Carlton Fields

Court Denies Motion to Reconsider Order Compelling Arbitration

November 12, 2019 by Carlton Fields

Plaintiffs Kevin Struss, Struss Farms LLC, and Struss & Cook Farms brought certain tort and breach of contract claims against Rural Community Insurance Co. (RCIC) and Scott Laaveg, RCIC’s claims representative. The claims arose from insurance contracts between the parties under which RCIC insured the plaintiffs’ crops.

After motions were made to compel arbitration, the court ordered briefing on the issue of the scope of the arbitration clause. The court compelled arbitration of all claims against RCIC and stayed all claims against Laaveg. The defendants moved to reconsider, arguing that only the contract claims should be arbitrated, not the tort claims.

The court explained that a motion to reconsider is based on: (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. It is generally not appropriate for a court to reconsider issues that it has already addressed. The court noted that the defendants never advanced any argument in their prior filings or supplemental briefing concerning the scope of the arbitration clause as between contract and tort claims, or otherwise. Therefore, the court declined to reconsider its prior ruling and referred all claims against RCIC to arbitration. Similarly, the court held that it was not appropriate to revisit its decision to stay the claims against Laaveg.

Struss v. Rural Community Ins. Servs., No. 2:18-cv-02187 (D. Kan. Oct. 11, 2019).

Court Enforces ICSIC Award

October 23, 2019 by Carlton Fields

The International Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID) is a treaty aimed at encouraging and facilitating private foreign investments in developing countries, to which the United States is a signatory. The ICSID has an internal framework for adjudicating and enforcing investor-state disputes. Under the ICSID, any contracting state can request an arbitration tribunal. The parties can challenge an arbitration tribunal award by seeking an annulment of the award on specific grounds, including that the tribunal manifestly exceeded is powers, that there was corruption on the part of a member of the tribunal, that the proceeding seriously departed from a fundamental rule of procedure, or that the award failed to state the reasons on which it was based. At this point, a three-person ad hoc committee convenes to review the request for an annulment.

The ICSID is not empowered to enforce awards; the prevailing party must seek enforcement of its award with a court of a member state. The court of a member state plays only a limited role, and member states are not permitted to review an award on its merits. ICSID awards are beyond the scope of the Federal Arbitration Act. However, the court’s role is more than just a rubber stamp. The courts must apply the same standard to ICSID awards that a federal court applies when it gives full faith and credit to a final judgment of a state court. This means that a federal court must “‘give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so’, and, by extension, means that federal courts must accord ICSID awards the same binding effect required under the Convention.” With respect to fraud, a federal court should decline to give full faith and credit to a state court judgment only if the state court would itself decline to enforce the judgment on grounds of fraud. This same standard applies to declining an ICSID award based on fraud.

This case involves a dispute between TECO, an energy company incorporated in the United States, and the Republic of Guatemala, over electricity rates. The dispute was subject to the ICSID. The ICSID arbitration tribunal issued an award in favor of TECO. TECO requested an annulment of part of the award, and Guatemala requested an annulment of the entire award. The committee issued its decision on annulment, which was in favor of TECO. TECO commenced this action to enforce the award. The court enforced the award based on the above standards, as it was clear that the ICSID committee would itself enforce this award.

TECO Guatemala Holdings, LLC v. Republic of Guatemala, No. 1:17-cv-00102, 2019 WL 4860819 (D.D.C. Oct. 1, 2019).

Court Confirms Arbitration Award Under FAA’s Strong Presumption in Favor of Such Awards

October 21, 2019 by Carlton Fields

This case arises from a dispute over the parties’ obligations under several oil and gas leases. The parties engaged in an arbitration pursuant to an arbitration agreement. The arbitration panel entered awards in favor of defendants Alan Larson and others. Northeast Natural Energy LLC filed a complaint in the U.S. District Court for the Western District of Pennsylvania. Under the Federal Arbitration Act, there is a strong presumption in favor of an arbitration award and a court must grant an order confirming an arbitration award, except in few enumerated instances. One ground for vacating an award includes “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court may also vacate an arbitration award when the arbitrators displayed a “manifest disregard” of the law. This means there must be “absolutely no support at all in the record justifying the arbitrator’s determinations.”

The court denied Northeast Energy’s motion to vacate the arbitration award and held that the panel did not exceed its powers and did not manifestly disregard the law. The court explained that there was nothing in the record to support that the panel exceeded its powers by rewriting the leases and failing to interpret the leases as written. The court further explained that the panel did not remove a provision from the leases, and the record supported the panel’s interpretation. The court found that the panel’s application of the parol evidence rule was not “completely irrational” as it cited appropriate legal authority and did not misapply Pennsylvania law. Lastly, the court held that the panel did not manifestly disregard the law in making awards to non-testifying defendants because the record revealed that the panel had sufficient information to make such findings.

Ne. Natural Energy LLC v. Larson, No. 3:18-cv-00240 (W.D. Penn. Sept. 20, 2019).

Court Holds That Issue of Arbitrability Is for an Arbitrator to Decide Pursuant to Agreement

October 2, 2019 by Carlton Fields

A group of customers appealed the denial of a motion to compel arbitration and a declaratory judgment entered in an action brought by three internet providers. The customers subscribed to internet service in Georgia and Alabama through the internet providers, which was governed by a terms of service agreement. The customers claimed that the internet service was slower than promised. At the time the customers asserted this claim, the terms of service contained an arbitration clause providing that “any controversy or claim arising out of or relating to [the Terms of Service] shall be resolved by binding arbitration at the request of either party.” The terms of service also incorporated the rules of the American Arbitration Association. After the internet providers learned of the customers’ intent to initiate arbitration, they updated the terms of service to expressly state that the internet providers do not consent to arbitration with respect to all customers receiving internet service in Alabama or Georgia.

The customers moved to compel arbitration, and the internet providers argued that they were not required to arbitrate the dispute under the updated terms of service. The customers’ motion to compel arbitration was denied, and they appealed. The Alabama Supreme Court reversed the trial court’s decision and compelled arbitration. The court explained that although questions of arbitrability are typically answered by the courts, those questions should be sent to an arbitrator if there is clear and unmistakable evidence that the relevant parties intended an arbitrator to decide the issue of arbitrability. Here, the original terms of service incorporated the rules of the AAA, which evidences an agreement to delegate issues of arbitrability to an arbitrator. Therefore, the court determined that the arbitration clause in the initial terms of service included an agreement between the internet providers and the customers to have an arbitrator decide issues of arbitrability, including whether the updated terms of service effectively excluded the customers’ disputes from arbitration.

Blanks v. TDS Telecomms. LLC, No. CV-18-900097 (Ala. Sept. 6, 2019).

District Court Compels Arbitration Pursuant to Operating Agreement

September 30, 2019 by Carlton Fields

The action arises out of a foreclosure sale in which property was conveyed to First 100 LLC. Subsequent to the foreclosure sale, First 100 conveyed the property to Alan and Theresa Lahrs as trustees of the Lahrs Family Trust. In this action, the Lahrs filed crossclaims against First 100 alleging, among other things, intentional and negligent misrepresentation, fraudulent inducement, and breach of the covenant of good faith and fair dealing. An operating agreement between First 100 and the Lahrses contained a binding arbitration clause providing that “[a]ny dispute, controversy, or claim arising out of or relating to this [a]greement or the breach thereof shall solely be settled by arbitration under the Commercial Arbitration rules of the American Arbitration Association.” First 100 moved to compel arbitration.

The U.S. District Court for the District of Nevada granted the motion and stayed the action pending the arbitration. The court explained that in addressing a motion to compel arbitration, the court’s role is “limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Further, there is a strong federal policy that favors arbitration, and a court will not accept a controversy unless it may be said with positive assurance that the arbitration clause does not cover the dispute. The court held that the crossclaims and the issue of liquidated damages were subject to the arbitration agreement.

Bank of N.Y. Mellon v. Christopher Cmtys., No. 2:17-cv-01033 (D. Nev. Sept. 9, 2019).