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Sixth Circuit Reiterates the Fundamental Rule Precluding Judicial Review of Pre-Award Arbitration Disputes

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In Savers Property & Cas. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 748 F.3d 708 (6th Cir. Apr. 9, 2014) the Sixth Circuit dissolved a district court injunction that precluded an arbitration panel from issuing further orders without the approval of the court. The injunction was issued after an arbitration panel issued an “Interim Final Award” resolving all issues of liability in favor of the cedent. The reinsurer then filed a complaint in Michigan state court seeking to vacate the award on grounds that the Umpire and the party arbitrator for the cedent had exceeded their authority under the reinsurance treaty and that the party arbitrator had displayed evident partiality. The case was removed to federal district court, where the court acknowledged that the arbitration was not concluded and that courts are generally prohibited from reviewing arbitration proceedings prior to issuance of a final award. Nonetheless, the district court determined that it could review the matter as a breach of contract dispute regarding the rules under which the arbitration was to proceed. On this basis the district court found that the reinsurer was likely to succeed on the merits as to its claims of impropriety in the arbitration proceedings and likely to suffer irreparable financial harm. Hence, the district court issued an injunction that effectively wrested control of the arbitration from the panel.

On appeal, the circuit court rejected arguments in support of interlocutory review and reiterated the fundamental principle that judicial review of arbitration proceedings must await completion of the arbitration. The court also considered the district court’s reliance on 9 U.S.C. § 2 (section 2 of the Federal Arbitration Act) which provides that a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” but concluded that this provision was not meant to displace the FAA limitations on judicial review of non-final awards. Too, the reinsurer never invoked section 2 and the Court concluded that this argument had been waived.

While the circuit court reversed the judgment of the district court and dissolved the injunction, it made clear that issues as to the conduct of the proceedings and the applicability of section 2 could be raised once a final award was issued and the matter was complete. This is consistent with the vast majority of cases concerning arbitration under the FAA and related state arbitration acts.