Arbitration Process Issues

FEDERAL COURTS COMPELS ARBITRATION OF CAPTIVE INSURANCE DISPUTE

May 11, 2016 by Carlton Fields

Plaintiffs Capstone Associated Services, Ltd. And Capstone Associated Services (Wyoming), Limited Partnership (collectively, “Capstone”) brought suit against various defendants concerning the use of and rights to certain intellectual property related to a captive insurance arrangement. The parties agreed to mediate their dispute, resulting in the execution of a Mediated Settlement Agreement (“MSA”) that covered all of the claims between the parties except the intellectual property claims pending the lawsuit. The MSA contained an arbitration provision.

Thereafter, Capstone moved to compel arbitration under the MSA. After the arbitrator designated by the MSA declined his appointment, Capstone sought arbitration pursuant an arbitration agreement in an engagement letter that was part of the operative contract they and their attorneys (“Feldman”) entered into with the defendants as part of the captive insurance arrangement. Capstone argued that the affirmative defenses asserted by the defendants in the lawsuit were encompassed by the arbitration provision because those defenses challenged the propriety of the services provided by Capstone and Feldman under the engagement letter. The defendants opposed arbitration under the engagement letter, arguing that the parties’ claims and affirmative defenses were not arbitrable under the relevant provision.

Applying the standard set forth in the Federal Arbitration Act, the court denied Capstone’s motion to compel arbitration under the MSA, ruling that because the designated arbitrator declined his appointment, compelling arbitration in an alternative manner would be inconsistent with the express terms of the MSA’s arbitration agreement. However, the court granted Capstone’s motion to compel pursuant to the arbitration clause in the engagement letter, holding that the arbitrability of the parties’ claims and defenses were to be decided in arbitration, and not by the Court, under the terms of the operative clause. Capstone Associated Services, Ltd., et al. v. Organizational Strategies, Inc., et al., No. H-15-3233 (USDC S.D.Tex. Apr. 8, 2016).

This post written by Rob DiUbaldo.

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NINTH CIRCUIT REVERSES HOLDING THAT ARBITRATION CLAUSE IN EMPLOYMENT AGREEMENT IS UNCONSCIONABLE

May 10, 2016 by Carlton Fields

In early April, the Ninth Circuit Court of Appeals reviewed a lower court’s holding that an arbitration clause in an employment agreement with JP Morgan was procedurally and substantively unconscionable. Because the arbitration agreement was adhesive in the employment agreement, the court held that it was “at least minimally procedurally unconscionable under California law.” However, the court continued to state that it was not substantively unconscionable for a variety of reasons, including where it excluded certain actions seeking only injunctive relief—where the court acknowledged that the carve out “does no more than recite the procedural protections” already afforded by California law. Additionally, where one party has the legal obligation to pay all of the costs unique to arbitration, the court held that it was not substantively unconscionable to have a non-mutual initiation provision. Next, the court determined that the employee could not challenge a confidentiality provision on the grounds that it “prevents others from observing and learning of Chase’s illegal policies and procedures” where no harm to himself was alleged. Finally, the court found that explicitly allowing an arbitrator to rule on summary judgment motions was not substantively unconscionable. As such, the Ninth Circuit reversed the lower court’s finding that the arbitration clause was unconscionable.

Ali v. J.P. Morgan Chase Bank, N.A., Case No. 14-15076 (9th Cir. Apr. 7, 2016).

This post written by Zach Ludens.

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COURT GRANTS MOTION OF NON-SIGNATORY TO COMPEL ARBITRATION OF PRIVACY VIOLATION CLAIMS OF PUTATIVE CLASS OF VERIZON CUSTOMERS

May 5, 2016 by Carlton Fields

The class action was brought by Verizon subscribers against a “targeted advertising” company business partner of Verizon (Turn, Inc.) for deceptive trade practices under New York law. Plaintiffs alleged that Turn violated users’ reasonable expectations of privacy by creating “zombie cookies” that monitored their behavior surreptitiously and that users could not detect, delete, or block. Turn, Inc. sought to compel arbitration based on a clause in the Verizon subscribers’ service provider agreements with Verizon. Plaintiffs opposed arbitration on the ground that Turn, Inc. was not a signatory to the Verizon service provider agreements. The court, however, agreed with Turn’s argument that plaintiffs were estopped from avoiding arbitration against Turn. The court found that it was certain that Turn’s defense required an analysis of the Verizon contracts, which include Verizon’s privacy policy at issue. Because the Verizon subscriber agreements “clearly anticipate the introduction of third parties to play a role in connection with the delivery of targeted advertising, Turn must invoke the Verizon agreements as a defense.” The court therefore found that “the issues to be resolved concern substantially interdependent and concerted conduct by both” Turn and Verizon “and are inextricably intertwined with the agreement to arbitrate.” The court therefore compelled arbitration of plaintiffs’ claims against Turn. Henson v. Turn, Inc., Case No. 4:15-cv-01497 (USDC N.D. Cal. Mar. 14, 2016).

This post written by Michael Wolgin.

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COURT CONFIRMS ARBITRATION AWARD RELATING TO THREE ARBITRATION AGREEMENTS AND ORDERS CERTAIN DOCUMENTS UNSEALED

May 4, 2016 by Carlton Fields

The court confirmed a final arbitration award in favor of the Petitioner, Employers Insurance Company of Wausau (“Wausau”), pursuant to Section 9 of the Federal Arbitration Action (FAA). Wausau and Ace Property and Casualty Insurance Company (“ACE”) were parties to three separate reinsurance agreements that contained individual arbitration clauses. In January 2014, ACE demanded arbitration relating to various issues. The three-person panel concluded its arbitration and issued an order resolving all remaining issues. Without opposition from ACE, the court confirmed the arbitration award.

Accompanying its petition seeking confirmation, Wausau filed a motion to keep all case filings under seal. It is typically “unnecessary to unseal documents that relate solely to the substance of the arbitration,” but other documents for which Wausau did not provide a basis to keep them under seal, were ordered unsealed. Emp’rs Ins. Co. of Wausau v. Ace Prop. & Cas. Is. Co., Case No. 2016-cv-00097 (W.D.Wis. Feb. 17, 2016); Emp’rs Ins. Co. of Wausau v. Ace Prop. & Cas. Is. Co., Case No. 16-cv-97-bbc (W.D.Wis. Mar. 22, 2016).

This post written by Joshua S. Wirth.

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FIFTH CIRCUIT: DIVERSITY JURISDICTION DETERMINED BY AMOUNT SOUGHT IN ARBITRATION, NOT AMOUNT OF AWARD

May 3, 2016 by Carlton Fields

In a recent interlocutory appeal of a matter involving an arbitration of a claim for $80 million, but in which only $10,000 was awarded, the Fifth Circuit held that the amount in controversy for purposes of establishing diversity jurisdiction over petitions to confirm or vacate arbitration awards, is the amount sought in the arbitration, and not the amount ultimately awarded. In choosing the “demand approach” over the “award approach,” the court analyzed both positions, and noted that treatment by other circuits has varied. The Fifth Circuit found that the demand approach is the better of the two because it takes into account the true scope of the dispute between the parties. The court also reasoned that the demand approach avoids the application of two conflicting jurisdictional tests for the same controversy (jurisdiction for petitions to compel arbitration are based on the amount of the demand). Further, the court explained, the award approach might promote frivolous motions to compel, where demands for less than the jurisdictional requirement may be filed in federal court and then stayed pending the result of the arbitration. Last, the court explained, the demand approach permits jurisdiction consistent with that which would be present if the case were litigated rather than arbitrated. Pershing, LLC v. Kiebach, Case No. 15-30396 (5th Cir. Apr. 6, 2016).

This post written by Barry Weissman.

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