Arbitration Process Issues

DISTRICT COURT GRANTS MOTION TO STAY PENDING ARBITRATION OVER NON-SIGNATORY’S OPPOSITION

November 26, 2014 by Carlton Fields

In late August, a federal district court in Louisiana granted a group of defendants’ motion to stay pending arbitration. Plaintiff alleged breach of fiduciary duty, negligence, and fraud in connection with a trust account set up for plaintiff’s benefit. Benjamin Geller, a sports agent and financial adviser to former football player Frank Warren, recommended Mr. Warren purchase a $1,000,000 life insurance policy. Upon Mr. Warren’s death, those benefits were paid to an irrevocable insurance trust held by one of the defendants, Morgan Keegan & Co., with Geller acting as trustee. Plaintiff alleged that Geller conspired with Morgan Keegan employees to deplete this trust. The motion to stay centered on an arbitration clause in the client agreement that established the trust account. Defendants argued the doctrines of equitable estoppel, third-party beneficiary, and agency theory in support of arbitration. Plaintiff asserted that as the client agreement was induced by fraudulent representations and “never consummated,” arbitration was therefore inappropriate.

The court looked first to whether a valid agreement to arbitrate existed and then to whether the dispute fell within that agreement. Because the plaintiff never challenged the arbitration agreement, instead questioning the validity of the client agreement, the question must be heard before an arbiter. Furthermore, as a third-party beneficiary of the client agreement, plaintiff was bound by the arbitration agreement even though he was a non-signatory. Finally, as plaintiff had accepted benefits under the client agreement from Morgan Keegan, plaintiff was also bound to those terms on equitable estoppels grounds. Warren v. Geller, No. 11-2282 (USDC E.D. La., Aug. 22, 2014).

This post written by Matthew Burrows.

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APPEALS COURT VACATES ORDER GRANTING MOTION TO STOP ARBITRATION

November 20, 2014 by Carlton Fields

In Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assur. Co., Inc., No. 14-5193 (6^th Cir. Oct. 24, 2014), the Sixth Circuit Court of Appeals vacated the district court’s order granting plaintiff’s motion to stop arbitration. The Sixth Circuit determined that the district court’s order determining that arbitrability of the dispute was within the court’s province, which was the basis for granting plaintiff’s motion to stop the arbitration, failed to identify what the district court found to be ambiguous about the parties’ manifest intent to submit all disputes, including disputes regarding the enforceability of any provision, exclusively to arbitration. The Sixth Circuit, relying on Rent-A-Center, West, Inc. v. Jackson,561 U.S. 63, 67–70 (2010) and on a de novo review of the arbitration agreement, found that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court.

This post written by John Pitblado.

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COURT DENIES PETITION FOR ORDER CONFIRMING FINAL ARBITRATION AWARD AND ENTRY OF JUDGMENT

November 19, 2014 by Carlton Fields

In First State Ins. Co. v. Nationwide Mutual Ins. Co., No. 13-cv-11322-IT (U.S.D.C. D. Mass. Oct. 21, 2014), a petition for an order to confirm a final arbitration award and entry of judgment was denied. The court determined that although labeled a “Final Award,” the arbitration panel expressed no intention to resolve all claims submitted in the demands for arbitration. Instead, the award focused on the plaintiff’s motion regarding contract interpretation, which directed the parties back to the panel with a proposed schedule leading to a hearing on remaining matters. Moreover, although the panel proceeded to address the issues in phases, the parties did not jointly agree to bifurcation of the arbitration. Rather the record in the case showed that the defendant objected to bifurcation of the issues at an organizational meeting with plaintiff and the panel when it argued that the panel should consider all of the issues before it at the same time.

This post written by John Pitblado.

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COURT REFUSES TO SEAL “SUBSTANTIVE RULINGS” IN ARBITRATION AWARD

November 17, 2014 by Carlton Fields

A federal court in Michigan was recently presented with a motion to seal the briefing associated with a motion to confirm an arbitration award. The arbitration concerned a reinsurance dispute and had been conducted pursuant to a confidentiality agreement that required the final award and any court submissions be kept confidential. Noting the “long-established legal tradition of public access to court documents,” the court ordered that only limited portions of the Final Award should be sealed – those that identified non-parties. The court refused to seal other portions of the award, rejecting the argument that public filing of the award’s “substantive rulings” could harm the reinsurer’s financial interests. The reinsurer argued that other reinsureds could cite to the blanket pronouncements in the Final Award to support their claims, despite the confidential nature of the arbitration. The court ruled that unlike situations where the arbitration award contains confidential business data or trade secrets and therefore is properly sealed, the request to seal the Final Award in this case was made merely to prevent unhelpful portions of the Final Award from becoming public in an effort to avoid future litigation. The court cited Sixth Circuit precedent holding a party’s interest in shielding prejudicial information from public view, standing alone, cannot justify the sealing of that information. Amerisure Mut. Ins. Co. v. Everest Reinsurance Co., No. 14-CV-13060, 2014 WL 5481107 (E.D. Mich. Oct. 29, 2014).

This post written by Catherine Acree.

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THE SEVENTH CIRCUIT REFERS ISSUE OF SCOPE OF ARBITRATION TO ARBITRATORS

November 6, 2014 by Carlton Fields

The Seventh Circuit Court of Appeals held that it lacked jurisdiction over an interlocutory appeal of an order that would direct the arbitrator to include year 2008 in a pending arbitration proceeding brought under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). Central States assessed liability against US foods in 2008 and 2009 because US foods withdrew in part from an underfunded multiemployer pension plan. US Foods requested arbitration pursuant to the MPPAA for the year 2009, but failed to do so for year 2008. In return, Central States sued US Foods to collect the 2008 assessment. US Foods requested that the district court order the arbitrator in the pending arbitration regarding the 2009 assessment to consider also the amount owed for 2008, but the district court refused.

While section 16(a)(1)(B) of the Federal Arbitration Act (FAA) allows interlocutory appeals from orders denying requests for arbitration under section 4 of the FAA, US Funds could not rely on the FAA to establish appellate jurisdiction to review the district court’s denial because section 4 pertains only to arbitration requests contained in written agreements. This arbitration did not concern any written agreement. Furthermore, the Seventh Circuit noted, because arbitration regarding year 2009 was ongoing, the issue as to whether year 2008 should be included in said arbitration must first be decided by the arbitrator, not the court. Central States, Southeast and Southwest Areas Pension Fund v. US Foods, Inc., No. 13-1566 (7th Cir. July 30, 2014).

This post written by Whitney Fore.

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