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Rob DiUbaldo

BANKRUPTCY COURT GRANTS MF GLOBAL HOLDINGS’ MOTION TO RECONSIDER DECISION TO COMPEL ARBITRATION IN BERMUDA, BUT REACHES SAME RESULT

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On September 6, 2017, the Bankruptcy Court for the Southern District of New York issued the latest order in the ongoing coverage battle between MF Global Holdings (“MF Global”) and Allied World Assurance Company regarding the former’s bankruptcy. The decision stemmed from MF Global’s motion to reconsider the court’s August 24, 2017 order compelling arbitration in Bermuda. While the court initially granted the motion to reconsider, it reached the same result and granted Allied World’s motion to compel arbitration.

MF Global’s request for reconsideration was based on the court’s alleged failure to address its argument that the global bankruptcy plan explicitly retained jurisdiction over adversary proceedings, a provision which should have superseded the underlying insurance contract’s arbitration provision which formed the basis of the court’s decision to compel arbitration. The court noted that while its decision mentioned the argument, it did not address the merits of the argument, so the court granted the motion to reconsider.

On reconsideration, the court was unpersuaded by MF Global’s argument that the bankruptcy court retained jurisdiction pursuant to the global bankruptcy plan. In a short opinion, the court distinguished the principal authority upon which MF Global relied: Ernst & Young LLP v. Baker O’Neal Holdings, Inc., 304 F.3d 753 (7th Cir. 2002). That case addressed an adversary proceeding that commenced before the bankruptcy plan and a plan provision which retained jurisdiction over pending adversary proceedings. Here, the adversary proceeding was not filed until after the plan was confirmed, and, the court concluded, the plan language retaining jurisdiction of pending adversary proceedings should not be interpreted to supersede the contractual arbitration provision in the pre-petition contract without explicit instruction in the plan as to that interpretation. Furthermore, Allied World had not waived its right to demand arbitration at any point in the proceedings.

Thus, even though the court granted MF Global’s motion to reconsider, it ultimately reached the same conclusion and granted Allied World’s motion to compel arbitration and denied MF Global’s motion to stay the arbitration.

In re: MF Global Holdings Ltd., Case No. 11-15059 (Bankr. S.D.N.Y. Sept. 6, 2017).

This post written by Thaddeus Ewald .

See our disclaimer.

PROCEDURAL PROVISION OF FAA INAPPLICABLE IN CALIFORNIA STATE COURT ACTION WHEN ARBITRATION AGREEMENT IS SILENT ON CHOICE OF LAW OR PROCEDURES

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A California appellate court has upheld an order denying a motion to compel arbitration due to the possibility of conflicting rules, finding that, when a contract is silent on choice of law, California procedural rules, not the FAA, apply.

In the lawsuit, plaintiff Los Angeles Unified School District sued its insurer, defendant Safety National Casualty Corporation, based on its refusal to provide coverage in connection with third party claims related to abuse perpetrated by two teachers at Miramonte Elementary School. Plaintiff is simultaneously suing numerous other insurers for denials of coverage related to the Miramonte litigation. Defendant filed a motion to compel arbitration. The court trial court denied this motion under California Code of Civil Procedure section 1281.2(c), under which a court may refuse to enforce an arbitration agreement if it finds that a party to an arbitration agreement is also a party to pending litigation “arising out of the same transaction or series of related transactions” and “there is a possibility of conflicting rulings on a common issue of law or fact.”

On appeal, defendant argued that the FAA’s procedural provisions should apply, because the arbitration agreement said nothing about choice of law. Of particular importance were FAA sections 3 and 4, which require a court to compel arbitration of arbitrable issues regardless of the existence of related ongoing litigation. Defendant also argued that section 1281.2(c) did not apply because the other lawsuits against insurers did not arise out of the “same transaction or series of related transactions,” and there was insufficient evidence of the possibility of inconsistent rulings. The appellate court rejected all of these arguments. First, it found that, when an agreement to arbitrate is silent as to the application of the procedural provisions of the FAA, California procedures apply unless these procedures would defeat the rights granted by or contravene the policy goals of the FAA. The court found that the application of section 1281.2(c) would not do either. Second, the court found that plaintiff’s claims against defendant and against other insurers arose from a series of related transactions—plaintiff’s right to insurance coverage arising out of the Miramonte litigation. Third, the court found that there was a possibility of conflicting rulings on the question, central to coverage under several relevant policies, of whether the Miramonte litigation constituted a single occurrence, which was enough to justify the trial court’s refusal to compel arbitration under section 1281.2(c).

Los Angeles Unified School District v. Safety National Casualty Corporation, B275597 (Cal. Ct. App. 2017)

This post written by Jason Brost.

See our disclaimer.

UBER CUSTOMER ARBITRATION AGREEMENT ENFORCEABLE UNDER CALIFORNIA LAW, SAYS SECOND CIRCUIT

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The Second Circuit has found that Spencer Meyer, a customer of Uber, was provided “reasonably conspicuous” notice of Uber’s Terms of Service to which he “unambiguously manifested assent” when he created an Uber account, such that he was contractually bound under California law by an arbitration clause contained in those terms of service.

Meyer filed a putative class action against Uber’s then-CEO Travis Kalanick alleging that the Uber app enabled third-party drivers to engage in illegal price fixing. Kalanick joined Uber as a necessary party, and Uber and Kalanick filed motions to compel arbitration based on an arbitration provision in Uber’s Terms of Service. The district court denied these motions, finding that Meyer did not have reasonably conspicuous notice of the Terms of Service and did not unambiguously manifest assent to those terms, including the arbitration agreement.

The Second Circuit disagreed. In its opinion, the court focused on the particular process that Meyer went through to create his Uber account. This process required Meyer to click a button labeled “Register,” directly below which was stated: “By creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY,” with the phrase “TERMS OF SERVICE & PRIVACY POLICY” highlighted in blue, underlined, and containing a hyperlink to the full Terms of Service. The Court found it significant that this link to the Terms of Service was both “spatially coupled” with the Register button, as it was directly below this button on the screen, and “temporally coupled” with the registration process, as it appeared just as the customer was registering. Thus, the Court found that a “reasonably prudent smartphone user would understand that the terms were connected to the creation of a user account,” and that a reasonable user would know that he was agreeing to these terms by clicking the Register button. Thus, the court found that the requirements of reasonably conspicuous notice and unambiguous assent were satisfied for Meyer to be bound by the arbitration provision. However, the Court remanded the matter so that the district court could consider an issue not decided by the district court: whether Uber and Kalanick waived their right to arbitrate by actively participating in the litigation prior to filing their motion to compel.

Meyer v. Uber Technologies, Inc., et al., Nos. 16-2750-cv and 16-2752-cv (2d Cir. Aug. 17, 2017)

This post written by Jason Brost.

See our disclaimer.

TENTH CIRCUIT DECLINES TO DISTURB ARBITRAL AWARD GRANTING FEES AND COSTS IN WRONGFUL DEATH SUIT AGAINST NURSING HOME

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The Tenth Circuit recently upheld a district court’s confirmation of an arbitral award ordering a nursing home (“THI”) to pay fees and costs associated with the arbitration of a wrongful death claim. A personal representative (“Lovato”) of Guadalupe Duran’s estate prevailed in an arbitration of her wrongful death claim against THI that resulted in nearly a half million dollars in compensatory damages, as well as almost $250,000 in arbitration fees, costs, pre-, and post-judgment interest granted in a post-arbitration motion pursuant to the New Mexico Uniform Arbitration Act (“NMUAA”).

THI argued that the arbitrator exceeded his authority by awarding fees and costs under the NMUAA where the arbitration agreement designated the Federal Arbitration Act (“FAA”)—which does not authorize recovery of costs and interest—as the governing law. Citing the high burden a challenging party faces in attempting to overturn an arbitral award, the Tenth Circuit rejected this argument. First, THI did not establish that the FAA prohibits costs and interests, only that the FAA does not expressly authorize such an award. Second, the FAA displaces conflicting state law (such as the NMUAA) only to the extent the state law actually conflicts with or undermines the goals of the FAA—which the NMUAA costs and interest provision did not. Finally, the court found the arbitration agreement’s terms supported the award of costs and interest by delegating broad authority to the arbitrator and by invoking the National Arbitration Forum Code of Procedure, which allows any legal, equitable, or other remedy or relief to be granted.

The Tenth Circuit swiftly dismissed THI’s second argument that the arbitrator manifestly disregarded the law. In rejecting it, the court assumed without deciding the manifest disregard exception’s continuing validity. Harkening back to its analysis in rejecting THI’s first argument, the court noted the arbitrator did not exceed his authority. Furthermore, there was no evidence he was willfully inattentive to governing law.

THI of N. M. at Vida Encantada, LLC v. Lovato, No. 16-2041 (10th Cir. July 25, 2017).

This post written by Thaddeus Ewald .

See our disclaimer.

COURT VACATES ARBITRATION AWARD DUE TO EVIDENT PARTIALITY OF PANEL, BUT PARTIES MUST RE-ARBITRATE MATTER BEFORE SAME ARBITRAL FORUM

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In a dispute between the Washington Nationals, the Baltimore Orioles, and affiliated parties regarding the value of broadcasting rights for Nationals games, an appellate court has affirmed a trial court order vacating an arbitration award on the basis of evident partiality by the arbitration panel, while also denying a motion to compel the parties to re-arbitrate the matter in a different arbitral forum.

In 2005, the Montreal Expos moved to Washington, DC, and became the Nationals. This led to an agreement under which the Orioles Television Network, which the Orioles had established with TCR Sports Broadcasting Holding, LLP, became MASN, a regional sports network with rights to broadcast both Orioles and Nationals games. The agreement set the broadcast fees from 2005-2011, after which the parties were to negotiate those fees. The parties further agreed to arbitrate disputes before the Revenue Sharing Definitions Committee (“RSDC”), a MLB-created body comprised of representatives of other MLB clubs.

A fee dispute arose between the parties regarding the broadcasting of Nationals games, and the matter proceeded to arbitration. The Nationals were represented by Proskauer Rose, which the Orioles and MASN objected to based on Proskauer’s past representations of the Nationals, MLB, and each of the three teams with members participating on the RSDC. Despite this objection, the arbitration proceeded and resulted in an order setting the amount MASN would pay the Nationals from 2012-2016.

MASN moved to vacate the award on numerous grounds, but the district court rejected all but one; the court found that that Proskauer’s representation of the Nationals led to “evident partiality,” making the proceedings fundamentally unfair. However, the district court rejected MASN’s motion to order the parties to re-arbitrate the matter in an arbitral forum unaffiliated with MLB.

The appellate court upheld the finding of evident partiality, noting that, under the FAA, a party seeking to vacate an arbitration award on this basis “bears the burden of showing that a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one party to the arbitration”. The court found that MASN and the Orioles had met this burden based on the sheer volume of Proskauer’s representation of the RSDC panel members and MLB and the failure of the panel members to investigate the issue sufficiently or to fully disclose their own relationships to Proskauer. The appellate court also upheld the trial court’s refusal to order the parties to re-arbitrate the matter in a different forum. Emphasizing the FAA’s strong bias in favor of enforcing agreements to arbitrate as written, the court held that parties are free agree to “insider” arbitral forums that, like the RSDC, may be inherently prone to certain conflicts. The court also noted that the problem that led the original award to be vacated – Proskauer’s conflicts – had been remedied by the National’s hiring of new counsel. Thus, the court found that the parties could not be ordered to arbitrate the matter in a forum other than the RSDC.

TCR Sports Broad. Holding, LLP v. WN Partner, LLC, 3595, Index 652044/14 (N.Y. App. Div. July 13, 2017)