Alex Silverman

Middletown Water Joint Venture LLC sought confirmation of an arbitration award finding it had a contractual right to charge the borough of Middletown for certain types of work and enjoining the borough from taking any action to interfere with Middletown Water’s efforts to recover those charges. For its part, the borough did not dispute the award – nor could it, as it did not move to vacate, modify, or correct it within the 30-day limitations period under Pennsylvania law. Rather, it argued that Middletown Water was incorrectly interpreting the award, which, according to the borough, did not require that it forego contract terms allowing the borough to review and approve all imposed charges before Middletown Water can recover them. The court agreed with the borough, finding the award did not address the process by which Middletown Water may recover any charges it imposed under the contract. The court also rejected the argument that the borough’s defense (i.e., its different reading of the award) was the sort that had to be raised in a timely motion to vacate, modify, or correct. As such, the court denied Middletown Water’s petition to enforce the award’s injunction measures, finding any ultimate recovery depended on the borough’s right of approval, which the court found was expressly preserved in the award.

Middletown Water Joint Venture LLC v. Borough of Middletown, No. 1:19-cv-01402 (M.D. Pa. Apr. 13, 2020).

This case arises from a protracted dispute between Applied Underwriters Captive Risk Assurance Co. and Milan Express Co. over amounts Milan allegedly owed Applied Underwriters under a reinsurance participation agreement. The agreement had an arbitration clause requiring arbitration under American Arbitration Association (AAA) rules. The parties had also executed a separate request to bind coverages and services, which had its own arbitration clause requiring arbitration under JAMS rules and in conformity with the Arbitration Act of the State of Nebraska.

A dispute resulted in Applied Underwriters initiating arbitration before the AAA based on the arbitration clause in the reinsurance participation agreement. That arbitration ended with a final award that the clause was unenforceable due to a Nebraska statute prohibiting arbitration clauses in insurance contracts. Applied Underwriters subsequently initiated a new arbitration, asserting the same claims, only this time before JAMS, based on the binder clause. Meanwhile, Applied Underwriters also commenced this litigation in Nebraska state court, in response to which Milan moved to stop the JAMS arbitration. Citing the AAA award deeming the arbitration clause in the reinsurance participation agreement unenforceable, the lower court granted Milan’s motion to end the arbitration on issue and claim preclusion grounds. Applied Underwriters appealed, relying on certain differences between the two arbitration clauses.

On appeal, the court rejected Applied Underwriters’ contention that the binder clause was enforceable despite the AAA award invalidating the arbitration clause in the reinsurance participation agreement, finding no meaningful distinction between the two clauses as it pertained to their enforceability. Because a panel of AAA arbitrators had already determined the arbitration clause in the reinsurance participation agreement to be invalid and unenforceable under Nebraska law, the appellate court agreed with Milan that the issue of the binder clause’s enforceability was barred from further consideration based on issue and claim preclusion principles. The court therefore affirmed the lower court’s order stopping the JAMS arbitration.

Applied Underwriters Captive Risk Assurance Co. v. Milan Express Co., No. A-18-570 (Neb. Ct. App. Mar. 17, 2020).

Petitioner, Catalina Holdings (Bermuda) Ltd. was involved in a reinsurance dispute with Legion Indemnity Co., an insolvent insurer, and its liquidator, Robert Muriel, acting director of insurance of the state of Illinois. Following an arbitration hearing, the panel issued an initial award that Muriel/Legion must pay Catalina $76,000 in unpaid premiums. After further briefing, the panel issued a final award granting Catalina an additional $437,501.04 in “costs,” which consisted of attorneys’ fees and expenses. Catalina moved to confirm the award in the Northern District of Illinois. Muriel moved to vacate or modify as it related to the award of attorneys’ fees.

The court denied Muriel’s motion, finding that the panel did not exceed its authority by awarding attorneys’ fees on a noncontractual basis, or any other bases. The arbitration clause at issue allowed the arbitrators to award “interest and costs” but was silent as to what “costs” may include. Noting that arbitrators are “pretty much at large in the formulation of remedies” when the arbitration clause is silent in that regard, the court disagreed with Muriel/Legion that the word “costs” left “no possible interpretive route to the award of attorneys’ fees.” The court also distinguished Seventh Circuit cases setting aside awards for lacking a contractual basis, finding that the arbitrators in those cases ignored contract language that was “clear, unambiguous, and not silent.” Under the circumstances here, the court found no basis to vacate. Further, since the panel had specifically invited briefing on the issue of attorneys’ fees before issuing the final award, the court found no basis to modify the final award under section11(b) of the Federal Arbitration Act. Catalina’s motion to confirm was therefore granted, and Muriel’s motion was denied in its entirety.

Catalina Holdings (Bermuda) Ltd. v. Muriel, No. 1:18-cv-05642 (N.D. Ill. Apr. 6, 2020).

The Seventh Circuit affirmed a district court order that the defendant waived its right to arbitrate by withdrawing a venue-based arbitration argument from its motion to dismiss. The arbitration clause in a joint venture agreement between the parties stated that “[a]ny matter in dispute, and which is not provided for in this agreement, shall be submitted to arbitration.” The plaintiff filed suit after a dispute arose, and the defendant moved to dismiss on various grounds, although it did not assert the arbitration provision. The district court ultimately granted the motion on jurisdictional grounds that were later cured. The defendant then moved to dismiss again, this time asserting improper venue based on the arbitration provision. Plaintiff’s counsel then wrote to defendant’s counsel demanding that the arbitration argument be withdrawn on the ground that it was waived, having not been asserted in the defendant’s first motion to dismiss. The argument was withdrawn the same day. One month later, the defendant moved to compel arbitration, claiming its earlier arbitration argument was not decided.

The district court denied the motion to compel based on express waiver and found no grounds to allow the defendant to rescind that waiver under these circumstances. The Seventh Circuit agreed, finding that withdrawing the arbitration argument was a litigation choice “inconsistent with the right to arbitrate.” The court was sure to note that a party does not automatically waive the right to file a motion to compel arbitration by failing to do so immediately. Here, however, “[h]aving put the arbitration card on the table and then taken it back,” the court held that the defendant “was not permitted to play that card again later.”

Brickstructures, Inc. v. Coaster Dynamix, Inc., No. 19-2187 (7th Cir. Mar. 11, 2020).