Arbitration Process Issues

FEDERAL COURT HOLDS IT HAS NO AUTHORITY TO TRANSFER ARBITRATION CONFIRMATION ACTIONS TO STATE COURT

October 27, 2011 by Carlton Fields

Subway International B.V., a Netherlands-based franchisor of Subway sandwich stores, brought three actions in Connecticut federal court, seeking enforcement of arbitration awards secured against certain Greek franchisees for breach of their respective franchise agreements. The franchisees had each separately brought actions to vacate the awards in New York State Supreme Court, and they each moved to transfer the Connecticut cases filed by Subway to that venue. The Court denied each of the motions to transfer, holding that it had no authority under federal procedural statutes to transfer actions to state court. In one of the actions, however, the Court granted a motion to dismiss for insufficient service of process. Subway Int’l B.V. v. Cere, Case No. 10-01713 (USDC D. Conn. Aug. 11, 2011), Subway Int’l B.V. v. P. Bletas and J. Bletas, Case No. 10-01714 (USDC D. Conn. Aug. 11, 2011); and Subway Int’l B.V. v. P. Bletas, Case No. 10-01715 (USDC D. Conn. Aug. 11, 2011).

This post written by John Pitblado.

COURT HOLDS TERMS OF ARBITRATION AGREEMENT REQUIRES PARTIES TO ARBITRATE DISPUTES ARISING UNDER SUBSEQUENT AGREEMENTS

October 26, 2011 by Carlton Fields

General Motors stripped franchisee Glen West of his stock and removed him as president and operator of one of its dealerships because West was allegedly self dealing and failing to keep proper records. West filed an action in state court seeking an injunction preventing General Motors from disposing of his dealership and an order reinstating him as president. General Motors removed the case to federal court and subsequently moved to compel arbitration, citing an arbitration agreement that the parties had executed when they entered into their first stockholders’ agreement in 2008. West argued that his claims were governed by a 2010 dealer sales and services agreement, and a 2010 stockholders agreement, both of which did not incorporate or reference the terms of the arbitration agreement. The court, however, compelled arbitration, finding that the parties had agreed to arbitrate any claim arising from any other agreement they entered into “whether executed before or after this Arbitration Agreement.” West v. Gen. Motors LLC, Case No. 3:11-00819 (USDC D.N.J. June 7, 2011) motion for reconsideration denied (Aug. 5, 2011).

This post written by Ben Seessel.

INSURER UNSUCCESSFULLY ATTEMPTS TO AVOID ARBITRATION BY WINNING RACE TO THE COURTHOUSE

October 25, 2011 by Carlton Fields

Republic Mortgage Insurance issued policies to lender Countrywide insuring against default by Countrywide’s borrowers. Each policy contained an arbitration clause providing that Countrywide “may elect to settle by arbitration a controversy, dispute, or other assertion of liability or rights which it initiates arising out of or relating to this policy.” A dispute arose after Republic denied claims, contending that coverage had been rescinded due to misrepresentations allegedly made by Countrywide in applying for the policies and by its borrowers in applying for loans. Republic filed suit in state court seeking a declaration that its rescissions were consistent with policy terms; Countrywide moved to compel arbitration. Republic opposed the motion, arguing that Republic had “initiated” the dispute, and that the arbitration provision only requires disputes that Countrywide “initiates” to be arbitrated. The trial court rejected this argument and granted Countrywide’s motion to compel. The appellate court affirmed, holding that Republic’s proposed interpretation would frustrate the purpose of the agreement. The court also noted how Republic’s interpretation is commercially unreasonable because it would promote procedural gamesmanship, i.e., attempting to avoid arbitration by filing a declaratory judgment action before Countrywide filed a demand for arbitration. Republic Mortgage Ins. Co. v. Countrywide Fin. Corp., No. 06292 (N.Y. App. Div. August 18, 2011).

This post written by Ben Seessel.

COURT REFUSES TO COMPEL ARBITRATION ABSENT SUFFICIENT PROOF THAT PLAINTIFF WAS BOUND BY ARBITRATION CLAUSE

October 13, 2011 by Carlton Fields

Plaintiff brought a putative class action lawsuit alleging violations of the Telephone Consumer Protection Act of 1991. Plaintiff claimed that she received numerous debt collection calls to her cell phone, notwithstanding that she never owned a credit card issued by Citibank. Citibank moved to compel arbitration, arguing that plaintiff held a ConocoPhilips branded credit card it had issued and that plaintiff’s written card agreement contained a governing arbitration clause. The court denied Citibank’s motion to compel, holding that Citibank had produced only representative samples of card agreements in support of its motion, and insufficient information to link such a card agreement to an account held by plaintiff. Gonzalez v. Citigroup, Inc., Case No. 2:11-00795 (USDC E.D. Cal. Sept. 19, 2011).

This post written by Ben Seessel.

STATE COURT INTERVENES TO FACILITATE SELECTION OF NEUTRAL ARBITRATOR

October 11, 2011 by Carlton Fields

Arrowood Indemnity Co. filed suit in state court, complaining that Clearwater Insurance Co. failed to name three neutral umpire candidates in accordance with the parties’ arbitration agreement. Arrowood asked the court to issue orders facilitating the designation of a neutral arbitrator. Clearwater moved to dismiss, arguing that the court lacked subject matter jurisdiction because the FAA, which undisputedly governed, does not allow for pre-award challenges to an arbitration panel. The court denied Clearwater’s motion, holding that the FAA does not preclude state court involvement in procedural pre-arbitration matters and that it should intervene to facilitate the selection of a neutral arbitrator to protect the integrity of the arbitration process. To court directed the parties to schedule an evidentiary hearing where Clearwater could make challenges to a slate of neutral arbitrators proposed by Arrowood. Arrowood Indem. Co. v. Clearwater Ins. Co., Case No. 11-6018055-S (Conn. Super. Ct. July 26, 2011).

This post written by Ben Seessel.