Arbitration Process Issues

SECOND CIRCUIT: ARBITRATION CLASS ACTION BAN UNENFORCEABLE

February 17, 2009 by Carlton Fields

On a matter of first impression, the Second Circuit Court of Appeals considered the enforcement of a mandatory arbitration clause in a contract that also contained a “class action waiver” forbidding parties to the contract from pursuing class claims in the arbitral forum. Though the court declined to decide whether class action waiver provisions were void or enforceable per se, it concluded that the plaintiffs had demonstrated that the class action waiver provision at issue should not be enforced because it would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.

The court noted that although the Supreme Court has not squarely addressed this issue, it had implicitly recognized that a provision in an arbitration agreement is not per se unenforceable because the question of the validity of an arbitration clause which contained a class action ban was a matter for the arbitrator, not the court, to decide. The court found Green Tree Fin. Corp.v. Randolph, 531 U.S. 79 (2000) controlling to the extent that, based on the costs of individual litigation or arbitration, the agreement entailed more than a speculative risk that enforcement of the class action ban would deprive the plaintiffs of substantial rights under federal antitrust statutes. Further, the court found that, for all intents and purposes, the plaintiffs could only pursue their antitrust claims against American Express through the aggregation of individual claims either in class action litigation or in class arbitration. The court concluded that the class action waiver could not be enforced because the provision would effectively grant American Express de facto immunity from antitrust liability. The court noted by way of caveat that the ruling was in no way dependent on the “size” of any or all of the merchant plaintiffs; rather, it depended on a showing that the size of the recovery of any individual plaintiff would be too small to justify the expenditure of bringing an individual action. Finally, the court emphasized that this decision did not find all class action bans in arbitration agreements per se unenforceable. The case was remanded to the District Court for further proceedings. In re: American Express Merchants' Lit., No. 06-1871 (2d Cir. Jan. 30, 2009).

This post written by John Black.

NINTH CIRCUIT AFFIRMS SUMMARY JUDGMENT IN CHALLENGE OF ARBITRATION AWARD

February 13, 2009 by Carlton Fields

Collier appealed from the district court’s sua sponte grant of summary judgment, confirming an arbitration award. Finding the case suitable for decision without oral argument, the Ninth Circuit concluded that summary judgment was properly granted because Collier initiated and fully participated in arbitration proceedings and, as a consequence, waived any argument that the dispute was not arbitrable. Additionally, the Ninth Circuit affirmed the district court’s conclusion that Collier failed to satisfy the statutory requirements to vacate or modify the arbitrator’s award. This opinion demonstrates the importance of preserving objections to the arbitration process. Collier v. State of New York, No. 07-55474 (9th Cir. Jan. 15, 2009).

This post written by Dan Crisp.

COURT GIVES PARTIES A DEADLINE TO APPOINT A THIRD ARBITRATOR

February 12, 2009 by Carlton Fields

National Casualty Company (“NCC”) filed a complaint in federal court against several of its reinsureds (collectively, “MMO”) alleging that, under the treaties, MMO’s demand for arbitration was ineffective to commence arbitration. Specifically, NCC claimed the demand for arbitration was not properly served and did not identify the dispute with sufficient particularity. Further detail regarding this dispute is set forth in the Complaint and in the memoranda in support of and in opposition to MMO’s Motion to Stay or Dismiss, Compel Arbitration and Appoint an Arbitrator.

When the arbitrators appointed by the parties failed to agree on a third arbitrator, the court held a telephone conference with the parties. The court then stated its preference that, pursuant to the parties’ agreements, the previously selected arbitrators choose a third arbitrator by December 23, 2008, failing which the court would appoint a third arbitrator, giving consideration to the names submitted by the parties. Finally, the district court ordered the action dismissed with prejudice. National Casualty Co. v. Mutual Marine Office, Inc., Case No. 08-8062 (USDC S.D.N.Y. Dec. 11, 2008).

This post written by Dan Crisp.

COURT GRANTS MOTION TO SEAL ARBITRATION AWARD

February 10, 2009 by Carlton Fields

Parties to a reinsurance agreement arbitrated a claims dispute, agreeing that the final award and all “arbitration information” be kept confidential. The prevailing party moved to confirm the award and to seal the award. The court found that there was a strong presumption of access to court records, and that the award should be sealed only if there was a showing that the material was of the kind of information that courts will protect, and that disclosure would work a clearly defined and serious injury to the party seeking closure. Evaluating the factors to be considered in evaluating a request to seal a portion of a court record set forth by the Third Circuit, the court found that the award should be sealed. Century Indem. Co. v. Certain Underwriters at Lloyd's, London, Case No. 08-219 (USDC E.D. Pa. Jan. 12, 2009).

This post written by Rollie Goss.

THIRD CIRCUIT AFFIRMS ENFORCEMENT OF ARBITRATION AWARD

February 4, 2009 by Carlton Fields

United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union (“United”) brought an action in the Western District of Pennsylvania to enforce an arbitration award directing Neville Chemical Company to reinstate and make whole an employee it had improperly discharged. This appeal followed the District Court’s Orders granting United’s motion for summary judgment and ordering Neville to pay damages including back pay.

The Third Circuit held that because Neville failed to raise the argument of that the employee was physically unable to work during the arbitration, it had waived the physical limitations defense to the enforcement of the arbitration award. The Third Circuit cited its previous decision in United Food and Chemical Workers Union Local 1776 v. Excel Corp., 470 F.3d 143 (3d Cir. 2006) noting that “‘the long-established federal policy of settling disputes by arbitration would be seriously undermined if parties kept available information from the arbitrator and then attempted to use the information as a defense to compliance with an adverse award.’” The Court further noted that the argument had not been timely raised under Pennsylvania law and that the back-pay damages imposed by the District Court did not amount to a second opportunity to receive unemployment compensation. United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union v. Neville Chemical Co., No. 07-3554 (3d. Cir. Oct. 30, 2008).

This post written by John Black.