Arbitration Process Issues

TENTH CIRCUIT FINDS THAT ARBITRATION AGREEMENT GOVERNS DISPUTE

May 4, 2017 by Rob DiUbaldo

The Tenth Circuit has determined that an arbitration agreement included as part of a set of agreements executed in connection with the purchase of a pickup truck applied to a dispute over a replacement set of agreements that the parties executed after the lender rejected the originally contemplated financing, despite the fact that the second set of agreements did not include or refer to the arbitration agreement.

Plaintiff and defendant Big Red Kia executed a retail purchase agreement (“RPA”) and a retail installment sale contract ( “RISC”) related to the purchase of the truck, pursuant to which Big Red was the creditor but assigned its rights to defendant Exeter Finance Corp. Plaintiff and Big Red also executed an agreement to arbitrate any disputes regarding the purchase and “any financing obtained in conjunction with the transaction, and any other dispute related to the purchase/lease transaction.” Two days after plaintiff took possession of the truck, Exeter declined to finance the full amount provided for in the loan, and Big Red and plaintiff executed new documents with somewhat different terms, including a new RPA and a new RISC, but not a new arbitration agreement. Two years later, plaintiff sued Big Red and Exeter for violations of various consumer protection laws in connection with the purchase, and defendants moved to compel arbitration. Plaintiff objected, arguing, inter alia, that the arbitration agreement did not apply to the second and operative RISC and RPA, but instead only applied to the original – and now rescinded – RISC and RPA. The district court agreed, leading to this appeal.

The appellate court reversed. Key to this outcome was the appellate court’s determination that the parties entered into one transaction, not two as plaintiff had argued and the district court found. The appellate court held that no transaction was completed the day the first set of agreements were executed, because the original RPA made the purchase contingent upon plaintiff obtaining satisfactory financing, which he failed to do until the second set of agreements were executed. This contingent nature, the appellate court concluded, “suggests the parties continued the same transaction” through the execution of the second RPA and RISC, making those agreements subject to the arbitration agreement. As a result, the appellate court found that plaintiff’s legal claims related to the transaction covered by the arbitration agreement and that arbitration should thus be compelled. Mooneyham v. BRSI, LLC, No. 165-6221 (10th Cir. March 17, 2017)

This post written by Jason Brost.

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APPELLATE COURT PRECLUDES ASSIGNEE OF REINSURANCE CLAIMS FROM RE-LITIGATING LACK OF ENTITLEMENT TO ARBITRATION

April 24, 2017 by Michael Wolgin

In 1986, Pine Top Insurance Company became insolvent and was placed into liquidation. The liquidator eventually sold Pine Top’s accounts receivable, including reinsurance claims, to an entity named Pine Top Receivables of Illinois, LLC. In 2015, Pine Top Receivables sued Transfercom, Ltd. to collect on an assigned reinsurance claim and sought to compel Transfercom to arbitrate the claim pursuant to the underlying reinsurance agreement.

Several years earlier, Pine Top had unsuccessfully sued a Uruguayan entity in a federal district court in Illinois, and similarly sought to compel arbitration. That court and the Seventh Circuit Court of Appeals determined that Pine Top Receivables had no right to enforce the arbitration clause in the reinsurance contract because, among other reasons, the assignment of the reinsurance claims from the liquidator conveyed only the right to collect the debt but did not convey the contractual right to demand arbitration.

In the current litigation, Transfercom argued that the Seventh Circuit’s decision collaterally estopped Pine Top Receivables from relitigating the issue of whether it was entitled to demand arbitration with respect to the assigned reinsurance claims. The trial court agreed with Transfercom and denied Pine Top’s motion to compel. And on appeal, the court affirmed the judgment of the trial court. The appellate court reasoned that the earlier case resolved on the merits the issue of whether Pine Top Receivables was entitled to demand arbitration of claims assigned to it by the liquidator. The appellate court further explained that once the Seventh Circuit resolved the arbitration issue in Pine Top Receivables’s interlocutory appeal in the earlier litigation, the issue could not be revisited and the judgment on that issue was final. Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., Case No. 15 L 009145, (Ill. App. Ct. Mar. 31, 2017).

This post written by Gail Jankowski.

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NINTH CIRCUIT AFFIRMS DISTRICT COURT’S DISMISSAL OF PLAINTIFF’S PROCEDURAL DUE PROCESS CLAIM

April 20, 2017 by John Pitblado

In this action, plaintiff Sherri Roberts appealed a Montana federal district court’s order which granted her former employer/defendant Lame Deer Public Schools’ summary judgment motion because plaintiff’s procedural due process claim was foreclosed by claim preclusion, and that even if preclusion did not bar her claim, her claim failed on the merits because she was accorded adequate procedural due process.

On appeal, plaintiff argued that her post-termination arbitration hearing and the statutory limits on judicial review of the arbitration’s result violated her procedural due process rights. The Ninth Circuit, however, noted that plaintiff could have brought her procedural due process claim in Montana state court where she challenged the arbitrator’s decision, but instead she chose only to attempt to vacate the arbitration decision in that previous lawsuit. Therefore, the Ninth Circuit held that claim preclusion bars her from litigating a claim that she could have raised in the earlier proceeding. Further, the Ninth Circuit held that even if plaintiff’s claim was not barred by claim preclusion, the Montana district court correctly concluded that plaintiff was accorded adequate procedural due process. She received a hearing before she was terminated by Lame Deer Public School. She was able to challenge her termination in an arbitration, as mandated by the collective bargaining agreement to which she was a party. After losing the arbitration, she was then permitted to challenge the arbitrator’s decision in court, which she did in Montana state court and lost. Thus, according to the Ninth Circuit, she received more than adequate procedural due process. The Court noted that Montana law does not give her a right to a court hearing on the merits post-arbitration, and that Montana’s statute, limiting judicial review of arbitration decisions, does not violate the Constitution. In fact, the Ninth Circuit noted that the Montana statute is “in many ways identical to its (constitutional) federal version, 9 U.S.C. § 10,” which affords “an extremely limited [judicial] review authority, a limitation that is designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures.” (citations omitted).

Roberts v. Lame Deer Public Schools, No. 12-cv-0083 (9th Cir. Mar. 13, 2017).

This post written by Jeanne Kohler.

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UK SUPREME COURT CONFIRMS ENGLISH COURTS LACK JURISDICTION UNDER THE ARBITRATION ACT 1996 TO COMPEL PARTIES TO PROVIDE SECURITY WHEN RESISTING ENFORCEMENT OF ARBITRATION AWARDS UNDER THE NEW YORK CONVENTION

April 19, 2017 by John Pitblado

As a condition to challenging enforcement or recognition of an arbitration award, the UK Supreme Court overturned a Court of Appeal decision which imposed a $100 Million security obligation on a New York Convention arbitral award debtor pursuant to Section 103(5) of the Arbitration Act 1996 (the “Act”).

Distinguishing Dardana v. Yukos, in which the court found there was limited power under Section 103(5) of the Act to order security in the instance of a further adjournment, the Supreme Court found that the Court of Appeals order directing the security obligation was not within the scope of the court’s jurisdiction. Here, an adjournment had not been granted, and thus there was no jurisdiction for the Court of Appeals to order the security.

Further, looking at articles V and VI of the New York Convention, which established a uniform approach for recognition and enforcement, the Supreme Court found the provision of security there was only to be used in cases where an adjournment was granted and the party was seeking to set aside or suspend the foreign proceeding’s award.

IPCO (Nigeria) Ltd. v. Nigerian National Petroleum Corp., [2017] UKSC 16 (United Kingdom Supreme Court, March 1, 2017)

This post written by Nora A. Valenza-Frost.

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CALIFORNIA SUPREME COURT FINDS WAIVER OF STATUTORY REMEDY IN ARBITRATION AGREEMENT CONTRARY TO PUBLIC POLICY

April 17, 2017 by John Pitblado

“Agreements to arbitrate claims for public injunctive relief under [California’s Consumers Legal Remedy Act or Unfair Competition Law], or the false advertising law are not enforceable in California.” The California Supreme Court was tasked with determining whether an “arbitration provision is valid and enforceable insofar as it purports to waive [the Plaintiff’s] right to seek public injunctive relief in any forum.”

Looking at Plaintiff’s complaint and allegations, the Court determined the arbitration provision at issue did in fact waive Plaintiff’s right to request in any forum public injunctive relief, invalidating the arbitration provision. The Court found the California rule was not preempted by the FAA, as § 2 of the FAA “permits arbitration agreements to be declared unenforceable upon such grounds as exist at law or in equity for the revocation of any contract.” Thus, arbitration agreements “like other contracts, may be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Here, the contract defense at issue is that “a law established for a public reason cannot be contravened by a private agreement”.

Sharon McGill v. Citibank, N.A., Case No. S224086 (Cal. Sup. Ct. April 6, 2017)

This post written by Nora A. Valenza-Frost.

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