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Arbitration Process Issues

ARBITRATORS ORDERED TO SELECT UMPIRE WITHOUT ATTORNEY INTERMEDDLING

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A federal court has ordered party-selected arbitrators to proceed with the umpire selection process “without intermeddling, obstruction, interference, or other direction from the parties or counsel.” Liberty Mutual’s petition claimed counsel for the reinsurer defendants “injected himself” into the umpire selection process, causing unnecessary complication and delay. The reinsurers’ memorandum in opposition claimed that Liberty Mutual’s petition was prematurely filed, and that the selection process had only been shut down by Liberty Mutual’s filing of a petition in court. The main point of contention was whether the reinsurance agreements at issue contained provisions requiring that prospective umpires fill out written questionnaires as part of the selection process. The court’s two-paragraph order avoids any analysis of the issues addressed by counsel, with the apparent implication that the umpire selection issues are to be worked out entirely by the arbitrators. Liberty Mutual Insurance Co. v. Nationwide Mutual Insurance Co., No. 11-10651 (USDC D. Mass. July 6, 2011).

This post written by John Pitblado.

COURT COMPELS ARBITRATION AND REFUSES TO DISQUALIFY A PARTY’S SELECTED ARBITRATOR

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A federal district court compelled arbitration and refused to disqualify a party’s selected arbitrator, notwithstanding that the arbitrator was a former employee and consultant of the objecting party’s parent company. Service Partners, LLC and American Home Assurance Co. entered into a payment agreement for insurance and risk management services that contained an arbitration clause providing that each party would select an arbitrator and the two selected arbitrators would choose a third. The clause prohibited the selection of an arbitrator under either party’s control and, further, provided that, if a party refused or neglected to select an arbitrator, either party could petition a New York state court to appoint one. American Home objected to Service Partners’ selected arbitrator and refused to arbitrate because the arbitrator was a former employee of American Home’s parent, and in the past had served as a party arbitrator for American Home, and as a consultant/expert witness for American Home’s parent. Thus, according to American Home, the arbitrator was not qualified because he knew American Home’s “playbook.”

Service Partners moved to compel arbitration, arguing that nothing in the parties’ agreement or federal law provided for the disqualification of an arbitrator before the entry of an award and, moreover, that the arbitrator was qualified. The federal district court granted the motion to compel. The court first determined that venue was proper–finding that the New York court could only be accessed where no arbitrator had been appointed, not where an arbitrator’s qualifications were in dispute. The court, moreover, held that the arbitrator was qualified under the parties’ agreement because, as a former employee of American Home’s parent, he was not currently under either party’s control. Further, the court held that, absent extraordinary circumstances that did not exist in the case, a challenge to an arbitrator’s qualifications or partiality should be made only after an award is rendered. Serv. Partners, LLC v. Am. Home Assurance Co., Case No. 11-01858 (USDC C.D. Cal. June 20, 2011).

This post written by Ben Seessel.

IMPLEADED REINSURER DISMISSED UNDER CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

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The plaintiff in a personal injury suit arising from an automobile accident amended his petition to add Lloyd’s of London to a state court suit initially brought against the alleged tortfeasor and the tortfeasor’s primary insurer (Lloyd’s cedent). Lloyd’s removed the suit to federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and sought dismissal based on the arbitration provisions of its contract with the insurer. The plaintiff did not oppose the dismissal, so long as it was without prejudice, and moved to remand the case back to state court. The court granted Lloyd’s motion to dismiss without prejudice and granted plaintiff’s motion to remand. Rossignol v. Tillman, Case No. 10-3044 (USDC E.D. La. June 17, 2011).

This post written by John Pitblado.

PLAINTIFF SUES ARBITRATOR, AAA FOR DUE PROCESS VIOLATIONS

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The present action before the US District Court in Nevada arose from a dispute between Dr. Ronald Slaughter and Laboratory Medicine Consultants regarding a stockholder agreement. A state district judge ordered the parties to arbitrate claims. A state court compelled the parties to arbitrate their disputes. Slaughter subsequently submitted an arbitration demand against LMC in September, 2007, after which he then tried to disqualify arbitrator Howard Roitman (which was denied). While arbitration was proceeding, Slaughter filed a suit in the Nevada federal court seeking to litigate issues encompassed by the arbitration. Slaughter then sought a stay of the arbitrtation pending litigation, but the Court denied the stay and dismissed the federal case in its entirety. Undeterred, Slaughter then filed another suit in federal court, this time against the AAA, Arbitrator Roitman, and two employees of the AAA alleging that his due process rights were violated during the underlying arbitration proceedings. Meanwhile, the arbitration continued, with rulings adverse to Slaughter. Defendants moved to dismiss the action, stating that they had immunity pursuant to N.R.S. § 38.229 for their conduct in administering arbitration proceedings and that the federal case was an impermissible collateral attack on the underlying arbitration. The Court agreed and dismissed the motion, specifically finding that Nevada’s Uniform Arbitration Act (cited above) protected the defendants against the suit. Further, the Court found that Slaughter’s action was an attack on the arbitration award and that his only relief would be to pursue vacatur of the award under the Federal and Nevada Arbitration Acts. Accordingly, the federal action was dismissed in its entirety. Slaughter v. American Arb. Assoc., Case No. 10-01437 (USDC D. Nev. June 2, 2011).

This post written by John Black.