.
There are dangers, however. Courts have provided varying results when there is more than one award and a court has to consider whether to confirm the first award.
In one case, the State of New York entered into a compact with an Indian nation under which the Nation had exclusive gaming rights in part of New York State in exchange for revenue sharing with the State. A dispute arose about whether the obligation to share revenue continued after the initial period of the compact expired and there was an automatic renewal for seven years. The Nation took the position that no revenue sharing was due because the renewal provision in the compact made no mention of it. New York took the position that the revenue-sharing percentage at the time of renewal was applicable. Per the compact, the matter went to arbitration.
The parties agreed to bifurcate the arbitration into liability and remedy phases. The arbitration panel issued a Partial Final Award in favor of New York. A Final Award directing specific performance by the Nation was issued more than three months after the liability award. Damages assessed through the end of 2018 were agreed by the parties to be about $256 million. The Nation filed a motion to vacate the final award and the State cross-petitioned to confirm both the partial final award and the final award.
The Federal law which governs court actions on awards says a motion to confirm may be filed by any party at any time within one year after the award is made. By contrast a notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered. If the partial final award was an award, the Nation’s motion to vacate was out of time. The State said the Nation’s motion was untimely. The Nation argued it could not contest the liability finding until the final award ordered specific performance.
The court found the initial award was not final because it did not dispose of all the issues in the arbitration. The award was not intended by the panel to be a final award, with both liability and damages issues outstanding. The intent of the panel as to finality and the agreement of the parties to the panel’s issuing its award in multiple parts are recurring themes in the cases determining whether an award is ripe for judicial consideration.
In another case, the district court held that a Partial Final Award was final for purposes of confirmation. The court found that the arbitrator had decided every issue submitted to him for the first phase of the proceedings.
A third case found that a motion to confirm a partial final award was premature. This was a dispute between two health insurers and a third-party administrator (TPA) that was supposed to administer their claims. The insurers accused the TPA of malfeasance, terminated the contract, and initiated an arbitration. Not long before the hearing was to take place, the TPA requested a continuance, alleging discovery issues. It also asked permission to file an amended counterclaim.
The panel declined to continue the hearing but allowed the amended counterclaim, deciding to split the hearing into two phases with Phase II to consider the counterclaims after the hearing on the initial claims. After the Phase I hearing, the panel requested the parties submit proposed awards. Both parties called their submissions Partial Final Award. The panel issued what it called Partial Final Award— Phase I in favor of the insurers. The insurers moved to confirm that award. The court held it did not have jurisdiction because the award was not final. The arbitration panel still had work to do—deciding the counterclaims. (After the panel found in the insurers’ favor on the counterclaims, the court granted their renewed motion to confirm.
Another factor in whether a partial award can be confirmed can be the fairness of the situation. An employment termination dispute was split with the consent of the parties. The arbitrator reserved the issue of attorney fees, costs, and expenses. It took four years to complete the liability portion of the arbitration and issue an award determining that the employee was entitled to significant money damages. The arbitrator that, although the substantial issue of attorney fees remained, the partial award was final, and the claimant should proceed to court to enforce it. There was no just reason for delay in enforcement in light of the four-year delay. The district court agreed
The lesson here us that even if there are good reasons to split a case, in the agreement to split the case you need to deal with how the confirmation process will be handled and be sure the arbitration panel is in agreement with them on whether the partial award is “final.” The cases suggest the intent of the parties and the arbitrator will be part of the court’s consideration. It is important to reduce the agreement to writing and have it acknowledged by the arbitrator so there is no misunderstanding.