Christina Gallo

In this action, Caradigm USA, a computer software company, brought a breach of contract action against health care provider PruittHealth Inc. in the U.S. District Court for the Northern District of Georgia, alleging that Pruitt breached a contract with Caradigm to consolidate and organize patient medical and billing records. Pruitt argued that it was dissatisfied with Caradigm’s progress and that it had a right to abandon the contract. After discovery, the parties filed dueling summary judgment motions. The district court decided that Pruitt had anticipatorily repudiated the contract before Caradigm’s performance was required and that Pruitt was therefore liable for breach. However, because the value of the contract was unclear, the district court left the issue of damages for trial.

After a four-day trial, the jury awarded Caradigm $11 million, comprising $5.1 million in contract damages, $3.6 million in compound interest, and $2.3 million in attorneys’ fees and expenses under a Georgia statute that provides for fee awards against “stubbornly litigious” parties.

Pruitt appealed, arguing that the district court erred in several ways in the run-up to and during the damages trial, which led to the overstated contract damages award and erroneous awards of interest and attorneys’ fees. Specifically, Pruitt claimed that the district court was wrong in its construction of the parties’ contractual obligations, that the court held Caradigm to a lower burden of proof than it should have, and that it was wrong to exclude evidence that Caradigm’s future revenues might have decreased.

A three-judge panel of the Eleventh Circuit concluded that, in the main, the district court did not reversibly err, therefore affirming the awards of contract damages and fees, as well as the determination that Caradigm was entitled to recover interest on the damages award. However, the Eleventh Circuit concluded that it was error to compound the interest, and thus vacated that award and remanded so that the district court can calculate simple interest.

Although the Eleventh Circuit agreed that Pruitt failed to raise the compound interest order before trial, the court stated that Pruitt had not waived its compound interest argument. The court stated that Georgia law is clear that parties must explicitly agree to compound interest in their contract. Because the language in the contract between Pruitt and Caradigm did not establish that the parties agreed to compound interest, the Eleventh Circuit vacated the compound interest award and remanded for the district court to calculate simple interest.

Caradigm USA LLC v. PruittHealth, Inc., No. 19-11648 (11th Cir. July 10, 2020).

In a case involving an arbitration agreement between foreign nationals and U.S. citizens, which is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and its implementing legislation, chapter II of the FAA, the U.S. District Court for the Western District of Arkansas found that the McCarran-Ferguson Act does not supersede the Convention or chapter II of the FAA, therefore directing the plaintiff’s claims for insurance coverage to arbitration.

Plaintiff J.B. Hunt Transport Inc.’s claims arose out of a dispute concerning two insurance policies issued to it by Certain Underwriters at Lloyd’s and Steadfast Insurance Co., under which the plaintiff sought defense and indemnity coverage for claims presented in a separate lawsuit involving the wrongful death of a woman by an employee of one of the plaintiff’s contracted carriers.

Underwriters moved for arbitration pursuant to the arbitration provision in its policy with the plaintiff directing any disputes to an arbitrator. In its motion to compel, Underwriters argued that the Convention, which provides that the “court of a Contracting State … shall, at the request of one of the parties, refer the parties to arbitration,” is controlling law under the Supremacy Clause, rendering the arbitration provision valid and enforceable. Conversely, the plaintiff argued that Arkansas law, which bars the enforcement of binding arbitration clauses in insurance contracts, should control pursuant to the McCarran-Ferguson Act, which creates a system of “reverse-preemption” for state insurance laws. Underwriters responded that the McCarran-Ferguson Act does not apply to the Convention or chapter II of the FAA and that, as a result, the court should enforce the arbitration provision. The lynchpin of Underwriters’ argument was that the Convention and chapter II of the FAA are not “acts of Congress” subject to the McCarran-Ferguson Act. In support of its argument, Underwriters cited a variety of cases concluding that the McCarran-Ferguson Act does not supersede the Convention or chapter II of the FAA.

Steadfast also opposed Underwriters’ motion for arbitration, arguing that it was not a party to the policy between Underwriters and the plaintiff and therefore was not subject to the arbitration provision. Steadfast asked the court to stay the plaintiff’s claims against it in the event the court granted arbitration.

The district court held that the McCarran-Ferguson Act does not supersede the Convention or chapter II of the FAA. The court noted that the McCarran-Ferguson Act does not nullify international agreements, but rather is limited to domestic affairs. As such, the Convention and chapter II of the FAA are not within the scope of the McCarran-Ferguson Act, and the Convention and chapter II of the FAA are not reverse-preempted by Arkansas law barring the enforcement of arbitration agreements in insurance contracts.

After finding the Convention controls, the district court analyzed four factors to determine whether the Convention applied to the arbitration provision at issue: (1) whether a written arbitration agreement exists between the parties; (2) whether the arbitration provision provides for arbitration in the territory of a signatory of the Convention; (3) whether the relationship between the parties involves a commercial subject matter; and (4) whether the relationship between the parties is not entirely domestic. The district court found that the second and third requirements for applying the Convention were easily met where the arbitration provision stated that the arbitration should occur in New York, which is located within the signatory’s territory, and the parties’ insurer/insured relationship is commercial in nature.

As to the first and fourth requirements, the plaintiff argued that the Convention did not apply because the arbitration provision only applies to disputes between reinsurers and that the relationship between the plaintiff and Underwriters was entirely domestic because it obtained the Underwriters policy through a U.S.-based broker. The district court rejected both arguments, finding that the arbitration provision was part of the policy held by the plaintiff, and referenced the policy to which the plaintiff was a party. The court also noted that while the plaintiff may have gone through a U.S. broker, Underwriters is a foreign-based company, and the broker had to go through the U.K.’s insurance market.

The court also stayed the remaining claims against Steadfast until the conclusion of arbitration.

J.B. Hunt Transport, Inc. v. Steadfast Insurance Co., No. 5:20-cv-05049 (W.D. Ark. July 1, 2020).

In this matter, plaintiff Marisco Ltd. hired defendant GL Engineering & Construction (GL E&C) to construct and deliver a floating dry dock. Marisco alleged that GL E&C’s principals misrepresented their experience and ability with respect to constructing dry docks, causing GL E&C to deliver the dry dock late, unfinished, and not according to specifications. GL E&C filed a counterclaim alleging that Marisco failed to pay the full amount due under their agreement and failed to pay for change orders. Marisco challenged the counterclaim by way of two motions, one for judgment on the pleadings and one for summary judgment, the latter of which sought to compel GL E&C to arbitrate the matters raised in the counterclaim.

Count I of GL E&C’s counterclaim asserted breach of contract based on Marisco’s failure to pay the $148,400 due on the final progress payment and failure to pay amounts owed on certain change orders. Count II of GL E&C’s counterclaim (now part of Count I) asserted that Marisco breached the implied covenant of good faith and fair dealing by approving change orders but then failing to pay for the extra work covered by the change orders, and by pressuring GL E&C to complete the construction of the dry dock in spite of delayed payments. Count III of GL E&C’s counterclaim asserted that Marisco was unjustly enriched by getting the dry dock without having paid for all of it.

In its first motion, Marisco sought judgment on the pleadings as to Counts II and III of the counterclaim, but the court only granted judgment on the pleadings as to Count II.

In its second motion, Marisco sought summary judgment, arguing that the counts in the counterclaim must be arbitrated, or that Marisco was entitled to judgment as a matter of law with respect to the counterclaim. The court found that to the extent Count I concerned the $148,000 allegedly due on the final progress payment, Marisco failed to show that the parties agreed to arbitrate that claim. The court analyzed the terms of the dry dock construction agreement and noted that with respect to progress payments, the parties appeared to have contemplated arbitration of disputes as to whether the state of construction triggered Marisco’s progress payment obligations. However, because there was no dispute that GL E&C delivered the dry dock to Marisco, thereby triggering the obligation to pay the final progress payment, any claim arising out of nonpayment of the full amount of the last progress payment did not appear to involve the type of dispute of which the parties contemplated arbitration.

Conversely, the court found that both the Federal Arbitration Act and the terms of the dry dock agreement required the parties to arbitrate only GL E&C‘s breach of contract claim (Count I) arising out of Marisco’s failure to pay invoices for the change orders. The court declined to order the parties to arbitrate the unjust enrichment claim (Count III).

As to the matters not referred to arbitration, the court denied summary judgment given the questions of fact as to which party was responsible for the delays.

Marisco, Ltd. v. GL Eng’g & Constr. Pte., Ltd., No. 1:18-cv-00211 (D. Haw. June 26, 2020).

In this cattle-feeding dispute, cattle owner Bonsmara Natural Beef Co. and its principal George Chapman brought an action against feed yard owner Hart of Texas Cattle Feeders LLC, alleging claims including breach of contract, negligence, and fraud. Chapman also sought a declaratory judgment discharging him from liability as a guarantor for the cattle finishing contract. The trial court denied Hart’s motion to compel arbitration and, after a jury trial, entered judgment in favor of Bonsmara and Chapman. Hart appealed, and the court of appeals reversed and remanded.

On petition for review, the Supreme Court of Texas, in a 6-3 decision, affirmed the court of appeals’ judgment overturning the trial court’s denial of Hart’s post-judgment motion to compel arbitration, holding that a party does not forfeit its right to challenge a ruling on an appeal from a final judgment simply by opting not to pursue an interlocutory appeal of that ruling.

The Supreme Court addressed two issues:

1. Whether Hart’s failure to appeal the interlocutory order denying its motion to compel arbitration deprived the appellate court of jurisdiction to overturn that order on appeal from a final judgment; and
2. If the order was appealable, whether the court of appeals erred in ordering arbitration.

As to the first issue, the majority found that the court of appeals had jurisdiction to consider the trial court’s denial of Hart’s motion to compel arbitration because interlocutory appeal statutes do not alter the principle that orders merge into – and may be challenged on appeal from – a final judgment. The majority relied on the legislature’s use of the permissive term “may” in the interlocutory appeal statute and the fact that the statute did not provide a noncompliance penalty or indicate consequences of not appealing the arbitration decision immediately to support its opinion. The majority noted that the decision to appeal a court’s denial of arbitration is one that must be weighed and decided by the parties and their counsel based on the case’s facts.

As to the second issue, the majority held that the court of appeals did not err in ordering arbitration, finding that the arbitration agreement was enforceable because Bonsmara had not shown that the arbitrator determined that the arbitral forum was unavailable and that the arbitration clause’s language did not foreclose the application of direct-benefits estoppel to require arbitration with non-signatories.

Accordingly, the majority affirmed the judgment of the court of appeals.

The dissenters felt that the majority’s decision ran counter to common sense and basic notions of fairness – that by allowing litigants to see the outcome of a trial before appealing a denial of a motion to compel arbitration, the majority endorses a dispute resolution process that will result in “double the cost and double the time.”

Bonsmara Natural Beef Co. v. Hart of Texas Cattle Feeders, LLC, No. 19-0263 (Tex. June 26, 2020).

The Supreme Court of Washington recently affirmed the denial of Evergreen Hospital Medical Center’s motion to compel arbitration on the grounds that Evergreen waived its right to compel arbitration of claims arising under a collective bargaining agreement between Evergreen and the Washington State Nurses Association governing nurse employment.

A member employee brought this putative class action against her employer, Evergreen, alleging that Evergreen failed to give required rest and meal breaks. After nine months of litigation and the addition of a second named plaintiff, Evergreen moved to compel arbitration. The trial court denied the motion, and the court of appeals affirmed. Evergreen petitioned to the Supreme Court of Washington, which granted review.

The court analyzed three factors to determine whether Evergreen waived its right to arbitration: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that right; and (3) prejudice.

As to the first factor, the court found there was no dispute that Evergreen believed it had an existing right to arbitrate. As to the second factor, the court found that through its conduct, Evergreen chose to litigate for approximately nine months rather than arbitrate, and thus behaved inconsistently with a party seeking to arbitrate. The court noted that the parties engaged in discovery and litigation for approximately nine months without seeking mediation or awaiting a decision from the court in another case and that Evergreen did not move to compel until the third iteration of the complaint even though the complaint had almost identical claims throughout.

As to the third factor, the court found that granting the motion to compel arbitration this late in litigation would cause severe prejudice to the plaintiffs, who had already incurred more than $140,000 in legal fees (from discovery, sending the notice of the class action to all the nurses, and securing expert witnesses), and would improperly allow Evergreen to relitigate class certification on which it lost.

Thus, the Supreme Court affirmed the court of appeals on the ground that Evergreen waived the right to compel arbitration, and remanded to the superior court for further proceedings consistent with the Supreme Court’s opinion.

Lee v. Evergreen Hospital Medical Center, No. 97201-0 (Wash. June 4, 2020).