by Andrew Flake
Party autonomy in arbitration extends, as a foundational principle, from the beginning to the end of the arbitration process. We have the arbitration clause that gives rise to the arbitration, and we have the tribunal’s award, limned by exactly what the parties have agreed should be decided. It is “soup to nuts,” which means we also have everything in between – including how the arbitration tribunal itself is appointed and composed.
In this week’s case, however, the parties and at least some of the arbitrators appeared to put expediency ahead of party autonomy, with the unfortunate result that an award was vacated and presumably, a do-over required. The opinion in McEachern v. E.R.J. Insurance Group is unreported, which I can understand, in that it breaks no new ground and does not require any complex or lengthy analysis. A few minute with the facts makes clear that vacatur was absolutely required.
The dispute arose when Claimants John McEachern and Blue Dealer Services demanded arbitration against Defendants E.R.J. Insurance Group and Pablo Creek Services (collectively “Allstate”) under Agent Agreements requiring each party to select an arbitrator, with those two selecting a third.
The Agency Agreements described the selection process in some detail, including what would happen if the party-selected arbitrators did not agree on a third arbitrator. And most importantly, it provided that the dispute would be decided by three arbitrators.
When Claimants nominated their Arbitrator A, Allstate objected, contesting not only the demand but that Arbitrator A qualified under the arbitration clause.
Reading between the lines of the decision, the qualification issue seems to be that, given the clause’s specification of American Arbitration Association Commercial Rules, the arbitration should have been administered by AAA. And to Allstate, the parties’ choice of rules – the principle of party autonomy – meant the parties also specified that the arbitrator’s would be AAA panel members.
Subject to and reserving that objection, Allstate itself nominated Arbitrator B. Soon thereafter, Arbitrator A wrote to Arbitrator B including his own choice for a third Arbitrator, Arbitrator C. Allstate’s Arbitrator B wrote back, renewing the qualification objection as to Arbitrator A and B.
At this point, after receiving the objection from Allstate, Claimants did not address it through the administering institution or nominate a new arbitrator. Although Claimants did file a motion in federal district court to compel arbitration, rather than awaiting a ruling on that motion, Claimants along with its two nominated arbitrators proceeded, in the absence of participation by Respondents and without a third arbitrator, to take evidence. They issued a final award of over $3 million.
Very understandably, Allstate moved to vacate the award under Section 9 of the FAA on the basis that Arbitrators A and C exceeded their powers. Agreeing, the district court vacated the award and the Eleventh Circuit affirmed. The Court of Appeals noted that Claimants should have awaited a ruling on their motion to compel and centrally, that Arbitrators A and C were not appointed in line with the Agent Agreements, nor did those agreements permit an award rendered by a two-member tribunal.
The lessons here? Process matters, and most of all, when it set forth in the parties’ agreement, explicitly or as incorporated via the applicable rules
The Claimants in the McEachern clearly wanted to proceed on a fa.st track (the Agency Agreements contained a 60-day time requirement), but as the Roman emperor Augustus counseled and even imprinted on the gold coins he minted, “Festina lente” – make haste slowly.
At the outset of the dispute, carefully analyze the arbitration clause to ensure that all of its requirements (including any pre-arbitration steps or conditions) are or will be satisfied. Review not only any contractually-specified aspects of the arbitration, but also the applicable rule set. And consider the benefits of resolving threshold objections early and before proceeding, lest they later jeopardize a merits award and, in doing so, expend time and money to no useful end
Had the Claimants in McEachern done so, resisting the temptation to barrel forward unilaterally, they could surely have found a way to move forward expeditiously that also respected party autonomy.
Festina lente!
[The case is McEachern v. E.R.J. Ins. Grp., Inc., No. 23-13298 (11th Cir., decided January 31, 2025]