LLoyds v. The Falls of Inverrary Condominiums

Background

The parties were arbitrating a dispute over insurance coverage for hurricane damage to The Falls of Inverrary Condominiums, Inc.’s property. Their arbitration agreement required the parties’ arbitrators to appoint an umpire to resolve disputes between them. By August 18, 2022, each party had named an arbitrator, but those arbitrators could not agree on an umpire despite exchanging about six names.

The petitioners asked the court to appoint an umpire under Section 5 of the Federal Arbitration Act, which authorizes a district court to appoint an arbitrator or umpire after a lapse in the contractually required selection process. The respondent opposed the petition, arguing that the arbitrators were still actively discussing the appointment and that court intervention was premature. Alternatively, the respondent asked to select its own umpire or have the court choose one of its candidates.

Court’s Authority to Appoint an Umpire

The court held that it had authority under both the Federal Arbitration Act and the parties’ contract to appoint an umpire. Applying Second Circuit precedent, the court concluded that a “lapse” occurs when the parties have used their agreed selection process but cannot agree on a candidate. The court found that the arbitrators had made no progress beyond rejecting candidates proposed by the other side. Continuing to exchange names after the litigation began did not prevent a lapse because the parties still had not reached agreement.

Selection of the Umpire

The court also held that Section 5 allowed it to examine candidates’ qualifications as part of its appointment authority. The contract required the umpire, unless the parties agreed otherwise, to be someone employed or engaged in a senior position in insurance underwriting or claims. The court determined that this requirement included people currently practicing arbitration or mediation involving insurance matters.

Six candidates were before the court, three proposed by each party. The court found that all had substantial insurance-related experience and were engaged in resolving insurance disputes. The arbitration agreement selected New York law and New York as the arbitration seat. The petitioners objected to one respondent-proposed candidate, Richard J. Suarez, partly because of his comparatively limited experience applying New York law and the potential additional cost of travel to New York.

The court limited its consideration to New York-based candidates. It found that a former judge who had presided in a New York-based court would be particularly suited because of experience applying New York law and resolving complex disputes. The court selected John Gleeson, a former federal judge in the Eastern District of New York, based on his experience with insurance disputes involving New York law, including disputes arising from Hurricane Sandy, and his continued work on insurance-related matters in the private sector. The respondent did not challenge Mr. Gleeson’s qualifications but preferred one of its own candidates.

Disposition

The court exercised its authority to appoint Mr. Gleeson as umpire and granted the petition. Because appointment was the only relief requested, the Clerk was directed to terminate the open motion at docket entry 3 and close the case without prejudice to either party reopening it within 30 days if Mr. Gleeson was unable or unwilling to serve. The court stated that an application to reopen filed after 30 days might be denied on that basis alone.