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Arbitration Process Issues

ARBITRATOR TO DECIDE WHETHER ARBITRATION AGREEMENT’S BAN OF CLASS ACTIONS IS UNCONSCIONABLE

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In a dispute centered on retroactive credit card interest-rate increases, Mr. and Mrs. Puleo, on behalf of those similarly situated, appealed the District Court’s decision that the enforceability of an Arbitration Agreement’s ban on class actions was a question of arbitrability for the court to decide. The Puleos argued that the District Court should never have addressed the unconscionability of the class action waiver and instead should have left the issue to be decided by the arbitrator. The Third Circuit Court of Appeals, following the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., 537 US 79, 84 (2002), concluded that the challenge to the class action waiver in the concededly valid arbitration agreement did not raise an issue of arbitrability, and thus should have been decided by the arbitrator. The Court reasoned that the parties’ agreement provided that all disputes should be arbitrated, and that this agreement included the claim that the agreement’s waiver of class arbitration was unconscionable. The Court noted that its decision was consistent with the Supreme Court’s recent opinion in Stolt-Nielsen S.A. v. AnimalFeeds, because it gave effect to the terms of the parties’ arbitration agreement. Puleo v. Chase Bank USA, N.A., Case No. 08-3837 (3d Cir. May 10, 2010).

This post written by John Black.

U.S. SUPREME COURT REQUESTS ADVICE FROM SOLICITOR GENERAL TO ASSIST IN CERT DECISION ON FAA CASE

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The United States Supreme Court has invited the U.S. Solicitor General to file a brief in an arbitration case in order to assist the Court in deciding whether to grant a petition for a writ of certiorari. The case, which is the subject of a December 7, 2009 Special Focus post in this blog, presents an FAA jurisdictional question with implications for an international treaty. Petitioners are seeking review of a Fifth Circuit decision, which held that the McCarren Ferguson Act of 1945 does not authorize state law to ‘reverse-preempt’ the Convention on the Recognition and Enforcement of Foreign Arbitral Awards or its implementing legislation (Convention Act). The Court has asked the Solicitor General to offer the government’s views on whether the FAA is a federal law that seeks to regulate insurance, and thus overrides any conflicting state law on insurance regulation. Louisiana Safety Association of Timberman Self Insurers Fund v. Certain Underwriters at Lloyd’s London, No. 09-945.

This post written by Lynn Hawkins.

STRIKE THREE: COURT DECLINES TO REWRITE ARBITRATION AGREEMENT TO PROVIDE METHODOLOGY FOR APPOINTMENT OF UMPIRE

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In 2009, the parties in this matter were ordered to proceed in arbitration, pursuant to the terms of an arbitration clause contained in an insurance policy which was the subject of the dispute. Each side selected a party-appointed arbitrator, but the two arbitrators were unable to reach agreement on an umpire. The arbitration agreement provided that if the party-arbitrators could not agree, then “either [arbitrator] or either of the parties may apply to the appointer for appointment of a third arbitrator.” The ‘appointer’ was further defined as the President of the Chartered Insurance Institute or the Vice President of the Institute if the President is unavailable.

Despite this language, the Petitioner in this case alleged that an ambiguity existed in the process and requested that the Court establish a method for the appointment of the third arbitrator. The Court declined to do so, finding that the agreement “set forth a clear method.” As such, the Court denied the motion and dismissed the matter sua sponte. R.A. Wilson & Assoc. v. Certain Interest Underwriters at Lloyd’s London, 10-cv-2232 (USDC EDNY May 26, 2010)

This post written by Lynn Hawkins.

THIRD CIRCUIT CLARIFIES THAT FEDERAL ARBITRATION ACT DOES NOT NECESSARILY PREEMPT UNCONSCIONABILITY CHALLENGES TO CLASS ARBITRATION PROVISIONS

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In an unpublished disposition, the Third Circuit vacated an order compelling arbitration of a putative class action against Verizon Wireless based on Verizon’s alleged unlawful imposition of
administrative charges on class members’ cell phone accounts. The arbitration clause in the customer agreements prohibited class arbitrations. The plaintiffs argued that arbitration provisions in contracts of adhesion that prohibit use of a class action mechanism for low-value claims are unconscionable under New Jersey law. Verizon countered that Third Circuit precedent held that the Federal Arbitration Act preempted such laws. The appellate court concluded its prior cases on the question could not be read as establishing a blanket prohibition on unconscionability challenges to class arbitration provisions since the Federal Arbitration Act permits the use of generally applicable contract defenses to attack arbitration agreements. The order compelling arbitration was vacated and the case remanded to the district court. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. May 21, 2010).

This post written by Brian Perryman.

COURT AFFIRMS RULING THAT THE ISSUE OF ARBITRABILITY IS RESERVED FOR THE ARBITRATION PANEL

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On November 30, 2009, we reported on a state appellate court ruling that the arbitration panel had the power to rule on its own jurisdiction, pursuant to the American Arbitration Association rules incorporated into the parties’ agreement. The New York Court of Appeals has since ruled that this order should be affirmed with costs, stating that the parties agreed to arbitrate questions of arbitrability, including whether the agreement itself is invalid according to Hall St. Assocs., L.L.C. v. Mattel, Inc., or whether the offending provision could be severed from the remainder of the agreement. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 138 SSM 12 (N.Y. May 4, 2010).

This post written by Dan Crisp.