5th Circuit Affirms Order Denying Motion for Vacatur of Arbitration Panel’s Unanimous Decision in $586 Million Louisiana Barrier Islands Case

In an unpublished opinion, the United States Court of Appeals for the Fifth Circuit has upheld a district court’s decision refusing to vacate an arbitration panel’s unanimous order.  In Louisiana Department of Natural Resources through the Coastal Protection Restoration Authority v. FEMA, No. 17-30140 (5th Cir., January 29, 2018), the Louisiana Department of Natural Resources (“LDNR”) filed a request for $586 million with the Federal Emergency Management Agency (“FEMA”) in order to restore the state’s barrier islands that were damaged by Hurricanes Katrina and Rita in 2005.  FEMA denied LDNR’s application for funds based on the requirement in 44 C.F.R. § 206.201(c) that a natural feature such as the barrier islands at issue must be “improved and maintained” in order to qualify for aid.

The state agency next sought review of FEMA’s decision through arbitration before the Civilian Board of Contract Appeals. According to the LDNR, “FEMA exceeded its authority in defining eligible facilities; and, even if it did not do so, the island system is an “improved and maintained” natural feature and therefore eligible for FEMA assistance.”  A unanimous arbitration panel found that FEMA “correctly denied LDNR’s application and dismissed the arbitration in its entirety.”  In addition, the arbitral panel “advised LDNR to submit new, separate funding applications for each of the islands on which natural features were improved and maintained.”

Next, LDNR unsuccessfully argued the arbitration panel should reconsider the case by claiming the state agency was not allowed to offer additional, relevant evidence.  After that, LDNR sought vacatur of the panel’s denial of reconsideration before a district court.  Because the state agency “did not explain what material evidence the panel failed to consider, or why LDNR was prejudiced as a result,” the district court denied LDNR’s motion.

On appeal, the nation’s Fifth Circuit first clarified that LDNR only challenged the arbitration panel’s denial of the state agency’s request for reconsideration.  The court then said:

Accordingly, we consider only whether the panel’s conduct in denying reconsideration falls within the “very unusual circumstances” permitting vacatur under § 10(a)(3). First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995) (“the court will set [panel’s] decision aside only in very unusual circumstances”); e.g., Vela, 709 F.2d at 376. To establish it was “deprived of a fair hearing”, Rainier DSC 1, L.L.C., 828 F.3d at 364, LDNR must show: the panel refhttps://www.disputingblog.com/tag/first-options/used to hear material evidence; and LDNR was prejudiced as a result, e.g., Laws, 452 F.3d at 400 (vacatur not warranted where party has not shown prejudice or indicated unconsidered evidence was material). LDNR has shown neither.

The panel did not refuse to hear any evidence. LDNR submitted a 34-page statement and over 120 exhibits, none of which were excluded by the panel. Pointing to 44 C.F.R. § 206.209(h)(1), which provides for oral presentation of evidence, LDNR asserts such a presentation is necessary for a fair hearing. Vacatur, however, is warranted when the panel refuses to hear material, not just any, evidence; similarly, there is no indication oral presentation “might have altered the outcome of the arbitration”. Id.

In particular, as the panel observed in denying reconsideration, “LDNR has not identified what it might have said or shown . . . that might affect the [panel’s] conclusion, if it had been given a chance to supplement its presentation”. This determination is bolstered by the regulations’ prohibiting parties from “provid[ing] additional paper submissions at the hearing”. 44 C.F.R. § 206.209(h)(3). Further, rather than LDNR’s explaining how it suffered prejudice, it only concludes that it has. Accordingly, LDNR has not shown that, in denying reconsideration, the panel engaged in misconduct that “so affect[ed] [LDNR’s] rights . . . that it may be said that [it] was deprived of a fair hearing”. Rainier DSC 1, L.L.C., 828 F.3d at 364 (quoting Laws, 452 F.3d at 399).

Finally, the Fifth Circuit Court of Appeals affirmed the district court’s order denying LDNR’s motion for vacatur of the arbitration panel’s decision.

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