Arbitration Process Issues

SUPREME COURT WEIGHS IN ON §10(a)(4) OF THE FAA TO RESOLVE CIRCUIT SPLIT

June 17, 2013 by Carlton Fields

In a unanimous opinion authored by Justice Kagan, the Supreme Court concluded that an arbitrator did not “exceed [his] powers” under §10(a)(4) of the Federal Arbitration Act (“FAA”) when he found that the parties’ contract provided for class arbitration. The arbitrator interpreted an arbitration clause which provided for final and binding arbitration in lieu of civil action and determined that the clause authorized class arbitration. The party opposing class arbitration twice moved in federal court to vacate the arbitrator’s decision on the ground that he “exceed [his] powers” under § 10(a)(4) and was twice denied by the district court and the Third Circuit. The Supreme Court concluded that the limited judicial review of §10(a)(4) did not allow it to find that the arbitrator exceeded his powers because the only question for a judge under § 10(a)(4) “is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Since the arbitrator “articulate[d] a contractual basis for his decision” he did not exceed his powers. Justice Kagan distinguished the Court’s holding in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., in which the Court relied on § 10(a)(4) to vacate an arbitrator’s decision approving class proceedings. According to the Court, the distinction lies in the fact that in Stolt-Nielsen the parties stipulated that they had not reached an agreement regarding class arbitration and the arbitrator simply imposed his own views rather than interpret an agreement. Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013).

This post written by Abigail Kortz.

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RHODE ISLAND SUPREME COURT REVERSES TRIAL COURT ORDER VACATING ARBITRATION AWARD

June 13, 2013 by Carlton Fields

In an uninsured/underinsured motorists coverage case, the plaintiff, an injured party in a collision with an underinsured driver, sued her insurer for underinsured motoriests benefits under her policy, which carried limits of $100,000. She was awarded $120,000 by the arbitrator, and the plaintiff then moved to comfirm in court. The insurer objected, based on the fact that there was no basis for any award beyond the policy’s limits. The trial court agreed with the insurer, and vacated that portion of the award in excess of $100,000, and otherwise confirmed the award as modified. However, on appeal, the Supreme Court of Rhode Island reversed, noting:

In modifying this award, the trial justice accepted defendant‘s contention that, . . . arbitrators may not award prejudgment interest above policy limits. . . . In effect, then, the trial justice modified the award based on his belief that the arbitrators had made an error of law. However, it is settled beyond a hint of contradiction that a mistake of law is not grounds for upsetting an arbitration award.

Wheeler v. Encompass Insurance Co., No. 2011-313 (R.I. May 24, 2013).

This post written by John Pitblado.

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FEDERAL DISTRICT COURT DENIES INSURER’S MOTION TO COMPEL ARBITRATION CITING NARROW ARBITRATION CLAUSE

June 12, 2013 by Carlton Fields

UPS sued Lexington Insurance Company seeking a declaratory judgment that Lexington was obligated to defend and indemnify UPS in an underlying personal injury action and for breach of contract for failing to defend. UPS had entered into a guard services agreement with Lexington’s insured Adelis. The agreement required Adelis to indemnify UPS for liabilities UPS might incur from any injury to an Adelis employee, unless the injury was cased solely by UPS’s negligence. Adelis’s Lexington policy contained an additional insured endorsement that would cover UPS for personal injury caused by Adelis’s employees or Adelis. The policy also contained an arbitration clause providing that “in the event of a disagreement as to the interpretation of this policy, it is mutually agreed that such dispute shall be submitted to binding arbitration.”

Lexington moved to compel arbitration, arguing that the dispositive issue of whether the injury was entirely the result of UPS’s negligence was a matter of policy interpretation that should be arbitrated. The court disagreed and denied Lexington’s motion, reasoning that the arbitration clause was narrow and the issue of UPS’s degree of negligence involved application of the facts to the policy language and not policy interpretation. Thus, the court held, the dispute was not within the purview of the narrow arbitration clause. United Parcel Service v. Lexington Insurance Co., Case No. 12 Civ. 7961 (USDC S.D.N.Y. May 7, 2013).

This post written by Ben Seessel.

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SECOND CIRCUIT VACATES ORDER DENYING PETITION TO CONFIRM INTERNATIONAL ARBITRATION AWARD

June 10, 2013 by Carlton Fields

VRG Linhas Aereas, a subsidiary of GOL Linhas Aereas, initiated an arbitration administered by the International Court of Arbitration for the International Chamber of Commerce (ICC) against MatlinPatterson, a New York private equity firm. The dispute concerned the calculation of the price for VRG in VRG’s purchase from two of MatlinPatterson’s affiliates. MattlinPatterson argued before the ICC arbitration panel that it was not a party to any arbitration agreement because it had not signed the purchase agreement—it had only signed an addendum. The arbitral tribunal disagreed, holding that MatlinPatterson was bound to arbirate and, furthermore, sided with VRG on the merits of the dispute.

VRG petitioned to confirm the award in federal district court. The district court denied the petition on the basis that, even if MatlinPatterson had agreed to arbitrate certain disputes, the arbitration agreement clearly did not extend to VRG’s purchase price. The Second Circuit vacated the district court’s order. It held the district court erred by failing to make the threshold determination whether the arbitrators or the court should decide the issue of arbitrability before interpreting the arbitration clause. The court held that, under Supreme Court precedent, if the parties clearly and unmistakably had agreed to arbitrate, then the decision as to arbitrability was properly for the arbitrators and the award should be confirmed. VRG Aeras S.A. v. Matlin Patterson Global Opportunities Partners II L.P., No. 12-593-cv (2d Cir. June 3, 2013).

This post written by Ben Seessel.

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IF AT FIRST YOU DON’T SUCCEED: INSURER ESTOPPED FROM COMPELLING ARBITRATION WITH MAGELLAN REINSURANCE

June 4, 2013 by Carlton Fields

Withdrawing its earlier opinion on rehearing, the Texas Court of Appeals held that New Hampshire Insurance Company (“New Hampshire”) is judicially estopped from compelling arbitration, therefore affirming the trial courts order denying New Hampshire’s motion to compel. The dispute centers on New Hampshire and Magellan Reinsurance Company’s (“Magellan”) Reinsurance Agreement (“agreement.”) Under this agreement, Magellan agreed to assume 100% of New Hampshire’s obligations for automobile insurance policies in return for the premiums paid under those policies. New Hampshire alleges that Magellan owes 1.4 million dollars to replenish an existing trust account, now emptied. New Hampshire filed suit in Turks and Caicos Island (“TCI”) to “wind up” Magellan’s business and also filed suit in Texas and New York.

The TCI Court found that New Hampshire was not a creditor of Magellan and therefore could not wind up Magellan’s business. Later that year, New Hampshire moved to compel arbitration, for which Magellan had initially argued for at the onset of the TCI litigation. The Court found that New Hampshire’s motion to compel arbitration had numerous inconsistencies with their previous arguments made to courts in TCI and New York. The Court held (consistent with its withdrawn opinion) that New Hampshire was estopped from seeking to arbitrate Magellan’s claims. New Hampshire Insurance Co. v. Magellan Reinsurance Co., No. 02-12-00196-CV (Tex, Ct. App. May 2, 2013).

This post written by Rollie Goss.

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