Jurisdiction Issues

FIFTH CIRCUIT REMANDS TO DETERMINE WHETHER JURISDICTION EXISTED FOR APPEAL OF DENIAL OF MOTION TO COMPEL ARBITRATION

November 8, 2016 by Michael Wolgin

The underlying dispute involved allegations of breach of warranty and deceptive trade practices based on a sale of an allegedly defective car. The Fifth Circuit explained that the FAA, which governed the alleged arbitration agreement in the purchase contact, does not supply jurisdiction in the federal courts, that there was no federal question jurisdiction here, and that there was insufficient information in the record to show that diversity jurisdiction existed. The court ruled: “This Court is not satisfied, based on the record before it, that AutoNation does not share citizenship with the [plaintiffs]. For that reason, we VACATE the district court’s order and REMAND for a determination of subject matter jurisdiction. If diversity is not established, the district court must dismiss the parties’ suit.” Roman v. AutoNation Ford Gulf Freeway, Case No. 16-20047 (5th Cir. Oct. 13, 2016).

This post written by Michael Wolgin.

See our disclaimer.

NINTH CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION FOR LACK OF FEDERAL JURISDICTION

October 27, 2016 by Rob DiUbaldo

The Ninth Circuit affirmed a district court’s dismissal of a plaintiff’s RICO claim, and thus found the district court lacked independent federal jurisdiction to compel arbitration of the dispute under the Federal Arbitration Act (“FAA”). Specifically, the Ninth Circuit agreed with the district court that the plaintiff failed to properly allege any predicate acts for a cognizable RICO claim against the defendant. As that claim was the plaintiff’s only basis for federal jurisdiction, the court found it lacked jurisdiction to compel arbitration under the FAA, which requires a party so moving to demonstrate that the court has an independent basis for federal jurisdiction.

Estate of Clark v. Horwich, No. 12-17064 (9th Cir. Sept. 23, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

See our disclaimer.

THIRD CIRCUIT REJECTS CONTRACTOR’S CHALLENGE TO ARBITRAL JURISDICTION BASED ON FAILURE TO COMPLY WITH AGREEMENT’S PROCEDURAL REQUIREMENTS

October 24, 2016 by Rob DiUbaldo

The Third Circuit affirmed a lower court’s ruling against a contractor challenging an arbitrator’s authority in ordering payment of delinquent contributions to employee benefit funds. Plaintiff (“Nolt”) signed a Project Labor Agreement (“PLA”) for a construction project that required it to hire union employees, but permitted it to hire non-union employees in certain circumstances. The PLA also required Nolt to contribute to employee benefit funds “on behalf of all employees covered by” it. The PLA contained a provision with an exclusive grievance and arbitration procedure for disputes between the parties, which included certain pre-arbitration “meet and confer” requirements and time limits, the failure to comply with which rendered any grievances null and void.

In a dispute over whether Nolt was required to contribute to union employee benefit funds on behalf of its non-union employees, who would not benefit from the funds, an arbitrator interpreted the plain language of the PLA to require contributions for “all employees covered” by the PLA and ordered payment of $492,000 in delinquent contributions. Nolt moved to vacate the arbitration award on the grounds that the arbitrator lacked jurisdiction and that the award violated public policy and other relevant wage laws.

The Third Circuit, noting the limited role of courts in reviewing arbitration awards, affirmed the award based on a finding of arbitral jurisdiction and lack of sufficient conflict with a cognizable public policy. The court found that Nolt’s argument claiming the union failed to comply with the PLA’s procedural requirements was a question of “procedural arbitrability” that was appropriately left to the arbitrator, rather than one of “substantive arbitrability” that would be appropriate for judicial resolution. The court also rejected Nolt’s claim that the award conflicted with public policy by forcing it to essentially pay twice, first to the union employee benefit fund and second via its obligations under applicable wage laws. Nolt failed to identify any “explicit conflict with other ‘laws and legal precedents’,” and, instead, relied on a non-cognizable “general interest in fairness and equal treatment” between union and non-union employers. The court deferred to the arbitrator’s interpretation of the PLA as contract interpretation within his authority and affirmed despite recognizing Nolt’s persuasive arguments that the award forced Nolt to pay an unfair price for its non-union employees.

D.A. Nolt, Inc. v. Local Union No. 30 United Union of Roofers, Waterproofers & Allied Workers, No. 15-3697 (3d Cir. Sept. 23, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

See our disclaimer.

THIRD CIRCUIT AFFIRMS DISMISSAL OF SUIT TO VACATE FINRA ARBITRATION AWARD

September 21, 2016 by John Pitblado

This case involved an underlying arbitration before an arbitration panel operating under the Financial Industry Regulatory Authority (“FINRA”) rules, which was brought by Judith and Kenneth Goldman against their financial advisor, Barry Guariglia, and his employer Citigroup Global Markets. The Goldmans had followed their investment adviser when he left his prior employer, Merrill Lynch, and went to Citigroup. In the arbitration, they claimed that when they transferred their account to Citigroup, they were subjected to a “devastating margin call” that wiped out their retirement savings. After 10 days of evidence and argument, and after the Goldmans submitted their case in chief, Citigroup moved to dismiss for lack of evidence. The FINRA arbitration panel dismissed the case, noting that “[w]hile all the claims were quite stridently argued, not a single claim was proven to be true by evidence.”

The Goldmans then filed a motion to vacate the arbitration award in a Pennsylvania federal court, and Citigroup moved to dismiss for lack of subject matter jurisdiction, which was granted by the court. In its decision, the court noted that it did not have subject matter jurisdiction because the Federal Arbitration Act does not itself create federal subject matter jurisdiction, and that the parties were not diverse, and thus, federal question jurisdiction would be required for the court to consider a motion to vacate an arbitration award. The Pennsylvania federal court found that the Goldmans failed to raise a federal question and simply sought to “assert the same claims they unsuccessfully brought in their arbitration.” The Goldmans then appealed to the Third Circuit Court of Appeals.

In their appeal, the Goldmans asserted that a district court can “look through a motion to vacate” at the underlying subject matter, relying on footnote in a prior Third Circuit decision, Goldman Sachs v. Athena Venture Partners, which stated that the district court has subject matter jurisdiction over a motion to vacate because the arbitration included federal securities law claims. The Third Circuit, however, rejected that argument, and found that it was not bound to follow the footnote in that case, noting that the footnote was an “unexamined exercise of jurisdiction and so is without precedential effect” and that the “drive-by jurisdictional ruling” in Athena goes against Third Circuit precedent. Thus, the Third Circuit affirmed the Pennsylvania federal court’s order dismissing the suit for lack of subject matter jurisdiction.

Goldman et al. v. Citigroup Global Markets Inc., et al., No. 15-2345 (3d Cir. Aug. 22, 2016).

This post written by Jeanne Kohler.

See our disclaimer.

SEVENTH CIRCUIT AFFIRMS SERVICE OF SUIT CLAUSE IN REINSURANCE TREATIES AND GRANTS CEDENT ABSOLUTE RIGHT TO SELECT FORUM

September 19, 2016 by John Pitblado

Based on the plain and ordinary meaning of the service of suit clause, the Seventh Circuit Court of Appeals found a reinsurer waived its right of removal. The service of suit clause provided:

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

Cases interpreting this service of suit clause as far back as 1949 have found such a clause forecloses a defendant’s right of removal. Although the reinsurer urged the Court should adopt a heightened “clear and unequivocal” standard when determining whether it waived its right of removal, the Court declined to do so, as litigation-based waivers are distinguishable from contractual waivers, and such a high standard should not be applied to the right of parties to contract where they will litigate a dispute.

The reinsurance treaties required the reinsurer to submit to the jurisdiction of any court chosen by the cedent “whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or resolve on the merits, a claim not subject to arbitration,” which included the cedent’s breach of contract claim in this instance. Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., No. 16-1073 (7th Cir. Sept. 1, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.