44 F.4th 163
2d Cir.2022Background
- TIG issued a $25 million excess liability Policy to Exxon covering product-related personal injury/property damage claims; the parties replaced a standard arbitration clause with a custom "Alternative Dispute Resolution Endorsement" (ADR Endorsement).
- ADR Endorsement allowed a party to request ADR; if parties failed to agree on a process within 90 days, paragraph 4 provided that "the parties shall use binding arbitration." Paragraph 6 limited any ADR award to the Policy limits.
- Exxon invoked the ADR Endorsement and filed to compel arbitration; an arbitral panel awarded Exxon the $25 million policy limit but declined to award pre-award interest, citing the ADR limit.
- The district court (Judge Ramos) confirmed the award and granted Exxon prejudgment interest from the breach date through judgment, producing a judgment exceeding the $25 million policy limit.
- After judgment, Judge Ramos disclosed ownership of Exxon stock; the matter was reassigned to Judge Vyskocil, who conducted a de novo review, denied TIG’s motion to vacate, and affirmed the orders compelling arbitration and awarding interest. TIG appealed.
- The Second Circuit affirmed denial of vacatur (no need to reopen because issues were legal and reviewed de novo), held the ADR Endorsement creates a binding arbitration agreement, reversed the award of pre-arbitral interest beyond the policy limit, and remanded to compute interest from the arbitral award date to judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Judge Ramos’s undisclosed ownership of Exxon stock required vacatur of district-court judgments | TIG: Section 455(a) violation requires vacatur; litigant entitled to new proceedings before an unconflicted judge | Exxon: Vacatur unnecessary because an unconflicted judge (Vyskocil) reviewed the merits de novo and appellate courts will review afresh | Vacatur not required; de novo review by an unconflicted judge and further appellate review cured the appearance-of-bias concern |
| Whether the ADR Endorsement is a binding arbitration agreement | TIG: ADR clause is permissive — arbitration only if both parties agree to ADR and then fail to agree on a process | Exxon: Once one party requests ADR, parties have 90 days to choose; failing that, paragraph 4 mandates binding arbitration | ADR Endorsement is a binding arbitration agreement: request starts a 90-day selection period; failure to agree defaults to arbitration |
| Whether paragraph 6 bars an award of pre-arbitral (pre-award) interest beyond policy limits | TIG: Paragraph 6 ("any decision, award, or agreed settlement shall be limited to the limits of liability") clearly waives statutory pre-award interest that would push recovery over the policy limit | Exxon: Arbitral panel declined to award interest for lack of jurisdiction, so district court may award pre-award interest when confirming the award | Paragraph 6 is sufficiently clear to waive statutory pre-award interest beyond the Policy limit; district court erred to the extent it awarded interest accruing before the arbitral award |
| Whether post-award prejudgment interest (award date through judgment) is waived by ADR Endorsement | TIG: Waiver of "any decision, award" does not reach statutorily-mandated post-award interest | Exxon: (argues court could still award) | Post-award interest is statutory and outside arbitrator’s authority; ADR Endorsement does not clearly waive post-award interest, so interest from the award date to judgment is required; remand to calculate that amount |
Key Cases Cited
- Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847 (1988) (factors for vacatur when judge failed to recuse under § 455(a))
- Cooper v. Ruane Cunniff & Goldfarb Inc., 990 F.3d 173 (2d Cir. 2021) (standard of review for motions to compel arbitration)
- Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016) (threshold question of agreement to arbitrate governed by state contract law)
- Dean v. Tower Ins. Co. of N.Y., 19 N.Y.3d 704 (N.Y. 2012) (insurance contracts interpreted according to insured’s reasonable expectations)
- J. D'Addario & Co. v. Embassy Indus., Inc., 20 N.Y.3d 113 (N.Y. 2012) (contract language can clearly waive statutory pre-award interest)
- Citigroup, Inc. v. Abu Dhabi Inv. Auth., 776 F.3d 126 (2d Cir. 2015) (confirmation of arbitral awards is typically a summary proceeding)
- New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 352 F.3d 599 (2d Cir. 2003) (appellate review of prejudgment interest award standard)
- Gangemi v. Gen. Elec. Co., 532 F.2d 861 (2d Cir. 1976) (contractual language can make arbitration permissive rather than mandatory)
- Local 771, I.A.T.S.E. v. RKO Gen., Inc., WOR Div., 546 F.2d 1107 (2d Cir. 1977) (construction of arbitration language)