Arbitration Process Issues

ROUNDUP OF MOTIONS TO COMPEL INVOLVING NON-SIGNATORIES TO ARBITRATION AGREEMENTS

August 14, 2013 by Carlton Fields

Four recent decisions considered whether to compel arbitration in the context of non-signatories and multiple agreements and claims. The decisions highlight different doctrines relevant to this analysis, including equitable estoppel, third-party beneficiary, and agency principals.

Murphy v. DirecTV, Inc., No. 11-57163 (9th Cir. July 30, 2013) (reversing lower court’s order compelling arbitration; non-signatory was not entitled to benefit of arbitration clause under equitable estoppel, third-party beneficiary doctrine, or agency principals);

84 Lumber Co. v. F.H. Paschen, S.N. Nielsen & Associates, LLC, Case No. 2:12cv01748 (USDC E.D. La. July 24, 2013) (granting motions to compel arbitration; contract and tort claims against signatory were subject to arbitration clause, notwithstanding claimant’s fraudulent inducement claim with respect to agreement as a whole; claims against non-signatory would be arbitrated under equitable estoppel);

Uptown Drug Co., Inc. v. CVS Caremark Corp., Case No. 3:12cv06559 (USDC N.D.Cal. July 22, 2013) (granting in part and denying in part motion to compel arbitration; non-signatories could compel arbitration under equitable estoppel of misappropriation of trade secrets claims, which were intertwined with relevant agreement; non-signatories could not compel arbitration of alleged violations of unfair prong of unfair competition law, which were not intertwined with agreement);

National Union Fire Ins. Co. v. Chopper Express, Inc., Case No. 1:13-cv-03129 (USDC S.D.N.Y. June 19, 2013) (granting motion to compel arbitration against signatory; providing petitioner time to submit evidence to show that non-signatory co-respondents were also bound by underlying contract based on corporate relation).

This post written by Michael Wolgin.

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AFTER AMEX, MASSACHUSETTS SUPREME COURT RECONSIDERS PRIOR DECISION FINDING CLASS WAIVER UNENFORCEABLE ON COST-PROHIBITIVE GROUNDS

August 13, 2013 by Carlton Fields

On July 2, 2013, we reported on Feeney v. Dell Inc., which was issued eight days before the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, and appeared to reach a result at odds with that decision. Specifically, while Amex held that individual arbitration could be compelled under the FAA based on a class waiver contract provision, notwithstanding that the cost of arbitration exceeded the potential recovery, Feeney had held that U.S. Supreme Court precedent precluded a class waiver under those circumstances. On August 1, 2013, the Feeney court granted a petition for rehearing, changing the result in its prior opinion, and reversing the lower court’s denial of a motion to confirm the underlying arbitration award, holding that “following Amex, our analysis in Feeney II no longer comports with the Supreme Court’s interpretation of the FAA.” Feeney v. Dell Inc., Case No. SJC-11133 (Mass. August 1, 2013).

This post written by Michael Wolgin.

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WEST VIRGINIA SUPREME COURT REVERSES “UNCONSCIONABILITY” HOLDINGS, COMPELS ARBITRATION

August 6, 2013 by Carlton Fields

In a consolidated appeal of two cases involving Credit Acceptance Corporation (“CAC”), the West Virginia Supreme Court reversed two trial court decisions denying motions to compel arbitration, and ordered both cases to proceed to arbitration. The trial court had found that the arbitral forums named in the agreements were unavailable, and that the agreements were unconscionable inasmuch as they contained a waiver of the right to a jury trial. It denied CAC’s motions to compel arbitration on those bases in both cases. The West Virginia Supreme Court reversed, finding that (1) while one of the arbitral forums mentioned in the agreement – the National Arbitration Forum – was no longer available for consumer arbitrations, the other entity mentioned – the American Arbitration Association – remained available; and (2) the fact that an arbitration agreement requires an explicit waiver of the right to a jury trial does not render it unconscionable or unenforceable. The Court remanded with directions to the trial court to compel arbitration. Credit Acceptance Corp. v. Front, No. 12-0545 (W.V. June 19, 2013).

This post written by John Pitblado.

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UBS AG STATUTE OF LIMITATIONS ARGUMENT FAILS IN MOTION TO DISMISS

August 1, 2013 by Carlton Fields

For nearly five-and-a-half years, various banking and insurance corporations (“movants”) have engaged in extensive discovery to attempt to prove that Michel and Ramy Lakah, acting as an alter ego for bond guarantor Lakah Funding Limited, are bound by arbitration agreements that they had not signed in a personal capacity. When the Lakahs sought to stay the arbitration, the movants filed a motion to dismiss that claim as being untimely filed. The movants allege that the petition was filed more than twenty days after notice was given, failing to comply with section 7503(c) of the N.Y. Code.

The court held that the movants had waived their right to argue that the stay petition was time-barred. The court explained that “[f]or almost five-and-a-half years . . .the movants did not inform this court or their opponents of their belief that the extensive rounds of discovery and related litigation . . . were completely unnecessary because the Lakahs were time-barred from seeking to stay arbitration on any ground.” In their answer, the movants failed to assert their statute of limitations claim as an affirmative defense, therefore waiving that right. Additionally, the court did not allow movants to amend their answer to include this affirmative defense principally because of their own “inordinate delay.” Lakah v. UBS AG, Case No. 07-cv-02799 (USDC S.D.N.Y. May 22, 2013).

This post written by Brian Perryman.

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COURT HOLDS THAT PRECLUSIVE EFFECT OF PRIOR ARBITRATION SHOULD BE DECIDED BY ARBITRATOR

July 30, 2013 by Carlton Fields

National Casualty, Wausau and Swiss Re reinsured OneBeacon under a multiple line excess cover program. When disputes arose OneBeacon arbitrated with Swiss Re, and lost. OneBeacon then demanded arbitration with National Casualty and Wausau with respect to the same reinsurance program, but that proceeding broke down over disputes concerning the selection of an umpire to complete a three arbitrator panel. National Casualty and Wausau then filed a lawsuit against OneBeacon, seeking a declaration that the prior arbitration award and the doctrine of collateral estoppel barred OneBeacon’s second arbitration, and seeking the court’s assistance in the appointment of the umpire. The court granted OneBeacon’s motion to dismiss the preclusion claim on the basis that the preclusive effect of a prior arbitration in a subsequent arbitration should be decided by the arbitrator and not by the court.

The reinsurers had put forth a senior official of Swiss Re as their umpire candidate, to which OneBeacon objected, on the basis that the candidate was not impartial and was not qualified to serve. The court found OneBeacon’s challenge to the as yet unselected umpire candidate premature under the terms of the Federal Arbitration Act, which provides that challenges to arbitrators should be entertained by courts only after the issuance of an arbitration award. National Cas. Co. v. OneBeacon American Ins. Co., Case No. 12-11874 (USDC D. Mass. July 1, 2013).

This post written by Brian Perryman.

See our disclaimer.