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Arbitration Process Issues

NONAPPEALABILIY CLAUSES IN ARBITRATION AGREEMENT HELD NOT ENFORCEABLE IN THE NINTH CIRCUIT

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Faced with a question of first impression, the Ninth Circuit recently held that a clause in an arbitration agreement that eliminates any and all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is unenforeceable. The Court reasoned that allowing parties to “contractually eliminate all judicial review of arbitration awards . . . run[s] counter to the text of the FAA,” and “would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” In re Wal-Mart Wage and Hour Employment Practices Litigation, No. 11-17718 (9th Cir. Dec. 17, 2013).

This post written by Abigail Kortz.

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FIFTH CIRCUIT REPUDIATES NLRB POLICY ON CLASS ARBITRATION WAIVER

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The Fifth Circuit Court of Appeals reversed in part a decision by the National Labor Relations Board which held that D.R. Horton, a homebuilder with operations in over twenty states, had violated the National Labor Relations Act by requiring its employees to sign an arbitration agreement that prohibited them from pursuing collective or class claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial. Deferring to the NLRB’s interpretation of the National Labor Relations Act to the extent it could, the Fifth Circuit nonetheless found that the NLRB paid insufficient respect to other federal statutes and policies, namely the Federal Arbitration Act. The Court first emphasized that the FAA’s purpose is to ensure the enforcement of arbitration agreements according to their terms. However, requiring class arbitration interferes with fundamental attributes of arbitration, primarily its informality, and thus creates a scheme inconsistent with the FAA. Thus, consistent with the FAA, D.R. Horton’s prohibition should be upheld, absent an overriding contrary congressional command in the NLRA. Because (1) the NLRA contains no explicit language about, and does not even mention, collective action, much less the procedures such an action would employ, (2) the legislative history of the NLRA discusses no right to file class or consolidated claims against employers, and because (3) the NLRA was enacted prior to the advent of modern class action practice, the Court held that the class arbitration agreement must be enforced according to its terms. Additionally, the Court upheld the NLRB’s determination that D.R. Horton must clarify with its employees that the arbitration agreement language did not eliminate entirely their right to pursue claims of unfair labor practices with the NLRB. D.R. Horton, Inc. v. National Labor Relations Board, No. 12-60031 (5th Cir. Dec. 3, 2013).

This post written by Kyle Whitehead.

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PROPOSED ALTERNATIVE UMPIRE SELECTION REJECTED BY COURT

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Addressing the method of appointing a tie-breaking umpire-arbitrator in a series of reinsurance coverage arbitrations commenced by insurer Arrowood Indemnity Company, the Southern District of New York recently ordered that the parties’ already chosen arbitrators follow the steps provided in the “excess of loss” reinsurance agreements in selecting the third arbitrator. Although the relevant reinsurance treaties specified a method for such selection, Arrowood sought an alternative approach, which included the nomination by each party of up to eight candidates and a voir dire-like objection and selection process. However, the Court, acting under authority granted by Section 5 of the Federal Arbitration Act, denied that alternative, ordering that the present arbitrators select an umpire in accordance with the treaties’ requirements. Then, the Court would regard that selection as “presumptively appropriate,” albeit rebuttable, for appointment by the Court as umpire for the remaining arbitrations of the series. Employers Insurance Co. of Wausau v. Arrowood Indemnity Co., No. 12-cv-08005-LLS (USDC S.D.N.Y. Oct. 25, 2013).

This post written by Kyle Whitehead.

See our disclaimer.

SIXTH CIRCUIT ANSWERS A QUESTION LEFT OPEN BY THE SUPREME COURT: CLASSWIDE ARBITRABILITY IS A GATEWAY QUESTION SUBJECT TO JUDICIAL DETERMINATION

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The threshold issue before the Sixth Circuit on an appeal from a dispute involving LexisNexis and one of its law firm customers was whether the question of classwide arbitrability is a gateway question to be determined by the court or a subsidiary question to be determined by an arbitrator, a question expressly left open by the Supreme Court in its most recent term. Following an analysis of recent Supreme Court jurisprudence, which seemed to lean toward deciding that classwide arbitrarily is a gateway question, the Sixth Circuit definitively stated that it is a gateway question reserved for judicial determination. The Court next analyzed the arbitration clause at issue in the dispute and held that it did not authorize class arbitration because it was silent on that issue and limited the scope of arbitration to the specific order between LexisNexis and the law firm, precluding the arbitration of other customers’ orders with LexisNexis. Reed Elsevier, Inc. v. Crockett, No. 12-3574 (6th Cir. Nov. 5, 2013).

This post written by Abigail Kortz.

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STATUTE OF LIMITATIONS: CONSENT-TO-SETTLEMENT PROVISIONS AND UNDERINSURANCE

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In a case involving an insurer’s attempt to avoid payment of a claim under an underinsured motorist policy after a car accident on statute of limitations grounds, the Eastern District of Pennsylvania resorted to the basics of contract law in denying the insurer’s motion for summary judgment and granting the policyowner’s petition to compel arbitration. Although the parties agreed that Pennsylvania has a four-year statute of limitations for contractual actions, they disagreed as to when the limitations period begins to run in an underinsurance case. Sitting in diversity, and absent any rulings on point by the state’s highest court, the court determined that, based on relevant state and Third Circuit precedent, the Pennsylvania Supreme Court likely would rule that the statute of limitations begins to run on an underinsurance claim when the insured actually settles with the underinsured driver. Thus, consistent with both the purpose of consent-to-settlement provisions, which give insurers an opportunity to exercise their subrogation rights prior to the formation of binding settlement agreements, and contract law, the statute of limitations began to run on the date the policyowner accepted the tortfeasor’s settlement offer by signing the release absolving the tortfeasor from further liability. Wilson v. Great American Insurance Group, Case No. 12-5700 (E.D. Pa. Oct. 25, 2013).

This post written by Kyle Whitehead.

See our disclaimer.