John Pitblado

KENTUCKY FEDERAL COURT FINDS SUBJECT-MATTER JURISDICTION HAS NOT BEEN “REVERSE PREEMPTED” BY APPLICATION OF KENTUCKY’S INSURERS REHABILITATION AND LIQUIDATION LAW

June 19, 2017 by John Pitblado

The question presented to the Court was “whether federal law has opened the door for state law to ‘reverse preempt’ the diversity jurisdiction statute.” The McCarran-Ferguson Act was enacted by Congress to prevent federal laws from interfering with state insurance regulation. The Liquidator sought to expand the existing McCarran-Ferguson “reverse preemption” framework to prevent the Defendant from exercising their right of removal pursuant to 28 U.S.C. § 1441. The Court determined that application of the Kentucky Insurers Rehabilitation and Liquidation Law (“IRLL”) had exclusive jurisdiction over the matter, which “would directly conflict with federal law” and “therefore, the IRLL jurisdiction provision must be preempted by the federal removal and diversity subject matter jurisdiction statute.”

Having established subject-matter jurisdiction necessary to adjudicate the dispute, the Court declined to abstain from exercising its jurisdiction under the Colorado River doctrine, as the Liquidator included a demand for common law contract damages, and there was no longer a parallel state proceeding. The Court requested additional briefing on the issue of whether the FAA can apply in light of the parties’ “Governing Law” agreement that restricted the Court to the law of Kentucky.

H. Brian Maynard, Liquidator of Kentucky Health Cooperative, Inc. v. CGI Technologies and Solutions, Inc., 3:16-cv-00037 (USDC E.D. Ky. Jan 3, 2017)

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SIXTH CIRCUIT AFFIRMS FINDING ARBITRATOR HAD REASONABLE BASIS TO DENY WAGE DISCRIMINATION CLAIM

June 2, 2017 by John Pitblado

Plaintiff raised three arguments in support of her motion to vacate an arbitration award: “(1) that the arbitrator exceed his powers or so imperfectly executed them that a mutual, final, and definite award upon her claims was not made; (2) that the arbitrator acted in manifest disregard of the applicable law and in violation of clear public policy; and (3) that there was an evident material mistake in the description of the facts and evidence presented at the hearing with respect to [Plaintiff’s] claims.” Ultimately, the Court found her arguments “did not overcome the substantial deference that courts must give to an arbitrator’s decision on review.”

The Court specifically looked at the applicable law under both the ADEA and the age-discrimination provisions of the THRA, finding Plaintiff was unable to “demonstrate that the arbitrator misinterpreted the law – much less that the arbitrator exceeded his authority such that [Plaintiff] is entitled to vacatur of the arbitrator’s judgment.” Moreover, “[t]he fact that the arbitrator chose to weigh [a witness’s] detailed testimony more heavily than [another witness’s] vague answers in concluding that a valid non-discriminatory reason existed for [Plaintiff’s] lesser pay does not amount to an action in excess of the arbitrator’s power, a ‘manifest disregard of the law,’ or an ‘evident material mistake’ in the facts of the award. It does not even amount to a ‘serious error,’ a case in which we would still be bound to uphold the arbitrator’s decision.”

Marshall v. SSC Nashville Operating Co., LLC d/b/a SAVA Senior Care and Greenhills Health Rehabilitation Center, No. 16-5751 (6th Cir. April 18, 2017)

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MASSACHUSETTS DISTRICT COURT, CITING HALL STREET, DECLINES TO FIND MANIFEST DISREGARD OF THE LAW OR PUBLIC POLICY AS BASES FOR VACATUR OF ARBITRATION AWARD

June 1, 2017 by John Pitblado

A federal court confirmed an arbitration award, denying a motion to vacate where the movant failed to cite any basis for vacatur under section 10 of the Federal Arbitration Act (FAA). Instead, the movant sought vacatur of the award on two grounds – manifest disregard of the law and public policy – both of which it acknowledged are not listed within section 10. The respondent argued that following the Supreme Court’s decision in Hall Street, neither ground, independent of any provision under section 10, is an adequate basis for vacatur under the FAA.

The Court agreed, but also noted that the First Circuit has not “squarely determined whether [its] manifest disregard case law can be reconciled with Hall Street.” However, the Court looked to the First Circuit’s dicta, which stated that Hall Street compels the conclusion that the manifest disregard standard survives only as a judicial gloss on § 10. With regard to the movant’s public policy argument, the Court noted that although there has been no discussion following Hall Street by the First Circuit about whether a violation of public policy survives as a basis for vacatur under the FAA, to the extent that it survives, it, too, would only do so as a judicial gloss on section 10.

The Court also rejected the movant’s arguments raised only in its reply brief that the arbitrator exceeded his powers, citing section 10(a)(1)–(4) as a plausible basis for vacatur. The Court reasoned that any perceived errors made by the arbitrator in his contractual interpretations did not amount to a decision “unfounded in reason and fact” or “based on reasoning so palpably faulty that no judge, or group of judges, ever could conceivably have made such a ruling.” As such, the Court denied the motion for vacatur and confirmed the award.

Sanwan v. Lindsay, No. 16-12469-RWZ (USDC D. Mass. May 5, 2017).

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FOURTH CIRCUIT AFFIRMS FINDING THAT ARBITRATION AGREEMENT IN PAYDAY LOAN OBTAINED OVER THE INTERNET IS UNENFORCEABLE

May 31, 2017 by John Pitblado

Plaintiff electronically signed a contract which contained: (1) terms governing the loan; (2) an agreement to submit disputes to arbitration; and (3) a choice of law provision which required the application of Otoe-Missouria tribal law and disclaimed the application of state or federal law. The arbitration clause itself provided that “any dispute … will be resolved by arbitration in accordance with the law of the Otoe-Missouria Tribe of Indians.” The same disclosure about the application of Otoe-Missouria tribal law was included on the signature page.

Relying on the Circuit Court’s prior decision in Hayes v. Delbert Services Corp., 811 F.3d 666 (4th Cir. 2016), the district court concluded the contract denied the applicability of all federal and state law, holding the arbitration agreement unenforceable.

The Circuit Court reviewed, tasked with examining whether, as a matter of law, the “choice-of-forum and choice-of-law clause operate in tandem as a prospective waiver of a party’s right to pursue statutory remedies.” As the language took the “plainly forbidden” step of prospectively waiving federal substantive rights, the choice of law provision was unenforceable as a matter of law and not severable from the rest of the arbitration agreement, because the choice of law provision went to the “essence” of the contract.

Dillon v. BMO Harris Bank, N.A., et al., NO. 16-1362 (4th Cir. May 10, 2017)

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SIXTH CIRCUIT FINDS DISTRICT COURT ERRED IN RULING ON ARBITRATION WAIVER ISSUE WHERE ISSUES AS TO ARBITRABILITY WERE RESERVED FOR DECISION BY THE ARBITRATOR

May 30, 2017 by John Pitblado

The Plaintiff, Hilton, a computer purchaser, entered into a repayment agreement with Dell Financial Services, LLC, which later sold the debt to Midland Funding, to purchase a Dell computer on credit. The underlying issue in the case concerned Hilton’s claim brought in federal court that Midland Funding attempted to collect on time-barred debt in violation of the Fair Debt Collection Practices Act (FDCPA) after Midland sued Hilton in state court to collect on the outstanding balance. Midland moved to compel arbitration and dismiss the district court case, citing the Dell credit agreement’s arbitration provision.

The District Court for the Eastern District of Michigan held that Hilton’s claim was arbitrable, and that Midland did not waive its right to arbitrate by bringing a debt collection action in state court. The district court ordered the parties to proceed with arbitration of plaintiff’s claims pursuant to the arbitration provision and further ordered that, in lieu of staying the proceedings, the case be dismissed without prejudice. Hilton appealed both the district court’s decision to dismiss the case rather than stay the proceedings and its holding that Midland had not waived arbitration.

The Sixth Circuit affirmed the district court’s dismissal of the case, finding that the FAA requires a court to stay proceedings pending arbitration only “on application of one of the parties.” The panel found that absent a direct request to stay by Hilton, and because “neither party did more than vaguely reference the possibility of staying the proceedings,” the district court did not err by dismissing the case without prejudice.

With regard to whether Midland waived its right to arbitrate, the Sixth Circuit held that the district court should not have ruled on this issue because the arbitration provision delegated this question to the arbitrator and Midland elected to arbitrate. The panel agreed with Hilton’s argument that Midland could not simultaneously argue first, that the arbitration provisions gave authority to the arbitrator to determine whether it waived the right to compel arbitration and second, that the courts should determine whether arbitration was waived. As such, the panel found that the district court erred by deciding the waiver issue.

Hilton v. Midland Funding, No. 16-1556 (6th Cir. Apr. 28, 2017).

This post written by Gail Jankowski.

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