Arbitration Process Issues

RHODE ISLAND SUPREME COURT BARS SECOND ARBITRATION BASED ON THE DOCTRINE OF RES JUDICATA

January 6, 2015 by Carlton Fields

An architectural firm contracted to provide architectural, engineering and design services for a state veterans home for a “not to exceed fee” of $61,500, which was calculated as a percentage of overall expected construction costs. When there were changes to the scope of the construction, the construction costs increased, and the firm sought an additional fee. The request was denied, an administrative appeal was rejected and suit was filed. The parties stipulated to a stay of the lawsuit pending a statutory arbitration procedure. The arbitration was resolved adversely to the claimant, with the arbitrator declaring that he was not deciding any equitable claims the claimant may have had which were not asserted in the arbitration. The arbitration award was confirmed by agreement and no appeal was filed. The claimant then filed a petition to compel a second arbitration of equitable claims. The court denied the petition, holding that the proposed equitable claims were barred by the doctrine of res judicata.

The Rhode Island Supreme Court agreed, holding that the claimant could have asserted the equitable claims in the first arbitration, and that the scope of precluded claims was determined using the transaction test, i.e., whether the claims arose out of the same transaction or series of connected transactions. Finding that the equitable claims arose out of the same transactions as the previously arbitrated claims, and finding no applicable exception to the preclusion doctrine, the Supreme Court ruled that the unasserted equitable claims were barred by the final judgment confirming the award in the first arbitration. Torrado Architects v. Rhode Island Dept. of Human Services, No. 2013-274 (R.I. Nov. 25, 2014).

This post written by Rollie Goss.

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COURT DENIES RECONSIDERATION OF ORDER STAYING ACTION TO COMPEL ARBITRATION

January 5, 2015 by Carlton Fields

A federal district court refused to reconsider its order staying Allstate’s action to compel arbitration against its insured, A.O. Smith. The case involved a Settlement/Coverage-in Place Agreement between A.O. Smith and Allstate regarding coverage for asbestos liability. Continental Casualty Company, another insurer for A.O. Smith, filed an action in Wisconsin state court against both A.O. Smith and Allstate arguing that the Agreement impermissibly limited its subrogation and contribution rights against Allstate. When Allstate and A.O. Smith asserted their defenses in the Wisconsin action, a dispute emerged between them as to the nature of the Agreement. Allstate attempted to compel arbitration against A.O. Smith in federal court and to stay the Wisconsin litigation pending the outcome of the arbitration. The federal court, however, refused to compel arbitration and instead stayed its own proceedings, in deference to the Wisconsin court’s determination of a pending motion for summary judgment that could impact arbitrability. In denying reconsideration of that ruling, the court explained that its stay was warranted because the Wisconsin litigation was further along, the Wisconsin court was “currently in a more informed position from which to address the issue of arbitrability, and a stay [was therefore] warranted on that basis.” Allstate Insurance Co. v. A.O. Smith Corp., Case No. 1:15-cv-06574 (USDC N.D. Ill. Dec. 11, 2015).

This post written by Barry Weissman.

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SECOND ARBITRATION COMPELLED ON REINSURANCE CLAIMS MADE UNDER TREATY PREVIOUSLY CONSTRUED IN PRIOR ARBITRATION AWARD

January 5, 2015 by Carlton Fields

In a complicated web of proceedings, the initial dispute involved whether the reinsurer, Nationwide Mutual Insurance Co., was permitted to condition payment of reinsurance claims on receiving access to the claim records of the cedent, Liberty Mutual Insurance Co. The arbitration award construed the treaty’s payment provisions as independent of the access to records provision, and ruled that Nationwide must take a coverage position within 60 days of submission of a claim. An additional dispute then arose when Nationwide disputed enforcement of the award against certain reinsurance claims subsequently re-submitted by Liberty Mutual. Various filings were made in state and federal court and with the arbitration panel, including Liberty’s motion to enforce the arbitration award (in state court), and Nationwide’s motion to compel another arbitration (in federal court). The federal district court stayed Nationwide’s motion, pending a ruling by the state court on Liberty’s motion (see our March 13, 2014 post). Ultimately, the panel issued a ruling purporting to “clarify” the initial award, and the state court entered a ruling enforcing the initial award to the extent it had prospective application.

The federal court has now lifted its stay, and compelled arbitration on the meaning of “future claims” under the treaty and whether Liberty Mutual’s resubmitted claims would qualify as such. The federal court declined, however, to compel arbitration again on the issue of access to records under the treaty, which the court deemed barred by the doctrine of issue preclusion. The court also vacated the arbitration panel’s interim ruling purporting to clarify the initial award. The court held that the panel’s clarification was untimely, having been sought more than six months after the original award was entered and after the award had been confirmed. Nationwide Mutual Insurance Co. v. Liberty Mutual Insurance Co., Case Nos. 13-cv-12910, 14-cv-12046 (USDC D. Mass. Nov. 6, 2014).

This post written by Michael Wolgin.

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FOURTH CIRCUIT AFFIRMS ORDER DISMISSING CASE TO PERMIT ARBITRATION AGAINST NON-SIGNATORY TO ARBITRATION AGREEMENT

December 31, 2014 by Carlton Fields

An arbitration agreement was contained in a retail installment contract. The Fourth Circuit affirmed the lower court’s dismissal of the case pending arbitration against a non-signatory to the arbitration agreement on two grounds: (1) the dispute, which involved the parties’ obligations under the retail installment contract, had a “significant relationship” to the contract; and (2) the plaintiff’s claims relied on the contract and the plaintiff was therefore “equitably estopped from disclaiming the contract’s arbitration provision.” Lomax v. Weinstock, Friedman & Friedman, P.A., No. 14-1130 (4th Cir. Sept. 4, 2014).

This post written by Michael Wolgin.

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FIRST CIRCUIT CONCLUDES PLAINTIFF’S DELAY WAIVED ARBITRATION CLAUSE

December 26, 2014 by Carlton Fields

Joca-Roca Real Estate, LLC sued Robert T. Brennan asserting claims of fraud and breach of contract arising out of an agreement between the two parties which contained an arbitration clause. Although Brennan raised the failure to arbitrate as an affirmative defense, it never pursued arbitration. Instead, the parties engaged in significant discovery. On the eve of trial, Joca-Roca moved to stay the proceedings pending arbitration. Both the magistrate judge and the district court denied the motion to stay, finding that Joca-Roca waived its arbitral rights.

On appeal, the First Circuit noted that, while federal law favors agreements to arbitrate, arbitration clauses can be waived expressly or through conduct. In determining whether a conduct-based waiver occurred, a court must ascertain whether there has been undue delay in the assertion of arbitral rights and whether, if arbitration supplanted litigation, the other party would suffer unfair prejudice. The longer the delay and the more extensive the litigation-related activities that have taken place, the stronger the inference of prejudice. Joca-Roca’s attempt to invoke the arbitration was deemed not only untimely, but unsupported by an explanation for the belated request. Moreover, during this time, Brennan was prejudiced because he was forced to engage in discovery which would not have been required in arbitration. The prejudice to Brennan was even greater given the looming trial date. On this basis, the First Circuit affirmed the lower court’s ruling denying Joca-Roca’s motion to stay the proceedings pending arbitration. Joca-Roca Real Estate, LLC v. Brennan, No. 14-1353 (1st Cir. Dec. 1, 2014).

This post written by Leonor Lagomasino.

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