Arbitration Process Issues

In a prior post, we reported the district court’s denial of the insurer’s motion to compel arbitration in Union Electric Co. v. Aegis Energy Syndicate 1225. In that decision, the court held that a choice of law and forum selection clause agreeing “to submit to the jurisdiction of the Courts of the state of Missouri” in a policy endorsement, commonly known as a service of suit provision, prevailed over an alternative dispute resolution clause in the policy itself, and foreclosed arbitration. On April 19, 2013, the Eighth Circuit affirmed that decision, holding that the endorsement’s plain language gave Missouri courts jurisdiction over all disputes related to the policy. The court was not persuaded by the insured’s argument that the endorsement granted only personal jurisdiction over the parties for Missouri courts to enforce the ADR provision. This decision is setting up a conflict of opinions on this issue. Union Electric Co. v. Aegis Energy Syndicate 1225, No. 12-3546 (8th Cir. April 19, 2013).

This post written by Michael Wolgin.

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Former students of a failed flight-training school brought a putative class action against the bank that originated their student loans and the loan servicer, claiming violation of the California Unfair Competition Law and seeking to enjoin defendants from reporting loan defaults to creditors and from enforcing Notes against the students. The district court dismissed plaintiffs’ claims for failure to state a claim and denied defendants’ motion to compel arbitration. A panel of the Ninth Circuit reversed, holding that the arbitation provision as not unconscionable and that arbitration should have been compelled, following the United States Supreme Court’s Concepcion opinion, which had reversed a ruling by the Ninth Circuit. The Ninth Circuit granted en banc review, but then followed the panel decision in a lopsided 10-1 decision, holding that the arbitration clause was not substantively or procedurally unconscionable under California law for the following reasons: (1) the Note’s ban on class arbitration is not unconscionable after Concepcion; (2) the risk that plaintiffs cannot afford the arbitration fees is too speculative; and (3) the arbitration clause was “in its own section, clearly labeled, in boldface” and gave the students an opportunity to opt out of the clause within 60 days of signing the note. The Court also held that the case did not fall under the “public injunction” exception to the Federal Arbitration Act because injunctive relief would benefit only the approximately 120 putative class members and not the public. Judge Pregerson dissented, finding the arbitration to be unconscionable and unenforceable. Kilgore v. KeyBank, Nat’l Assoc., Case No. 09-16703 (9th Cir. Apr. 11, 2013).

This post written by Abigail Kortz.

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New Jersey Physicians United Reciprocal Exchange (“NJ Pure”) filed a complaint claiming that its reinsurer breached a 2007 reinsurance contract under which it owed plaintiff some $2.3 million, having allegedly improperly offset an amount owed by NJ Pure under the parties’ 2004 contract. The reinsurer moved to dismiss/stay in favor of arbitration. NJ Pure resisted, citing the forum selection clause as evidence that the parties did not intend for arbitration to be mandatory. The court disagreed, pointing out that such a reading would eviscerate the arbitration clause, and that the forum selection clause was intended for situations involving enforcement or challenge to the arbitration award. Finding the suit within the scope of the arbitration clause, the court compelled the parties to arbitrate. New Jersey Physicians United Reciprocal Exchange v. Ace Underwriting Agencies, Ltd., No. 12-04397 (USDC D.N.J. April 11, 2013).

This post written by John Pitblado.

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