Arbitration Process Issues

DISTRICT COURT FINDS CONTRACTING PARTIES IN PRIVITY, DISMISSES THIRD PARTY COMPLAINT

September 22, 2009 by Carlton Fields

In the latest development of Guaranteed Trust Life’s (“GTL”) suit for reinsurance benefits from First Student Programs, the Northern District of Illinois granted in full third party defendant American United Life’s (“AUL”) motion to dismiss. After previously granting in part and denying in part AUL’s motion to dismiss, the court invited the parties to readdress the issues of res judicata. In fully granting AUL’s motion in the instant order, the court determined that, even though First Student Programs was not a party to the arbitration between GTL and AUL, it was in privity with GTL. The court concluded that because the two companies’ claims against AUL arose out of the same alleged breach of contract, were based on the same legal and factual arguments, and rested on a contractual relationship between the two companies, Illinois’ privity test was met. Accordingly, First Student Programs’ claim agasint AUL was precluded by the arbitration award against AUL. Guarantee Trust Life Ins. v. First Student Programs, LLC, Case No. 05 C 1261 (N.D. Ill Sept. 9, 2009).

This post written by John Black.

THOU SHALT ARBITRATE: FEDERAL COURT ENFORCES A BIBLICALLY-BASED ARBITRATION AGREEMENT

September 17, 2009 by Carlton Fields

In this case, the plaintiff brought suit against her former employer, Heritage Christian Schools, Inc. (“Heritage”), after being constructively discharged from her teaching position. Heritage then filed a motion to stay proceedings and compel arbitration, and the plaintiff filed a motion to strike the arbitration agreement, which commanded that the parties resolve their differences in accordance with Matthew 18:15-17 and that the arbitration process be conducted in accordance with the Rules of Procedure for Christian Conciliation (“RPCC”), which proclaimed that the Bible shall be the supreme authority governing the arbitration process, though local, state, and federal laws must be taken into consideration. In denying the motion to strike and granting the motion to stay proceedings and compel arbitration, the court found that: (1) no evidence supported the argument that the arbitration provision is vague and ambiguous; (2) the plaintiff had not shown that submission to arbitration under the RPCC will deprive her of the ability to vindicate her statutory rights; (3) the plaintiff failed to articulate how the processes under the arbitration agreement are structurally biased and procedurally inadequate; and (4) despite the RPCC requiring that the plaintiff pay half of the fees and costs of arbitration, the arbitrator still has the power to award fees and costs to a participant and, thus, the plaintiff was not precluded from effectively enforcing her rights. Easterly v. Heritage Christian Schools, Case No. 08-1714 (USDC S.D. Ind. Aug. 26, 2009).

This post written by Dan Crisp.

ARBITRATION CLAUSE IN EMPLOYMENT AGREEMENT FOUND ENFORCEABLE NOTWITHSTANDING THE INVALIDITY OF A “NO APPEAL” CLAUSE

September 7, 2009 by Carlton Fields

The plaintiff sued the successor corporation of his former employer in state court alleging claims arising from the termination of his employment. The plaintiff asserted a claim for breach of contract and a tort “whistleblower” claim for wrongful discharge in violation of public policy. The defendant removed the action to federal court and filed a motion to stay proceedings and compel arbitration. The plaintiff opposed the motion, contending the arbitration provision in his employment agreement was invalid and unenforceable because it eliminated a right of judicial appeal, which provision was not severable from the agreement. The plaintiff also argued that even if the arbitration provision is enforceable, his whistleblower/public policy tort claim was not subject to mandatory arbitration.

The court found that the “no appeal” clause in the arbitration provision, to the extent it attempts to preclude any court access, was invalid. Parties seeking judicial enforcement of an arbitration provision or to enforce arbitration awards through confirmation judgments may not divest the courts of their statutory and common law authority to review both the substance of the awards and the arbitral process for compliance with the Federal Arbitration Act. However, the court concluded the “no appeal” clause could be severed, leaving intact the provision’s other portions. The court also found that the arbitration provision was broad, and covered the tort claim. The tort claim “touches the contract,” since it raised the issue of whether the plaintiff was terminated because, as asserted by the defendant, he violated the employment agreement or because, as asserted by the plaintiff, he was retaliated against for whistleblowing. As the court found the arbitration provision enforceable and that all the plaintiff’s claims were arbitrable, the defendant’s motion was granted. Strom v. First American Professional Real Estate Services, Inc., Case No. CIV-09-0504-HE (USDC W.D. Okla. July 24, 2009).

This post written by Brian Perryman.

COURT DENIES MOTION TO REOPEN CASE TO ADD A BAD FAITH CLAIM

September 1, 2009 by Carlton Fields

The Tenth Circuit previously held that a revised state statute rendered the parties’ arbitration agreements enforceable, and, on remand, the Oklahoma district court compelled the parties to arbitrate their entire dispute. When Mid-Continent Casualty Company (“Mid-Continent”) moved to reopen the case for the purpose of filing an amended complaint adding a bad faith claim that Mid-Continent admitted it would not assert in the arbitrations, the court had to determine whether the arbitration agreements required Mid-Continent to arbitrate the bad faith claim. The court ultimately denied Mid-Continent’s motion, finding that the agreements used broad language and showed a clear intent to arbitrate all claims and that the tort claim, which was part of the same cause of action, fell within the broad arbitration clause. Mid-Continent Cas. Co. v. Gen. Reins. Corp., No. 06-0475 (N.D. Okla. Aug. 18, 2009).

This post written by Dan Crisp.

SPECIAL FOCUS: EXPANDED VIEW OF ARTHUR ANDERSEN V. CARLISLE

August 24, 2009 by Carlton Fields

Blogmaster Roland Goss is now a regular contributing editor to Harris Martin's Reinsurance publication, contributing articles on arbitration-related issues. We publish his first contribution to Reinsurance here, which is an expanded look at the Supreme Court's decision in Arthur Andersen v. Carlisle, which we previously posted on. The article describes the Circuit conflict that gave rise to this opinion as well as the Court's holding that a non-party to an arbitration agreement may appeal the denial of a motion to stay pending arbitration under the Federal Arbitration Act.

This post written by Rollie Goss.