Arbitration Process Issues

SDNY RESOLVES IMPASSE AND SELECTS UMPIRE FOR ARBITRATION UNDER THE FAA

November 14, 2016 by Rob DiUbaldo

Relying on its authority pursuant to the Federal Arbitration Act (“FAA”) and the language of the operative contract, the U.S. District Court for the Southern District of New York selected an umpire for an arbitration from a list of ten candidates provided by the parties.

9 U.S.C. § 5 directs a district court to “designate and appoint an arbitrator… or umpire, as the case may require” upon “the application of either party to the controversy” following “a lapse in the naming of an arbitrator… or umpire”. The parties’ agreement further provided that “if the two arbitrators fail to agree on a third arbitrator within 30 days of their appointment, either party may make application” to any “court of competent jurisdiction in the City, County, and State of New York.

Petitioner timely selected its arbitrator and, months later, respondent selected theirs. Following the exchange of lists of potential umpires, respondent “largely failed to engage in the process of selecting the umpire”, prompting the filing of the action. In selecting the umpire, the Court was guided by the requirements of the umpire candidates per the parties’ arbitration agreement. Finding a number to be disqualified and others to be technically qualified but far less experienced, the Court made its umpire selection and directed the case be closed.

National Union Fire Ins. Co. of Pittsburgh, PA v. Source One Staffing, LLC, 1:16-cv-06461 (USDC S.D.N.Y. October 13, 2016)

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT AFFIRMS ORDER COMPELLING ARBITRATION OF PUTATIVE CLASS ACTION, DESPITE LITIGATION FORUM SELECTION CLAUSE IN RELATED CONTRACT

November 10, 2016 by Michael Wolgin

Two purported class representatives appealed an order compelling arbitration in their putative class action lawsuit against Amazon Services, LLC. The court affirmed, holding that the named plaintiffs agreed to Amazon’s “Business Solutions Agreement,” which contained an arbitration clause agreeing to arbitrate “any dispute” relating to the BSA or use of Amazon’s services. The court was not persuaded by the plaintiffs’ argument that a second “Marketplace Participation Agreement” agreement that they signed, which contained a litigation forum selection clause, took precedence over the arbitration clause in the BSA. The court rejected the argument that the MPA was a separately defined “Program Policy” that was superior to the BSA, finding that the MPA was an inferior “Seller Agreement” within the meaning of the BSA. The court further found that the fact that one of the parties signed the MPA before signing the BSA was immaterial; the BSA and its arbitration provisions represented the parties “entire agreement,” which superseded all prior agreements. Peters v. Amazon Services, LLC, Case No. 14-35294 (9th Cir. Oct. 13, 2016).

This post written by Michael Wolgin.

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NORTH CAROLINA FEDERAL COURT HOLDS THAT ARBITRATION CLAUSE REQUIRING PANEL TO RENDER A DECISION WITHIN 30 DAYS IS NOT UNCONSCIONABLE

October 25, 2016 by Rob DiUbaldo

In July, a federal court in North Carolina held that an arbitration provision which required the arbitration panel to reach a decision within thirty days of their selection was not unconscionable. Arising out of a dispute regarding a construction contract, the court said that the defendant’s argument failed to consider the thirty day limitation in the full context of the arbitration provision. While acknowledging that “allowing an arbitration panel only 30 days to sort out the liability for the post-construction, partial collapse of two parking garages would be a Herculean feat, if not utterly impossible,” the court noted that “during any significant construction project, billing claims and disputes often arise which require immediate attention and resolution lest the project grind to a halt.” Thus, the court pointed to the panel’s power to extend the date for final disposition under the Commercial Arbitration Rules of the AAA, to find that the thirty day limitation was not unconscionable.

In late September, the same court compelled a second lawsuit between the parties to arbitration, over the objection of a defendant that the thirty day limitation was absolute and jurisdictional, depriving the panel of continued jurisdiction over the first lawsuit. The court held that such a challenge would constitute an argument that the panel “exceeded its powers,” which was not ripe nor before the court at the time.

Tribal Casino Gaming Enter. v. W.G. Yates & Sons Const. Co., Case No. 1:16-cv-00030-MR (W.D.N.C. July 1, 2016) and Case No. 1:16-cv-00132-MR (W.D.N.C. Sept. 26, 2016).

This post written by Zach Ludens.

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SECOND CIRCUIT UPHOLDS REFUSAL TO COMPEL ARBITRATION DUE TO UNAVAILABLE FORUM, RECOGNIZING SPLIT IN FEDERAL CIRCUITS

October 20, 2016 by Michael Wolgin

A borrower had previously entered into three payday loan agreements that contained arbitration provisions mandating that all claims be arbitrated in the National Arbitration Forum (NAF), and under the Code of Procedure of the NAF. As of 2009, however, NAF did not accept consumer arbitrations. When the borrower filed a class action lawsuit against certain banking institutions involved with her loans, the banks initially compelled arbitration. When the NAF was unable to serve as the forum for the arbitration, the borrower successfully returned the proceedings back to court. The banks appealed this result to the Second Circuit, contending that section 5 of the FAA, which authorizes the court to substitute an arbitrator if there is a “lapse in the naming of an arbitrator,” permitted the court to substitute arbitrators here. But the Second Circuit disagreed with the banks, ruling that the arbitration in this case contained “numerous indicators that the parties contemplated one thing: arbitration before NAF.” “Further,” the court explained, “the agreement makes no provision for the appointment of a substitute arbitrator should NAF become unavailable.” As to the FAA, the court followed Second Circuit precedent and held that an unavailable forum does not constitute a “lapse” within the meaning of section 5 of the FAA. The court noted that the position of its circuit is aligned with the Eleventh and Fifth Circuits, but at odds with the Seventh and Third Circuits. The court affirmed, ruling that the banks could not enforce the arbitration agreements, and that the borrower’s lawsuit should proceed in court. Moss v. First Premier Bank, et al., Case No. 15-2513-cv (2d Cir. Aug. 29, 2016).

This post written by Michael Wolgin.

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DISTRICT COURT REFUSES TO BIND SURETY TO SUBCONTRACT ARBITRATION CLAUSE

October 19, 2016 by Michael Wolgin

An engineering company was hired to perform work in connection with construction and renovation of the South African Embassy, and subcontracted for sheet metal work with a third party. The subcontract contained an arbitration provision covering “any controversy or claim of Contractor against Subcontractor or Subcontractor against Contractor.” The third party then negotiated with a surety company for a surety bond, which incorporated the subcontract by reference. After a dispute between the engineering company and its subcontractor arose, the engineering company terminated the subcontract, notified the surety company that it intended to make a claim under the surety bond, and filed a request to join the surety company as a party in arbitration proceedings with its subcontractor. The surety company refused to consent to joinder and both parties moved for summary judgment on the issue of whether they must arbitrate the dispute over the bond. The engineering company argued that because the surety bond incorporated the subcontract by reference, the engineering company had agreed to arbitrate not only claims on the bond but also any issues of arbitrability. Relying on the disjunctive “or” in the language of the arbitration clause, the engineering company argued the subcontract required that “any controversy” involving any parties must be arbitrated, as well as any “claim of Contractor against Subcontractor” or vice versa. The court disagreed, applying a heightened standard of “clear and unmistakable evidence” that the surety company agreed to arbitrate. The court reasoned that although the surety company was bound by the subcontract as a whole, the surety company was not bound by the arbitration clause because the language clearly limited it to claims between the engineering company and its subcontractor. Western Surety Co. v. U.S. Engineering Co., No. 15-cv-327 (USDC D.D.C. Sept. 30, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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