On June 23, 2023, the U.S. Supreme Court issued a 5-4 opinion resolving a circuit split in Coinbase Inc. v. Bielski, in which it held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. Read our in-depth article on CarltonFields.com.
Arbitration / Court Decisions
Alabama Supreme Court Clarifies Courts’ Authority to Issue Preliminary Injunctions in Disputes Subject to Arbitration
In its recent decision in Hyundai Construction Equipment Americas Inc. v. Southern Lift Trucks LLC, the Alabama Supreme Court considered whether the trial court erred in granting preliminary injunctive relief in a dispute that was otherwise subject to arbitration.
Southern Lift Trucks, a heavy construction equipment dealer, filed a state court action against Hyundai Construction, a construction equipment manufacturer, alleging that Hyundai breached two separate dealership agreements between the parties by forcing unreasonable restrictions on Southern Lift and entering into separate dealership agreements with Southern Lift’s competitors in its sales territory. Southern Lift asserted claims for breach of contract, tort, conspiracy, and declaratory judgment against Hyundai arising from Hyundai’s alleged actions. Southern Lift also sought a preliminary injunction maintaining the status quo and precluding Hyundai from either terminating the dealership agreements or entering into new agreements with Southern Lift’s direct competitors. Hyundai moved to dismiss the complaint and to compel arbitration.
After a hearing, the trial court granted Southern Lift’s motion for a preliminary injunction. The trial court subsequently denied Hyundai’s motion to compel arbitration. Hyundai appealed both decisions.
In reversing in part the trial court’s denial of Hyundai’s motion to compel arbitration, the Alabama Supreme Court held that the parties’ disputes under both dealership agreements were subject to arbitration, except for Southern Lift’s declaratory judgment claim, which fell under a narrow carve-out in the agreements’ arbitration provisions.
Turning to the trial court’s preliminary injunction ruling, the court declared that under established Alabama law, courts have jurisdiction to enter preliminary injunctive relief to maintain the status quo between the parties, even when the dispute is otherwise subject to arbitration. But because the parties’ dispute was subject to two separate lines of business and dealership agreements, the court analyzed Southern Lift’s entitlement to preliminary injunctive relief under each dealership agreement separately.
Regarding the first dealership agreement, which dealt with construction equipment sales, the court noted that no such construction equipment had been sold under the agreement for more than two years, such that Southern Lift could not establish irreparable harm or difficulty in calculating damages as required to obtain a preliminary injunction. The court thus reversed the trial court’s grant of a preliminary injunction as to the construction equipment agreement.
As to the second dealership agreement, which dealt with forklift sales, the court noted that Southern Lift had provided evidence of significant and consistent sales of forklifts and other equipment subject to the agreement. Southern Lift also presented evidence that its reputation, goodwill, and customer base were being negatively affected by Hyundai’s complained-of actions. The court found that if it were to reverse the trial court’s entry of a preliminary injunction as to the forklift agreement on these facts, the court risked providing a “hollow victory” to Southern Lift should it ultimately prevail, whether in arbitration or before the court. As such, the court affirmed the trial court’s entry of a preliminary injunction as to the forklift agreement. This was so, notwithstanding the court’s determination that the majority of the dispute with respect to both agreements was subject to arbitration.
First Circuit Holds That New York Convention Preempts Puerto Rican Law
The First Circuit Court of Appeals has held that the New York Convention applies to an insurance arbitration dispute between a Puerto Rican company and Lloyd’s of London and that the convention preempts a Puerto Rican law seemingly banning arbitration in insurance coverage disputes.
Green Enterprises LLC, a Puerto Rican recycling company, submitted a claim to its insurer, Lloyd’s of London, after a fire destroyed one of its plants. Lloyd’s denied Green’s claim and Green filed suit. Lloyd’s moved to compel arbitration. The district court granted Lloyd’s motion and Green appealed to the First Circuit, which affirmed.
Green argued that arbitration was improper under a Puerto Rican law prohibiting provisions that deprive an insured of access to the courts and that the Federal Arbitration Act did not preempt that law because the McCarran-Ferguson Act allows state law to supersede federal law when it comes to insurance matters. Lloyd’s responded that the New York Convention applied to the dispute, trumped the Puerto Rican law, and was not subject to the McCarran-Ferguson Act because the New York Convention is a multinational treaty, not an act of Congress.
The First Circuit agreed with Lloyd’s. It rejected Green’s arguments that the New York Convention was not “self-executing” such that it required an act of Congress governed by the McCarran-Ferguson Act to implement, meaning that the McCarran-Ferguson Act’s reverse preemption provision applied to the New York Convention. The First Circuit concluded:
[N]one of Green’s arguments can overcome the self-executing nature of the plain text of Article II(3) [of the New York Convention]. That article, which is not an act of Congress, has the force of law and applies directly to preempt Puerto Rico law.
Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London, No. 21-1542 (1st Cir. May 19, 2023).
California District Court Finds Defendants’ Conduct Was Not Arbitrary and Capricious Under Administrative Procedure Act
Citing the Administrative Procedure Act (APA), and recognizing the role of the district court in reviewing a final agency determination under the act, the U.S. District Court for the Northern District of California granted summary judgment to defendants Federal Crop Insurance Corp. (FCIC) and the U.S. Department of Agriculture’s Risk Management Agency (RMA), finding that the defendants’ determination was not plainly erroneous, arbitrary, or capricious.
Plaintiff M&T Farms purchased a crop protection insurance policy from Producers Agriculture Insurance Co. (ProAg) to insure its products from loss of revenue. The insurance policy issued by ProAg was reinsured by defendant FCIC. M&T submitted a claim under the policy, after which ProAg canceled the policy on the grounds that M&T was not a “qualifying person” under the policy and was not entitled to coverage. M&T then filed for arbitration challenging ProAg’s cancellation of the policy. As part of the arbitration, the arbitrator authorized M&T and ProAg to seek an interpretation of the policy from RMA in accordance with federal regulations. After seeking interpretations from the parties on the relevant issues, RMA accepted ProAg’s interpretation, which resulted in a determination of no coverage under the policy.
After an unsuccessful appeal to the National Appeals Division of the Department of Agriculture, M&T filed an action against FCIC and RMA seeking a declaratory judgment regarding the administrative determinations issued by RMA rejecting the claim for coverage under the policy. In granting the motion for summary judgment filed on behalf of defendants RMA and FCIC, the district court first noted that the arbitrator’s factual findings during the arbitration were not the subject of the present lawsuit, and the court’s review was limited to determining whether the defendants’ interpretations of the policy and handbook were arbitrary and capricious. The court first noted that FCIC’s interpretations should be given “substantial deference” given the broad grant of authority to the FCIC. The court then found the defendants’ interpretation of the policy and handbook was reasonable and was not arbitrary or capricious. In confirming the applicable standard of review, the court found that the determinations were not plainly erroneous and should not be vacated.
M&T Farms v. Federal Crop Insurance Corp., No. 5:21-cv-09590 (N.D. Cal. Mar. 9, 2023).
Alabama Supreme Court Reverses Orders Denying Motions to Compel Arbitration Under Employment Agreement
In Women’s Care Specialists, P.C. v. Dr. Margot G. Potter and Dr. Karla Kennedy v. Dr. Margot G. Potter, the Alabama Supreme Court reversed opinions of the trial court that had denied motions to compel arbitration and held that the claims set forth in both of these consolidated matters were subject to arbitration.
Dr. Potter entered into an employment agreement with her former employer, Women’s Care Specialists. The agreement was amended three years later to add a termination of employment provision and an arbitration clause mandating binding arbitration for all disputes related to Dr. Potter’s employment with Women’s Care. Thereafter, Women’s Care terminated Dr. Potter’s employment. Potter alleged that after her termination, employees of Women’s Care and others made disparaging remarks to her former patients and tried to prevent her former patients from learning if they could continue their care with her. Potter began working at another clinic, at which point Women’s Care ceased making the compensation payments called for in the employment agreement. Dr. Potter filed an action against Women’s Care alleging tortious interference with a business relationship, defamation, and breach of contract. Dr. Potter also filed a separate action against certain Women’s Care employees alleging tortious interference and defamation. Women’s Care and the employees filed motions to compel arbitration in both actions, which motions were denied.
After consolidating the appeals, the Supreme Court noted that Women’s Care and the employees had met their burden of establishing the existence of an agreement to arbitrate and the existence of a contract or transaction affecting interstate commerce, and the burden then shifted to Dr. Potter to present evidence to show that the arbitration agreement did not apply to the dispute in question. The court rejected Dr. Potter’s argument that the arbitration clause only applied to disputes that arose while she was still an employee of Women’s Care, noting that the court has repeatedly held that the phrase “relating to” in an arbitration provision is to be given broad construction. The court found that since the employment agreement and arbitration clause specifically stated that the parties’ obligations did not terminate upon the expiration or termination of the agreement, Dr. Potter’s tort and contract-based claims were subject to arbitration even though her employment with Women’s Care had ended. The court reversed the lower court’s denial of the motions to compel arbitration and remanded the matters for proceedings consistent with the opinion.
Women’s Care Specialists, P.C. v. Dr. Margot G. Potter and Dr. Karla Kennedy v. Dr. Margot G. Potter, Nos. SC-2022-0706, SC-2022-0707 (Ala. May 19, 2023).