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Despite calling an arbitration award “so incomprehensible that three years later the judges and parties are still trying to figure it out,” the 7th U.S. Circuit Court of Appeals has ruled that the Federal Arbitration Act left it no choice but to confirm the award. Judge Richard A. Posner, writing for a three-judge panel on Sept. 12, brushed aside a lower court’s efforts to find rhyme or reason in the terse and seemingly inconsistent award and hinted that the arbitrators may have been incompetent. Thus, Posner’s opinion in IDS Life Ins. Co. v. Royal Alliance Associates Inc., No. 00-2009, illustrates in the starkest of terms the great deference that the act compels judges to pay to arbitrators, at least in the view of the 7th Circuit. The litigation began in 1995, when two American Express Co. subsidiaries asked Federal District Judge Wayne R. Anderson of the Northern District of Illinois to impose damages and an injunction against two competitors, both subsidiaries of SunAmerica Inc. The plaintiffs — American Express Financial Advisors Inc. and IDS Life Insurance Co. — accused the competitors — Royal Alliance Associates and SunAmerica Securities — of using illegal means to lure away hundreds of their securities sales agents, and ultimately their customers, and of encouraging the agents to breach noncompete agreements. Since all the plaintiffs and defendants were members of the National Association of Securities Dealers (NASD), the SunAmerica subsidiaries were able to invoke an NASD rule requiring arbitration of employment disputes. In 1997, Anderson put the federal litigation on hold pending a decision by NASD arbitrators. The SunAmerica subsidiaries then raised claims of their own, asking the arbitrators for a positive declaration that they were not liable to the plaintiffs in any way and that the noncompete agreements were unenforceable. The NASD arbitrators rendered a decision in May 1998, after 154 separate arbitration sessions over 14 months, Posner said. In the two-page ruling, the arbitrators denied the claims of both sides without explanation. In a phrase that was to cause considerable confusion, the arbitrators also said that “No contentions pertaining specifically to IDS Life Insurance Company were presented to the panel.” Did that mean, as Posner ultimately decided, that IDS’ claims so resembled those brought by its sister company that they did not merit separate discussion, or, as the American Express subsidiaries feared, that the arbitrators overlooked the fact that IDS had raised independent claims? Asked for clarification by Anderson, the arbitrators did little more than refer back to the language that caused the confusion in the first place. The American Express subsidiaries asked Anderson to vacate the award, arguing that it made no sense to deny that the noncompete agreements are unenforceable and at the same time deny that the SunAmerica subsidiaries are liable for interfering with those contracts. Anderson discerned a way to reconcile the seeming inconsistency. He said that although the arbitrators refused to give wide-ranging relief to either side, they “recognized that there may be individual cases [concerning particular agents] in which plaintiffs may show wrongful conduct [and which] are left to another day and forum to decide.” COLD WATER Posner poured cold water on Anderson’s post hoc rationalization, noting that under claim-preclusion rules, the courts would almost certainly deem the award to be the final word on any related claims the plaintiffs might bring. Although he noted that the award might not be inconsistent (since the validity of an agreement is only one element that must be proven in a tortious-interference claim), the main thrust of his opinion was that the Arbitration Act compelled confirmation even if the award was inconsistent. That statute authorized judicial second-guessing of awards only in narrowly-drawn circumstances, he said. The only exception pertinent here — which can be invoked if the arbitrators failed to resolve the entire dispute — was of no use to the plaintiffs since “to deny relief to both sides on inconsistent grounds is still to deny relief,” Posner wrote. STRICT READING Eric D. Brandfonbrener, a partner with Chicago’s Grippo & Elden who represented the American Express subsidiaries, said that his client might have prevailed in another forum, since the 7th Circuit reads the statute more strictly and narrowly than some of its sister circuits. Though the award was not vacated, he said that his clients have achieved many of their goals. A 1997 injunction issued by Anderson, though only temporary, seems to have prompted the defendants to end the practices his clients found objectionable, he said. He added that the NASD has recently taken steps to ensure the quality of its arbitrators, such as increasing the number of paid arbitrators. The SunAmerica subsidiaries were represented by Chicago’s Mayer, Brown & Platt. Partner Michele L. Odorizzi had no comment on the 7th Circuit’s decision.

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