Arbitration Process Issues

Recently, a Pennsylvania district court was asked to determine which of four arbitration panels should decide whether individual arbitration proceedings should be consolidated. As reported on in a prior posting (dated Oct. 26, 2006), the court previously held that Argonaut’s petition challenging Century’s attempt to force consolidated arbitration of multiple disputes was properly filed in Century’s home district. With the venue issue resolved, Argonaut filed a petition to compel Century to arbitrate multiple insurance claims in separate arbitration proceedings, and to dismiss the consolidated arbitration proceeding sought by Century. The parties agreed that the issue of whether arbitration proceedings should be individual or consolidated was a procedural question to be decided by the arbitration panel itself. The narrow question before the Court was which of the four arbitration panels was the appropriate body to determine the issue of consolidation.

Both parties advocated for a “first in time” rule, that is, that the first panel that was completely formed should decide the threshold question of consolidation. The parties disagreed, however, as to which of the panels was the first to be formed. The court recognized that the principles of efficiency strongly favored a single arbitration panel’s determination of whether consolidation of the claims was appropriate. However, persuaded by “the combination of statutory directives and case law together with the parties’ contractual agreement” the court concluded that all four arbitration panels should proceed to decide the issues before them. The court left open the options of either the parties or the four arbitration panels reaching an agreement on how the claims should be handled other than independently. Argonaut Ins. Co. v. Century Indemnity Co., Case No. 05-5355 (USDC E.D. Pa. Sept. 5, 2007).

Lewis arbitrated a claim for retaliatory discharge against his employer, Circuit City, and after losing the arbitration on the merits sued Circuit City on the same claim. The same attorney represented Lewis in both proceedings. Circuit City filed a motion to dismiss, which the District Court converted into a motion for summary judgment. The District Court granted the motion, finding that Lewis had not alleged any of the bases for vacating an arbitration award under the Federal Arbitration Act, and that his lawsuit improperly sought to relitigate a claim after a final judgment, contrary to the doctrine of claim preclusion. The Tenth Circuit affirmed, denying sanctions in a case that may have merited sanctions. Lewis v. Circuit City Stores, Inc., No. 05-3383 (10th Cir. Aug. 31, 2007).

The US Court of Appeals for the Seventh Circuit has held that time deadlines in arbitration agreement must be strictly enforced, affirming a District Court decision previously reported on in this blog in December 11, 2006 and August 24, 2006 posts. The dispute arose out of the timing of appointing an arbitrator in an international arbitration.

The Seventh Circuit affirmed a district court’s ruling that when Argonaut, a California-based insurer, missed the deadline for appointing one of the arbitrators in an international arbitration, it lost its right to appoint an arbitrator. The arbitration agreement required that the parties make their appointments by a certain time. The appointment deadline fell on the Sunday of Labor Day weekend. When Argonaut did not appoint its arbitrator, Lloyd’s appointed an arbitrator for that position on the panel, giving it two party-appointed arbitrators. Argonaut argued that in light of the holiday, the notice it gave on the Tuesday after Labor Day was a “timely nomination” of the arbitrator. The court disagreed, holding that “[i]n the absence of a choice-of-law provision, we conclude that parties are to be bound to the explicit language of arbitration clauses, with no state-specific exceptions that would extend otherwise clear contractual deadlines.” Certain Underwriters at Lloyds v. Argonaut Ins. Co., No. 04 c 5852 (7th Cir. Aug. 29, 2007).