Arbitration Process Issues

INTERPRETATION OF TREATY’S “ACT-AS-ONE” PROVISION HELD TO BE A PROCEDURAL ISSUE FOR ARBITRATORS TO DECIDE

May 11, 2011 by Carlton Fields

National Casualty is one of several reinsurers providing reinsurance to Munich Re under a single treaty. Munich Re submitted claims under the treaty that were denied by National Casualty and another reinsurer, Wasau. The treaty provided disputes would be submitted to arbitration and that if more than one reinsurer was involved in the same dispute, all the reinsurers would constitute and act as one party. Wasau refused to submit to the arbitration, however, and National Casualty refused to proceed without Wasau, taking the position that the treaty’s “act-as-one” clause prohibited the arbitration from going forward without Wasau as a party. Munich Re successfully moved to compel. The district court held that whether the “act-as-one” provision prohibited a separate arbitration against National Casualty was a threshold procedural issue for the arbitrators to decide. Munich Reinsurance America, Inc. v. National Casualty Co., Case No. 10 Civ. 5782 (USDC S.D.N.Y. April 26, 2011).

This post written by Ben Seessel.

SUPREME COURT HOLDS STATE UNCONSCIONABILITY LAW PREEMPTED BY FAA IN AT&T v. CONCEPCION

May 2, 2011 by Carlton Fields

On April 27th, the Supreme Court issued its long-awaited opinion in AT&T v. Concepcion, reversing the Ninth Circuit in a 5-4 decision and holding that California’s Discover Bank rule is preempted by the Federal Arbitration Act. At issue was whether the state law – which provided that class action waivers in arbitration agreements are unenforceable in certain circumstances – frustrated the overarching purpose of the FAA, and by extension Congressional intent. The dispute arose out of a telephone contract between respondents (Concepcions) and petitioner (AT&T) which provided for arbitration of all disputes, but did not permit classwide arbitration. The District Court denied AT&T’s motion to compel arbitration under the contract. The Ninth Circuit affirmed.

Writing for the majority, Justice Antonin Scalia emphasized the liberal federal policy favoring arbitration and noted that courts must enforce arbitration agreements according to their terms, as with other contracts. Justice Scalia found that FAA §2’s saving clause preserved generally applicable contract defenses but does not act to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Justice Scalia ruled that the class arbitration mandate created by Discover Bank was not consensual and thus violated a fundamental attribute of arbitration, that parties are free to limit with whom they will arbitrate. Further, class arbitration will likely complicate the dispute resolution rather than streamlining it as arbitration usually does. Thus, the California state law stood as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA and the Discovery Bank rule was accordingly preempted by the FAA. The Court reversed and remanded the Ninth Circuit’s judgment.

Chief Justice Roberts and Justices Kennedy, Alito and Thomas (filing a concurring opinion) joined in Justice Scalia’s opinion. Justice Breyer filed a dissenting opinion which was joined by Justices Ginsburg, Sotomayor, and Kagan. AT&T Mobility LLC v. Concepcion, Case No. 09-895 (S. Ct. Nov. 9, 2010)

This post written by John Black.

COURT COMPELS FINRA ARBITRATION OF EMPLOYMENT DISPUTE

April 25, 2011 by Carlton Fields

Kevin Imhoff left his job as a broker for Primerica, for whom he sold various securities and insurance products, to go work for a competitor. He sued Primerica in state court, alleging that they harmed his relationship with his clients and with AIG (one of the insurance companies whose products he sold), as a result of various communications Primerica sent announcing his departure. Primerica filed a petition in federal court seeking to compel arbitration under FINRA. Imhoff conceded he agreed to arbitrate certain disputes, as set forth in his FINRA registration, but that the dispute pertaining to his sale of insurance products was exempt from arbitration by FINRA Rule 13200. The Court rejected this claim, narrowly construing Rule 13200’s exception for “insurance related claims,” which states that “disputes arising out of insurance business activities of a member that is also an insurance company are not required to be arbitrated under FINRA,” and finding that it does not encompass employment disputes, but rather only “intrinsically insurance” claims. The Court compelled arbitration of all claims. PFS Investments, Inc. v. Imhoff, No. 11-10142 (USDC E.D. Mich. March 25, 2011).

This post written by John Pitblado.

NON-PARTIES TO CONTRACT CONTAINING ARBITRATION CLAUSE CAN COMPEL ARBITRATION; FRAUDULENT INDUCEMENT CLAIM IS ARBITRABLE

April 13, 2011 by Carlton Fields

Plaintiff filed a complaint in federal court alleging breach of contract and fraud against StoresOnline, its parent corporation, IMergent, and several officers and directors of the companies. StoresOnline offers software and support services for conducting internet businesses; Plaintiff had contracted with StoresOnline to purchase six web-stores. The contract between plaintiff and StoresOnline contained an arbitration clause, which provided that: “any and all disputes that arise . . . concerning this Agreement . . . or that concern any aspect of the relationship . . . shall be decided exclusively in binding arbitration.” Plaintiff asserted two arguments in opposition to the defendants’ motion to compel arbitration. First, Plaintiff argued that she only agreed to arbitrate with StoresOnline and not the other defendants, and, second, that the agreement was unenforceable because it had been procured by fraud. The court rejected both arguments and compelled arbitration. The court held that plaintiff’s claims against all defendants arose out of her relationship with StoresOnline and thus were governed by the terms of the arbitration clause, and that a claim of fraudulent inducement that generally challenges the enforceability of a contract, and not specifically the arbitration provision itself, may be subject to arbitration. Hird v. IMergent, Inc., Case No. 10-166 (USDC S.D.N.Y. Jan. 6, 2011).

This post written by Ben Seessel.

COURT HOLDS THAT AN ORDER GRANTING A MOTION TO DISMISS IS AN ARBITRATION “AWARD” DESPITE UNRESOLVED PENDING ISSUES

March 31, 2011 by Carlton Fields

A state court of appeals held that the an order granting respondent’s motion to dismiss an arbitration on the merits was an “award” within the meaning of the Uniform Arbitration Act of 1975, separate and apart from a “Final Award” issued two months later in which the arbitrator awarded respondent costs and denied its application for attorney’s fees. Respondent filed a motion in court to confirm the order of dismissal and award of costs; claimant opposed and moved to vacate both orders. The trial court held that the dismissal order constituted a distinct “award,” and, accordingly, the statutory thirty-day period to seek vacatur had expired. The appellate court affirmed, likening the situation to litigation in state and federal court, where an order of dismissal on the merits is final and appealable, notwithstanding extant unresolved issues of attorneys fees and costs. One judge dissented, opining that an “award” is an arbitral decision that represents the complete determination of every issue submitted to arbitration, and that the reference to state and federal judicial procedure is inapposite, given that the scope of judicial review of arbitral awards is strictly limited. American Numismatic Assoc. v. Cipoletti, Case No. 09CA2597 (Colo. Ct. App. Mar. 3, 2011).

This post written by Ben Seessel.