Arbitration Process Issues

DISTRICT COURT HOLDS ARBITRATION CLAUSE DOES NOT APPLY TO SWISS INSURER

February 23, 2016 by John Pitblado

The United States District Court for the Southern District of New York recently denied a captive insurer’s motion to compel arbitration. The captive insurer, First Mutual Transportation Assurance Company, Inc. (FMTAC), argued that its reinsurer, Infrassure Ltd. (Infrassure), should be compelled to arbitrate a Hurricane Sandy-related reinsurance dispute in London. The parties shared a Certificate of Facultative Reinsurance that contained an arbitration clause setting forth arbitration procedures applicable to disputes between them. The district court held that the clause is inapplicable to this suit “because, by its explicit language, it only governs disputes between FMTAC and ‘UK and Bermuda Insurers.’” Infrassure is a Swiss insurer and therefore is not bound by the arbitration clause.

Infrassure, Ltd. V. First Mutual Transportation Assurance Company, Inc., No. 15-cv-8230 (U.S.D.C. S.D.N.Y. Jan. 22, 2016)

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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FOURTH CIRCUIT HOLDS ARBITRATION CLAUSE UNENFORCEABLE WHEN IT FORBIDS ARBITRATOR FROM APPLYING THE APPLICABLE LAW

February 22, 2016 by John Pitblado

This case involves a class action filed in a Virginia district court against Delbert Services Corporation, the servicing agent of certain loans, for which the plaintiffs claimed that Delbert’s unfair debt collection practices violated federal law. The lender was Western Sky Financial, LLC, an online lender owned by a member of the Cheyenne River Sioux Tribe and located on the Cheyenne River Indian Reservation in South Dakota. Delbert sought to compel arbitration in response to the plaintiffs’ claims.

The loan agreements at issue required resolution of all disputes through arbitration, but stated that the agreement was “subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe” and that “[n]either this Agreement nor Lender is subject to the laws of any state of the United States of America”.

The Virginia district court upheld the arbitration clause in the loan agreements. However, although recognizing that the FAA establishes a liberal policy favoring arbitration agreements, the Fourth Circuit reversed the district court’s ruling, holding that the arbitration clause was unenforceable. The Court noted that “[t]he agreement purportedly fashions a system of alternative dispute resolution while simultaneously rendering that system all but impotent through a categorical rejection of the requirements of state and federal law. The FAA does not protect the sort of arbitration agreement that unambiguously forbids an arbitrator from even applying the applicable law.” The Fourth Circuit further noted that parties are free within bounds to select a choice of law clause, but that Delbert was seeking to use the arbitration process to avoid state and federal law.

Hayes v. Delbert Services Corp., No. 15-1170 (9th Cir. Feb. 2, 2016).

This post written by Jeanne Kohler.

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COURT DENIES MOTION TO VACATE ARBITRATION AWARD, FINDING ARBITRATION APPEALS PROCESS WAS VALID, AND THAT PANELS’ RULINGS DID NOT MANIFESTLY DISREGARD LAW

February 19, 2016 by John Pitblado

Plaintiffs used a hay treatment product manufactured and sold by Cargill, Inc. A dispute arose between them concerning whether Cargill’s product caused serious injury to one of the plaintiffs. After protracted litigation concerning the arbitrability of the dispute, it was referred to arbitration before the National Grain and Feed Association (“NGFA”). The panel found in Cargill’s favor and plaintiffs appealed under the NGFA Arbitration Rules, challenging the arbitrators’ qualifications, evidentiary rulings, and other aspects of their decisionmaking. The NGFA Appeals Committee affirmed the decision and award issued by the original panel.

Plaintiffs brought an action to vacate the award. In support of its application, plaintiffs argued, among other things, that the arbitrators were biased in Cargill’s favor, that the arbitrators were not qualified to hear the dispute, that the structure of the NGFA arbitral process was flawed, and that both panels’ decisions were erroneous as a matter of law. The court denied plaintiff’s motion to vacate and granted Cargill’s cross-motion to confirm because: (a) plaintiffs had waived their right to challenge the arbitrators’ qualifications or the NGFA process by not raising these issues until after the proceedings; (b) Cargill’s involvement in NGFA’s annual convention, as well as the amount of membership dues it paid to the NGFA, did not evidence bias; (c) the panels’ failure to issue their decisions within the time period referenced by certain NGFA Arbitration Rules did not warrant vacatur, particularly since certain delays were attributable to plaintiffs; and (d) the panels’ evidentiary and legal rulings did not amount to manifest disregard of the law, as such rulings did not ignore binding precedent. Van Buren v. Cargill, Inc., No. 1:10-cv-00701 (USDC W.D.N.Y. Jan. 19, 2016).

This post written by Rob DiUbaldo.

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COURT UPHOLDS CLASS WAIVER ARBITRATION CLAUSE, FINDING AN UNAWARE PARTY CAN STILL MANIFEST ASSENT TO BE BOUND

February 11, 2016 by Carlton Fields

A federal court in Oregon granted a motion to compel arbitration based on a class waiver and arbitration provision in a credit agreement. The primary question of fact was whether the plaintiff had been read or had received the terms of the credit agreement. The credit agreement’s arbitration provision contained a right to opt out of the arbitration provisions upon written notice by the consumer within the first thirty days of their first transaction. The plaintiff never opted out of this agreement, claiming that she never affirmatively consented to the terms of the agreement or physically received the provision. Based on a preponderance of evidence, the court found that the plaintiff manifested assent to the terms of the arbitration agreement. The defendants did not need to show that the plaintiff verbally assented to or signed a credit agreement in order to bind her. Receipt of the agreement and use of the account, “regardless of whether [the plaintiff] read, signed, or understood the Agreement, objectively manifested assent to the arbitration provision contained in the Agreement.” Campos v. Bluestem Brands, Inc., Case No. 3:15-CV-00629-SI (USDC D. Ore. Jan. 22, 2016).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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GEORGIA APPELLATE COURT HOLDS MALPRACTICE COVERAGE SUIT MUST BE ARBITRATED

February 1, 2016 by John Pitblado

The Court of Appeals of Georgia recently affirmed a trial court’s ruling compelling arbitration in a malpractice coverage dispute. McLarens Young International Inc. (McLarens) and American Safety Casualty Insurance Company (ASCIC) shared a claims handling agreement (CHA) that required McLarens to provide the insurer with claims management and adjustment services for ASCIC policies issued under a Lawyers Professional Liability Program. Under one of those policies, ASCIC was required to pay the $2 million policy limits to satisfy a malpractice settlement. ASCIC then sought reimbursement from its reinsurer, Excalibur Reinsurance Corp. (Excalibur), and the reinsurer paid.

Both McLarens and Excalibur filed a demand for arbitration against McLarens for a claim of negligent oversight of the underlying claim. McLarens countered in the trial court that the arbitration demand was outside the scope of the CHA’s arbitration provision. Both the trial court and the appellate court disagreed, holding that “the dispute pertains solely to whether McLarens is required to indemnify ASCIC under the terms of the CHA, and there is no greater or lesser right to indemnification because Excalibur has been inserted into the proceedings.” Because of the Reinsurance Agreement with ASCIC, Excalibur is merely subrogated to any right to indemnification that ASCIC may have against McLarens under the CHA due to the negligent handling of the claim. The appellate court held that the scope of the suit remains the same as if it were only between McLarens and ASCIC and, thus, is within the scope of the arbitration clause.

McLarens Young International, Inc. v. American Safety Casualty Insurance Co., et al., No. A15A0932 (Ga. App., 4th Div. Nov. 20, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.