Kenneth Cesta

Supreme Court of Idaho Finds That District Court Had Jurisdiction to Determine Enforceablity of Non-Compete Provision in Employment Agreement, Which Included a Mandatory Arbitration Provision

December 14, 2022 by Kenneth Cesta

In Blaskiewicz v. Spine Institute of Idaho, P.A., after being terminated with less than one year of employment, Donald Blaskiewicz, “a highly-trained neurosurgeon” filed a complaint for declaratory judgment in the state district court of Idaho to determine the enforceability of a Professional Services Agreement with his former employer, the Spine Institute of Idaho. The PSA contained a noncompete clause that “contractually proscribed Blaskiewicz from practicing medicine within fifty miles of the Spine Institute’s office (with an explicit exception for Caldwell) for a period of eighteen months, should his employment with the Spine Institute be terminated for any reason.” The PSA also included an arbitration clause, which required that “‘any dispute arising out of or related to [the PSA] be settled by arbitration in Ada County, Idaho.’”

The Spine Institute moved to dismiss, or in the alternative, to stay the proceedings, arguing that “the sole way … to challenge the noncompete provision was through arbitration and, as such, the district court was without jurisdiction to consider Blaskiewicz’s complaint.” Significantly, the Spine Institute “did not seek an order compelling arbitration, apparently because Blaskiewicz had not breached the PSA.” The district court denied the Spine Institute’s motion, concluding that it had jurisdiction over the matter. Thereafter, the district court granted Blaskiewicz’s motion for summary judgment, finding that the noncompete provision in the PSA was void as against public policy, and awarded attorney’s fees in favor of Blaskiewicz.

The Supreme Court of Idaho vacated the district court’s grant of summary judgment and remanded the case for further proceedings. First, the court addressed whether the appeal was moot, since the 18-month noncompete period had expired and Blaskiewicz did not accept employment during that time. The court concluded that the appeal was not moot since the district court had awarded attorney’s fees to Blaskiewicz, and “if we were to conclude the district court erred in granting summary judgment (as we do below) … this case presents a real and substantial controversy.” Second, the court held that “the district court had jurisdiction to determine whether the noncompete provision was enforceable,” and that while the Spine Institute moved to dismiss the case or stay the proceedings, they did not file a demand for arbitration and “cannot now complain that this controversy should have been arbitrated.” Third, the court found that the district court erred in granting summary judgment in favor of Blaskiewicz, concluding that “there are genuine issues of material fact such that summary judgment was inappropriate as to whether the noncompete provision was void as a matter of public policy or otherwise enforceable.” Finally, the court vacated the district court’s award of attorney’s fees since Blaskiewicz was no longer the prevailing party, and remanded the case for further proceedings.

Blaskiewicz v. Spine Institute of Idaho, P.A., Docket No. 48785 (Supreme Court of Idaho, Oct. 31, 2022)

Georgia Court of Appeals Confirms Arbitration Award Holding That Arbitrator Did Not Manifestly Disregard Law or Overstep Authority

November 18, 2022 by Kenneth Cesta

Concluding that the arbitrator did not manifestly disregard contract law or overstep his authority, the Georgia Court of Appeals confirmed the arbitrator’s award and remanded the matter for consideration of an award of attorneys’ fees and post-award interest.

Claimants Southern Mountain Adventures LLC and Adventure Motorsports Reinsurance Ltd. entered into an arbitration agreement with Interstate National Dealer Services Inc. (INDS) to resolve their claims that INDS overcharged Southern Mountain Adventures. The limited facts included in the court’s decision confirm that the dispute between the claimants and INDS involved “payments collected by INDS pursuant to motorsport vehicle service contracts sold to customers by [Southern Mountain Adventures] and administered by INDS” and claims by the claimants that “INDS overcharged [Southern Mountain Adventures].” After the arbitrator found in favor of the claimants, INDS challenged the confirmation of the arbitration award. The Georgia Court of Appeals reversed the confirmation of the award, finding that the arbitrator manifestly disregarded the law. The Court of Appeals based its decision, in part, on the finding that “INDS charged an amount of money agreed to by the parties in a Rate Card” and that “the parties did not depart from the Rate Card structure.” Thereafter, the Supreme Court of Georgia reversed the holding of the Court of Appeals, holding that the arbitrator had not manifestly disregarded the law. The Supreme Court noted that “an arbitrator who incorrectly interprets the law has not manifestly disregarded it. The arbitrator has simply made a legal mistake,” and the legal standard for manifestly disregarding the law has not been met. The Supreme Court then remanded the case to the Court of Appeals.

On remand, the Court of Appeals confirmed the arbitrator’s award, concluding that the arbitrator did not manifestly disregard contract law. The court adopted the reasoning of the Supreme Court that the arbitrator had fashioned a remedy that he deemed “just and equitable within the scope of the agreements of the parties.” The Court of Appeals also considered INDS’ argument that the arbitrator overstepped his authority under Georgia’s arbitration statute, concluding that overstepping “like the other grounds for vacating arbitration awards is very limited in scope” and involves “addressing issues not properly before the arbitrator,” which the court concluded did not occur in this case. Finally, the court addressed the claimants’ argument that they were entitled to attorneys’ fees and post-award interest. The court held that “[b]ecause the court never addressed these issues, we remand for consideration of the appropriateness of awarding attorney fees arising out of the arbitration requested in the Claimant’s motion to confirm the award, attorney fees arising out of collection efforts as stated in the arbitration award, and post-award interest as stated in the arbitration award.”

Adventure Motor Sports Reinsurance, Ltd. v. Interstate National Dealer Services, Inc., No. A20A0036, A20A0037 (Ga. Ct. App. Oct. 18, 2022).

Sixth Circuit Rejects Claim of “Implicit Vacatur” of Arbitration Award and Affirms District Court’s Entry of Preliminary Injunction

November 16, 2022 by Kenneth Cesta

This case involves a dispute concerning the use of the name of a family business. The Grewal family managed real estate companies using the name “Singh” in the company name, and the companies obtained a trademark on their name. A member of the family, referred to in the opinion as Darshan, left the business and formed new companies that also used the Singh name. One of the original companies sued the new Singh companies alleging that the new companies infringed the Singh trademark. The dispute was submitted to arbitration where the original Singh companies prevailed. The arbitrator’s award prohibited the new companies from using the name Singh “as the only identifying proper noun used to describe their business.” The district court confirmed the arbitrator’s award and entered a permanent injunction. Thereafter, the new Singh companies “rebranded” and added “Michigan” to their company names. The original Singh companies filed a new suit requesting that the district court hold Darshan in contempt and modify the prior permanent injunction to prohibit the new companies from adding “Michigan” to their names. Before addressing those claims, the district court entered a preliminary injunction enjoining Darshan from “any use of, or Promotion with the term ‘Singh,’” including “the ‘Singh Michigan’ names.”

Darshan appealed the preliminary injunction in the new suit, contending that the preliminary injunction “implicitly vacated the arbitration award.” The Sixth Circuit rejected the argument, concluding that “[c]ourts use preliminary injunctions as temporary devices to maintain the status quo while they adjudicate disputes.” The court noted that “the district court entered the preliminary injunction while it considered how the arbitration award applied to Darshan’s new act of alleged infringement.” With regard to Darshan’s argument that the preliminary injunction “implicitly vacated” the arbitration award, the Sixth Circuit explained that “implicit vacatur can occur when a district court rules on a motion to confirm, modify, or vacate an arbitration award.” The court then ruled that because the district court had yet to rule on the original Singh companies’ motion to modify the earlier award, no implicit vacatur had occurred. The court also rejected Darshan’s argument that the arbitration confirmation action resolved all issues and claims in the new action and that “claim and issue preclusion” applied. The court held that claim and issue preclusion “apply to claims and arguments that were resolved before,” which it concluded did not apply in this case. Finally, the court rejected Darshan’s argument that “law of the case precludes us from reconsidering issues decided in the previous action,” finding that “[t]his is a separate suit, arising out of Darshan’s actions after the arbitration award was confirmed. So law of the case does not apply.” The Sixth Court affirmed the district court’s rulings.

Singh Management Co. v. Singh Michigan Homes, LLC, No. 21-1826 (6th Cir. Oct. 26, 2022).

Third Circuit Reverses Judgment Enjoining Arbitration Proceeding, Remands to District Court for Further Consideration

October 28, 2022 by Kenneth Cesta

In Field Intelligence Inc. v. Xylem Dewatering Solutions Inc., the Third Circuit Court of Appeals agreed with the district court’s determination that the court, not the arbitrator, was required to determine whether the parties’ first agreement, which included an arbitration agreement, was superseded by a second agreement, which did not contain an arbitration provision. However, the court then reversed the district court’s judgment, which determined that the agreement containing the arbitration provision had been superseded, and remanded the matter for further consideration of the defendant’s motion to stay the federal court litigation while arbitration is pending.

Defendant Xylem Dewatering Solutions manufactures and sells large-capacity water pumps. Xylem entered into two agreements with plaintiff Field Intelligence Inc. to develop a solution to allow Xylem customers to better monitor the water pumps. The first agreement, in 2013, was a “non-disclosure agreement” that included an arbitration provision requiring that any “dispute, controversy or claim arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof,” be “settled by arbitration in accordance with the Rules of the American Arbitration Association.” The second agreement, in 2017, was a “software subscription service agreement” and did not include an arbitration provision, instead requiring any “action under or concerning” that agreement to be litigated in a state or federal court in New Jersey. A dispute arose between the parties and Field Intelligence filed an action in the district court for breach of the 2017 agreement. After engaging in some early discovery, Xylem then filed an arbitration demand with the AAA seeking various relief, including a determination that it did not breach the 2013 agreement. Xylem moved to stay Field Intelligence’s federal court action pending resolution of the arbitration. Field Intelligence opposed the motion to stay and cross-moved to enjoin the arbitration. The district court held it had the authority, rather than the arbitrator, to decide whether the second contract (without an arbitration provision) superseded the first, and then found the later agreement did in fact supersede the first agreement. The district court enjoined the arbitration that Xylem had filed and denied as moot Xylem’s motion to stay the federal litigation.

The Third Circuit agreed that the district court was authorized to determine whether the second contract superseded the first, holding that “the parties’ supersession dispute is for a court, not an arbitrator, to decide” and “before sending parties to an arbitrator, a court must decide whether they agreed to resolve their dispute in that forum.” However, the Third Circuit found that since there was no indication in the 2017 agreement that the parties intended to replace the 2013 agreement, “the 2013 contract’s arbitration provision is still in effect, and Xylem was entitled to arbitrate claims tied to that agreement.” The court further held that “Xylem did not waive its right to pursue arbitration for claims arising under the 2013 contract merely by engaging in this litigation.” The court then reversed the district court’s judgment enjoining the arbitration proceeding, vacated the judgment denying Xylem’s motion to stay the federal litigation while arbitration is pending, and remanded that issue to the district court “to consider the merits of that motion in light of our opinion.”

Field Intelligence Inc. v. Xylem Dewatering Solutions, Inc., No. 21-2087 (3d Cir. Sept. 13, 2022).

Second Circuit Affirms Decision That Insurer Is Entitled to Reinsurance Coverage for an Allocated Portion of Settlement

October 26, 2022 by Kenneth Cesta

In Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., the Second Circuit Court of Appeals affirmed a district court order granting summary judgment to plaintiff Fireman’s Fund, holding that defendant OneBeacon is obligated under a reinsurance policy’s “follow-the-settlements” clause to provide coverage for a settlement paid by Fireman’s Fund to its insured.

The case involved a reinsurance policy that OneBeacon’s predecessor-in-interest (General Accident) issued to Fireman’s Fund. The policy reinsured one of three excess insurance policies that Fireman’s Fund had issued to its insured, ASARCO, for two policy years in the early 1980s. All three excess policies issued by Fireman’s Fund to ASARCO provided coverage for $20 million in losses “but applied to varying policy years and had different attachment points (that is, points at which excess coverage was triggered)”. Faced with significant potential liability from asbestos-related claims, ASARCO sought coverage for those claims from Fireman’s Fund under all of the excess policies. After 10 years of litigation, Fireman’s Fund agreed to pay ASARCO $35 million in settlement of ASARCO’s claims under the three excess policies. To pursue reinsurance for the settlement it paid to ASARCO, Fireman’s Fund allocated the settlement amount among the three excess policies “in proportion to its calculation of the policies’ likely respective exposures,” which resulted in an allocation of $8.1 million to the OneBeacon policy. Fireman’s Fund then sought reinsurance coverage from OneBeacon for a percentage of that amount. The OneBeacon reinsurance policy included a “follow-the-settlements” clause, which provided “[a]ll claims involving this reinsurance, when settled by [Fireman’s Fund], shall be binding on the Reinsurer, who shall be bound to pay its proportion of such settlements.” However, OneBeacon denied the claim, asserting that the underlying policies were not exhausted and “Fireman’s Fund should have allocated the entire settlement amount to the other two excess policies.” The district court granted summary judgment in favor of Fireman’s Fund, concluding that OneBeacon had no basis for challenging Fireman Fund’s allocation of a portion of the settlement amount to the third policy.

The Second Circuit affirmed the district court’s entry of summary judgment, holding that the third policy’s terms “did not unambiguously require exhaustion of the underlying insurance policies through actual payment of the policy limits by the underlying insurers,” and “the underlying policies could be exhausted by a below-limits settlement and the third policy would cover so long as the policyholder’s total covered losses exceeded the policy’s attachment point.” The court then pointed out because ASARCO’s losses exceeded the third policy’s attachment point, “Fireman’s Fund could reasonably allocate a portion of the settlement to that policy.” Finally, the court rejected OneBeacon’s argument that the reinsurance policy required payment of policy limits in full by the underlying primary and excess insurers before any reinsurance coverage would attach, concluding that “[b]ecause Fireman Fund’s allocation was not contrary to the terms of any of the applicable policies, the reinsurance policy’s follow-the-settlements clause binds OneBeacon to honor the allocation.”

Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., No. 20-4282 (2d Cir. Sept. 15, 2022).