Arbitration Process Issues

RECENT DECISIONS FEATURE JURISDICTIONAL ISSUES OVER NON-SIGNATORIES TO ARBITRATION AGREEMENTS

May 5, 2009 by Carlton Fields

UBS AG named Ramy and Michel Lakah (the “Lakahs”) as respondents in an arbitration proceeding, despite Michel never signing the arbitration agreement and Ramy only signing on behalf of Lakah Funding Ltd. and the guarantors, not in his personal capacity. The Lakahs petitioned the state court to stay the arbitration, and UBS removed the petition to federal court seeking to pierce the corporate veil. While the action was pending, the arbitration panel chairman informed all parties that the panel would address the question of jurisdiction over the Lakahs, and the Lakahs subsequently moved for a preliminary injunction. The court granted the petitioners’ motion for injunctive relief, stating that, unless the agreement clearly provides otherwise, courts decide the question of whether the parties agreed to arbitrate, and, without addressing the merits, the court found that petitioners would be irreparably harmed if the panel addressed the issue due to the cost of and time spent litigating before a body lacking the authority to decide this issue. Lakah v. UBS AG, Case No. 07-2799 (USDC S.D.N.Y. Mar. 6, 2009).

Symetra National Life Insurance Co. and Symetra Life Insurance Co., (collectively “Symetra”), obligors on structured settlement payments and nonparties to the transfer agreement that contained the arbitration clause, appealed from a trial court’s confirmation of an arbitration award that directed Symetra to pay Rapid Settlements, Ltd., instead of the original payee. In reversing the trial court’s judgment and vacating the arbitration award, the court held that the arbitration award violated public policy as set forth in the Texas Structured Settlement Protection Act (“TSSPA”) because no court had preapproved the transfer agreement. The court also held that Symetra had standing to contest the arbitration award because, first, the TSSPA gave Symetra an interest sufficient to contest any attempt to force the company to make payments, in the absence of court approval, to anyone other than the payee and, second, Symetra could be subject to double liability if payments were ever made to the wrong party. Symetra Nat’l Life Ins. Co. & Symetra Life Ins. Co. v. Rapid Settlements, Ltd., Case No. 14-07-00880 (Tex. App. Apr. 21, 2009).

This post written by Dan Crisp.

NINTH CIRCUIT APPLIES OREGON LAW TO FIND CLASS ACTION WAIVER UNENFORCEABLE

May 1, 2009 by Carlton Fields

The Ninth Circuit recently concluded that a district court improperly dismissed a consumer class action pursuant to an arbitration agreement between a wireless provider and its customers, holding that the agreement’s class action waiver was unconscionable and therefore unenforceable under Oregon law. The court found that the waiver was substantively unconscionable for two reasons. First, the waiver was unilateral in effect: “It can hardly be imagined that T-Mobile or its suppliers would ever want or need to bring a class action against T-Mobile’s customers.” Second, the class action waiver created a disincentive to litigate since the actual damges alleged were below $700 a year. Given the small size of the individual claims covered by the agreement, the waiver made it impracticable for customers to vindicate their rights in court. The court also found that under the arbitration agreement the class action waiver was not severable since the agreement itself included a provision prohibiting severance of the waiver. Chalk v. T-Mobile USA, Inc., No. 06-35909 (9th Cir. Mar. 27, 2009).

This post written by Brian Perryman.

DEFENDANT REFUSES TO PARTICIPATE IN ARBITRATION – DISTRICT COURT RULES DEFAULT

April 30, 2009 by Carlton Fields

In an action arising out of a services agreement related to the construction of low-income tax-credit housing, plaintiff, The Youngs Company, filed a breach of contract action in the Northern District of Texas. Defendant, Continental Realty, moved to compel arbitration and stay discovery asserting that the arbitration clause in the services contract controlled. While the existence and application of the clause was not in dispute, the district court determined that the defendant had defaulted in proceeding with arbitration where the plaintiff had originally initiated arbitration proceedings, set an arbitration hearing, and served discovery requests on the defendant. Continental Realty refused to respond or participate in the arbitration, and failed to file a reply to the opposition to the present motion. Accordingly, Continental Realty’s motion to compel was denied. Continental Realty has since filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit. Don Youngs & Judy Youngs v. Haugh, Case No. 4-08CV-528 (USDC N.D. Tex. Mar. 18, 2009).

This post written by John Black.

PLAINTIFF WAIVED CONTRACTUAL RIGHT TO ARBITRATE AFTER SUBSTANTIALLY LITIGATING MATTER IN COURT

April 22, 2009 by Carlton Fields

This case arose out of a severance agreement, containing an arbitration clause, between an employer and employee. Following the employee's death, his widow, who was aware of the agreement's arbitration provision, sued the employer in court alleging that the employer breached the severance agreement. After ten months of litigating in court, the plaintiff moved to compel arbitration. The district court denied her motion, finding that she waived her right to arbitrate by having invoked the judicial process to such an extent as to have prejudiced the employer. The plaintiff appealed the decision, but the Fifth Circuit Court of Appeals affirmed, finding that, while disfavored, a court may nonetheless find that a party has waived its contractual right to arbitration by substantially invoking the judicial process to its opponent’s detriment, despite awareness of its contractual right to arbitrate, and that the trial court therefore did not abuse its discretion in denying the motion to compel arbitration. Nicholas v. KBR, Inc., No. 08-20140 (5th Cir. April 15, 2009)

This post written by John Pitblado.

VARYING RULINGS WITH RESPECT TO ARBITRATION AWARDS

April 15, 2009 by Carlton Fields

Courts Confirm Awards Finding Sufficient Support In Record: New Jersey Reg'l Council of Carpenters v. Patock Constr. Co., Case No. 08-4952 (USDC D.N.J. Mar. 11, 2009) (sufficient basis to find that respondent improperly subcontracted with a non-signatory subcontractor and lost work opportunity damages were proper); Tlumacki v. CAN Ins. Cos., No. A-4024-05T5 (N.J. Super. Ct. App. Div. Mar. 31, 2009) (sufficient evidentiary basis for the award existed and no showing of impartiality).

Confirming Awards Based On Arbitrator’s Interpretation Of Agreement: Blair Commc'ns, Inc. v. Int'l Bhd. of Elec. Workers, Local Union No. 5, Case No. 07-162 (W.D. Pa. Mar. 26, 2009) (“work preservation” agreement in collective bargaining agreement did not violate public policy); Global Reinsurance Corp. of Am. v. Argonaut Ins. Co., Case No. 07-7514 (USDC S.D.N.Y. Mar. 23, 2009) (arbitrator employed a plausible construction of reinsurance treaties’ definition of “loss occurrence,” and properly applied “follow the fortunes” doctrine).

Requests To Vacate: McQueen-Starling v. UnitedHealth Group, Inc., Case No. 08-4885 (USDC S.D.N.Y. Mar. 20, 2009) (remanding to arbitrator for clarification of unaddressed “retaliation claim” in discrimination case); Int'l Longshoremen’s Ass'n (Local 1575) v. Horizon Lines, Inc., Case. No. 08-1530 (USDC D.P.R. Mar. 16, 2008) (award “does not suffer from inanition or manifest errors of law”); Jones v. PPG Indus. Inc., Case No. 07-1537 (USDC W.D. Pa. Mar. 13, 2009) (no manifest disregard of law); Williams v. Mexican Rest. Inc., Case No. 05-841 (USDC E.D.Tex. Mar. 18, 2009) (confirming award since errors of fact did not justify vacating awards; see March 25, 2009 post); Kesterson v. NCO Portfolio Mgmt. Inc., Case No. 08-182 (USDC N.D. Ind. Mar. 27, 2009) (adopting Report and Recommendation that petition to vacate award be granted following entry of default judgment for defendant’s failure to appear).

Miscellaneous: A. Bauer Mech. Inc. v. Joint Arbitration Bd. of the Plumbing Contractors’ Ass'n, No. 06-3936 (7th Cir. Mar. 25, 2009) (affirming default judgment for failure to respond to counterclaim to enforce arbitration board’s ruling; Caraballo v. City of Chicago, Case No. 07-2807 (USDC N.D. Ill. Mar. 18, 2009) (requiring plaintiffs to arbitrate consolidated FLSA claims); Laundry, Dry Cleaning Workers & Allied Indus. Health Fund v. Jung Sun Laundry Group Corp Case, No. 08-2771 (USDC E.D.N.Y. Mar. 16, 2007) (adopting Report and Recommendation that award be confirmed; respondent failed to appear at arbitration and confirmation proceedings and no manifest disregard of law).

This post written by Brian Perryman.