Novack and Macey attorneys Stephen Novack, Andrew D. Campbell, Shelby L. Drury and Andrew P. Shelby obtained a resounding victory for their client, Bankers Life & Casualty Insurance Co. ("Bankers"), in the United States Court of Appeals for the Seventh Circuit.
The Seventh Circuit held that the district court erred in confirming an arbitration award that was based on the arbitrators modifying the terms of the parties’ agreement and otherwise committing gross errors on the face of the award. [Link to Opinion.] [Link to News Coverage.]
The dispute arose out of a contract between Bankers and CBRE, Inc. (“CBRE”), a company that provides real estate advisory and brokerage services. CBRE approached Bankers about subleasing its then existing space and relocating to a new location. Bankers told CBRE that it would do so only if it realized a minimum level of cost savings. CBRE presented Bankers with a series of cost benefit analyses (“CBAs”), comparing the costs of leasing a new space with the benefits of subleasing its old space. CBRE eventually delivered to Bankers a CBA showing a net savings that was very close to the minimum savings Bankers was seeking, so Bankers subleased its old space and moved to a new location.
But, after the deal closed, it was discovered that CBRE’s savings calculations were wrong. CBRE omitted from its final calculation a $3.1 million cost that it knew Bankers would incur as part of relocating. Had Bankers known of CBRE’s error, it would have rejected the deal and thus would not have relocated.
Bankers commenced an arbitration seeking to recoup the difference between the deal it received, and the one that CBRE said it would receive, as well as the substantial commission Bankers had paid to CBRE. The arbitration panel acknowledged the mistake in CBRE’s analyses, but determined that the mistake did not constitute a breach of the parties’ contract. But, the Seventh Circuit noted, “It’s hard to imagine what else the mistake might be.”
In response to Bankers’ motion for reconsideration, the panel modified the reasoning in its original decision but still found against Bankers -- this time relying on a disclaimer in the CBAs themselves which the panel found “provided that CBRE was not guaranteeing that there were not any errors in the CBA.” Bankers moved to vacate the award in the district court and CBRE moved to confirm it. The district court confirmed the award.
Bankers appealed to the Seventh Circuit. The Seventh Circuit recognized that courts are to overturn arbitration awards only in exceptional cases -- such as where the arbitrators exceeded their authority or committed “gross errors of judgment in law or a gross mistake of fact” that is “apparent on the face of the award.”
The Seventh Circuit found that this is what happened here. It held that, “the panel exceeded its authority” by relying on the disclaimer in the CBAs. The Seventh Circuit agreed with Bankers that the disclaimer was “not part of the [agreement].” In particular, the court found that CBRE “snuck the disclaimer into documents that had not been agreed upon by the parties.”
The court also found that this was a case in which “gross errors” of law and fact appeared on the face of the award. Accordingly, the district court’s confirmation of the arbitration award was reversed and the matter was remanded for further proceedings consistent with the Seventh Circuit’s opinion.
This victory marks Steve Novack’s seventh consecutive victory before the Seventh Circuit during the last three years.