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Arbitration Process Issues

ARBITRATION DENIED WHERE PROPONENT LACKED “SUFFICIENTLY CLOSE” RELATIONSHIP TO ARBITRATION AGREEMENT

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Arbitration was denied in a putative class action lawsuit for alleged violations of the Fair Debt Collection Practices Act brought by two cell phone users against Collecto Inc., a collection agency contracted by Verizon and AT&T. Collecto was not a party to the underlying cell phone service contracts between the plaintiffs and cell phone carriers, but sought to enforce the contracts’ respective arbitration provisions based on the doctrines of agency and estoppel. The court applied the two-prong test in the Supreme Court’s Stolt Nielsen decision, which requires a non-signatory seeking to compel arbitration to show (1) that there are “intertwined factual issues” between the claims asserted and the agreement, and (2) that there is a relationship among the parties that justifies estoppel. While the court found that the first pong was met, it found that the second prong failed because the relationship between Collecto and the cell phone carriers was not “sufficiently close” to warrant estoppel. The court made this determination because no corporate relationship existed between Collecto and the carriers, the underlying contracts between Collecto and the carriers expressly disclaimed any agency relationship, and plaintiffs contended that Collecto had acted without valid authorization from the carriers. The court concluded that although “the FAA strongly favors arbitration, the applicable rule recognized in this case – that a party cannot be forced to arbitrate without agreeing to do so – must succeed.” Butto v. Collecto, Inc., Case No. 10-cv-2906 (USDC E.D.N.Y. Aug. 15, 2011).

This post written by Michael Wolgin.

NINTH CIRCUIT: ENGLISH ARBITRATION LAW DOES NOT APPLY, AND DISPUTE NOT ARBITRABLE UNDER FEDERAL LAW

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Titan Maritime appealed a district court’s decision denying its motion to compel arbitration in an action filed by Cape Flattery Limited for gross negligence in the salvage of a vessel owned by Cape Flattery. Titan argued that the district court erred in refusing to apply English arbitrability law and that, even under federal arbitrability law, the dispute should go to arbitration. The Ninth Circuit Court of Appeal affirmed the district court’s denial of the motion to compel arbitration, noting specifically that under the Supreme Court’s reasoning in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), non-federal arbitrability law should apply only if there is clear and unmistakable evidence that the parties intended to apply such non-federal law. Accordingly, the Ninth Circuit held that federal arbitrability law did apply and that under federal law, the dispute was not arbitrable. Cape Flattery Limited v. Titan Maritime, LLC, No. 09-15682 (9th Cir. July 26, 2011).

This post written by John Black.

NONSIGNATORY AGENTS OF A PARTY TO AN ARBITRATION AGREEMENT ARE NOT COMPELLED TO ARBITRATE

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The Fifth Circuit held that two agents and officers of Beacon Maritime, Inc. were not bound to arbitrate claims against Aban Offshore Limited because, although one officer had signed a contract containing an arbitration clause in his capacity as an officer of the company, neither had signed the agreement in his individual capacity. The court reversed a trial court decision compelling the individual officers to arbitrate. Among other authorities, the Fifth Circuit relied on the Restatement (Third) of Agency, which provides that when an agent contracts with another on behalf of a disclosed principal, the agent and the third party become parties to the contract, but the agent does not become a party to the agreement unless the agent and third party agree otherwise. The court also cited state and federal case law holding that nonparties resisting arbitration demands are not be bound by arbitration agreements. Guy Covington v. Aban Offshore Ltd., No. 10-40449 (5th Cir. Aug. 10, 2011).

This post written by Ben Seessel.

THIRD CIRCUIT CONFIRMS THAT FEDERAL ARBITRATION ACT PREEMPTS STATE LAW DEEMING CLASS ARBITRATION WAIVERS UNCONSCIONABLE

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The Third Circuit reversed a prior decision and held that, under the Supreme Court’s ruling in AT&T Mobility v. Concepcion, a New Jersey law providing that class arbitration waivers in consumer adhesion contracts are unconscionable is preempted by the Federal Arbitration Act. As we reported earlier on June 1, 2010, the Third Circuit had previously vacated a trial court order compelling individual arbitration holding that, under governing New Jersey law, provisions in adhesion contracts precluding class arbitrations are unconscionable and thus unenforceable. The defendant, Cellco Partnership, d/b/a Verizon Wireless, successfully petitioned for a writ of certiorari to the Supreme Court, which vacated the Third Circuit’s decision after deciding in Concepcion that a similar California law was preempted by the FAA. On remand, the Third Circuit reversed its prior decision and affirmed the trial court’s order compelling individual arbitration of the plaintiffs’ claims. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. June 6, 2011).

This post written by Ben Seessel.

COURT ORDERS PARTIES TO SELECT ARBITRATORS WITH RELEVANT REINSURANCE EXPERIENCE

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Parties have been ordered to pick proper arbitrators in a reinsurance dispute. Safety National sued Lloyd’s over a dispute pertaining to the parties’ reinsurance agreements covering certain of Safety National’s underlying workers compensation liabilities. A stay was entered to allow the parties to arbitrate. After six months of wrangling over the naming of arbitrators, Lloyd’s moved to lift the stay for the limited purpose of having the court issue an order requiring that the parties select only arbitrators with workers compensation reinsurance experience, as Lloyd’s contended the contracts required – a position which Safety National contested. Citing the policy embodied in the FAA’s provisions authorizing court involvement in the selection of arbitrators to facilitate efficient arbitration, the court ruled for Lloyd’s. It lifted the stay and ordered that the parties select arbitrators with requisite workers compensation reinsurance experience. Safety National Cas. Corp. v. Certain Underwriters at Lloyd’s, London, NO. 02-cv-1146 (USDC M.D. La. Aug. 16, 2011).

This post written by John Pitblado.