Arbitration Process Issues

In a longstanding dispute arising out of an oil development venture, an intermediary seeking additional profits appealed to the Fifth Circuit after the lower court dismissed the intermediary’s RICO claims that had been previously resolved in arbitration. The arbitration award had rejected the intermediary’s claims based on alleged bribes that associated oil companies allegedly paid to foreign officials. Finding that res judicata barred the intermediary’s claims, the Fifth Circuit rejected the intermediary’s argument that the arbitrator had failed to exercise jurisdiction when he stated in the course of dismissing the claims that he lacked authority to determine criminality under RICO. The Fifth Circuit held that the arbitrator’s statement was not indicative of a refusal to consider the intermediary’s claims, that the arbitrator did in fact exercise jurisdiction, and that as a result, the lower court correctly found that res judicata barred the intermediary’s lawsuit. Grynberg v. BP, P.L.C., Case No. 12-20291 (5th Cir. June 7, 2013).

This post written by Michael Wolgin.

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Eight days before the U.S. Supreme Court issued its American Express decision, the Massachusetts Supreme Court appeared to reach a contrary conclusion when it found that U.S. Supreme Court precedent interpreting the FAA precluded a class waiver when a party would be precluded from pursuing individual statutory relief due to the complexity and cost of the case. The Massachusetts court made this determination in an opinion that reversed its own previous holding made prior to Concepcion in the same putative class action, regarding a class waiver provision in a consumer contract that the court had invalidated because it was “contrary to the fundamental public policy of the Commonwealth favoring consumer class actions” under state statute. It seems likely that the defendant will either seek further review of renew its motion to compel arbitration in light of the American Express decision. Feeney v. Dell Inc., Case No. SJC-11133 (Mass. June 12, 2013).

This post written by Michael Wolgin.

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On June 20th, the U.S. Supreme Court reversed a decision from the Second Circuit that refused to enforce a class waiver arbitration provision in a putative antitrust class action. The Supreme Court 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. The Supreme Court based its decision on its prior ruling in Concepcion, and the fact that nothing in the antitrust laws or the class action procedural rules guarantee an affordable path to litigating claims. Additionally, the Court held that the class waiver did not run afoul of prior case law stating that a class waiver might be prohibited if it precluded “effective vindication” of statutory rights. The Court explained that that exception is intended to prevent only a “prospective waiver” of a right to pursue statutory remedies, which does not exist simply because it is not cost-effective to prove one’s case. American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (S. Ct. June 20, 2013).

This post written by Michael Wolgin.

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Two recent appellate decisions highlight the subtleties involved in determining whether multiple contracts are sufficiently interconnected and relied upon to compel arbitration in a dispute that purportedly involves a contract lacking arbitration provisions. In Robinson Brog Leinwand Green Genovese & Gluck P.C. v. John M. O’Quinn & Associates, the Second Circuit affirmed an order compelling arbitration in a case brought by one law firm against a co-counsel firm to recover attorneys’ fees and expenses for legal work in a stock fraud case. The plaintiff firm sought fees under a joint legal representation agreement, which did not contain an arbitration clause. The defendant moved to compel arbitration, contending that the related client agreement, which contained a broad arbitration clause, supported arbitration. The court agreed with the defendant and compelled arbitration, and the Second Circuit affirmed, holding that the client agreement, which detailed the attorney client relationship, set the contingency fee, and memorialized the client’s promise to pay attorney fees and expenses “function[ed] together with the other agreements” and provided the “basis for generating a potential recovery” for the plaintiff firm’s claim for attorneys’ fees and expenses. Robinson Brog Leinwand Green Genovese & Gluck P.C. v. John M. O’Quinn & Associates, Case No. 12-2915 (2d Cir. April 22, 2013).

In contrast, in Dental Associates, P.C. v. American Dental Partners of Michigan, LLC, the Sixth Circuit affirmed an order denying arbitration in a dispute involving a service agreement for administrative services entered in connection with the purchase of dental practices. The court found that the dispute was not arbitrable because the plaintiff’s claims for breach of fiduciary duty and breach of contract, and related claims arose only under the service agreement, which did not provide for arbitration of such a dispute. The court found that the related purchase agreement, which did contain relevant arbitration provisions, was not “an umbrella agreement” and did not create the relationship between the parties. The purchase agreement, the court explained, governed only a “one time purchase and transfer of assets,” whereas the service agreement defined “the ongoing business relationship between the parties,” created the fiduciary duty in question, and was capable of interpretation independently. The court also construed the service agreement to find that the parties did not intend to arbitrate the claims at issue in the case. Dental Associates, P.C. v. American Dental Partners of Michigan, LLC, Case No. 12-1008 (6th Cir. March 28, 2013).

This post written by Michael Wolgin.

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