Tony Cicchetti offers a Treaty Tip concerning arbitrator selection, and a recent case concerning the process for selecting the umpire for an arbitration in a matter involving Lloyd’s.
This post written by Tony Cicchetti.
Arbitration Process Issues
SOUTHERN DISTRICT OF NEW YORK BROADLY INTERPRETS U.S. SUPREME COURT’S STOLT-NIELSEN DECISION
On February 18, 2010, we reported on Jock v. Sterling Jewelers, Inc., in which the U.S. District Court for the Southern District of New York refused to vacate an arbitration decision that permitted class arbitration under an agreement that did not address whether that procedure was permitted. Sterling subsequently appealed the order to the Second Circuit Court of Appeals, where it is currently pending. Thereafter, Sterling moved the Southern District of New York for an “indicative ruling” as to whether the court would reconsider its order based on the U.S. Supreme Court’s recent Stolt-Nielsen decision, which held that class arbitration is not permitted when the relevant arbitration clause is “silent” on class arbitration. The Southern District of New York concluded that, in light of Stolt-Nielsen, the court would now vacate the arbitration decision. The court explained that the determinative factor was the underlying arbitration agreement’s silence on whether class arbitration was permitted. The court was not persuaded by the plaintiffs’ attempts to distinguish this case from Stolt-Nielsen, including plaintiffs’ contention that the context of the agreement and sophistication of the parties in this case varied from the underlying agreement and parties in Stolt-Nielsen. Without an express or implied agreement for class arbitration, class arbitration would not be allowed. Jock v. Sterling Jewelers, Inc., No. 08- 2875 (USDC S.D.N.Y. July 27, 2010).
This post written by Michael Wolgin.
SECOND CIRCUIT: CLASS ARBITRATION WAIVER UNCONSCIONABLE UNDER CALIFORNIA LAW
Defendant-Appellant Affiliated Computer Services appealed an order of the US District Court for the Southern District of New York denying Affiliated’s motion to compel arbitration. The district court held that the arbitration clause of a promissory note was unconscionable under California law because of its class action and class arbitration waiver provision. On appeal, Affiliated argued that the clause was not unconscionable, and in the alternative, that California law on this issue was preempted by the FAA. The Second Circuit affirmed the district court’s order, finding that the class arbitration waiver was unconscionable and unenforceable under California law according to principles applicable to contracts generally, and that California law is therefore not preempted by the FAA. Fensterstock v. Education Fin. Partners, Case No. 09-1562 (2d Cir. July 12, 2010)
This post written by John Black.
PARTICIPATION IN EEOC INVESTIGATION DOES NOT WAIVE RIGHT TO ARBITRATE
A federal district court recently dismissed a Title VII discrimination suit and compelled the parties to arbitration, finding that the employer did not waive its right to arbitrate by participating in an EEOC investigation. The court held that the mere involvement of an administrative agency in the enforcement of a statue did not preclude arbitration. The court noted that the employer specifically advised the EEOC that its participation should not be considered as a waiver of arbitration and that the employee would not be prejudiced by arbitration. The court concluded that the EEOC’s provision of 90 days for the employee to file suit against the company in court was subject to the arbitration agreement. Henry v. Turner Construction Co., No. 09-9366 (USDC S.D.N.Y. June 14, 2010).
This post written by Michael Wolgin.
U.S. SUPREME COURT: ARBITRATOR HAS THE AUTHORITY TO DETERMINE WHETHER AN ARBITRATION PROVISION IS VOID DUE TO UNCONSCIONABILITY
In Rent-A-Center v. Jackson, No. 09-497 (Sup. Ct. June 21, 2010), the U.S. Supreme Court considered whether a provision that delegated to an arbitrator the authority to decide whether any portion of an arbitration agreement was void or voidable is enforceable under section 2 of the Federal Arbitration Act (“FAA”), in a situation in which it was contended that the agreement was unconscionable under Nevada law The Court recognized that it had previously held that parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether an agreement covers a particular controversy. The Court further recognized that there were two types of challenges to the validity of an agreement under section 2 of the FAA: (1) challenges to an agreement to arbitrate itself; and (2) challenges to the contract containing the arbitration agreement as a whole, “either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.” Only the first type of challenge is relevant to a court’s determination whether the arbitration agreement is enforceable. Since an arbitration provision is severable from the remainder of the contract, a challenge must be specifically directed to the arbitration provision in order for the court to intervene. Since the challenge here was to the contract as a whole, rather than specifically directed to the arbitration provision at issue, the arbitration provision was enforceable, and the arbitrator had the authority to determine the issue of unconscionability.
This post written by Michael Wolgin.