United States District Court, S.D. New York
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Petitioner,
SOURCE ONE STAFFING LLC, Respondent.
MEMORANDUM OPINION AND ORDER
M. FURMAN, District Judge.
case, familiarity with which is presumed, relates to an
ongoing arbitration proceeding between Petitioner National
Union Fire Insurance Company (“National Union”)
and Respondent Source One Staffing, LLC (“Source
One”). In the underlying arbitration - the details of
which are largely irrelevant here - National Union alleges
that Source One defaulted on its contractual obligations to
make payments in exchange for insurance coverage between 2004
and 2009. By contrast, Source One contends that Broadspire
Services, Inc., a third-party administrator hired by National
Union, mishandled certain compensation claims on Source
One's behalf. On February 23, 2017, the arbitration panel
granted a motion filed by National Union and ordered Source
One to post $3, 314, 634 in pre-hearing security. (Docket No.
30 (“Source One Mem.”), Ex. 4). Source One now
moves for an immediate stay of the arbitration and to vacate
the panel's interim award requiring the posting of
pre-hearing security. (Docket Nos. 39, 40, 41). National
Union opposes Source One's motion and cross moves to
confirm the interim award. (Docket Nos. 33, 42).
well established that “[a]rbitration awards are subject
to very limited review” in federal court. Rich v.
Spartis, 516 F.3d 75, 81 (2d Cir. 2008) (internal
quotation marks omitted). Specifically, under the Federal
Arbitration Act (“FAA”), 9 U.S.C. §§
1-16, a reviewing court must confirm an arbitration award
unless one of several narrow grounds for vacatur or
modification is present. See 9 U.S.C. §§
9-11; STMicroelectronics, N.V. v. Credit Suisse Secs.
(USA) LLC, 648 F.3d 68, 74 (2d Cir. 2011). One such
ground - the only one potentially applicable here - is where
an arbitrator “refus[es] to hear evidence pertinent and
material to the controversy.” 9 U.S.C. § 10(a)(3).
That ground is an extension of the proposition that an
arbitrator “must give each of the parties to the
dispute an adequate opportunity to present its evidence and
argument.” Tempo Shain Corp. v. Bertek, Inc.,
120 F.3d 16, 20 (2d Cir. 1997). Notably, however, an
arbitrator “need not follow all the niceties observed
by the federal courts.” Id. Moreover, to
warrant vacatur, “[t]he misconduct must amount to a
denial of fundamental fairness of the arbitration
proceeding.” Id. (citing Transit Cas. Co.
v. Trenswick Reins. Co., 659 F.Supp. 1346, 1354
broadly, the “party moving to vacate an arbitration
award has the burden of proof, and the showing required to
avoid confirmation is very high.”
STMicroelectronics, 648 F.3d at 74 (quoting D.H.
Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir.
2006)). Indeed, “as long as the arbitrator is even
arguably construing or applying the contract and acting
within the scope of his authority, a court's conviction
that the arbitrator has committed serious error in resolving
the disputed issue does not suffice to overturn his
decision.” ReliaStar Life Ins. Co. of N.Y. v. EMC
Nat'l Life Co., 564 F.3d 81, 86 (2d Cir. 2009)
(internal quotation marks omitted). Additionally,
“[t]he arbitrator's rationale for an award need not
be explained, and the award should be confirmed if a ground
for the arbitrator's decision can be inferred from the
facts of the case.” D.H. Blair & Co., 462
F.3d at 110 (internal quotation marks omitted); see also
Jock v. Sterling Jewelers Inc., 646 F.3d 113, 125 (2d
Cir. 2011) (noting the “substantial deference . . .
accorded to an arbitrator's decision that is rendered
within the authority given her by the parties and under
law” (internal quotation marks omitted));
Southerndown, Inc. v. HSS LLC, No. 11-CV-8619 (TPG),
2012 WL 265987, at *1 (S.D.N.Y. Jan. 27, 2012) (“[T]he
court should defer to the arbitrator's decision so long
as there is a barely colorable justification for it”
(internal quotation marks omitted)).
those principles here, there is no question that the
panel's interim award must be confirmed. As an initial
matter, the terms of the agreement between the parties
expressly authorized the panel to require Source One to post
pre-hearing security. (Source One Mem., Ex. A at 9 (stating
that the panel “may order [Source One] to provide
collateral to the extent required by this Agreement”);
see also Id. at 6 (requiring Source One “to
deliver . . . additional collateral” on written notice
from National Union)). Second, given Source One's
undisputed financial difficulties (see, e.g., Docket
No. 45 (“Source One Reply”), at 9 (noting that
the company may need to seek bankruptcy protection if the
panel's order is enforced)), the arbitration panel acted
well within its authority to take steps to ensure that any
final award would not be rendered meaningless. See,
e.g., On Time Staffing, LLC v. Nat'l Union Fire
Ins. Co. of Pittsburgh, PA, 784 F.Supp.2d 450, 455
(S.D.N.Y. 2011) (stating that without the ability to require
the posting of security, “an arbitration panel with a
well-founded concern that a party was financially unable to
satisfy an eventual award would have no recourse to protect
itself against the risk that its significant expenditures of
time and effort would be for naught”); British Ins.
Co. of Cayman v. Water St. Ins. Co., 93 F.Supp.2d 506,
516 (S.D.N.Y. 2000) (“Courts in this Circuit have
firmly established the principle that arbitrators operating
pursuant to [arbitration agreement] provisions have the
authority to order interim relief in order to prevent their
final award from becoming meaningless.”). Thus, a
“colorable justification” for the arbitration
award certainly exists. Id.
arguing otherwise, Source One relies almost exclusively on
Home Indemnity Co. v. Affiliated Food Distributors,
Inc., No. 96-CV-9707 (RO), 1997 WL 773712 (S.D.N.Y. Dec.
12, 1997), in which the Court vacated an award because the
arbitration panel had “specifically conditioned . . .
discovery on [the] posting of security, ” refused
“even a threshold review of the underlying dispute,
” and denied the losing party a “fundamentally
fair hearing.” Id. at *2, 3, 5 (internal
brackets and quotation marks omitted). (Source One Mem. 5;
Source One Reply 6). But Home Indemnity is easily
distinguished from this case. For one thing, the panel here
did not preclude discovery, let alone condition all
discovery on the posting of a security. See Home
Indem., 1997 WL 773712 at *4; see also Al Maya
Trading Establishment v. Glob. Exp. Mktg. Co., No.
16-CV-2140 (RA), 2017 WL 1050123, at *5 (S.D.N.Y. Mar. 17,
2017) (distinguishing Home Indemnity on similar
grounds). Far from it: As Source One itself acknowledges, the
arbitration panel affirmatively “directed”
National Union “[f]rom the commencement of the
Arbitration” to take steps to obtain materials Source
One sought from Broadspire - even exercising its subpoena
power to help retrieve the files at issue. (Source One Reply
7; Docket No. 35 (“Hart Decl.”), Ex. 7). In the
same vein, the panel here, unlike the panel in Home
Indemnity, expressly ordered that discovery proceed
while the motion for pre-hearing security was litigated.
(Hart Decl., Ex. 5). In fact, National Union produced over
40, 000 pages of discovery to Source One prior to the interim
award. (See Hart Decl. ¶ 14). Finally, unlike
the panel in Home Indemnity, the panel here provided
Source One with “an adequate opportunity to present its
evidence and argument.” Tempo Shain Corp., 120
F.3d at 20. National Union's motion for pre-hearing
security, for example, was the subject of extensive briefing
and oral argument. (Hart Decl., Exs. 3, 4; Source One Mem.,
Ex. 3). And, as Source One itself admits, the company was
able to present the essence of its argument on the merits
through its expert's opinion that National Union and
Broadspire had overpaid with respect to nine sample claims.
(See Source One Reply 7).
final analysis, Source One does little more than complain
that the panel issued its interim award without conducting a
full hearing on the merits of its defenses. By its very
nature, however, a request for pre-hearing security is made
on a limited record at an early stage of the arbitration
proceedings and may be ordered “before a full hearing
on all defenses.” British Ins. Co, 93
F.Supp.2d at 518; see, e.g., Yasuda Fire &
Marine Ins. Co. of Europe, Ltd v. Cont'l Cas. Co.,
37 F.3d 345, 352 (7th Cir. 1994) (confirming an award of
pre-hearing security at the outset of an arbitration and
rejecting an argument that inquiry into defenses is necessary
at that stage); Atlas Assurance Co. of Am. v. Am.
Centennial Ins. Co., No. 90-CV-5474 (WK), 1991 WL 4741,
at *2 (S.D.N.Y. Jan. 16, 1991) (finding no violation of
“fundamental fairness” where the panel had issued
an interim award directing a defendant to post pre-judgment
security after the panel had “received, considered and
discussed the parties' statements of issues and heard
verbal statements by the parties'
representatives”); see also, e.g., Banco
de Seguros del Estado v. Mut. Marine Office, Inc., 344
F.3d 255, 259, 264 (2d Cir. 2003) (refusing, albeit in dicta,
to reverse an arbitration panel's grant of pre-hearing
security on “fundamental fairness” grounds).
Indeed, if the Court “were to rule, as [Source One]
urges, that it was denied due process for the sole reason
that the panel would not hear its substantive defenses in
advance of its decision on the security, then any such
interim security provision would be subject to reversal on
its face if it were issued before a full hearing on all
defenses.” British Ins. Co, 93 F.Supp.2d at
518. That is not the law.
of these reasons, Source One's motion for a stay of
arbitration and to vacate the interim award is DENIED, and
National Union's cross-motion to confirm the interim
award is GRANTED. One issue remains: National Union's
submissions are heavily redacted. (See Docket Nos.
43, 44). National Union contends that the redactions are
proper because the redacted materials refer to information
contained in the parties' Confidentiality Order. (Docket
No. 32). As this Court has held, however, “the mere
fact that information is subject to a confidentiality
agreement between litigants is not a valid basis to overcome
the presumption in favor of public access to judicial
documents.” United States v. Wells Fargo Bank
N.A., No. 12-CV-7527 JMF, 2015 WL 3999074, at *4
(S.D.N.Y. June 30, 2015) (citing cases). Moreover, this
Memorandum Opinion and Order relies on (indeed, discloses)
much of the redacted content, which heightens the basis for
public access. Accordingly, any party that believes that the
papers should remain publicly filed only in redacted form
shall file a letter brief, not to exceed five pages and no
later than May 31, 2017, addressing the propriety of doing
so. See, e.g., Lugosch v. Pyramid Co. of
Onondaga, 435 F.3d 110, 119-20 (2d Cir. 2006)
(discussing the presumption in favor of public access). If no
party files a brief justifying the maintenance of a
particular document in redacted form, National Union shall
publicly file an un-redacted version of the document on ECF
within two business days.
Clerk of Court is directed to terminate Docket Nos. 33, 39,
40, 41, and 42. Further, as there is no reason to keep the
case open pending the arbitration, the Clerk is directed to
administratively close the case without prejudice to either
party moving by letter motion to reopen the case within
thirty days of the conclusion of the arbitration proceedings.
 Although the award is interim in
nature, it is nevertheless considered “final” for
purposes of judicial review in this Court. See,
e.g., Banco de Seguros del Estado v. Mut. Marine
Offices, Inc., 230 F.Supp.2d 362, 369 (S.D.N.Y.
2002) (“[N]umerous district courts in this Circuit have
held that an arbitration panel's interim order requiring
prejudgment security is sufficiently final to allow for
federal court review.”); British Ins. Co. of Cayman
v. Water St. Ins. Co., 93 F.Supp.2d 506, 514 (S.D.N.Y.
2000) (“[A]n award of ...