Arbitration Process Issues

MICROSOFT TAKES HOME THE GOLD IN ARBITRATION AGAINST YAHOO!

February 19, 2014 by Carlton Fields

For the past several years, Yahoo! has been merging its search engine and search ads system, Panama, with Microsoft’s Bing search engine. Yahoo! “paused” its efforts to integrate with Microsoft in Taiwan and Hong Kong when Microsoft CEO Steve Ballmer announced that he plans to step down. Microsoft considered this “pause” a breach of their agreement with Yahoo! and initiated an emergency arbitration in which the arbitrator ordered Yahoo! to “use all efforts” to complete the Taiwan and Hong Kong transitions in 2013. Yahoo! moved to vacate the award in the S.D.N.Y. on the basis that the injunctive relief granted to Microsoft was not interim relief as authorized by the arbitration agreement, but was final. The court denied Yahoo!’s petition and confirmed the arbitration award because the arbitrator had a “colorable basis” for concluding that an injunction was necessary to restore the status quo. Yahoo!, Inc. v. Microsoft Corporation, Case No. 13-7237 (S.D.N.Y. Oct. 21, 2013).

This post written by Abigail Kortz.

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TENTH CIRCUIT HOLDS FAA PREEMPTS NEW MEXICO UNCONSCIONABILITY LAW

February 15, 2014 by Carlton Fields

New Mexico law considers arbitration provisions that apply primarily to the claims that one party to the contract is likely to bring to be unconscionable and unenforceable. This law, the Tenth Circuit holds, is preempted by the Federal Arbitration Act because it is based on the underlying assumption that arbitration is inferior to litigation in court. Supreme Court precedent is clear that arbitration provisions cannot be invalidated by generally applicable contract defenses, like unconscionability, “that derive their meaning from the fact that an agreement to arbitrate is at issue.” Thus, an arbitration provision that permits a nursing home to litigate its most likely claims against its residents, but requires arbitration of the residents’ most likely claims against the nursing home, is enforceable. THI of New Mexico at Hobbs Center, LLC v. Patton, No. 13-2012 (10th Cir. Jan. 28, 2014).

This post written by Abigail Kortz.

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BACK TO INTERPRETATION BASICS: CONDITIONS PRECEDENT, PRESUMPTIONS, AND CHOICE OF LAW

February 6, 2014 by Carlton Fields

The Eastern District of New York recently adopted the recommendation of a magistrate judge to grant a defendant-insurer’s motion to stay adjudication and compel arbitration, whilst also providing a refresher course in arbitration clause interpretation principles. First, the court dissected the arbitration clause’s condition precedent, holding that a provision requiring arbitration following the request of either party is a mandatory arbitration clause. The requirement that a dispute be submitted to arbitration within thirty days of such request “merely sets a time limit for commencement of an arbitration proceeding.” Moreover, whether a condition precedent has been satisfied is a procedural question presumptively for an arbitrator to decide, not a substantive question, such as whether the clause applies to a particular type of controversy, for a judge. Second, the court held that whether the motion to compel complied with applicable arbitration rules was inapplicable because those rules “do not come into play until an order is entered compelling arbitration or the parties agree to do so.” Third, noting the presumption of arbitrability, the court distinguished Second Circuit case law addressing an instance where a subsequent agreement to adjudicate created ambiguity in the parties’ intentions, and held that, here, “there is no subsequent agreement that abrogates th[e] agreement to arbitrate.” Lastly, the court analyzed a New York choice-of-law provision to determine the arbitrability of a punitive damages claim, holding that the provision should be read to encompass substantive principles that New York would apply, not special rules in New York that may limit the authority of arbitrators with respect to claims such as punitive damages. MQDC, Inc. v. Steadfast Ins. Co., Case No. 12-CV-1424 (ERK) (MDG) (E.D.N.Y. Dec. 6, 2013).

This post written by Kyle Whitehead.

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MOTION TO COMPEL ARBITRATION GRANTED BASED ON ORIGINAL DRAFT OF ARBITRATION CLAUSE RATHER THAN ON FINAL VERSION INCLUDED IN WRITTEN CONTRACT

February 5, 2014 by Carlton Fields

In deciding a motion to compel arbitration in a dispute over insurance coverage to be provided after Hurricane Ike, a district court in Louisiana found that the parties intended for a draft version of an arbitration clause, rather than the final version of the clause contained in a written contract, to be in effect. Interpreting the draft version, the court found that the narrowly drafted clause that called for arbitration of disputes “as to the amount to be paid under this Policy” encompassed the dispute at issue. A non-signatory insurance adjustor was also allowed to compel arbitration because plaintiff’s claims against that particular defendant referenced or presumed the existence of the agreement and centered on the adjustor’s alleged misconduct in its role as an adjustor for the defendant insurers who were parties to the agreement containing the arbitration clause. Aker Kvaerner IHI v. National Union Fire Insurance Co. of Louisiana, Case No. 10-CV-00278 (W.D. La. Dec. 2, 2013).

This post written by Abigail Kortz.

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POTENTIAL FOR FRUITS OF DISCOVERY FROM AN AMERICAN LITIGATION TO BE USED IN A FOREIGN ARBITRATION NOT THE BUSINESS OF AN AMERICAN COURT

February 3, 2014 by Carlton Fields

Creating an interesting procedural posture, a German engineering company, GEA Group AG, brought suit against Flex-N-Gate Corporation and its CEO, billionaire Shahid Khan, in federal district court after instituting arbitration proceedings against Flex-N-Gate in Germany. Immediately after filing suit, GEA sought a stay of all proceedings, including discovery, in the district court pending the outcome of the arbitration proceedings. Khan, not a party to the arbitration or to the contract authorizing arbitration, sought a limited lift of the stay in order to conduct enough discovery to defend himself, which the district court allowed. Over GEA’s objections that Khan would simply pass along the “fruits of his discovery” to Flex-N-Gate to use in the German arbitration, the Seventh Circuit affirmed the district court’s decision as “eminently sensible.” The Seventh Circuit wondered “[w]hat business is it of an American court” whether the German arbitration panel decides to allow in the evidence obtained through discovery in American litigation? GEA Group AG v. Flex-N-Gate Corporation, No. 13-2135 (7th Cir. Jan. 10, 2014).

This post written by Abigail Kortz.

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