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John Pitblado

UK SUPREME COURT CONFIRMS ENGLISH COURTS LACK JURISDICTION UNDER THE ARBITRATION ACT 1996 TO COMPEL PARTIES TO PROVIDE SECURITY WHEN RESISTING ENFORCEMENT OF ARBITRATION AWARDS UNDER THE NEW YORK CONVENTION

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As a condition to challenging enforcement or recognition of an arbitration award, the UK Supreme Court overturned a Court of Appeal decision which imposed a $100 Million security obligation on a New York Convention arbitral award debtor pursuant to Section 103(5) of the Arbitration Act 1996 (the “Act”).

Distinguishing Dardana v. Yukos, in which the court found there was limited power under Section 103(5) of the Act to order security in the instance of a further adjournment, the Supreme Court found that the Court of Appeals order directing the security obligation was not within the scope of the court’s jurisdiction. Here, an adjournment had not been granted, and thus there was no jurisdiction for the Court of Appeals to order the security.

Further, looking at articles V and VI of the New York Convention, which established a uniform approach for recognition and enforcement, the Supreme Court found the provision of security there was only to be used in cases where an adjournment was granted and the party was seeking to set aside or suspend the foreign proceeding’s award.

IPCO (Nigeria) Ltd. v. Nigerian National Petroleum Corp., [2017] UKSC 16 (United Kingdom Supreme Court, March 1, 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

LOUISIANA FEDERAL COURT FINDS REMOVAL PROPER AS DISPUTE COULD RELATE TO AN UNDERLYING ARBITRATION CLAUSE IN INSURANCE POLICY

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In this case, a Louisiana federal court denied a motion for remand of a former machinist’s asbestos-related claim, finding that an English insurer’s removal from state court was appropriate and that the dispute could relate to an underlying arbitration agreement contained in an insurance policy.

The background of this case can be found here. In short, plaintiff filed a personal injury action in Louisiana state court against defendants Cove Shipping, Inc. and Maritime Management Corp. (together, “Cove Shipping”), alleging that he now suffers from lung cancer as a result of asbestos exposure from years spent working as a machinist onboard several oil tankers in the early 1980s while he was working for Cove Shipping. Via the Louisiana Direct Action Statute, plaintiff also named West of England Shipowners Mutual Insurance Association, a P&I Club (“West of England”) as a defendant, for its role as Cove Shipping’s insurer during the years in question. West of England subsequently removed the action, invoking the removal provision of the Uniform Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”).

As justification for using the Convention for removal, West of England cited an arbitration clause found in its Club Rules that it contends were in effect at the time of plaintiff’s alleged employment and now apply to his lawsuit, notwithstanding the fact that plaintiff is a third-party to the insurance agreement between West of England and Cove Shipping. In his motion for remand, plaintiff made various arguments in support of the contention that he is not bound by the arbitration clause and, thus, the case should be remanded: First, West of England has failed to demonstrate it is entitled to arbitration under documents it submitted with removal as the arbitration agreement at issue was not attached. Second, English law forbids the application of this arbitration agreement to non-signatories such as plaintiff. Third, the arbitration agreement is unenforceable because the prohibitive costs of the agreement prevent plaintiff from vindicating his federal statutory rights. Fourth, West of England waived its right to arbitrate. Fifth, Jones Act Claims are not subject to arbitration. And sixth, the law of Louisiana forbids arbitration in insurance disputes, which does not run afoul of the Convention.

Rejecting all of plaintiff’s arguments and/or finding them premature merit-based challenges to arbitration, the Louisiana federal court denied the motion to remand, finding that removal of the direct action plaintiff’s lawsuit against a foreign insurer was appropriate based on the existence of an arbitration clause found in the Club Rules of the insurer. The court noted that what was at issue in the present motion was a jurisdictional question, and that the plaintiff is not left without redress, as merit-based arguments may be presented in the form of an opposition to a motion to compel arbitration, which is typically the first matter to be raised after removal under 9 U.S.C. § 205 of the Convention. Finally, the court found that the arbitration clause at issue could conceivably have an effect on the outcome of plaintiff’s lawsuit, such that the two are related, and that therefore section 205 of the Convention confers subject matter jurisdiction on the court, making removal of the case by West of England proper.

O’Connor v. Maritime Management Corp., et al., No. 16-16201 (E.D. La. Mar. 16, 2017).

This post written by Jeanne Kohler.

See our disclaimer.

CALIFORNIA SUPREME COURT FINDS WAIVER OF STATUTORY REMEDY IN ARBITRATION AGREEMENT CONTRARY TO PUBLIC POLICY

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“Agreements to arbitrate claims for public injunctive relief under [California’s Consumers Legal Remedy Act or Unfair Competition Law], or the false advertising law are not enforceable in California.” The California Supreme Court was tasked with determining whether an “arbitration provision is valid and enforceable insofar as it purports to waive [the Plaintiff’s] right to seek public injunctive relief in any forum.”

Looking at Plaintiff’s complaint and allegations, the Court determined the arbitration provision at issue did in fact waive Plaintiff’s right to request in any forum public injunctive relief, invalidating the arbitration provision. The Court found the California rule was not preempted by the FAA, as § 2 of the FAA “permits arbitration agreements to be declared unenforceable upon such grounds as exist at law or in equity for the revocation of any contract.” Thus, arbitration agreements “like other contracts, may be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Here, the contract defense at issue is that “a law established for a public reason cannot be contravened by a private agreement”.

Sharon McGill v. Citibank, N.A., Case No. S224086 (Cal. Sup. Ct. April 6, 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

THIRD CIRCUIT RULES ARBITRATION AGREEMENT INCLUDED IN PRODUCT MANUAL IS UNENFORCEABLE

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This action involved a class action suit brought in New Jersey federal court. The complaint alleged that plaintiff David Noble saw Samsung advertisements stating that the Samsung smartwatch’s battery lasted 24 to 48 hours with typical use. Noble claimed that the battery in his Samsung smartwatch lasted only four hours, and that two replacements provided equally poor battery life. The suit was brought based on the New Jersey Consumer Fraud Act, common law fraud, negligent misrepresentation, breach of warranty and unjust enrichment, accusing the company of deceptive marketing and pricing. Samsung moved to compel arbitration, based on an arbitration provision, printed on page 97 of a 143-page “Health and Safety and Warranty Guide” in the watch box. The New Jersey district court denied the motion, finding that there was no binding contract and that the arbitration clause was unreasonably hidden. Samsung appealed.

In its analysis whether the arbitration clause is a valid contractual term, the Third Circuit noted that under New Jersey law, mutual assent between the parties is required for a contract to be binding and that mutual assent requires reasonable notice to the contracting parties of the contract’s terms. The Court noted that when the writing does not appear to be a contract and the terms are not called to the attention of the recipient, there is no reasonable notice and the terms cannot be binding. Thus, the Court stated that a contractual term, like an arbitration clause, is binding only when the terms are reasonably conspicuous, rather than in a manner that de-emphasizes its provisions. The Third Circuit then analyzed the arbitration clause at issue. The Court found that that the Samsung smartwatch arbitration clause was contained in a 3-inch by 2.5-inch booklet whose cover referred to itself as a “manual,” which “did not appear to be a bilateral contract, and the terms were buried in a manner that gave no hint to a consumer that an arbitration provision was within.” The Court also noted that the index in the manual includes “no language to tell consumers to expect bilateral terms, such as a bilateral arbitration agreement, in the guide.” Thus, the Third Circuit held that the arbitration clause was not a binding or valid contractual term, and affirmed the district court’s decision denying the motion to compel arbitration.

Noble v. Samsung Electronics America, Inc., No. 16-1903 (3rd Cir. Mar. 3, 2017).

This post written by Jeanne Kohler.

See our disclaimer.

PENNSYLVANIA APPELLATE COURT DENIES PETITION TO TRANSFER STRUCTURED SETTLEMENT INVOLVING LHWCA

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Relying on Federal Court precedent, a Pennsylvania intermediate appellate court resolved whether the plain language of Section 916 of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) prohibits the assignment of benefits where the employer/insured entered into a reinsurance agreement with another insurer to pay the structured settlement payments. “In other words, a determination must be made as to whether [the employee’s] claim under the LHWCA was resolved when the Reinsurance Agreement was entered, and whether the settlement payouts are being made to him pursuant to a contract where he is a third party beneficiary.”

The Court ultimately reversed the lower court’s decision which had permitted the transfer, holding “it would be absurd to allow a party, who expressly settled a LHWCA claim, to avoid the anti-assignment clause of the LHWCA merely by engaging in the common practice of purchasing an annuity or having a separate insurance company pay the structured settlement payments …. [and] to utilize the [petitioner’s] interpretation of Section 916 would effectively render the LHWCA inapplicable, as any form of reinsurance agreement or annuity would be considered a payment of the outstanding claim.”

In re: C. Dwyer, No. 149 WDA 2016 (Sup. Ct. Pa. January 27. 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.