Arbitration Process Issues

CASE UPDATE: SECOND CIRCUIT HOLDS THAT ALLEGED CONSPIRACY WITH SIGNATORY TO CONTRACT IS INSUFFICIENT RELATIONSHIP TO ENFORCE ARBITRATION AGREEMENT AGAINST OTHER SIGNATORY

October 27, 2008 by Carlton Fields

We previously posted on March 27, 2007 on the Second Circuit’s denial of a motion to dismiss an interlocutory appeal from a federal district court’s denial of a motion to compel arbitration. The motion to compel arbitration was filed by several American Express companies (collectively “Amex”) against plaintiffs who brought a class action suit against Amex and other credit card companies and issuing banks for conspiring to fix certain fees charged to cardholders at excessive rates.

Addressing the appeal on its merits, the Second Circuit Court noted the undisputed fact that, though the plaintiff class had entered into cardholder agreements with other defendants in the class action, including Mastercard, Visa and Diner’s Club, they had no such relationship with Amex. Amex nonetheless sought to compel arbitration under the plaintiffs’ agreements with the other defendant companies on a theory of equitable estoppel. The Second Circuit held that because the only connection between Amex and the cardholders’ agreements with the other defendant companies was the alleged conspiracy, Amex could not establish the necessary condition under a theory of equitable estoppel that plaintiffs intended to be bound to arbitrate disputes with a stranger to their contracts. Ross v. American Express Co., Nos. 06-4598-cv(L), 06-4759-cv(XAP) (2d Cir. Oct. 21, 2008).

This post written by John Pitblado.

DISPUTE OVER WHETHER QUOTA SHARE TREATY HAD BEEN TERMINATED IS SUBJECT TO ARBITRATION; LATE APPOINTMENT OF ARBITRATOR ALLOWED DUE TO ABSENCE OF PREJUDICE

October 23, 2008 by Carlton Fields

Lincoln General reinsured Clarendon National under a quota share reinsurance treaty. Lincoln gave notice of termination of the agreement, and Clarendon demanded that Lincoln provide collateral under a contractual provision requiring collateral if Lincoln’s Best rating became B++ or lower. Lincoln refused to provide collateral due to its purported termination of the treaty, and Clarendon demanded arbitration under the treaty. Lincoln sued in state court, seeking a declaration that it did not have to collateralize or arbitrate due to the termination of the treaty. Clarendon removed and moved to compel arbitration. The district court granted the motion, holding that a challenge to the validity of the contract as a whole was an arbitrable issue, whereas a challenge only to the arbitration provision would have been a judicial issue.

During the course of the dispute, Clarendon appointed an arbitrator, and had demanded that Lincoln do so. Lincoln refused, contending that it did not have to do so pending the dispute as to whether the dispute should be arbitrated. Clarendon then appointed a second arbitrator, under a provision allowing it to do so if Lincoln defaulted in appointing an arbitrator. Lincoln then belatedly named an arbitrator. The court confirmed Clarendon’s first appointment and Lincoln’s belated appointment, under a line of cases which decline to strictly enforce an appointment deadline if there is no prejudice from the delay in making an appointment. Lincoln General Ins. Co. v. Clarendon National Ins. Co., Case No. 08-0583 (USDC M.D. Pa. Aug. 15, 2008).

This post written by Rollie Goss.

EIGHTH CIRCUIT REJECTS CHALLENGE TO ARBITRATOR’S QUALIFICATIONS, DEFERRING TO AAA

October 20, 2008 by Carlton Fields

In this case, the Eighth Circuit affirmed a district court decision that an arbitrator was qualified to hear a dispute and did not exceed his powers under the arbitration agreement. In 2000, in an attempt to make itself attractive for public financing, the Crawford Group decided to compensate its senior executives with a package that included awards of stock. William Holekamp retired in 2000 after three decades of working for Crawford and its subsidiary, Enterprise Car Rental. In June of 2004, Crawford attempted to buy back Holekamp’s stock by the terms of the Stock Award and Shareholder Agreement. A Missouri state court ruled that there was an issue with respect to the purchase price of the shares and sent the dispute to arbitration in accordance with the agreement. The arbitrator, chosen by Holekamp but approved by AAA (American Arbitration Association) valued Holekamp’s shares at $20.7 million, rather than the $11.4 million figure at which Crawford had valued them. The Eighth Circuit ruled that the AAA had the final determination as to whether or not the arbitrator was qualified, and the court then applied a deferential standard to the arbitrator’s decision, ruling that the award could not be set aside as long as the arbitrator was “even arguably construing or applying the contract and acting within the scope of his authority.” Crawford Group, Inc. v. Holekamp, No. 07-3454 (8th Cir. Oct. 6, 2008).

This post written by John Black.

MCCARRAN-FERGUSON ACT DOES NOT PERMIT STATE LAW TO INVALIDATE CONTRACTUAL PROVISION FOR ARBITRATION UNDER INTERNATIONAL TREATY

October 14, 2008 by Carlton Fields

Plaintiff Louisiana Safety Association of Timbermen – Self Insurers (“LSAT”) filed an action in federal district court in Louisiana seeking to enforce the assignment of a reinsurance contract entered into between its predecessor in interest, Safety National Casualty Corporation (“SNCC”), and SNCC’s reinsurer, Certain Underwriters at Llloyd’s, London (“Lloyd’s”). Lloyd’s refused to recognize the attempted assignment by SNCC to LSAT of SNCC’s rights under the reinsurance contract on the ground that the reinsurance pertained to underlying personal injury claims under workers compensation insurance, and thus were non-assignable rights.

Lloyd’s sought, in response to LSAT’s suit, an order referring the matter to arbitration, as required under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). The Convention, an international treaty, requires that courts of signatory states “shall, at the request of one of the parties, refer the parties to arbitration. . .” LSAT contended that a Louisiana statute barring mandatory arbitration provisions in insurance contracts reverse-preempted the Convention, under the McCarran-Ferguson Act. The district court granted summary judgment to LSAT, finding that the Louisiana statute supersedes the Convention. Lloyd’s appealed. The Fifth Circuit reversed, holding that while McCarran-Ferguson reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. Safety Nat’l. Cas. Corp. v. Certain Underwriters at Lloyd’s, London, et al., No. 06-30262 (5th Cir. Sept. 29, 2008).

This post written by John Pitblado.

ARBITRATION AWARD CONFIRMED, FINDING ARBITRATION CLAUSE APPLIED, DESPITE FAILURE TO NAME BOTH PARTIES IN FORM CONTRACT

October 1, 2008 by Carlton Fields

Plaintiff, Philip Green, filed a wrongful discharge complaint in federal court in the Southern District of Texas against Defendant, Service Corporation International (“SCI”), an affiliate of his former employer. SCI moved to compel arbitration of the claim under Green’s employment contract, which contained an arbitration clause which explicitly applied to the employer’s “affiliates.” Green objected to SCI’s motion to compel arbitration, arguing that the employment contract left blank the name of the employer, though the cover page of the contract identified SCI. The Court granted SCI’s motion to compel arbitration, finding that the only possible reading of the contract indicated that SCI, as an “affiliate” of Plaintiff’s employer, was clearly covered by the arbitration clause, insofar as Green was plainly aware of the identity of his employer, and SCI was indisputably its affiliate. Reconsideration was denied.

When the panel convened, Green challenged the panel’s jurisdiction, raising the same contract interpretation issue again, which the panel rejected, entering an award against Green. Green moved to vacate the award, raising the same issue yet again to a court which already had rejected the argument twice. Not surprisingly, the Court denied Green’s motion to vacate and confirmed the award. Still not willing to give up, Green has filed a notice of appeal. Green v. Service Corp. Int’l., Case No. 06-833 (USDC S.D. Tex. August 25, 2008).

This post written by John Pitblado.