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Egan Jones Ratings Co. v. Pruette

United States District Court, E.D. Pennsylvania

January 24, 2017



          Schmehl, J.

         Before the Court is the Motion to Dismiss the Petition to Vacate Partial Final Arbitration Award of Respondents, Steven Pruette and Christopher Pruette, on behalf of InSearch Partners (“Pruette”). Petitioner, Egan Jones Ratings Company (“Egan”) has opposed the motion, and Egan has filed a reply. Having read the parties' briefing and having held oral argument on the motion, I will deny Pruette's motion to dismiss.


         Egan filed this proceeding under the Federal Arbitration Act, 9 U.S.C. § 1 et. seq. (“FAA”) to vacate an arbitration award made in a proceeding held by the American Arbitration Association. The award in question is titled a “Partial Final Award of Arbitrator.” (See ECF No. 1, Ex. H.) The Award addresses a contractual dispute between Egan, a Nationally Recognized Securities Rating Organization (“NRSRO”) certified by the Securities and Exchange Commission, and Pruette, its exclusive distributor of ratings services. Pursuant to a stipulation of the parties, the arbitration was bifurcated into liability and damages phases. Accordingly, the arbitrator's decision in this matter was as to liability only and did not address damages. A separate arbitration hearing is to be held on damages.

         After the entry of the Partial Final Award, Egan petitioned this Court to vacate the arbitrator's award. (See ECF No. 1.) In response, Pruette filed the instant motion to dismiss, alleging that the arbitration award in question is non-final and therefore, this Court lacks jurisdiction to review it. For the reasons that follow, I will deny Pruette's Motion to Dismiss, as I find that the award in question was a final award and this Court therefore has jurisdiction to review it.


         The party moving to dismiss an arbitration award bears the burden of proof. Grosso v. Salomon Smith Barney, 2003 WL 22657305, *1 (E.D. Pa Oct. 24, 2003). Under the FAA, a district court may only vacate an arbitration award 1) where the award was procured by corruption, fraud, or undue means; 2) where there was evident partiality or corruption in the arbitrators, or either of them; 3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing . . . or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or 4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10(a).


         District courts may only vacate or confirm arbitration decisions that involve a final award. See Travelers Ins. Co. v. Davis, 490 F.2d 536, 541-42 n. 12 (3d Cir. 1974); Michaels v. Mariform Shipping, S.A., 624 F.2d 411, 414 (2d Cir. 1980) (“Under the Federal Arbitration Act, 9 U.S.C. § 1 et seq., a district court does not have the power to review an interlocutory ruling by an arbitration panel. . . it is only after an award has been made by the arbitrators that a party can seek to attack any of the arbitrators' determinations in court. . .”). Therefore, the issue presently before the Court is whether the Partial Final Award of the arbitrator is a final award as contemplated by the FAA. Egan argues that the arbitration award is a final award because it completely resolved the issue of liability, as agreed to by the parties, and therefore, this court has jurisdiction over it. Pruette argues that the Partial Final Award is not a final award under the FAA as the arbitrator decided only liability and did not address damages; therefore, this court has no jurisdiction in this matter. Based on the parties' arguments, I must analyze what is required for an arbitration award to be considered “final” under the FAA.

         Generally, courts cannot confirm or vacate arbitration awards that are interim, or not yet final. This rule, referred to as the “complete arbitration rule, ” provides that “judicial review of incomplete arbitration awards is inappropriate in all but the ‘most extreme' situations.” Union Switch & Signal Div. Am.Std. Inc . v. United Elec., Radio & Mach. Workers of Am., 900 F.2d 608, 612 (3d Cir. 1990) (quoting Millmen Local 550 v. Wells Exterior Trim, 828 F.2d 1373, 1374 (9th Cir. 1987)). “Some circuits have recognized exceptions to this finality rule . . . when an arbitral award ‘finally and definitely disposes of a separate independent claim, ' or where the parties agree to bifurcate the issues submitted to arbitration, so that an award of liability is considered ‘final' even though damages have not been determined.” Marron v. Snap-On Tools, Co., LLC, 2006 WL 51193, *2 (D.N.J. Jan. 9, 2006) (quoting Metallgesellschaff A.G. v. M/V Capitan Constante, 790 F.2d 280, 283 (2d Cir. 1986) and Hart Surgical, Inc., v. Ultracision, Inc., 244 F.3d 231, 233 (1st Cir. 2001)). Specifically, in Hart Surgical, the First Circuit held that the district court could review a partial award of liability in cases where there is a “formal, agreed-to bifurcation at the arbitration stage.” 244 F.3d at 236.

         It is undisputed that the Third Circuit has never addressed the specific issue of whether an arbitration award as to liability only is final when the parties formally agreed to bifurcate the matter into liability and damages phases at the arbitration. In support of its argument that the arbitration award in question is non-final and therefore non-reviewable, Pruette relies on Travelers Ins. Co. v. Davis, 490 F.2d 536, 541-42 & n. 12 (3d Cir. 1974). This case held that the preliminary ruling of a panel of arbitrators' that uninsured motorists' coverage could be stacked under an auto insurance policy did not determine both liability and damages and was therefore, not reviewable by the District Court. Id. The Court went on to state that in United States Arbitration Act cases (a precursor to the FAA), a preliminary ruling of an arbitration panel prior to making its award is not justiciable. Id. at 541 n. 12.

         Pruette also relies upon an unreported decision of this district, HET-JV et al, v. Weston Solutions, Inc., No. 13-mc-100, 2013 WL 2411698 (E.D. Pa. June 4, 2013). In that case, the Court declined to review an “Interim Decision” of an arbitration panel in which the proceedings were bifurcated into liability and damages phases, stating that it wanted to “avoid the pitfalls of fragmented litigation that may result from review of an incomplete arbitration decision.” Id. at *4.[1]

         In arguing that Pruette's motion should be denied, Egan first points to the decision of the United States Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010) in support of their position. In Stolt-Nielsen, the court was asked to review a preliminary finding of an arbitration panel that an agreement entered into between the parties permitted class action arbitration. Id. The Court found that the arbitrators' decision, in which they found that class action arbitration was permissible, was ripe for judicial review, despite the fact that it was a preliminary decision and did not reach the issues of liability or damages. Id. In a dissent written by Justice Ginsburg and joined in by Justices Stevens and Breyer, Justice Ginsburg stated, after citing two lower court decisions that allowed review of partial awards:

While lower court opinions are thus divided, this much is plain: No decision of this Court, until today, has ever approved immediate judicial review of an arbitrator's decision as preliminary as the ...

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