Rob DiUbaldo

Fifth Circuit Affirms Dismissal Without Prejudice After Plaintiff Compelled to Arbitrate Refuses To Do So

October 29, 2018 by Rob DiUbaldo

The Fifth Circuit affirmed a dismissal without prejudice of a plaintiff’s putative class action related to a multi-level marketing program selling electricity after the plaintiff refused to submit his claims to arbitration despite the district court compelling arbitration and staying the case pending arbitration. The case languished for over a year after the district court’s order compelling arbitration while plaintiff refused to arbitrate the putative class claims. Twice the court requested status reports in which the plaintiff indicated his failure to arbitrate and lack of intent to do so, at which point the district court ordered plaintiff to show cause why the case should not be dismissed for lack of prosecution. The plaintiff responded by reiterating his disagreement with the court’s conclusions as to arbitration, his intent not to arbitrate, and his readiness to litigate the case to conclusion before the court. The court ultimately dismissed the case without prejudice for lack of prosecution.

On a threshold issue, the Fifth Circuit concluded that it had appellate jurisdiction over the dismissal as a “final decision with respect to an arbitration.” Defendants argued that plaintiff, through his response to the show-cause order, voluntarily dismissed the case, which is not a final appealable decision. The court disagreed, holding that plaintiff’s inaction in failing to submit his claims to arbitration was not sufficient to constitute voluntary dismissal. Specifically, the court determined that plaintiff’s response to the show-cause order did not serve as notice of dismissal, but rather were “statements of inaction,” and therefore did not constitute a voluntary dismissal.

Additionally, the court found that it could appropriately hear an appeal of a dismissal without prejudice. The court surveyed circuit precedent and distinguished the present case from those finding no appellate jurisdiction over dismissals without prejudice. Here, there were no concerns about piecemeal appeals of interlocutory issues because the dismissal concluded the litigation on the merits. Nor, as the court previously established, was the dismissal voluntary such that the litigant was voluntarily dismissing as a tactic to seek expedited appeal of interlocutory issues.

Finally, the Fifth Circuit affirmed the lower court’s use of its discretion in dismissing for failure to prosecute. Regardless of whether the heightened standard for dismissal without prejudice—where statutes of limitations risk barring any future litigation—applied, the court held that defendants would prevail. Dismissal was warranted for failure to prosecute because plaintiff demonstrated a “clear record of delay and contumacious conduct” by persistently refusing to arbitrate the claims as the district court so ordered and explicitly stating it would not pursue arbitration. Thus, the Fifth Circuit concluded the lower court acted within its discretion and affirmed.

Griggs v. S.G.E. Mgmt., L.L.C., No. 17-50655 (5th Cir. Sept. 27, 2018).

This post written by Thaddeus Ewald .

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Contract Claims Dismissed Against Reinsurers and Reinsurance Service Providers, but Negligence Claim Against Service Providers Allowed to Go Forward

September 20, 2018 by Rob DiUbaldo

Vantage, the plaintiff, had purchased insurance from Assured Risk Transfer (ART) against the risk that a company to which Vantage had loaned $22 million would default. ART then reinsured 90% of its risk with seven reinsurance companies. When the borrower defaulted, Vantage made a $22 million claim, which ART denied. An arbitrator decided that ART owed Vantage $22 million plus interest and costs. ART did not pay, claiming it had insufficient assets to satisfy the award and that the only source of funding was amounts owed to it under its reinsurance contracts. The reinsurers, however, refused to pay on the claim. Vantage filed suit in U.S. District Court of the District of Columbia, asserting a claims for breach of contract against the seven reinsurers and negligence and breach of contract against three related companies that provided services to ART—Willis Captive Management, Willis Re, Inc. and Willis Towers Watson Management (the Willis Defendants).

The court first addressed the argument that it could not exert personal jurisdiction over the seven reinsurers. While it found that the requirements for specific jurisdiction over these reinsurers had been met, the court found that Vantage had not effected service of process on these defendants. Vantage had served them through a law firm that was listed in the relevant reinsurance contracts as their agent for service of process, but those contracts authorized service only if ART sued to compel arbitration or enforce an arbitration award. The court found that Vantage could not show that it was a party to any of the reinsurance contracts or overcome the general rule that a reinsurer does not have a contractual relationship with the original insured, and thus that it could not take advantage of the service of process provisions within those contracts. The court then denied Vantage an extension of time to effect service, as Vantage’s lack of a contractual relationship with the reinsurers meant that its breach of contract claims against those reinsurers must necessarily fail.

The court then addressed the breach of contract claims against the Willis Defendants. Vantage alleged that they had breached their contractual obligation to transmit information to the reinsurers when they failed to timely notify them of Vantage’s $22 million claim—a failure the reinsurers relied upon when denying the claim. However, the court found that the contracts at issue were between the Willis Defendants and ART, not Vantage, giving ART no enforceable right under these contracts, and the court dismissed these claims. However, while no contractual duty existed, the court found that a tort duty might, as the Willis Defendants were alleged to have undertaken to render services to one party (ART) that was necessary for the protection of a third party (Vantage). Thus, the court found that the complaint sufficiently alleged the existence of such a duty to Vantage to avoid dismissal.

Vantage Commodities Financial Service I, LLC, v. Assured Risk Transfer PCC, LLC, et al., Case no. 1:17-cv-01451(TNM) (D.D.C. Aug. 6, 2018)

This post written by Jason Brost.

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Ninth Circuit Upholds Lower Court Rulings on Nurse Staffing and Work Break Arbitration Awards

September 19, 2018 by Rob DiUbaldo

The Ninth Circuit recently decided two cases related to arbitration awards arising out of a settlement agreement between the Washington State Nurses Association (WSNA) and MultiCare Health System governing nurses’ breaks and staffing plans. The settlement agreement required MultiCare to adopt practices such that each nurse receives a 15-minute break every four hours of work, but also to ensure that such practices do not violate the staffing plan. An arbitrator agreed that MultiCare had violated these requirements and ordered MultiCare cease using the “buddy system” as a practice to provide breaks and required assignment of a reserve or floating nurse to ensure compliance. The district court vacated the award as to the buddy system but did not address the reserve or floating nurse component.

First, the Ninth Circuit held that the lower court erred in its conclusion that the settlement agreement did not allow the arbitrator to eliminate the practice of using the buddy system. Citing precedent severely restricting vacatur where the arbitrator even arguably construed the contract, the court found the arbitrator appropriately considered the buddy system and the settlement and determined that the buddy system violated the essence of the settlement agreement.

Second, the court found no reason to vacate the award regarding the use of reserve or float nurses where the district court declined to rule on MultiCare’s objection because it had already vacated the award regarding the use of the buddy system. Even if there was ambiguity in the basis of the award, the court noted, that would not be grounds to vacate the award.

Finally, the court affirmed the lower court’s finding that MultiCare failed to show any bias, partiality, or other wrongdoing on the arbitrator’s behalf to warrant reassigning the case to a different arbitrator for any further proceedings.

Multicare Health Sys. v. Wash. State Nurses Ass’n, No. 16-36048 (9th Cir. July 23, 2018).

This post written by Thaddeus Ewald .

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Fifth Circuit Finds That Arbitrator Exceeds Authority In Reforming Contract For Mutual Mistake

September 18, 2018 by Rob DiUbaldo

The Fifth Circuit has affirmed a district court’s ruling vacating an arbitrator’s decision reforming a contract for mutual mistake, finding that reformation was outside the authority provided to the arbitrator by the parties’ agreement.

The dispute arose from the sale of a business, which included the assets, customer lists, and customer contracts of the business. The agreement provided for the buyer to make future payments contingent upon the buyer achieving certain levels of ongoing revenue from the seller’s former customers. The seller would receive $7 million if an agreed upon threshold amount of revenue was achieved in the first 9 months after the sale, with this payment reduced proportionately to the extent the revenue was under the threshold and reaching $0 if the revenue was less than 90% of the threshold. At the end of nine months, the parties disagreed regarding whether revenues from two customers should be counted toward meeting the threshold amount, such that the seller claimed that it was owed a payment while the buyer asserted that seller was owed nothing.

The parties submitted the matter arbitration, and the arbitrator adopted the seller’s position that revenues from both excluded customers should be counted toward the threshold. However, the arbitrator also decided that the parties had made a mutual mistake in their initial calculation of the threshold amount. He then reformed the agreement to fix that mistake, leading to a new calculation under which the buyer was owed no payment.

The buyer challenged arbitration award in court, and by the time the matter got before the Fifth Circuit. the only issue was whether the arbitrator had exceeded his authority by deciding the issue of mutual mistake and reforming the contract. The court noted that the parties went to arbitration under the authority of a provision saying that, in the case of a dispute over the revenue calculation, the parties would “select [an arbitrator] to resolve any remaining dispute over the Seller’s proposed adjustments . . . .” This, the court held, only allowed the arbitrator to resolve disputes over the question of “Seller’s proposed adjustments,” and not to decide whether the parties had erred in calculating the threshold amount. In reaching this conclusion, the court noted that the arbitration provision was only one of four separate arbitration provisions in the agreement, each of which was dedicated to different types of disputes, with the agreement further providing that other disputes would be decided by state or federal courts in Texas. Thus, the issue of mutual mistake was outside of the authority given by the parties to the arbitrator, and the court remanded the matter to the district court to decide the issue of mutual mistake.

Hebbronville Lone Star Rentals, L.L.C. et al. v. Sunbelt Rentals Industrial Services, L.L.C., No. 17-50613 (Fifth Cir. Aug. 6, 2018)

This post written by Jason Brost.

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Tenth and Eleventh Circuits Buck Other Circuits Requiring Higher Showing of Intent to Delegate Class Arbitrability to Arbitrator

September 17, 2018 by Rob DiUbaldo

Within one week of each other, United States Courts of Appeals in two circuits have issued opinions holding that arbitration agreements incorporating the American Arbitration Association (AAA)’s arbitration rules itself demonstrates “clear and unmistakable” evidence of the parties’ intent to delegate the question of arbitrability to the arbitrator, even when the arbitration involves class claims.

In Spirit Airlines, Inc. v. Maizes, No. 17-14415 (11th Cir. Aug. 15, 2018), the Eleventh Circuit applied a prior case to mandate an arbitrator decide the arbitrability of a putative class dispute between members of Spirit Airlines’ so-called “$9 Fare Club” and the airline relating to allegedly broken promises related to the club membership. When the class representatives filed a class arbitration claim against Spirit, the airline sued the class representatives in federal court seeking a declaration that the agreement’s arbitration clause does not permit class arbitration claims. The Eleventh Circuit affirmed the district court’s dismissal for lack of jurisdiction. The decision relied heavily upon a prior circuit decision—Terminix Int’l Co. v. Palmer Ranch Ltd. P’ship—which held that parties’ choice of AAA Commercial Arbitration Rules constituted “clear and unmistakable” evidence they intended to submit the question of arbitrability to the arbitrator. Applying that reasoning to the present dispute, the court held the parties’ choice of AAA rules, including the Supplementary Rules for Class Arbitrations, demonstrated “clear and unmistakable” intent to delegate arbitrability.

In doing so the court rejected Spirit’s request for a higher burden where class arbitrability is concerned, as required in the Third, Fourth, Sixth, and Eighth Circuits. The court found those decisions did not align with its reading of Supreme Court precedent, distinguishing questions of whether an agreement allows class arbitration at all as separate and apart from the issue of who decides that question. Additionally, the court declined to read the arbitration clause’s reference to Florida law as creating ambiguity in the agreement, instead reading the clause to mean that Florida law governs the parties’ substantive rights while AAA rules govern arbitration procedures.

In DISH Network L.L.C. v. Ray, No. 17-1013 (10th Cir. Aug. 21, 2018), the Tenth Circuit applied circuit and Colorado law to conclude the question of class arbitrability rested with the arbitrator in a dispute between DISH Network and a former employee over alleged violations of federal and state employment laws and breach of contract. Originally filed as a putative class action in federal court, the former employee voluntarily dismissed his suit and re-filed the same claims in arbitration as a class action. The Tenth Circuit read the broad language in the parties’ arbitration agreement and the inclusion of AAA rules on employment disputes to display clear and unmistakable intent to arbitrate arbitrability. Like the Eleventh Circuit in Spirit Airlines, the court refused to follow other circuits and require more specific language delegating arbitrability when class arbitration is at issue. Because the court concluded that the parties “clearly and unmistakably” evinced intent to delegate the question of arbitrability to the arbitrator, it was able to sidestep the distinction of whether the arbitration clause permits class-wide arbitration is a gateway issue for courts to decide or a procedural issue for the arbitrator to decide.

The Tenth Circuit also rejected DISH’s petition to vacate based on its contention that the arbitrator manifestly disregarded the law in concluding he was authorized to conduct class arbitration. It noted that the arbitrator conducted an in-depth analysis of the arbitration contract and the court’s review is extremely limited even where it may disagree with the arbitrator’s ultimate conclusion.

This post written by Thaddeus Ewald .

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