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Arbitration Process Issues

BAR OF ARBITRATION CLAIMS BY PRIOR CLASS SETTLEMENT CONFIRMED

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In a February 26, 2008 post, we discussed an opinion of the Sixth Circuit Court of Appeals which held that claims asserted in arbitration by members of a settlement class were barred if they related to the settled claims because the claimants had not opted out of the class-wide settlement of the claims. The case was remanded to the arbitration panel to clarify the basis for the award. The panel confirmed that the award was based solely on the matters that were encompassed by the settlement. In a second appellate round, the court confirmed the vacation of the award due to the bar of the settlement, and also affirmed the dismissal of cross-claims by the district court. Rich v. Spartis, No. 06-1723 (6th Cir. Dec. 16, 2008).

This post written by Rollie Goss.

COURT TO PARTIES: START ARBITRATION OVER

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Petitioners, Insurance Co. of North America and INA Reinsurance (collectively “INA”), and Respondent, Public Service Mutual Insurance Co. (“PSMIC”), came before the Southern District of New York on the question of whether an arbitration proceeding halted in medias res upon resignation of one party-appointed panelist may continue or whether under such circumstances the arbitration must commence anew. Under the terms of the parties’ arbitration agreement, each party was to choose their own arbitrator and then together select a third arbitrator to comprise a three person panel. After the arbitration had commenced and the panel had issued a Summary Judgment Order, one of the arbitrators was forced to withdraw for health considerations. PSMIC demanded that INA appoint a replacement arbitrator; INA demanded the arbitration commence anew. This case followed.

As a general rule, under Marine Products v. MT Globe Galaxy, 977 F.2d 66 (2d Cir. 1992) if a member of a three person arbitration panel dies before the rendering of an award, and the arbitration agreement does not anticipate that circumstance, the arbitration must commence anew with a new panel. The arbitration does not have to start over, however, if the panel has issued a “partial final award” and “was without power to revisit that question.” Here, the court determined that the original arbitration panel’s Summary Judgment Order did not “conclusively decide every point” and instead only rule on the applicability and effect of case law on INA’s primary defense. The court noted that the Summary Judgment Order was an interim decision on a matter of law and did not conclusively deal with all aspects of the case, including liability and damages. Further, the court determined that since the arbitration was fairly straightforward and not, as in Zeiler v. Deitsch, 931 F.3d 157 (2d Cir. 2007), “ongoing and complex arbitration.” As a result, the partial final award exception did not apply, and the court ordered arbitration to commence anew, with each party appointing its own arbitrators. The court further denied PSMIC’s motion to confirm the original panel’s Summary Judgment Order because the order did not “finally dispose of a separate, independent claim.” Ins. Co. of North Am. v. Public Service Mutual Ins. Co., Case No. 08-7003 (USDC S.D.N.Y. Dec. 10, 2008).

This post written by John Black.

COURT TO PARTIES: YOU ARE ARBITRATING

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On behalf of an aggrieved union member, the International Brotherhood of Electrical Workers brought a grievance against Verizon for declaring the employee medically unfit to drive a company van. A collective bargaining agreement provided for mandatory arbitration for all disputes under the agreement. Verizon alleged in arbitration that the dispute fell under the Federal Motor Carrier Safety Act (“FMCSA”) rather than the Collective Bargaining Agreement. The arbitrator issued an Interim Award ordering the parties to submit to FMCSA dispute procedures before continuing arbitration. The American Arbitration Association cancelled an arbitration hearing and has since administratively closed the parties file. The FMCSA review process remains ongoing.

IBEW subsequently filed suit in the US District Court, alleging that Verizon’s failure to reschedule an arbitration hearing was in breach of the Collective Bargaining Agreement’s arbitration clause. IBEW moved for summary judgment on whether the underlying issue was arbitrable and whether Verizon was in violation of the arbitration agreement. The Court held that the crux of the matter was whether Verizon acted capriciously or arbitrarily when it found the employee medically unqualified to operate the motor vehicle, which would be a violation of the Collective Bargaining Agreement. Disputes under the Agreement are subject to arbitration. The Court also stated that because the arbitrator ordered the parties to submit to FMCSA procedures, arbitration was in fact still ongoing. The Court noted that arbitrators naturally were empowered to consider federal law in making their rulings so the arbitrators’ order to submit to FMCSA procedures was not in error. Int’l Brotherhood of Electrical Workers v. Verizon North, Inc., Case No. 07-3194 (USDC C.D. Ill. Dec. 3, 2008).

This post written by John Black.

DISTRICT COURT DENIES MOTION TO STAY ARBITRATION PROCEEDINGS IN STATE COURT

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Petitioners brought two Financial Industry Regulatory Authority (“FINRA”) arbitration actions against the Respondents, their former employer and a former supervisor, asserting a multitude of claims. The Respondents filed counterclaims. The FINRA panel consolidated all claims and counterclaims into one action. The panel later granted the Respondents’ motion for summary judgment, dismissed Petitioners’ claims in their entirety, and scheduled subsequent hearings for Respondents’ counterclaims. Petitioners then filed a petition in state court to vacate the panel’s decision, but the court stayed the petition pending final resolution of the action. When the FINRA panel issued the final arbitration award requiring one Petitioner to pay eighty percent of Respondents’ attorney fees and costs incurred, the Petitioners filed an amended petition to vacate the award in state court. Respondents in turn filed a motion to confirm the arbitration award. Days later, Petitioners filed a petition to vacate in the federal court. Petitioners then filed an ex parte motion to stay the Respondents from proceeding in state court pending the federal petition to vacate for manifest disregard of the law.

In support of their motion to stay, Petitioners argued an exception to the Anti-Injunction Act applied that allowed the district court to stay the state court proceedings because a stay was necessary in aid of the jurisdiction of the district court to review the federal petition to vacate. Citing the Supreme Court case of Atlantic Coast Line R.R., the district court explained that the exception does not apply unless such relief is necessary so as to prevent the serious impairment of the federal court’s flexibility and authority to decide the case. The existence of a parallel action in state court does not satisfy the level of impairment necessary to permit injunctive relief under the exception. The district court concluded that the requested injunctive relief was not necessary in aid of its jurisdiction and was prohibited by the Anti-Injunction Act. Holland v. Wachovia Securities, LLC, Case No. 08-1772 (USDC S.D. Cal. December 3, 2008).

This post written by Dan Crisp.

MOTION TO COMPEL ARBITRATION GRANTED BASED UPON ARBITRATION PROVISION INCORPORATED INTO CONTRACT BY REFERENCE

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Before a Federal Magistrate Judge, subcontractor Ratliff, Inc. (defendant and counter claimant) moved to compel arbitration under a provision of the prime contract that was incorporated by reference into the subcontract between plaintiff and defendant. Plaintiff, Dobson Brothers Construction, argued that the motion must be denied because neither the subcontract nor the prime contract contained an express agreement to arbitrate disputes.

The Magistrate held that, although the subcontract made no mention of arbitration or alternative dispute resolution, a clause in the prime contract which had been incorporated into the subcontract was binding and enforceable by Ratliff as a party to the subcontract. The court noted that Ratliff was not asserting claims as a third party, but rather as a party to the subcontract that was naturally anticipated by the prime contract.

Interpreting the language of the provision at issue, the Magistrate held that “based on the generally accepted description and definition of ‘arbitration,’” an agreement to submit disputes to a neutral forum for “hearing and decision” by “arbitration” refers to a binding arbitration process. Thus, the Magistrate recommended that the Motion to Compel Arbitration be granted. Dobson Brother Constr. v. Ratliff, Inc., Case No. 08-3103 (USDC D. Neb. Nov. 6, 2008).

This post written by John Black.