Arbitration Process Issues

ARBITRATION DENIED IN MORTGAGE LIFE INSURANCE DISPUTE WHERE NEITHER NOTE NOR POLICY REFERENCED ARBITRATION AGREEMENT

November 5, 2014 by Carlton Fields

A court refused to compel arbitration in a dispute surrounding the cancellation of and failure to pay life insurance benefits under a debtor group life insurance policy. The relevant note and insurance policy did not contain an arbitration agreement. The defendants, however, attempted to compel arbitration based on arbitration agreements formed in connection with three other loans made to the plaintiff. The court was not persuaded as none of the three transactions was directly connected with the mortgage and life insurance policy that formed the basis of the plaintiff’s claims. The arbitration agreements did not reference the relevant note and lender, but instead referenced the other notes and lenders not at issue in the dispute. The court therefore concluded that there was “no evidence that Plaintiff agreed to arbitrate disputes arising out of the” mortgage, note, or insurance policy. Bucher v. American Health & Life Insurance Co., Case No. 2:14-cv-659 (USDC W.D. Pa. Aug. 28, 2014).

This post written by Michael Wolgin.

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COURT OF APPEAL COMPELS ARBITRATION BASED UPON RELATED DOCUMENTS

November 4, 2014 by Carlton Fields

On August 29, 2014, the United States Court of Appeals for the Eleventh Circuit, in reversing the district court on interlocutory appeal, found that an indemnification agreement, performance bonds, and a subcontract between different parties formed a single transaction, therefore allowing indemnitors to compel arbitration.

The University of Alabama hired Brice Building Company (“Brice”), a general contractor, to develop a student housing complex. Brice then entered into a subcontract and arbitration agreement with Atlantis Drywall and Framing (“Atlantis”). Atlantis secured performance bonds through Hanover Insurance Company (“Hanover”), a condition necessary to work on the project. The subcontract contained an arbitration provision, but the bond did not. However, the bond incorporated the subcontract by reference. When Atlantis defaulted on its work, Hanover sought indemnification.

At issue before the district court was whether the arbitration clause in the subcontract between Brice and Atlantis required a signatory to arbitrate with a non-signatory in a related dispute. The circuit court found that the agreements entered into were all part of the same subject matter despite being signed by different parties. For that reason, the court noted that these documents should be viewed as a single transaction. The court further reasoned that, contrary to Hanover’s assertion, the bond does relate to the subcontract since it incorporated the subcontract between Brice and Atlantis. The district court therefore erred when it declined to read the three documents as a single transaction, denying arbitration. Hanover Ins. Co. V. Atlantis Drywall & Framing LLC, No. 13-14482 (11th Cir. Aug. 29 2014).

This post written by Matthew Burrows.

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SECOND CIRCUIT AFFIRMS ORDERS ENJOINING ARBITRATION, HOLDING BROAD FORUM SELECTION CLAUSE SUPERSEDES FINRA ARBITRATION RULE

November 3, 2014 by Carlton Fields

The Second Circuit affirmed two cases in which financial services firms had succeeded in enjoining FINRA arbitrations that were initiated against them by public financing entities. The court held that in each case, the FINRA arbitration rules were superseded by broad forum selection clauses in broker-dealer agreements requiring “all actions and proceedings” related to the transactions between the parties to be brought in court. The court noted that the interplay between forum selection clauses and the FINRA arbitration rule has been considered by the Ninth and Fourth Circuits, with the former holding that the forum selection clause controls and the latter reaching the opposite conclusion. In the Second Circuit, the court explained, “an agreement to arbitrate is superseded by a later-executed agreement containing a forum selection clause if the clause ‘specifically precludes’ arbitration.” The court found that the language “all actions and proceedings” fit that description, notwithstanding that the clause did not specify arbitration. Goldman Sachs & Co. v. Golden Empire Schools Financing Authority, Nos. 13-797-cv, 13-2247-cv (2d Cir. Aug. 21, 2014).

This post written by Michael Wolgin.

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COURT CONFIRMS ARBITRATION PANEL’S INTERIM AWARD REQUIRING REINSURER TO POST SECURITY FOR CEDENT’S CLAIMED LOSSES

October 23, 2014 by Carlton Fields

A federal district court has confirmed an arbitration panel’s interim award requiring Allied Provident, as reinsurer, to post security for unreimbursed losses and expenses that its cedent claims are due under the parties’ reinsurance agreement. The court first considered whether it even had the power to confirm the panel’s interim award because generally a court does not have the authority to review an interlocutory ruling by an arbitration panel. The court found, however, that an exception to that rule exists when a panel has granted an award of temporary equitable relief, such as a security award, separable from the merits of the arbitration. The court therefore found that it had the power to confirm the interim award and rejected all of Allied Provident’s arguments to vacate it.

The court also denied Allied Provident’s request to stay the interim award and to disqualify the entire arbitration panel. The court directed Allied Provident to appoint a new party arbitrator, as its arbitrator had resigned due to health reasons, so the proceedings could continue. Companion Property and Casualty Insurance Co. v. Allied Provident Insurance Inc., Case No. 13-CV-7865 (USDC S.D.N.Y. Sept. 26, 2014).

This post written by Renee Schimkat.

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DISTRICT JUDGE ORDERS LG ELECTRONICS TO ARBITRATE IN TV PATENT SUIT

October 16, 2014 by Carlton Fields

The Southern District of New York ordered LG Electronics Inc. to arbitrate with technology patent licensing company Wi-LAN Inc. a dispute over whether certain LG television models infringe patents LG does not own. The current dispute can be traced back to a 2012 Florida suit in which Wi-LAN alleged that two of its patents for video display technology were used in LG’s flat panel televisions without their consent. LG filed a motion to dismiss arguing that the televisions were subject to a previously entered into patent licensing agreement (the “PLA”), signed by both parties. In response, Wi-LAN filed a motion to compel arbitration based on language in the PLA that mandated arbitration in the case of disagreement between the parties. LG subsequently brought suit in New York federal court seeking an injunction against arbitration in the Florida proceeding. LG argued that the matter should not be sent to arbitration because Wi-LAN waived its right to arbitrate under the PLA by suing LG for patent infringement initially.

The court determined that Wi-LAN had not waived this right because, even though Wi-LAN did not move to compel arbitration until approximately four months after it filed its Florida suit, LG could not show that it had suffered any prejudice as a result of this delay. Prejudice, the court noted, is the “key to waiver analysis.” Further, the court held that the PLA contains “clear and unmistakable evidence that they intended the arbitrator to resolve both issues of contract interpretation and issues of arbitrability.” Consequently, it ordered that the arbitrator, and not the court, would determine whether the arbitration clause is inapplicable because Wi-LAN “chose” litigation. LG Electronics, Inc. v. Wi-LAN USA, Inc., No. 13-CV-2237-RA, 2014 WL 3610796 (S.D.N.Y. July 21, 2014).

This post written by Whitney Fore.

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