Arbitration Process Issues

THE FEDERAL ARBITRATION ACT DOES NOT GRANT ARBITRATORS THE POWER TO COMPEL PRE-HEARING PRODUCTION OF DOCUMENTS FROM NON-PARTIES

January 22, 2018 by Michael Wolgin

While the FAA grants arbitrators authority to compel non-parties to appear before them and produce documents at a hearing, it does not authorize them to compel pre-hearing production. The Ninth Circuit Court of Appeals joined the Second, Third and Fourth Circuits in so holding. The Eighth Circuit, however, disagrees, having ruled previously that “implicit in an arbitration panel’s power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the hearing.” It is also worth noting, as the Ninth Circuit did, that “because arbitration is a creation of contract, arbitration agreements may provide arbitrators greater discovery powers with respect to the parties bound by such agreements.” CVS Health Corp. v. Vividus, LLC, Case No. 16-16187 (9th Cir. Dec. 21, 2017).

This post written by Benjamin E. Stearns.

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FIFTH CIRCUIT AFFIRMS COURT’S AUTHORITY TO RULE ON QUESTION OF ARBITRABILITY AND FINDS INJUNCTIVE RELIEF WAS NOT SUBJECT TO ARBITRATION

January 16, 2018 by Carlton Fields

A Texas federal court determined that, pursuant to the parties’ contract, the dispute was not arbitrable because the plain language of the arbitration clause expressly excluded suits that involved requests for injunctive relief, despite the incorporation of the AAA Rules. The clause stated as follows:

This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.

Defendants argued that, “under the plain language of the clause, disputes about arbitrability do not fall within the carve-out and thus, belong to the arbitrator.” Plaintiff, on the other hand, argued that “the structure of the specific carve-out at issue here leads to the natural reading that the AAA Rules only apply to the category of cases that are subject to binding arbitration under the Dealer Agreement – namely, those outside of the contract’s express carve-out.”

The District Court held that the arguments for arbitrability were “wholly without merit” based on the plain language of the arbitration clause itself and thus fell squarely within the “wholly groundless” exception created by Douglas v. Regions Bank, 757 F. 3d 460 (5th Cir. 2014). On appeal, the Fifth Circuit Court of Appeals affirmed, stating that, “[t]he mere fact that the arbitration clause allows [Plaintiff] to avoid arbitration by adding a claim for injunctive relief does not change the clause’s plain meaning.”

Archer and White Sales, Inc. v. Henry Schein, Inc., et al., No. 16-41674 (5th Cir. Dec. 21, 2017).

This post written by Nora A. Valenza-Frost.
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MISSOURI COURT HOLDS ARBITRATION CLAUSE IN INSURANCE CONTRACT UNENFORCEABLE AS AGAINST PUBLIC POLICY AND UNDER GOVERNING LAW

January 11, 2018 by Rob DiUbaldo

A Missouri district court recently held a mandatory arbitration provision was unenforceable in an insurance coverage dispute after an electrician was injured on the job and won an uncontested judgment in state court against Solaris Power Services (“Solaris”). His employer was insured by Liberty Mutual and had excess insurance through AEGIS. The plaintiffs in the present case, including Solaris, sued both insurers and alleged they should have been additional insureds under both policies and their coverage claims were wrongly denied. AEGIS moved to stay the proceedings and compel arbitration pursuant to a mandatory arbitration provision in its excess insurance policy. The various parties disputed which state’s law applied. The court ultimately denied the motion, holding the mandatory arbitration provision was unenforceable.

First, the court concluded the arbitration clause was unenforceable as it contravened Missouri public policy. Missouri choice of law rules allow for the application of another state’s law as long as the law “is not contrary to a fundamental policy of Missouri.” Application of North Dakota law (as advocated for by AEGIS) or any other state’s law that would enforce the arbitration provision was inappropriate as it would contravene Missouri law prohibiting mandatory arbitration clauses in insurance contracts.

Next, the court concluded that even under a traditional choice of law analysis, the arbitration clause was still unenforceable. Missouri choice of law for insurance coverage disputes provides certain factors to consider in determining what law to apply, “[i]n the absence of effective choice of law by the parties.” Here, the court found the insurance policy contained an effective choice of law provision where it stated construction “in accordance with the laws of the jurisdiction in which the situation forming the basis for the controversy arose.” The accident’s location in Kansas therefore dictated Kansas law governed. Because arbitration provisions in insurance contracts are unenforceable under Kansas law, the court reached the same conclusion it previously did that the provision was unenforceable.

Simon v. Liberty Mut. Fire Ins. Co., Case No. 17-152 (W.D. Mo. Dec. 8, 2017).

This post written by Thaddeus Ewald .

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NINTH CIRCUIT: UNCONSCIONABILITY ARGUMENTS DIRECTED SOLELY AT CLASS ACTION WAIVER PROVISIONS IN ARBITRATION AGREEMENTS ARE FORECLOSED BY CONCEPCION

January 4, 2018 by Michael Wolgin

Utilizing a “sweeping reading of Concepcion,” as characterized by the concurring opinion, the Ninth Circuit has ruled that arguments that “a class action waiver, by itself, is unconscionable under state law or that an arbitration agreement is unconscionable solely because it contains a class action waiver” are expressly foreclosed by AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011). The plaintiff did not challenge the district court’s decision to compel arbitration, but rather the decision to compel arbitration on an individual basis, arguing that the relevant agreement’s class action waiver provision was unconscionable under Nevada law.

The majority stated that, while Concepcion foreclosed the plaintiff’s unconscionability argument because it was directed only at the class action waiver provision, Concepcion “does not foreclose application of state unconscionability doctrines to arbitration agreements generally.” Were the plaintiff to contend that “the entire arbitration agreement – or any aspect of it other than the class action waiver – is unconscionable,” then his argument would be viable. However, such was not the case here. Carter v. Rent-A-Center, Inc., Case No. 16-15835 (9th Cir. Dec. 12, 2017).

This post written by Benjamin E. Stearns.
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COURT FINDS STATE LAW BARRING INSURANCE ARBITRATIONS REVERSE-PREEMPTS FEDERAL ARBITRATION ACT

December 19, 2017 by Michael Wolgin

The case involved a dispute between the parties to a Reinsurance Participation Agreement (RPA). Defendants moved to compel arbitration, citing the Federal Arbitration Act and a provision in the RPA agreeing to resolve “[a]ll disputes arising with respect to any provision of this Agreement” in arbitration. However, the RPA also contained a choice of law provision providing that “[t]his Agreement shall be exclusively governed by and construed in accordance with the laws of Nebraska.” Plaintiffs argued that the Nebraska Uniform Arbitration Act (NUAA), which prohibits enforcement of an arbitration clause in any “agreement concerning or relating to an insurance policy,” made the arbitration provision unenforceable.

In most cases, the FAA would preempt a state law regarding arbitration, but the McCarran-Ferguson Act allows state laws “regulating the business of insurance” to preempt any federal statute that is not specifically related to the business of insurance and impairs a state insurance law. Defendants argued that the FAA preempts the NUAA and that the RPA requires all questions concerning construction or enforceability of the arbitration clause, including the applicability of the NUAA, to be decided by the arbitrator.

The court rejected defendants’ arguments, finding first that the question of whether the FAA preempts the NUAA is not a question of arbitrability that an arbitrator can decide. The court then determined that the FAA does not regulate the business of insurance, that the relevant portion of the NUAA was “enacted for the purpose of regulating the business of insurance,” and that application of the FAA would operate to impair the NUAA. Thus, all of the conditions set by the McCarran Ferguson Act for a state law to preempt the FAA were met. As a result, the court found that the NUAA rendered the arbitration clause in the RPA unenforceable and denied plaintiffs’ motion to compel arbitration. Citizens of Humanity v. Applied Underwriters, Inc., Case No. B276601 (Cal. Ct. App. Nov. 22, 2017).

This post written by Jason Brost.

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