Arbitration Process Issues

FEDERAL COURTS DECIDE ARBITRATOR APPOINTMENT AND DISQUALIFICATION ISSUES

September 16, 2013 by Carlton Fields

In Adam Tech., the Court of Appeals for the Fifth Circuit affirmed the denial of a motion to appoint an arbitrator. The court held that there had been no “lapse in the naming of an arbitrator” under FAA Section 5, deciding rather that it was Adam’ Tech.’s failure to comply with the International Center for Dispute Resolution’s rules that prompted the ICDR to appoint an arbitrator against Adam Tech.’s objection. The court also held that the challenge to the ICDR’s rules was a procedural question left for the arbitrators to decide under the Supreme Court’s Howsam decision and that Adam Tech.’s challenge to the appointment was premature because it was filed before a final award had been rendered. Adam Tech. Int’l, S.A. v. Sutherland Global Servs., Inc., No. 12-10760 (5th Cir. Sept. 5, 2013).

Joyce Green had entered into an agreement in 2012 with U.S. Cash Advance Court requiring disputes to be resolved through arbitration under the Code of Procedure of the National Arbitration Forum. The NAF, however, has not been accepting new consumer cases since 2009, following a settlement with the Minnesota Attorney General. The district court refused to appoint an arbitrator under FAA Section 5, holding that the selection of NAF was “integral” to the agreement. The Court of Appeals for the Seventh Circuit disagreed. The appellate court first pointed out that the agreement did not require appointment of a NAF arbitrator but only the use of the NAF Code of Procedure. It further held that the identity of the arbitrator was not so important as to vitiate the whole contract and ordered the district court to appoint an arbitrator to adjudicate the dispute under the NAF Code of Procedure. A dissenting judge sharply disagreed, opining that the majority was re-writing the terms of the parties’ contract. Green v. U.S. Cash Advance Ill., LLC, No. 13-1262 (7th Cir. July 30, 2013).

In PK Time Group, LLC, a federal district court denied a petition to remove a panel of arbitrators. Petitioner PK Time sought removal of the arbitrators after liability had been decided in favor of the opposing party, Cinette Robert, but before the issue of damages had been decided. PK Time argued that the arbitrators had demonstrated bias and had committed misconduct by speaking at a conference at which Cinette Robert’s expert also spoke, and that was sponsored by the company that employed the expert, and by making improper discovery rulings. The court dismissed the petition as an improper pre-award challenge that also failed to demonstrate arbitrator bias. PK Time Group, LLC v. Cinette Robert, Case No. 1:12-cv-08200 (USDC S.D.N.Y. July 13 2013).

This post written by Ben Seessel.

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ROUND-UP OF DECISIONS ON MOTIONS TO COMPEL ARBITRATION

September 12, 2013 by Carlton Fields

Grosvenor v. Qwest Corp., No. 12-1095 (10th Cir. Aug. 14, 2013) (dismissing Qwest’s appeal of district court’s order granting partial summary judgment because Qwest did not seek to compel arbitration in its motion for summary judgment and therefore did not properly invoke appellate jurisdiction under the FAA).

PoolRe Insurance Corp. v. Organizational Strategies, Inc., No. H-13-1857 (S.D. Tex. Jul. 29, 2013) (denying plaintiff’s motion to compel first arbitration because same motion was pending in the Delaware federal district court; staying ongoing arbitration proceedings in a second arbitration between the same parties, having determined that the claims are clearly not arbitrable because they were carved out of the arbitration clause by a separate agreement).

Marsh & McLennan Cos. v. GIO Insurance Ltd., No. 11 Civ. 8391 (S.D.N.Y. Aug. 6, 2013) (staying action pending arbitration, rather than dismissing action, because dismissal is an appealable order that could further delay quick resolution through arbitration; denying defendant insurance company’s motion to release the $1.5 million security it was required to deposit with the court as an “unauthorized foreign insurer,” favoring New York’s public policy that a foreign insurer’s funds should be available in New York to satisfy any potential judgment).

Hirsch v. Amper Financial Services, Inc., No. 070751 (N.J. Aug. 7, 2013) (reversing Appellate Division’s affirmance of Law Divison’s grant of defendants’ motion to compel arbitration because intertwinement of claims and parties alone is insufficient to warrant application of equitable estoppel to compel arbitration).

McInnes v. LPL Financial, LLC, No. SJC-11356 (Mass. Aug. 12, 2013) (vacating order denying defendants’ motion to stay proceedings and compel arbitration and holding that claims alleging unfair and deceptive trade practices in violation of Gen. Law ch. 93A, § 9 must be referred to arbitration where the contract involves interstate commerce and the arbitration agreement is enforceable under the FAA).

Brown v. MHN Government Services, Inc., No. 87953-2 (Wash. Aug. 15, 2013) (affirming order denying appellant MHN’s motion to compel arbitration, applying California law according to choice of law provision in arbitration and agreement and finding provisions regarding arbitrator selection, statute of limitations, and fee shifting to be unconscionable, thereby rendering the entire arbitration agreement unenforceable).

This post written by Abigail Kortz.

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REINSURED’S TRIAL COUNSEL INVOLVED IN UNDERLYING DISPUTE DISQUALIFIED FROM TRYING THE CASE

September 9, 2013 by Carlton Fields

In a dispute involving tortious interference and conspiracy claims brought by Ford Motor Company against a reinsurer of Ford’s stop-loss insurance policies, a federal court disqualified Ford’s lead trial attorney under the “witness-advocate” rule. The reinsurer argued that, notwithstanding Ford’s stipulation not to call trial counsel as a witness, trial counsel’s involvement in the emails and other underlying communications surrounding the reinsurer’s disputed conduct would result in trial counsel being “free to argue the meaning of his own correspondence and refute the trial and deposition testimony of those with whom he interacted.” The reinsurer further contended that trial counsel would “have the ability, through cross-examination and argument, to explain away his communications … just as if he were testifying as a witness,” and that the reinsurer would be forced to call trial counsel as a witness to support its defenses and to rebut Ford’s theory of the case and evidence. The court agreed with the reinsurer, finding that the testimony the reinsurer intended on seeking from trial counsel and the communications in which trial counsel was involved, were relevant and necessary to the reinsurer’s defenses, and were potentially prejudicial to Ford. The court further found that no exceptions to the witness-advocate rule applied, including the exception of substantial hardship to Ford. Ford Motor Co. v. National Indemnity Co., Case No. 3:12-cv-839 (USDC E.D. Va. Aug. 21, 2013).

This post written by Michael Wolgin.

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COURT DECLINES TO STAY LITIGATION OF CLAIMS UNDER GUARANTEE DESPITE COMMON ISSUES WITH PENDING REINSURANCE ARBITRATION

September 3, 2013 by Carlton Fields

This case concerns overlapping reinsurance agreements, retrocession agreements related to the rinsured risks, and guarantees of the retrocession agreements. The reinsurance and retrocession agreements all contain arbitration provisions, but the guarantees do not. Disputes arose, an arbitration commenced concerning the retrocession agreements and a lawsuit was filed on the related guarantees. On a motion to dismiss, the court held that the claimant did not have to “exhaust” efforts to collect under the reinsurance or retrocession agreements before bringing suit under the guarantees. The court denied a request to stay the claims based on the guarantees pending the arbitration of disputes under the retrocession agreements, because the party seeking the stay had failed to establish that there were issues common to the arbitration and the court action which would be finally determined by the arbitration. While liabiity under the reinsurane and retrocession agreements might be considered an issue common to the arbitration and court action, the court found this factor overcome by evidence that the defendants had delayed and abused the arbitration process. Finally, the court rejected arguments that the guarantee claims failed to state a claim. Greenlight Reinsurance, Ltd. v. Appalachian Underwriters, Inc., Case No. 12-8544 (USDC S.D. N.Y.July 25, 2013).

This post written by Rollie Goss.

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COURT REJECTS NUMEROUS DEFENSES TO ARBITRATION BY NON-SIGNATORY AND APPOINTS UMPIRE FOR ARBITRATION TO PROCEED

August 30, 2013 by Carlton Fields

In a decision granting a workers’ compensation insurer’s petition to appoint an umpire and proceed with arbitration, a court recently analyzed and rejected a number of defenses to arbitration made by the two affiliated company respondents. The court considered whether one of the companies, a non-signatory to the underlying agreement, could be compelled to arbitrate. Applying principles of actual and apparent agency, the court found that the signatory had authority to obtain insurance for the non-signatory affiliate and was therefore subject to the agreement, based on the contract language, and other close connections between the affiliated companies. Next, the court rejected the respondents’ claim that the court lacked jurisdiction based on a forum selection clause in the agreement. The court also refused to stay the action pending a subsequently filed overlapping action in California and refused to find that the agreement was unenforceable because it had not first been submitted to the California Department of Insurance. The court found that the California DOI defense constituted a challenge to the entire insurance agreement, rather than specifically the arbitration provision, and thus the court could direct that arbitrability be resolved by the arbitration panel under the FAA. On this last point, the court found that the California requirements did not “reverse-preempt” FAA arbitration under the McCarran-Ferguson Act, because the court found no conflict between the California requirements and the agreement to arbitrate. National Union Fire Ins. Co. of Pittsburgh, PA v. Personnel Plus, Inc., Case No. 1:12-cv-04647 (USDC S.D.N.Y. July 23, 2013).

This post written by Michael Wolgin.

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