Arbitration Process Issues

In a recent case involving an unsuccessful aquatic ecosystem restoration project in Clearwater, Florida, the Middle District of Florida applied the Federal Arbitration Act to resolve an arbitrability dispute, which involved a marine and dredging construction company, its performance bond sureties, and a dredging contractor. First granting a motion to compel arbitration with respect to the construction company and the contractor, both of which had signed the arbitration agreement, the court then reviewed common law contract and agency principles to determine whether the non-signatory sureties could also be bound by the agreement on some other theory, ultimately holding that they could not be because there existed no (1) incorporation by reference of another contract to which the sureties were signatories, (2) assumption by the sureties, (3) agency relationship, (4) veil-piercing/alter-ego, or (5) estoppel. Additionally, the court found that the arbitration agreement unambiguously limited its reach only to claims or disputes between the signatories because it listed those parties – and only those parties – regardless of the fact that it did not expressly exclude application to others. The court next determined that those claims found to be proper for arbitration – breach of contract and indemnity – did not predominate the nonarbitrable claims. Rather, the nonarbitrable claims – fraud in the inducement, negligent misrepresentation, rescission, personal liability, civil theft, and conversion – could be resolved in independent litigation without resulting in either duplicative proceedings or preclusive effect on the arbitrable claims. The court also denied the individual defendant’s motion to dismiss. U.S. Surety Company v. Edgar, Case No. 8:13-cv-1207-T-33TGW (M.D. Fla. Dec. 5, 2013).

This post written by Kyle Whitehead.

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In Hill v. Wackenhut Services International, an employment-related dispute involving alleged unpaid compensation for employees’ work on American military bases overseas, the U.S. District Court for the District of Columbia upheld an arbitral award authorizing class arbitration, basing its decision on the extremely limited availability of judicial review of arbitral awards and two Supreme Court cases. Stolt-Nielsen S.A. v. Animal Feeds International Corp. (2010) held that a court may not uphold an arbitrator’s decision to permit class arbitration if it reflects the arbitrator’s personal policy preferences rather than an interpretation of the parties’ agreement. Consistent with Stolt-Nielsen, Oxford Health Plans, LLC v. Sutter (2013) teaches that a court must uphold an arbitrator’s decision to permit class arbitration so long as that decision was “arguably construing” the parties’ agreement, even if the interpretation is mistaken. The Hill court found that the arbitrator had authorized class arbitration based upon the doctrines of collateral and judicial estoppel, which stemmed from the Hill defendants’ acceptance of a class arbitration award in an earlier related class proceeding. Because the Hill employment agreement’s choice-of-law clause incorporated federal and Florida law, both of which recognize the principles of estoppel on which the arbitrator relied, the arbitrator’s decision to invoke those doctrines “drew its essence from the contract,” consistent with the mandate of Oxford Health. Hill v. Wackenhut Services International, Case No. 11-2158 (JEB) (D.D.C. Sept. 18, 2013).

This post written by Kyle Whitehead.

See our disclaimer.