Arbitration Process Issues

Following unsuccessful motions to dismiss, the defendants moved to compel arbitration, arguing that they had not moved to compel the matter to arbitration earlier because the plaintiffs had not yet completed all stages of the dispute resolution procedures required before the parties could arbitrate. The court found that Aliera Companies, Inc. and Aliera Healthcare, Inc. (collectively, “Aliera”) demonstrated it had not waived its right to compel arbitration, as Aliera’s initial motion to dismiss did not seek to dismiss the matter on the merits, and thus, Aliera did not act inconsistently with their right to compel arbitration.

As to Trinity HealthShare, Inc. (“Trinity”), the court found that Trinity’s motion to dismiss the complaint as a matter of law with prejudice did seek a resolution on the merits, and thus Trinity acted inconsistently with its right to compel arbitration. Notwithstanding, the court found that the plaintiffs were not prejudiced by Trinity’s action, and thus could not establish that Trinity waived its rights to arbitration. The court’s prior decision denying the defendants’ motion to compel arbitration was vacated, and the parties required to arbitrate.

Jackson, et al. v. The Aliera Companies, Inc., 2:19-cv-01281 (W.D. Wash. Oct. 6, 2020)

The dispute involved Telemicro’s breach of a contract with Major League Baseball Properties for the rights to broadcast MLB games in the Dominican Republic. Telemicro failed to make payments under the contract, prompting MLB to terminate the contract and demand arbitration. In response to the arbitration demand, Telemicro sought a stay of the arbitration proceedings in a New York state court, and failed to submit an arbitrator ranking list to the American Arbitration Association. As a result, the AAA deemed Telemicro to have accepted the entire list of proposed arbitrators and made an appointment from it. Shortly thereafter, Telemicro’s request for a stay was denied. After a six-month proceeding, the arbitrator issued a final award to MLB, including an award for attorneys’ fees.

On the motion to confirm the award before the Southern District of New York, Telemicro argued that the decision to proceed with the appointment of an arbitrator despite the pendency of its motion for stay in New York state court constituted a due process violation. Telemicro argued that it would not have been able to participate in the selection of the arbitrator without waiving its challenge to the jurisdiction of the arbitration. The court was not persuaded, noting that Telemicro failed to explain why it waited until the last day the list was due to seek a stay, and further that Telemicro took no action to challenge the appointment of the arbitrator within the arbitration process after the stay was denied. Furthermore, MLB made “a credible argument” that Telemicro’s submission of the list of potential arbitrators would not have waived its right to seek a stay.

Telemicro also argued that the arbitrator manifestly disregarded the law when making the award of attorney’s fees. The parties’ contract, however, stated that Telemicro would “reimburse MLB for any attorney’s fees and all costs and other expenses incurred by MLB in connection with the breach” of the agreement. Lastly, the court found Telemicro’s argument that the arbitrator acted in manifest disregard of the law because he viewed the MLB’s invoices in camera to be baseless, stating that such reviews are frequently performed in camera.

Major League Baseball Props., Inc. v. Corporacion de Television y Microonda Rafa, S.A., Case No. 1:19-cv-8669-MKV (S.D.N.Y. Sept. 14, 2020).

Schuyler Line Navigation Co., LLC (“SLNC”) argued, in part, that the arbitrator’s partiality should be inferred from his previous representation of KPI Bridge Oil, Inc. (“KPI”) and its affiliates, alleged hope for future business from KPI, and the extent of his relationship with KPI and other business relationships. The District Court rejected these arguments, finding that SLNC fell short of demonstrating evidence of partiality or corruption.

SLNC also raised an issue with the arbitrator’s “belated disclosure and the lack of his transparency regarding his prior representation of KPI and its affiliate.” The Second Circuit “has repeatedly cautioned that it is not quick to set aside the results of an arbitration because of an arbitrator’s alleged failure to disclose information. Mere failure to disclose, by itself, is an insufficient ground for vacatur. Rather, the critical question is whether the facts that were not disclosed suggest a material conflict of interest.” The District Court, while noting that the arbitrator’s “behavior may not have been exemplary,” found that the belated disclosure did not give rise to an inference of evident partiality sufficient to vacate the arbitration award.

Schuyler Line Navigation Co., LLC v. KPI Bridge Oil, Inc., 1:20-cv-02772 (S.D.N.Y. Sept. 2, 2020)

The plaintiff sued its former lawyer and law firm for legal malpractice. The defendants moved to dismiss and compel arbitration based on a mandatory arbitration clause in the parties’ engagement agreement. The trial court denied the motion, finding the arbitration clause was unconscionable, and thus unenforceable, having been entered into in violation of the Georgia Rules of Professional Conduct (GRPC). The appellate court reversed, finding the clause was neither void as against public policy nor unconscionable. Plaintiff appealed to the Supreme Court of Georgia, which granted review of two questions: (1) whether the GRPC requires an attorney to obtain the informed consent of his/her client before including a clause mandating arbitration of legal malpractice claims in the parties’ engagement agreement; and if so, (2) whether failing to obtain that consent renders such a clause unenforceable under Georgia law.

Substantively addressing the second question only, the Court affirmed the decision of the appellate court, finding the first question need not be answered. Specifically, the Court held, even assuming the failure to obtain a prospective client’s informed consent does violate the GRPC, the arbitration clause at issue here would still not be unenforceable. The Court rejected the argument that clauses of this kind violate state public policy, noting that Georgia has a clear public policy in favor of arbitration, and that “[t]here is nothing about attorney-client contracts in general that takes them outside this policy and makes mandatory arbitration of disputes arising under them illegal.” The Court also found Georgia does not have a categorical policy against mandating arbitration of legal malpractice claims. Rather, and contrary to the plaintiff’s argument, the Court held that a contract is void as against public policy, and thus unenforceable, where the agreement itself effectuates illegality, not because the process of entering the contract was allegedly improper. Thus, because the arbitration clause at issue would still be lawful even if the defendants had complied with the GRPC, the Court found the clause is not void as against public policy. In addition, based on the limited record before it, the Court found no basis to conclude the arbitration clause at issue is either procedurally or substantively unconscionable.

Innovative Images, LLC v. James Darren Summerville, et al., Case No. S19G1026 (Ga. Sept. 8, 2020)