We previously reported on this case in our blog dated
December 21, 2015. The background of the dispute is as follows.
A dispute arose between an insurer and its insured under four
written program agreements, each containing an arbitration clause.
The insurer filed a single demand for arbitration with the American
Arbitration Association (the "AAA"), alleging that the
insureds failed to pay amounts due under the four program
agreements. The insureds raised various objections to the
arbitration demand, including that they were entitled to four
separate arbitrations. The AAA ruled that the arbitration would
continue as one arbitration, and the insureds appointed the sole
arbitrator. Shortly thereafter, the insureds filed an action in
Texas state court, seeking a Temporary Restraining Order
("TRO") to stay the arbitration because it had been
improperly consolidated. The Texas court granted the TRO, stating
that the AAA had failed to follow the arbitration agreements by
administering one proceeding, not four, and enjoined the AAA from
administering the arbitration. The AAA removed the Texas action to
federal court, and filed a motion to dismiss, to which the insureds
did not file a response. After the TRO expired, the AAA attempted
to resume administration of the arbitration, but the insureds would
not participate in the arbitration and informed the AAA that their
counsel could not communicate with the AAA given the pending Texas
action. Thus, the insurer filed an action in Illinois federal
court, where the arbitration was pending, seeking to compel
arbitration, which was granted in November 2015. The parties then
returned to arbitration.
In the arbitration, predicting future legal resistance from the
insured, the insurer petitioned the arbitrators for the insured to
post pre-hearing security. The arbitrators granted the petition,
and ordered the insured to post about $4.6 million in security. The
insured did not post such security, and the insurer thus sought to
confirm the panel's pre-hearing award for security in the
Illinois federal court. In response, the insured argued that the
award should be vacated because the arbitrators exceeded their
authority under Section 10(a)(4) of the Federal Arbitration Act
The Illinois federal court first found that an interim
pre-hearing security award is an "award" under the FAA.
Thus, the court noted that, under the FAA, it must confirm the
award unless a statutory exception applies, one of which is Section
10(a)(4)of the FAA. The court also noted that a party seeking
relief under Section 10(a)(4) bears a heavy burden and that strong
deference is given to arbitrators' decisions. Then, focusing on
the parties' program agreements, the court held that there is
support for the pre-hearing security award in the agreements and
arbitration clause. Although the agreements did not mention
prehearing security as a remedy available to the parties, the court
noted that it does not mean such remedy is not available. In this
regard, citing other precedents, the court noted that "[i]f an
enumeration of remedies were necessary, in many cases the
arbitrator[s] would be powerless to impose any remedy, and that
would not be correct. Since the arbitrator[s] derive all [their]
powers from the agreement, the agreement must implicitly grant [the
arbitrators] remedial powers when there is no explicit grant."
The court then stated that the arbitration clause at issue provided
that the arbitration was to be conducted under the AAA Rules, which
allow for interim awards of security. Thus, the court held that, by
adopting the AAA Rules into their agreements, the parties
implicitly included the arbitrators' authority to grant an
award like the interim security award at issue. Finding the
insured's arguments to vacate unpersuasive, the court then
granted the insurer's motion to confirm the pre-hearing
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