OneBeacon Amer Ins, et al v. Turner

United States Court of Appeals
Fifth Circuit
F I L E D
October 30, 2006
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 06-20302
Summary Calendar
_______________
ONEBEACON AMERICA INSURANCE COMPANY;
INTERNATIONAL MARINE UNDERWRITERS,
Plaintiffs-Appellants,
VERSUS
THOMAS J. TURNER,
Defendant-Appellee.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
m 4:05-CV-4343
___________________________
Before SMITH, WIENER, and OWEN,
Circuit Judges.
PER CURIAM:*
OneBeacon America Insurance Company
and InternationalMarine Underwriters (collec-
tively “OneBeacon”) appeal a judgment that in
part denied its effort to vacate an arbitration
award in favor of Thomas Turner. OneBeacon
challenges the finding that the arbitrators’
award of attorney’s fees in a maritime dispute
was not in manifest disregard of maritime law;
it argues that the award should be vacated as
violative of public policy. Because OneBea-
* Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be pub-
lished and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.

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con has not presented sufficient evidence to
demonstrate that the arbitrator was aware of a
clearly governing legal principle, and has
identified no compelling public policy to justify
vacation, we affirm.
I.
This dispute arises from an insurance
contract between the parties covering a yacht
that the parties agree had an insured value of
$95,000. The vessel went missing and was
discovered with damage from flood and van-
dalism.
An initial insurance estimate determined
that the damage was between $55,000 and
$65,000. OneBeacon, believing that Turner
was partially responsible, made an initial offer
of $9,000. Turner rejected it and invoked the
insurance contract’s arbitration clause. That
clause provided that, if the parties could not
agree on a single arbitrator, each party could
select an arbitrator, and those two would ap-
point a third. The contract also stated that
each party was responsible for its arbitrator’s
fees and half the third arbitrator’s fees and
costs.
The parties chose to arbitrate in front of a
three-member panel, subject to the rules of the
American Arbitration Association. Both par-
ties waived their right to record the proceed-
ings, and the arbitrators issued an award. The
panel found that the yacht was a “total loss,”
that Turner had complied with his required du-
ties under the plan, and that OneBeacon had
breached the policy by failing to pay Turner
the full value of the yacht. The panel made a
monetary award to Turner for the yacht, for
personal property damage, for administrative
fees and expenses relating to the arbitration,
and for attorney’s fees.
OneBeacon moved to vacate the award, ar-
guing that the arbitrators had acted in manifest
disregard of the law in awarding attorney’s
fees and had exceeded their powers in award-
ing administrative fees and expenses. OneBea-
con also challenged the factual findings
relating to personal effects and total loss of the
yacht.
The district court vacated the portion of the
award allocated to administrative fees and ex-
penses, finding that the arbitrators had acted
“in a manner inconsistent with the arbitration
provision.” OneBeacon Am. Ins. Co. v. Tur-
ner, 2006 WL 547959, at *3 (S.D. Tex.
2006). As to attorney’s fees, however, the
court denied the motion to vacate, noting there
was “no evidence in this case that the arbitral
panel was aware of the Fifth Circuit law
regarding attorney’s fees in cases governed by
maritime law and intentionally disregarded it.”
Id. at *2. The court also dismissed OneBea-
con’s challenges to the factual findings. One-
Beacon appeals solely on the issue of the
attorney’s fees.
II.
OneBeacon presents two principal grounds
for reversal. First, it argues that the award
was in manifest disregard of the law. Second,
it contends the award should be vacated as
contrary to public policy.
A.
We recognized “manifest disregard for the
law” as a ground for vacating an arbitrator’s
decision in Williams v. Cigna Fin. Advisors
Corp., 197 F.3d 752, 759 (5th Cir. 1999)
(stating that “parties [are] bound by [an] arbi-
trator’s decision not in ‘manifest disregard’ of
the law”) (citing First Options, Inc. v. Kaplan,
514 U.S. 938, 942 (1995)). Later cases have
clarified this standard, noting that “it clearly

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means more than error or misunderstanding
with respect to the law.” Prestige Ford v.
Ford Dealer Computer Servs., Inc., 324 F.3d
391, 395 (5th Cir. 2003).
There are two steps in the “manifest disre-
gard” analysis. First, “the error must have
been obvious and capable of being readily and
instantly perceived by the average person qual-
ified to serve as an arbitrator.” Kergosien v.
Ocean Energy, Inc., 390 F.3d 346, 355 (5th
Cir. 2004). Furthermore, “the term ‘disregard’
implies that the arbitrator appreciates the ex-
istence of a clearly governing principle but de-
cides to ignore or pay no attention to it.” Id.
The governing law must be “well-defined, ex-
plicit, and clearly applicable.” Prestige Ford,
324 F.3d at 395. For the second step, “before
an arbitrator’s award can be vacated, the court
must find that the award resulted in a signifi-
cant injustice.” Kergosien, 390 F.3d at 355.
OneBeacon argues, correctly, that this
court has held that “[m]aritime disputes
generally are governed by the American Rule,
pursuant to which each party bears its own
costs.” Tex. A&M Research Found. v. Magna
Transp., Inc., 338 F.3d 394, 405 (5th Cir.
2003). This general rule, “coupled with the
need for uniformity in federal maritime law,”
precludes the application even of mandatory
state attorney’s fee statutes. Id. at 406. Ab-
sent a federal statute or an enforceable
contract, “litigants must pay their own
attorney’s fees.” Id. at 405-06.
As a matter of law, then, Turner is not en-
titled to attorney’s fees. The failure of an ar-
bitrator to apply the law correctly “is not a ba-
sis for setting aside an arbitrator's award.”
Kergosien, 390 F.3d at 356. For us to find the
“manifest disregard” of the law required for
vacatur of an arbitral award, OneBeacon must
show that the arbitrator was aware of the gov-
erning principle and did not follow it. Having
failed to secure a record of the arbitration pro-
ceedings, and without any evidence that the ar-
bitral panel was aware of the Fifth Circuit
standard, OneBeacon cannot make this show-
ing, so its claim that the award was in “mani-
fest disregard” of the law fails at the first step
of the Kergosien analysis.
B.
OneBeacon maintains that the award should
be vacated as contrary to public policy. A
court may refuse to enforce an award that is
contrary to “explicit, well-defined, and domi-
nant” public policy. Prestige Ford, 324 F.2d
at 396 (5th Cir. 2003) (citations omitted).
OneBeacon’s asserted public policy, how-
everSSthe need for uniformity of maritime
lawSS is nothing more than a restatement of its
earlier claim that the award should be vacated
because the arbitrator misapplied the law.
“Typically, the public policy exception is im-
plicated when enforcement of the award
compels one of the parties to take action
which directly conflicts with public policy.”
Brown v. Rauscher Pierce Refsnes, Inc., 994
F.2d 775, 782 (11th Cir. 1993). Where a
public policy argument amounts to “no more
than a complaint that the Panel failed to inter-
pret the law correctly,” courts will not set
aside the award. Id.
There is no error. The judgment is
AFFIRMED.

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