Arbitration Process Issues

In a suit by residents of a mobile home park, of whom only some had signed leases that permitted arbitration or other ADR, against the owners of the facility, a California Appellate Court recently affirmed the lower court’s denial of the owners’ motion to compel arbitration. Under California law, the trial court has discretion to deny arbitration where there is a possibility of conflicting rulings on a common issue of law or fact. The lower court found, and the appellate court agreed, that all the plaintiffs had alleged that the mobile home park was inadequately maintained, and to permit arbitration for only some of the residents, while the others continued to litigate in court, would create the possibility of conflicting rulings on issues of law or fact. The appellate court further held that while an evidentiary showing is required under California law to show the existence of an agreement to arbitrate, no such showing is required for the court to find the “possibility” of conflicting rulings. Abaya v. Spanish Ranch I, L.P., No. A125298 (Cal. Ct. App. Nov. 11, 2010).

This post written by Michael Wolgin.

AIG insureds were directed to arbitrate their breach of contract, tortious breach of the covenant of good faith and fair dealing, unfair competition, and other causes of action based on AIG’s alleged misconduct in denying their claims for benefits. AIG moved to compel arbitration, citing a provision in the insurance contracts requiring any controversy to be settled by binding arbitration. Plaintiffs opposed, pointing to what they argued was a conflicting provision, which stated that “in the event of [the insurer’s] failure to pay any amount claimed to be due hereunder, we, at your request, will submit to the jurisdiction of a court of competent jurisdiction within the United States.” Relying on the presumption favoring arbitration, the court held that the contractual provisions were harmonious–all disputes were required to be resolved through arbitration but the insureds could bring suit in a court of their choice to enforce compliance with an arbitration award. The court also held that AIG could compel arbitration under an equitable estoppel theory, notwithstanding that it was not a signatory to the arbitration agreement. NS Holdings LLC v. Am. Int’l Group, Inc., Case No. 10-1132 (U.S.D.C. C.D. Cal. Nov. 15, 2010).

This post written by Ben Seessel.

C.B. Fleet Company, Inc., a manufacturer of certain FDA-regulated over-the-counter medication, sued one of its excess liability carriers, Aspen Insurance UK Ltd., alleging it breached the excess policy by refusing to provide coverage for underlying products liability suits against Fleet. Aspen moved to stay the lawsuit in favor of arbitration. Fleet contested the existence of an agreement to arbitrate, and, even if there was one, Fleet asserted that Aspen waived its right to invoke it by engaging in the litigation process. The court rejected both arguments, finding that a valid, binding arbitration agreement was incorporated by reference into the Aspen excess policy, because the underlying policy to which Aspen’s policy “followed form” contained an arbitration agreement. The court also held that Aspen’s limited engagement in the litigation process prior to demanding arbitration did not constitute waiver of the right to arbitrate, citing the policy underlying the FAA which heavily favors arbitration of disputes. Aspen had only engaged in limited discovery pertaining to whether an agreement to arbitrate existed, filed an answer raising an affirmative defense pertaining to arbitration, and then demanded arbitration ten days later. C.B. Fleet Company, Inc. v. Aspen Insurance UK, Ltd., No. 6:09-cv-00062 (USDC W.D. Va. Oct. 15, 2010).

This post written by John Pitblado.