Arbitration Process Issues

COURT REFUSES CONFIRMATION OF ARBITRATION AWARD TO AVOID MAKING SUBSTANTIVE RULINGS ON CONTRACT ISSUES

January 13, 2010 by Carlton Fields

A motion to compel arbitration and to stay a case was granted to prevent the court from having to intepret certain reinsurance contracts that contain the arbitration agreements. Petitioner Sun Life Assurance Company of Canada sought the confirmation of an arbitration award. The respondents opposed, arguing that in seeking confirmation of the award, Sun Life also sought substantive rulings regarding the rights and liabilities of the parties that the arbitration panel did not address, namely, whether Sun Life owed interest on the award and whether the parties’ relationship should be terminated. The court agreed with the respondents, finding that to grant the relief Sun Life sought, the court would have to review the contracts and determine substantive rights and liabilities of the parties, thereby improperly usurping the arbitrators’ role. Sun Life Assurance Co. of Canada v. Liberty Mutual Insurance Co., Case No. 09 CV 2133 (USDC S.D. Cal. Dec. 9, 2009).

This post written by Brian Perryman.

FEDERAL COURT GRANTS MOTION TO STAY FINDING PARTIES HAD AGREED TO ARBITRATE

January 7, 2010 by Carlton Fields

A federal district court recently granted defendant, Vitol Inc.’s motion to stay a claim pending arbitration. The plaintiff, ICC Chemical, argued that the parties had not agreed to arbitratre, and therefore, that the four-part inquiry used by the Second Circuit to determine whether an action is arbitrable was not satisfied. Specifically, plaintiff argued that the contract (drafted and delivered by a third party) did not contain an arbitration provision. Plaintiff did not dispute that a “confirmation” of the agreement sent four days later did contain the arbitration provision. The Court concluded that under the New York Uniform Commercial Code, the “confirmation” set forth additional contract terms and was sent in a reasoanble time period. Additionally, under New York law, arbitration provisions do not constitute material alterations to a contract. Therefore, the Court concluded that the parties had agreed to arbitrate, and stayed the action pending arbitration. ICC Chemical Corp. v. Vitol, Inc. , 09 Civ. 7750 (PKC) (USDC S.D.N.Y. Nov. 18, 2009).

This post written by Lynn Hawkins.

NEW JERSEY APPELLATE HOLDS THAT POLICYHOLDER MUST ARBITRATE BID-RIGGING AND OTHER CONSPIRACY CLAIMS AGAINST INSURERS

January 6, 2010 by Carlton Fields

American International Group, Inc. (“AIG”) and its subsidiary, National Union Fire Insurance Company (“National Union”) moved to compel arbitration of claims brought against them by the plaintiff, Epix Holding Corporation (“Epix”) in New Jersey state court. Epix alleged that the insurers were engaged in an illegal bid-rigging scheme with the broker (the co-defendants Marsh McClennan Companies, Inc. and March USA, Inc.), and other improper tactics, for the purpose of imposing higher premiums and onerous payment conditions on insureds such as Epix. The trial court denied the motions to compel arbitration, but the New Jersey Appellate Court reversed. Epix argued that the dispute primarily pertained to certain premium calculations that were not intended to come within the scope of the parties’ arbitration agreement. It also argued that AIG is not entitled to enforce the arbitration agreement because it was not a signatory to the contract. The Appellate Court rejected Epix’s arguments, finding that, on the threshold standing issue that AIG and National Union (which was a signatory to the contract containing the arbitration clause) were substantially aligned in connection with Epix’s allegations against them, and that AIG’s status as a non-signatory was thus immaterial. It also rejected Epix’s arguments that the dispute was not within the scope of the arbitration agreement, given the wide range of allegations Epix made against the insurers. Epix Holding Corp. v. March & McClennan Companies, Inc., No. A-3059-08T3 (N.J. App. Ct. Nov. 17, 2009).

This post written by John Pitblado.

TENTH CIRCUIT AFFIRMS ARBITRATION AWARD, ADDS POST-AWARD PREJUDGMENT INTEREST, PUNTS ON HALL STREET

January 4, 2010 by Carlton Fields

The Tenth Circuit recently affirmed an arbitration award, but vacated the lower court’s ruling regarding post-award prejudgment interest. In a lengthy opinion, the Court discussed, and ultimately rejected, each of the defendant’s arguments for vacating the award, including: (1) that the arbitrator lacked jurisdiction; (2) that the defendants were not judicially estopped from asserting that the arbitrator lacked jurisdiction; (3) that the arbitrator acted outside the scope of his authority; (4) that he manifestly disregarded the law and violated public policy; and (5) that the district court failed to apply the proper deferential standard of review.

The Defendant first argued that the arbitrator lacked jurisdiction over certain claims heard in the second phase of the bifurcated arbitration. Unlike the “first-phase” claims, which arose directly out a promissory note between the parties (which contained an arbitration provision), all “second-phase” claims occurred after the plaintiff had been released from liability under the note. As such, the defendants argued that there was no meeting of the minds to arbitrate the second-phase claims. The Court disagreed, concluding that note’s arbitration clause applied to all controversies arising out of and related to the note, including defendant’s tortious actions after the note expired.

Next, the Defendant argued that they did not waive their right to have the second-phase claims tried in court, despite having joined in a motion to stay. The Court disagreed, finding that “defendants waived any objection to arbitration and were estopped from asserting that the arbitrator lacked jurisdiction because they had stated, when they joined [the] motion for stay, that this action must be arbitrated.”

Interestingly, in addressing the defendant’s claim of manifest disregard, the Court (which has not previously addressed judicially-created grounds for vacatur after Hall Street) discussed the Supreme Court’s May 2008 decision in Hall Street v. Mattel, but avoided the ultimate question of whether judicially-created grounds for vacatur survive, by stating that manifest disregard was not shown in any event. This fact is significant, as it demonstrates that this Court is sensitive that Hall Street may have eliminated the judicially created bases for vacating awards. Hicks v. The Cadle Co., Case Nos. 08-1306, 1307, 1429, 1435 (10th Cir. Dec. 7, 2009).

This post written by John Black .

RIGHT TO ARBITRATE DEEMED WAIVED BY COURT

December 30, 2009 by Carlton Fields

A court denied a motion to compel arbitration because the movants’ active participation in the litigation constituted a waiver of the right to arbitrate. Although assuming a contractual right to arbitrate, the court noted that such a right, like any contractual right, can be waived. The movants’ actions were inconsistent with the right to arbitrate because they consented to jurisdiction and venue, appeared before the court to set aside a default certificate and made numerous filings. They also filed a counterclaim and a third-party complaint, and never mentioned the right to arbitrate or indicated that they would be seeking an extra-judicial remedy. Seeking affirmative relief through a counterclaim or third-party claim frequyently is found to waive a right to arbitrate. Belcourt v. Grivel, S.L.R., Case No. 2:08-CV-902-TC (USDC D. Utah Nov. 6, 2009).

This post written by Brian Perryman.