Arbitration Process Issues

The court was petitioned to appoint an umpire when the arbitrators appointed by the litigants – an insurer and certain insureds – failed to do so. The insureds opposed the petition, arguing that the party arbitrators should be ordered to select one of the candidates that the arbitrators had been proposing. The arbitration agreement stated, however, that “if the two arbitrators fail to agree on a third party arbitrator within 30 days of their appointment, [then] either party may make application to a court of competent jurisdiction in . . . New York.” Section 5 of the FAA also directs the district court to “designate and appoint an arbitrator . . . or umpire, as the case may require,” following “a lapse in the naming of an arbitrator . . . or umpire.” The court thus held that the arbitration agreement and the FAA authorized the court to appoint an umpire.

The court then considered the field of proposed candidates, and selected one of the individuals proposed by the insurer. The court rejected the insureds’ argument that the selected umpire was likely to be partial to the insurer due to his certification by ARIAS (which, according to the insureds, could be biased towards insurance companies). The court found that the insureds’ candidates were less qualified in that they did not have any personal experience serving as an arbitrator or as an umpire. The insurer’s candidates, in contrast, had previously served as umpires in numerous arbitrations. The court selected the most experienced candidate among the group proposed by the insurer, explaining that, while certification with a particular organization or specific arbitration experience is not required to serve as an umpire, “reason dictates” that those credentials should be determinative. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Beelman Truck Co., Case No. 17-CV-2946 (USDC S.D.N.Y. July 17, 2017).

This post written by Gail Jankowski.
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In this case, the question presented was whether a court or an arbitrator should determine whether an arbitration agreement authorizes class arbitration. The U.S. Supreme Court has not yet resolved this issue. Several circuit courts of appeal have considered this issue, but this was the first time it was presented in the Eighth Circuit.

The Eighth Circuit held that courts, not arbitrators, should answer the “who decides” question when the arbitration agreement at issue is silent on the subject, joining the Third, Fourth, and Sixth Circuits. In so holding, the court concluded that the question of “who decides” is a substantive question of arbitrability rather than a preliminary procedural question. Therefore, according to the Eighth Circuit, courts are the proper authority to answer the question, whereas arbitrators decide preliminary procedural questions. The Eighth Circuit noted that courts must play a threshold role to determine whether parties have submitted a particular dispute to arbitration because such issues presumptively lie with the courts. The Eighth Circuit also expressed some concerns about class arbitration, including the loss of confidentiality, due process concerns, and the lack of appellate review. Thus, the Eighth Circuit reversed the district court’s order denying plaintiff-appellant’s motion for summary judgment because the district court erred when concluding that the question of class arbitration was procedural rather than substantive. The court also remanded to the district court to determine whether there was a contractual basis for class arbitration.

Catamaran Corporation v. Towncrest Pharmacy et al., No. 16-3275 (8th Cir. July 28, 2017).

This post written by Jeanne Kohler.

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The parties in this case presented to a court the issue of whether a reinsurance syndicate for which Federal Insurance acted as “a front” was a real party in interest and should be involved in an arbitration between Federal Insurance and its reinsured. Although the Petitioner and Respondent agreed that the parties’ dispute was governed by an arbitration clause, the parties differed as to whether the reinsurer syndicate would have a role in the arbitration and, if so, the parameters of that role. With respect to that issue, Respondent’s cross-petition requested, in part, that the Court order Petitioner to arbitrate “which entities are the real parties in interest in the arbitration”.

Relying on the Supreme Court’s decision in PacifiCare Health Sys., Inc. v. Book, the Court stated that “[w]hether this issue will ever arise, whether [the syndicate’s] involvement will raise an issue of arbitrability that should be resolved by the Court, and whether the arbitrator will ever rule on it, is entirely speculative at this juncture.” The Court compelled arbitration, and declined to decide whether Respondent’s hypothetical motion would raise an issue of arbitrability. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Federal Ins. Co., 1:16-cv-08821 (USDC S.D.N.Y. June 8, 2017)

This post written by Nora A. Valenza-Frost.
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Questions of arbitral venue, even in international arbitration, are presumptively for the arbitrator to decide. The court so ruled despite arguments from an Israeli company that the arbitrator’s interpretation of an arbitration agreement with an American company violated Article V of the New York Convention and Section 10(a)(4) of the Federal Arbitration Act. The court’s decision was guided by a set of presumptions regarding the intent of the arbitrating parties. On the one hand, courts presume the parties intend courts to determine issues of “arbitrability” (i.e., whether the parties are bound by an arbitration clause or whether an arbitration clause applies to a particular controversy), but on the other, arbitrators are presumed to be the intended deciders regarding the “meaning and application of particular procedural preconditions for the use of arbitration.”

The court held that disputes over the interpretation of forum selection clauses presumptively fall into the latter category, because they are disputes over where an arbitration is conducted, not whether it is conducted. Therefore, when an arbitrator “even arguably” engages with the language of the venue provision in making his determination, the court must defer to that determination, “however good, bad, or ugly.” The court noted, however, that if the parties do not want the arbitrator determining the arbitral venue, they may limit the issues they choose to arbitrate. Bamberger Rosenheim 11th Cir 7.17.17, Case No. 16-16163 (11th Cir. July 17, 2017).

This post written by Benjamin E. Stearns.

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Plaintiffs, former insurance agents for defendants New York Life Insurance Company and its related companies, brought a putative class action seeking recovery for allegedly illegal wage deductions and violations of overtime and minimum wage laws. The main issue on appeal, and an issue of first impression for New York state courts, was the validity of an arbitration provision in one plaintiff’s agent contract that waived any right to a jury trial and agreed that no claim could be brought or maintained “on a class action, collective action or representative action basis either in court or arbitration.” The court held that arbitration provisions which prohibit class, collective, or representative claims violate the National Labor Relations Act (NLRA) and are therefore unenforceable. In addition, the Court agreed with the Seventh Circuit’s reasoning that arbitration provisions like the one at issue here fail to meet the criteria of the FAA’s Saving Clause for nonenforcement because the provision is unlawful under the NLRA. In holding that class waivers violated the NLRA, the court aligned itself with the Seventh and Ninth Federal Circuits and disagreed with the Second, Fifth, and Eighth Circuits. The Court noted that the Supreme Court would soon address this circuit split. Gold v. New York Life Ins. Co., Case No. 653923/12 (N.Y. App. Div. July 18, 2017).

This post written by Gail Jankowski.

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