Arbitration Process Issues

SECOND CIRCUIT RULES FEDERAL ARBITRATION ACT REQUIRES STAY, NOT DISMISSAL, OF LITIGATION

September 3, 2015 by Carlton Fields

In Katz v. Cellco Partnership, the United States Court of Appeals for the Second Circuit confronted the question of “whether district courts retain the discretion to dismiss an action after all claims have been referred proceedings,” or should stay the litigation. Acknowledging a split in the circuits, the court, in the context of an order compelling arbitration under the Federal Arbitration Act answered, “stay.”

Katz sued Cellco (better known as Verizon) on behalf of a putative class of Verizon subscribers. Katz’s contract with Verizon contained an arbitration clause that required arbitration under the FAA. Verizon moved to compel arbitration and stay the proceedings. Katz sought to void the arbitration provision on constitutional grounds. The district court (1) rejected Katz’s constitutional argument; (2) granted Verizon’s motion to compel arbitration; and (3) having compelled arbitration, dismissed Katz’s claims. The sole issue addressed by the Second Circuit was whether the case should have been dismissed or stayed.

The Second Circuit outlined the divide among federal circuit courts on the stay versus dismiss question. The federal courts of appeals requiring a stay include the Third, Seventh, and Tenth Circuits; those allowing dismissal include the First, Fifth, and Ninth Circuits; the Fourth Circuit remains uncommitted. The Second Circuit then analyzed the question in the light of the Act’s language, which states that if a suit is “referable to arbitration,” the court “shall … stay the trial of the action until such arbitration has been had….” That language, along with the Act’s underlying policy, makes a stay mandatory. Thus, the Second Circuit joined the circuit’s ruling in favor of a stay over dismissal. Katz v. Cellco Partnership, No. 14-138 (2d Cir. July 28, 2015).

This post written by John A. Camp.

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NEW YORK FEDERAL COURT ORDERS END TO ARBITRATION FIGHT OVER DOCUMENT ALLEGEDLY WITHHELD PRIOR TO ARBITRATION

September 1, 2015 by Carlton Fields

A federal district court in New York entered an order enjoining an attempt at a second arbitration initiated by Equitas Insurance Limited and Certain Underwriters at Lloyd’s of London against Arrowood Indemnity Company. The second attempt at arbitration comes after five years of dispute, which resulted in a $45 million arbitration award in favor of Arrowood. After the arbitral award and a court order confirming the award, the Underwriters filed a motion for post-judgment discovery and relief from judgment based on a document that the Underwriters had obtained in another proceeding against Arrowood that purportedly showed the disingenuity of Arrowood’s stance in the arbitration. The court denied the motion, finding that such a motion “cannot be used to collaterally attack an arbitration award for misconduct in the arbitration in the guise of an attack on the judgment confirming it.” Following the court’s order, the Underwriters demanded a second arbitration. In response, Arrowood filed a motion seeking to enforce the court’s earlier order.

The court held that Section 10 of the Federal Arbitration Act provides “the exclusive means of addressing and redressing wrongdoing in an arbitration proceeding” and that any such grounds must be raised within three months of the award. Finding that the Underwriters’ second attempt at arbitration was “in direct contravention of the FAA” and that a second arbitration cannot be used to undo the award of the first, the court enjoined the Underwriters’ attempts at a second arbitration—perhaps bringing the dispute to a conclusion. Arrowood Indemnity Co. v. Equitas Insurance Limited, No. 1:13-cv-07680-DLC (USDC S.D.N.Y. July 30, 2015).

This post written by Zach Ludens.

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UNITED STATES SUPREME COURT CONSIDERING A CALIFORNIA APPELLATE COURT OPINION INVALIDATING A CLASS ACTION ARBITRATION WAIVER

August 31, 2015 by Carlton Fields

In a Special Focus article Rollie Goss previews another arbitration case coming before the United States Supreme Court involving the issue of whether a class arbitration waiver is unconscionable, and the impact of such a finding on the viability of the agreement to arbitrate.

This post written by Rollie Goss.

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PARTY WAIVED UNTIMELY DEFENSE TO ARBITRATION, NOTWITHSTANDING PARTY’S CLAIM THAT COUNSEL COMMITTED MALPRACTICE

August 27, 2015 by Carlton Fields

The court confirmed an arbitration decision awarding damages in favor of workers compensation insurers against various insured employee-staffing companies. One of the defendant companies contended that it never executed the underlying agreement with the insurers, that the panel thus exceeded their powers in entering the award, and that the award should be vacated. The court rejected this argument, agreeing with the panel’s determination that the company waived its non-signatory defense. The court examined the procedural history of the arbitration and held that the arbitration proceeding continued for twenty-six months before the defendant asserted its defense. The court found that the company was “represented by legal counsel throughout the dispute resolution process,” that as “a matter of law, litigants are bound by the acts and omissions of their chosen agents, including lawyers,” and that “legal bungling” did “not justify reopening a judgment.” The court was further persuaded by the fact that the company first raised the defense only after a partial final award was entered, ordering the company to post a bond. While the court noted that it did “not take lightly” the company’s sworn statement that it did not authorize its purported attorney to represent that it approved or ratified the underlying arbitration agreement, the court explained that this was an alleged legal malpractice matter and not a basis to vacate the arbitration award. Zurich American Insurance Co., et al. v. Staffing Concepts International, Inc., et al., Case No. 1:14-cv-03454 (USDC N.D. Ill. July 23, 2015).

This post written by Michael Wolgin.

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SECOND CIRCUIT DENIES JP MORGAN’S ATTEMPT TO FORCE ARBITRATION

August 24, 2015 by Carlton Fields

The Second Circuit affirmed a New York district court ruling that found that the FINRA arbitration rules, one of which prohibits arbitration of putative or collective class actions, was incorporated within the subject employment agreement. Former financial advisers of the progeny of J.P. Morgan Chase & Co. sued J.P. Morgan under state and federal law for violations of overtime laws. J.P. Morgan moved to compel arbitration pursuant to a clause within the advisers’ employment contracts. In denying their motion, the district court reasoned “that the arbitration clause requires arbitration of only those claims required to be arbitrated under the FINRA Rules and that, under New Rule 13204, Plaintiffs’ claims cannot be arbitrated.”

On appeal, J.P. Morgan argued against the trial court’s interpretation of the phrase “required to be arbitrated by the FINRA Rules” as well as the court’s use of the amended version of Rule 13204, which was not in effect when the parties originally entered into their contract. The court used a grammatical and definitional analysis to determine that the phrase applies to all claims and controversies. They also found that when JP Morgan agreed to arbitrate according to the FINRA rules, they also took on the risk that these rules may change. Regardless of that risk, the court noted that under either the original version of Rule 13204 or the amended version, FINRA prohibits the arbitration of collective class actions claims. Lloyd et al. v. JP Morgan Chase & Co. et al., No. 13-3963-cv (2d Cir. June 29, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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