Arbitration Process Issues

COURT REFUSES TO COMPEL NONSIGNATORY TO JOIN REINSURANCE ARBITRATION

July 22, 2014 by Carlton Fields

On April 8, 2014, we reported on National Indemnity Company’s (“NICO”) attempt in a Nebraska federal district court to enjoin Transatlantic Reinsurance Company from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York.

The Illinois district court recently refused to compel arbitration against NICO, finding that NICO was a not a signatory to the underlying reinsurance agreement containing the arbitration agreement between Transatlantic Re and the cedent, Continental Insurance Company. The court also found that the language of the arbitration clause was not broad enough to include nonsignatories, and further found that NICO, by its conduct, never assumed the obligation to arbitrate. The court also interpreted the agreements between Continental and NICO and determined that the Transatlantic Re’s arbitration provisions were never incorporated in those agreements by reference. Finally, the court held that NICO was not estopped from disclaiming an obligation to arbitrate because it never asserted any rights of its own for its direct benefit under Transatlantic Re’s reinsurance agreement, notwithstanding the fact that NICO did derive certain indirect benefits. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 1:14-cv-01535 (USDC N.D. Ill. June 24, 2014).

This post written by Michael Wolgin.

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TENTH CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION BASED ON UNSIGNED AGREEMENT

July 17, 2014 by Carlton Fields

The Tenth Circuit recently affirmed a district court’s denial of a motion to compel arbitration in a securities fraud lawsuit brought by two investors in a company. The basis for the motion to compel was an arbitration provision contained in an unsigned copy of the company’s Operating Agreement that had been provided to the plaintiffs prior to them making their investment in the company. The Tenth Circuit ruled that the mere fact that the plaintiffs invested in the company following their receipt of an unsigned Operating Agreement did not establish that the plaintiffs agreed to, and accepted, the terms of the Operating Agreement, including its arbitration provision because under the controlling state law, a contact between the parties had not been formed. The Tenth Circuit also agreed with the district court that the plaintiffs were not equitably estopped from asserting their lack of signature on the Operating Agreement as a basis for avoiding arbitration. The Tenth Circuit acknowledged the legal principle that a party may be bound by an arbitration agreement in a contract he did not sign, if that party is seeking to enforce rights under that contract. But the court found no evidence that the plaintiffs in the instant case were seeking to enforce rights under the Operating Agreement. Bellman v. I3Carbon, LLC, No. 12-1275 (10th Cir. May 29, 2014).

This post written by Catherine Acree.

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DODD-FRANK DOES NOT BAR ARBITRATION OF CLAIMS IF ARBITRATION AGREEMENT DOES NOT EXEMPT DODD-FRANK WHISTLEBLOWER CLAIMS

July 16, 2014 by Carlton Fields

The Fourth Circuit affirmed order from the United States District Court for the Eastern District of Virginia compelling arbitration of former employee’s federal claims under the Age Discrimination in Employment Act (ADEA), the Family and Medical Leave Act (FMLA), and the Employee Retirement Income Security Act (ERISA). The Court held that where a plaintiff is not pursuing Dodd-Frank whistleblower claims, neither 7 U.S.C. § 26(n)(2), nor 18 U.S.C. § 1514A(e)(2) of Dodd-Frank overrides the Federal Arbitration Act’s mandate that arbitration agreements are enforceable. The Court examined the interplay between the Federal Arbitration Act and Dodd-Frank and determined that while Dodd-Frank created causes of action for whistleblowers and then protected those causes of action by barring their waiver in “predispute arbitration agreements” nothing in Dodd-Frank suggests that Congress sought to bar arbitration of every claim if the arbitration agreement in question did not exempt Dodd-Frank claims. Santoro v. Accenture Federal Services, LLC et. al., No. 12-2561 (4th Cir. May 5, 2014).

This post written by Kelly A. Cruz-Brown.

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ARBITRATORS, NOT COURTS, TO DECIDE AVAILABILITY OF CLASS ARBITRATION UNDER PARTIES’ AGREEMENT

July 10, 2014 by Carlton Fields

A federal court in New York has held that arbitrators, not courts, should decide whether class arbitration is available under an arbitration agreement entered into between private parties. The court had previously compelled the arbitration of plaintiffs’ claims against certain defendants and stayed the remainder of the action. The issue now presented was on defendants’ motion to preclude plaintiffs from pursuing class arbitration and to require individual arbitrations of those claims. In determining that the issue of class arbitration was one for the arbitrators, the court considered prior U.S. Supreme Court and lower court holdings, but found no binding precedent on the issue. Because the court had already ruled on the enforceability of the parties’ agreement to arbitrate, the interpretation of that agreement – to decide whether or not it allowed for class arbitration – was “a matter within the arbitrator’s competence.” Defendants’ request to order individual arbitrations was therefore denied. The court declined to reach the parties’ other arguments, including whether plaintiffs had waived or conceded the class arbitration issue, finding those matters also best left to the arbitrators. In Re A2P SMS Antitrust Litigation, Case No. 12-CV-2656 (USDC S.D.N.Y. May 29, 2014).

This post written by Renee Schimkat.

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ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION ALLOWING DISCOVERY FOR USE IN FOREGN PROCEEDING

July 8, 2014 by Carlton Fields

The Eleventh Circuit affirmed a decision permitting discovery for use in foreign proceedings which were contemplated but not yet pending. In this case, which arose from a billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. (“CONECEL”) and Jet Air Service Ecuador SA, CONECEL applied in the district court for an order under 28 U.S.C. § 1782 to obtain discovery for use in foreign proceedings in Ecuador. The foreign proceedings included both a pending arbitration brought by Jet Air against CONECEL and contemplated civil and private criminal suits CONECEL might bring against two of its former employees who, CONECEL claimed, may have colluded with Jet Air. The District Court granted CONECEL’s application and Jet Air appealed.

As we previously reported, on June 25, 2012, the Eleventh Circuit affirmed the lower court’s order, holding that the arbitral panel was a foreign tribunal for purposes of 28 U.S.C. § 1782. That decision did not address whether the contemplated civil and criminal proceedings constituted foreign proceedings within the meaning of § 1782. Recently, however, the Eleventh Circuit vacated its earlier decision sua sponte and instead analyzed whether the contemplated civil and criminal proceedings satisfied the “foreign tribunal” element of the statute. Noting § 1782 requires only that a proceeding be within reasonable contemplation, as supported by reliable indications that the proceedings will be instituted within a reasonable time, the Court found that CONECEL provided such reliable indications by proffering the results of its internal audits leading to its findings of collusion and by submitting sworn declarations of CONECEL’s intent to purse the civil and criminal actions. Application of Consorcio Ecuatoriano de Telecomunicaciones SA v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. Jan. 10, 2014), vacating 685 F.3d 987 (11th Cir. 2012).

This post written by Leonor Lagomasino.

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