Arbitration Process Issues

RIGHT TO CLASS ARBITRATION WITHIN PROVINCE OF ARBITRATOR, NOT COURT

December 10, 2007 by Carlton Fields

This dispute relates to whether a district court has authority to make a class arbitration determination based on agreements entered into between the respective parties. The court concluded that only the arbitrator had authority to determine whether the arbitration provisions permitted class arbitration.

Respondents filed a class action complaint with the American Arbitration Association against Petitioner, Scout, alleging that Scout failed to properly compensate respondents pursuant to agreements signed between the parties and deceived respondents by engaging in unlawful business practices. All parties are involved in publishing information about high school, college, and professional sports. The complaint was filed on behalf of approximately 300 persons, companies, or other entities that owned or provided content for a website owned by Scout.

Respondents filed a ‘clause construction’ motion with the AAA arbitrator, seeking a ruling that class arbitration was authorized. Scout requested a stay and filed the present petition requesting the district court stay the class proceeding and compel respondents to pursue their arbitration claims individually. Recognizing that the Supreme Court, in Green Tree v. Bazzle, was faced with an arbitration provision that was silent on the issue of whether class arbitration was permitted, the district court concluded that the “dispositive issue before this Court is whether Green Tree applies to the facts of this case.” The court concluded that the present case was factually analogous and granted respondent’s motion to dismiss, leaving the question of whether to permit class arbitration to the arbitrator. Scout.com v. Bucknuts, Case No. 07-1444 (USDC W.D. Wash. Nov. 16, 2007).

This post written by Lynn Hawkins.

FIRST CIRCUIT AFFIRMS DISTRICT COURT’S ORDER TO ARBITRATE AND ENFORCEMENT OF ARBITRAL AWARD

December 4, 2007 by Carlton Fields

In 2006, the federal district court in Maine confirmed an arbitration award in favor of Sleeper Farms (plaintiff potato farmers) arising out of a dispute with Agway, an agricultural cooperative. Plaintiffs, dissatisfied with their limited victory, appealed to the First Circuit. Plaintiffs argued that the district court erred in referring the dispute to the arbitrator in 2002, and erred again in 2006 when it confirmed the arbitrator’s award.

With respect to the 2002 order, Sleeper Farms argued that the order was unenforceable for two reasons: (1) that the contracts were illegal and (2) that Agway waived its right to arbitrate. The Court rejected both arguments finding that the illegality argument goes to the validity of the substantive provisions of the contract, not to arbitrability. Specifically, the court held that as a matter of federal law, the arbitration clause is unaffected even if the substance of the contract is otherwise void. Secondly, the court recognized that a claim of waiver may be a genuine challenge to arbitrability, but in this case the requirements of waiver were not met.

The First Circuit also rejected Sleeper Farms’ argument that the 2006 arbitration award should be vacated. Specifically, the court concluded that plaintiffs could not satisfy their claim that the arbitrator acted in manifest disregard of the law or that the arbitral award was contrary to public policy. Sleeper Farms v. Agway, Inc., No. 06-2694 (1st Cir. Nov. 2, 2007).

This post written by Lynn Hawkins.

INSURANCE COMPANY LOSES ARBITRABILITY ARGUMENT IN SECOND VENUE

December 3, 2007 by Carlton Fields

In a November 7, 2007 post to this blog, we reported on a decision of a US District Court compelling arbitration with respect to a reinsurance agreement. That opinion did not reveal that the Gaffer Insurance, the plaintiff/reinsured, had previously sued the same defendant on essentially the same claims in Pennsylvania state court. On May 22, 2006, the state trial court denied a request to compel arbitration of the disputes, finding that a service of suit provision made the arbitration provision permissive rather than mandatory. For an undisclosed reason, Gaffer Insurance then filed the federal court action on March 23, 2007, alleging different legal theories but the same basic wrongdoing, i.e., the refusal of the reinsurer, Discover Re, to partially release letters of credit securing the reinsurance obligation. Discover Re convinced the federal district judge to compel arbitration of the dispute. A Pennsylvania court of appeal recently reversed the state trial court decision, finding that the arbitration provision was mandatory, and that arbitration should have been compelled. The reasoning and analysis of the federal district court opinion and the state appellate court opinion are substantially the same, yet neither acknowledges the existence of the other lawsuit. One wonders whether the fact that there were two separate lawsuits pending between the same parties, involving the same issues, was disclosed to either court. Gaffer Ins. Co. v. Discover Reinsurance Co., 2007 Pa. Super 339, No. 1023 MDA 2006 (Super. Ct. Nov. 16, 2007).

This post written by Rollie Goss.

UK COURT OF APPEAL REVERSES JUDGMENT ORDERING THE POSTING OF SECURITY IN ARBITRATION-RELATED ACTION

November 27, 2007 by Carlton Fields

The UK Court of Appeals has allowed an appeal and reversed an Order for security for costs in favor of a party seeking to set aside the enforcement of an arbitration award rendered at the International Commercial Arbitration Court in Moscow, Russia. The analysis may be of interest to those involved in international arbitrations involving the New York Convention. The lower court’s decision was reported on in this blog on June 14, 2007. Gater Assets Ltd. v. Nak Naftogaz Ukrainiy [2007] EWHC 725 (CA Oct. 17, 2007).

This post written by Rollie Goss.

COURT HOLDS THAT FEDERAL ARBITRATION ACT IS NOT A SOURCE OF SUBJECT MATTER JURISDICTION

November 20, 2007 by Carlton Fields

The United States Court of Appeals for the Fifth Circuit recently dismissed an appeal of an Order which addressed venue and transfer issues in a matter filed seeking to vacate an arbitration award under the Federal Arbitration Act (“FAA”). The Court held that since the FAA can not itself be a basis for federal question jurisdiction, and there were insufficient jurisdictional allegations to establish diversity jurisdiction, the federal courts lacked jurisdiction of the matter, and remanded the case with instructions that it be dismissed for lack of subject matter jurisdiction. Other courts have also held that the FAA does not itself confer subject matter jurisdiction upon a federal court. Oteeva, LP v. X-Concepts LLC, No. 06-11181 (5th Cir. Nov. 2, 2007).