Arbitration Process Issues

The Court of Appeals for the Fourth Circuit recently remanded a case to the district court for full consideration of a request to compel arbitration, finding the lower court’s order “inconsistent with the emphatic federal policy in favor of” arbitration. The plaintiff, Dillon, sued several banks which were allegedly “complicit” in effectuating illegal payday loans by processing transfers on behalf of the lenders (tribal and out-of-state). The district court denied the banks’ initial motion to enforce arbitration clauses contained in the original loan agreements because the banks failed to provide authenticating evidence. When the banks renewed their motions to cure that deficiency by providing such evidence, the district court construed the motions as reconsideration motions, and denied them.

On appeal, the court analyzed the lower court’s perfunctory reasoning in construing the renewed motions as seeking reconsideration. The court rejected the idea that the banks only had one opportunity to invoke the Federal Arbitration Act’s enforcement mechanisms. Only when the party “is in default in proceeding with” arbitration does the Act foreclose the chance of obtaining a stay under its mechanisms. The court also distinguished the underlying issues presented by the initial and renewed motions to reject the notion that the law of the case doctrine justified denial. The district court’s ruling on the initial motions spoke to whether the pleadings established arbitrability did not, as law of the case, determine the renewed motions’ issue of whether Dillon consented to arbitration in the first place. The district court was instructed to, on remand, determine whether the claims are within the scope of the original loan agreement’s arbitration clause, and whether the banks forfeited those rights because they are “in default in proceeding” with arbitration. Dillon v. BMO Harris Bank, N.A., No. 14-1728 (4th Cir. May 29, 2015).

This post written by Brian Perryman.

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A New York district court granted Hudson Specialty Insurance Company’s (“Hudson”) petition to compel arbitration against New Jersey Transit Corporation (“N.J. Transit”) after determining that the parties had agreed to arbitrate pursuant to the Federal Arbitration Act. In late October 2012, Hurricane Sandy damaged N.J. Transit’s facilities and equipment triggering policies issued by Hudson and various other property casualty insurance companies. The original action was submitted to New Jersey state court to interpret “Flood Sublimit” and “Named Windstorm” provisions in the policies, the former of which limited Hudson’s flood damage liability to $100 million. Hudson sought to compel arbitration based on the arbitration provision within the policy. N.J. Transit argued that the arbitration agreement was unenforceable as it never assented to the provision, and furthermore, never saw the arbitration provision until the policy was issued. It alleged that they relied on a prior draft of the policy without such a provision.

The court rejected N.J. Transit’s arguments for a number of reasons. The arbitration provision was included in the policy quote accepted by Hudson’s insurance broker, which referenced arbitration. The court noted that N.J. Transit “cannot have it both ways.” Either N.J. Transit assented to the policy in 2012 or it did not. Instead, “N.J. Transit is clearly seeking to benefit from the Policy by demanding coverage for its losses after Hurricane Sandy and has thus manifested its assent.” The court also rejected N.J. Transit’s final effort to oppose arbitration alleging that the provision was unenforceable because it lacked certain key terms. Here, the arbitration provision was a complete form where the alleged missing terms had no bearing on the enforceability of the provision. Hudson Specialty Ins. Co. v. N.J. Transit Corp., No. 15-cv-89 (ER) (USDC S.D.N.Y. June 5, 2015).

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

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The Sixth Circuit affirmed the district court’s denial of a motion for attorneys’ fees and enhancement of fees resulting from post-arbitration confirmation proceedings. The issue before the court was whether the agreement between Crossville Medical Oncology and Glenwood Systems permitted the court to award the additional attorneys’ fees.

Crossville Medical Oncology and its single shareholder Dr. Tabor sued Glenwood Systems for breach of contract. The agreement was determined to have an enforceable arbitration clause, and following arbitration, Dr. Tabor was found to have signed the agreement in his individual capacity and to have breached. After an interlocutory appeal regarding Dr. Tabor’s personal consent to arbitration, the district court entered a judgment confirming the arbitration award. Glenwood moved for attorneys’ fees resulting from the post-arbitration litigation proceedings, which the district court denied for lack of authority.

The appellate court affirmed, finding that neither the Federal Arbitration Act nor the parties’ agreement authorized the court to grant attorneys’ fees for post-arbitration confirmation proceedings. The court reasoned that it could only award attorneys’ fees if it was authorized by statute or by the specific language of the parties’ agreement. While the agreement subjected “[a]ny dispute arising out of or in connection with” the agreement to arbitration and provided for attorneys’ fees for the prevailing party, the only jurisdiction given to the courts in the agreement was to “enter [the award] as a judgment.” The court construed the agreement to authorize “an arbitrator to award attorneys’ fees and costs during arbitration,” but merely authorized “the district court to enter the award as a judgment.” The court distinguished the case from others in which parties’ broad agreements contemplated fees for the prevailing party in “any action at law or in equity,” emphasizing that this agreement included attorneys’ fees from arbitration in the “award” to be entered as a judgment by the court, thereby limiting the court’s authority to award any additional attorneys’ fees.

The appellate court similarly rejected a bad-faith argument for additional attorneys’ fees, but remanded the case to the district court on the issue of prejudgment interest, finding the lower court’s short, handwritten opinion devoid of analysis relevant to the appropriateness of that interest. Crossville Med. Oncology, P.C. v. Glenwood Sys., LLC, No. 14-5444 (6th Cir. May 1, 2015).

This post written by Rollie Goss.

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