The Texas Department of Insurance has repealed and replaced Chapter 15 of the Texas Administrative Code relating to surplus lines insurance. The Commissioner of Insurance concerning the proposed revisions in mid-2018. According to a December 10, 2018 release, the proposed revisions were largely adopted without change, though certain non-substantive modifications were made in response to comments. The Commissioner stated that the revisions were necessary to implement legislation concerning Texas surplus lines insurance and to generally update and reorganize Department of Insurance rules. The newly-adopted Chapter 15 can be viewed .
Archer & White Sales, Inc. (“Archer”) sued Henry Schein, Inc. (“Schein”) in federal court seeking both monetary and injunctive relief. A contract between the parties required arbitration of all claims arising from the agreement, except those seeking injunctive relief. Schein moved to compel arbitration based on the request for monetary damages. Archer objected, pointing to its demand for injunctive relief. The issue thus became one of arbitrability—who decides whether the dispute is subject to arbitration, the court or an arbitrator? The contract at issue incorporated the rules of the American Arbitration Association, under which arbitrators are to decide arbitrability issues. The district court nonetheless decided the issue and denied Schein’s motion, holding it was “wholly groundless” because an arbitrator would inevitably conclude that the dispute is not arbitrable and refer it back to the district court. The Fifth Circuit affirmed, but the U.S. Supreme Court unanimously vacated the judgment.
Even where a contract expressly delegates the arbitrability question to an arbitrator, the Supreme Court explained that several federal courts “short-circuit” the process and decide the question themselves when they think a request for arbitration is “wholly groundless.” To these courts, this “wholly groundless” exception is a means of blocking “frivolous” attempts to transfer cases out of the court system. But the Supreme Court found the exception to be inconsistent with the Federal Arbitration Act (“FAA”) and Supreme Court precedent. The FAA, Justice Kavanaugh wrote, does not contain a “wholly groundless” exception, and the Court must interpret the FAA as written. The FAA, in turn, requires interpreting the relevant contract as written. As a result, if a contract delegates the arbitrability issue to an arbitrator, courts have no power to decide the issue, even if they think a particular dispute is not ultimately arbitrable. The Court held that the wholly groundless exception therefore “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” And such was the case here, where neither of the lower courts actually decided whether the Archer/Schein contract delegated the arbitrability question to an arbitrator, instead short-circuiting the issue based on the wholly groundless exception. Having rejected the applicability of such exception, the Court vacated the judgment and remanded for this threshold determination.
Sears Roebuck and Co. (Sears) entered a 40-year lease with Century III Mall, PA., LLC (“Century III Mall”), whereby Sears agreed to maintain an anchor store at the Century III Mall. In the event that Sears elected to discontinue operations, the lease provided Century III Mall with an option to acquire the Sears “Building and Improvements,” the valuation to be determined by a formula specified in the lease. The lease also contained an arbitration clause prohibiting the arbitrators from, among other things, changing any terms set forth in the lease. Sears later terminated the lease and Century III Mall exercised its right to acquire the Building and Improvements. Unable to agree on a valuation, Sears commenced arbitration and an arbitration panel awarded Sears nearly $4 million.
Century III Mall filed a petition in a federal district court in Pennsylvania seeking to vacate the award, claiming the panel exceeded its authority by “rewriting” the terms of lease and, in turn, inflating the property value. The district court disagreed and dismissed the action, as well as confirmed the award. The Third Circuit affirmed, noting, as an initial matter, that the district court had subject matter jurisdiction under 9 U.S.C. §§ 9 and 10 and 28 U.S.C. § 1332, and that appellate jurisdiction was proper under 9 U.S.C. § 16(a) and 28 U.S.C. § 1291. Substantively, the Third Circuit agreed with the district court that the panel reasonably interpreted the lease and rationally applied its terms. Thus, citing the “highly deferential standard of review” applicable to arbitration decisions, the Court declined to disturb the district court’s decision not to vacate the award.