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Brendan Gooley

Court Rejects Attempt to Relitigate Arbitration Award

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The California Court of Appeal (Fourth District) recently rejected a dissatisfied litigant’s attempt to relitigate an arbitration decision that went against it to the tune of more than $18 million.

An employee of American Claims Management Inc. (ACM), a third-party administrator hired by QBE Insurance Corp. (QBE) to manage QBE’s claims, had a major case of the Mondays and apparently neglected to inform QBE about a demand for a $30,000 policy limit following a car accident. As a result of that “oops,” QBE paid $15 million to settle the claim. QBE then sued ACM for breach of contract. The parties arbitrated the dispute. An arbitration panel awarded QBE nearly $18.5 million.

QBE then petitioned a California trial court to confirm the arbitration award. ACM opposed. The court sided with QBE and confirmed the award, noting ACM appeared to be attempting to relitigate the arbitration award because it did not agree with the panel’s decision. ACM appealed. It raised a number of arguments. Specifically, ACM asserted that the arbitration panel had exceeded its powers by, for example, failing to cite California law, creating law that violated California law, awarding way too much money, and ignoring the Federal Arbitration Act. The appellate court didn’t quite see things ACM’s way, however. It noted that its review was exceptionally narrow and that it could only correct an arbitration award when the arbitrators “exceeded their powers but the award may be corrected without affecting the merits of the decision” (i.e., if the decision was “so utterly irrational that it amounts to an arbitrary remaking of the contract between the parties”). While ACM had couched its arguments in terms of exceeding power, the court concluded that ACM’s “claims amount[ed] to nothing more than assertions of legal error.”

The morals of this case: (1) if you’re a claims administrator, promptly report the claims that come in; and (2) don’t be fooled into thinking that claiming an arbitration panel “exceeded its powers” is a magic password to judicial review.

QBE Ins. Corp. v. Am. Claims Mgmt., Inc., No. D073345 (Cal. Ct. App. Feb. 4, 2019), reh’g denied (Feb. 27, 2019).

Tenth Circuit Affirms Partial Enforcement of Arbitration Clause

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The Tenth Circuit recently affirmed a district court’s decision partially compelling arbitration. Jesse Romero took out three title loans with TitleMax of New Mexico, Inc. Romero used his third loan to pay off his second loan and his second loan to pay off his first loan. Each loan was related to the same car and each loan agreement contained an identical arbitration clause. The clause was broadly worded to cover “Disputes.” However, the clause stated it did not apply to “disputes about the validity, coverage, or scope of” the arbitration clause. The loan agreements also contained an opt-out provision allowing the party to opt out of the arbitration clause if the borrower provided notice to TitleMax within 60 days of taking out the loan. Romero did not opt out of the arbitration clause in his first or second loan agreements, but elected to opt out of the clause in his third agreement. He then filed a putative class action asserting that TitleMax’s practices violated various New Mexico consumer protection statutes.

TitleMax removed the case to federal court and sought to invoke the arbitration provision and compel all of Romero’s claims to be arbitrated. The district court agreed that arbitration was proper with respect to Romero’s first and second loan agreements because Romero had not opted out of the arbitration clauses in those agreements. The court concluded, however, that Romero had properly opted out of the arbitration clause in the third agreement and accordingly, declined to compel arbitration with respect to Romero’s claims based on that agreement. The district court declined to rule on arbitration with respect to putative class members who were not before the court.

The Tenth Circuit affirmed. It first noted that the provision covered disputes broadly but also that the clause gave the court broad authority to interpret the clause. The court rejected TitleMax’s argument that Romero did not properly opt out of the clause in the third agreement and that the third agreement was a refinancing of the second agreement, which Romero had not opted out of and therefore required an arbitrator to determine whether Romero’s claims regarding his third agreement were subject to arbitration. The court explained that the arbitration clause gave the court the authority to interpret the arbitration provision. The court noted that each agreement was separate and contained its own (identical) arbitration clause.

Romero v. TitleMax of New Mexico, Inc., No. 18-2077 (10th Cir. Feb. 5, 2019)