In the Fall 2016 edition of AIRROC Matters, we discussed a series of contentious arbitration disputes between Meadowbrook and National Union that led to a noteworthy Sixth Circuit decision concerning the involvement of courts in arbitration proceedings and the impact of ex parte communications.
In August 2016, in Star v. National Union, 2016 WL 4394563, at *1 (6th Cir. 2016), the Sixth Circuit issued another opinion involving the parties that vacated an arbitration award because of improper ex parte communications between a party-appointed arbitrator and counsel.
In 2011, Meadowbrook demanded arbitration based on National Union’s failure to pay workers-compensation claims amid accusations of overbilling. The parties entered into arbitration before a three-member panel. During the organizational meeting, the Panel ruled that all ex parte communications would cease with the filing of the initial brief. The Panel issued an Interim Award in National Union’s favor, after which National Union’s arbitrator began communicating ex parte with National Union’s attorney.
Meadowbrook filed a supplemental brief addressing the Interim Award. National Union subsequently filed a motion to strike. Ex parte communications between National Union’s arbitrator and National Union’s counsel resumed while Meadowbrook’s appointed arbitrator was on vacation. As a result, no discussions among the entire Panel occurred. Despite the lack of deliberation with Meadowbrook’s arbitrator, National Union’s arbitrator drafted an order granting National Union’s motion to strike and sent it to the umpire, but did not copy Meadowbrook’s arbitrator on the e-mail. Although the draft was eventually sent to Meadowbrook’s arbitrator, the other Panel members issued the order without receiving a response.
Because the Interim Award provided that National Union could recover attorney’s fees, National Union submitted a bill of costs. Meadowbrook’s review of these time sheets exposed the ex parte communications. Meadowbrook filed an emergency motion with the Panel to stay all proceedings. Although this motion was denied, the motion drew a lengthy dissent from Meadowbrook’s arbitrator. Ultimately, Meadowbrook filed with the Panel a motion to disband the panel. The Panel denied the motion, with Meadowbrook’s arbitrator dissenting. The Panel, by a 2-1 majority, subsequently issued a Final Award ordering Meadowbrook to pay National Union an additional $9 million plus attorney’s fees.
Meadowbrook then filed suit in the Eastern District of Michigan urging the court to vacate both awards, citing the ex parte communications and the “disenfranchisement” of Meadowbrook’s appointed arbitrator. The Court ruled against Meadowbrook and entered an order confirming the Panel’s awards, finding that Meadowbrook “fail[ed] to allege specific instances of misconduct” and “fail[ed] to develop” its argument regarding disenfranchisement.
In August 2016, the Sixth Circuit reversed the District Court and vacated the Panel’s awards, holding that, under Michigan law, an arbitrator engaging in “misconduct prejudicing a party’s rights” is grounds for vacating an award and that this standard “clearly encompasses such ex parte communications.”
For the full article, refer to page 9 in the Winter 2016-2017 issue. https://www.airroc.org/assets/docs/matters/airroc_matters_winter_2016_2017_vol_12_no_4.pdf
