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Arbitration / Court Decisions

SOUTHERN DISTRICT OF INDIANA DETERMINES PARTIES’ DISPUTE REGARDING NONPAYMENT OF BOND BY SURETIES WAS NOT WITHIN THE SCOPE OF ARBITRATION CLAUSE

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In order to be arbitrable, a dispute must fall within the scope of the parties’ operative arbitration agreement. Here, a non-signatory to the relevant agreement was seeking to “invoke an arbitration provision that was not expressly incorporated into a contract to which the non-signatory is a party”. Finding that authority for this proposition was absent from the movant’s papers, a federal court denied a party’s motion to compel.

The co-surety non-signatories were defendants in the action by way of their nonpayment of a payment bond, the amount of which was undisputed. The service agreement which addressed the work to be performed, for which the co-sureties issued a payment bond, contained an arbitration provision to which they were not parties. Ultimately, the Court determined the “arbitration provision cannot be read to encompass a dispute of this nature” and that there was no evidence at the time the service agreement was executed that the parties “intended for the arbitration provision to cover an unnamed surety’s failure to perform under a yet-to-be-secured payment bond” for an undisputed sum. Thus, the co-sureties’ motion to dismiss or in the alternative stay litigation and compel arbitration was denied.

Aztech Engineering Group, Inc. et al. v. Liberty Mut. Ins. Co., et al., 1:16-cv-01657 (USDC S.D. Ind. Oct. 1, 2016)

This post written by Nora A. Valenza-Frost.

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SUIT AGAINST REINSURER IN CALIFORNIA DISMISSED FOR LACK OF PERSONAL JURISDICTION

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A federal district court in California recently dismissed a lawsuit brought by a cedent against its reinsurer for lack of a personal jurisdiction, where the reinsurer’s only contacts with the state derived from the fact that the operative reinsurance certificates were entered into with a California company and that it attempted resolve the claims at issue by engaging in certain activities in the state.

The lawsuit centered on certain reinsurance certificates between the American Insurance Company (“TAIC”) and R&Q Re, a Pennsylvania corporation, regarding coverage for underlying asbestos claims implicating certain excess policies reinsured by the certificates. When R&Q declined to pay amounts billed under the certificates based upon insufficient notice, TAIC commenced suit, and R&Q moved to dismiss for lack of jurisdiction.

In dismissing the action, the court found that it lacked both general and specific personal jurisdiction over the dispute. With regard to the former, the court held that it lacked general jurisdiction because R&Q Re is a Pennsylvania corporation, even though it is licensed to do business in California and maintains a registered agent in the state for purposes of service of process. As for the latter, the court found that the fact that the reinsurance certificates were entered into with TAIC, a California company, was insufficient to warrant specific personal jurisdiction. Similarly, R&Q’s contacts with TAIC purely related to its resolution of the subject claims were insufficient, even including a visit to California to conduct an audit where the visit occurred because TAIC refused to send files out-of-state. American Ins. Co. v. R&Q Reinsurance Co., Case No. 16-03044 (USDC N.D. Cal. Oct. 12, 2016).

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

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SDNY RESOLVES IMPASSE AND SELECTS UMPIRE FOR ARBITRATION UNDER THE FAA

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Relying on its authority pursuant to the Federal Arbitration Act (“FAA”) and the language of the operative contract, the U.S. District Court for the Southern District of New York selected an umpire for an arbitration from a list of ten candidates provided by the parties.

9 U.S.C. § 5 directs a district court to “designate and appoint an arbitrator… or umpire, as the case may require” upon “the application of either party to the controversy” following “a lapse in the naming of an arbitrator… or umpire”. The parties’ agreement further provided that “if the two arbitrators fail to agree on a third arbitrator within 30 days of their appointment, either party may make application” to any “court of competent jurisdiction in the City, County, and State of New York.

Petitioner timely selected its arbitrator and, months later, respondent selected theirs. Following the exchange of lists of potential umpires, respondent “largely failed to engage in the process of selecting the umpire”, prompting the filing of the action. In selecting the umpire, the Court was guided by the requirements of the umpire candidates per the parties’ arbitration agreement. Finding a number to be disqualified and others to be technically qualified but far less experienced, the Court made its umpire selection and directed the case be closed.

National Union Fire Ins. Co. of Pittsburgh, PA v. Source One Staffing, LLC, 1:16-cv-06461 (USDC S.D.N.Y. October 13, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

NINTH CIRCUIT AFFIRMS ORDER COMPELLING ARBITRATION OF PUTATIVE CLASS ACTION, DESPITE LITIGATION FORUM SELECTION CLAUSE IN RELATED CONTRACT

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Two purported class representatives appealed an order compelling arbitration in their putative class action lawsuit against Amazon Services, LLC. The court affirmed, holding that the named plaintiffs agreed to Amazon’s “Business Solutions Agreement,” which contained an arbitration clause agreeing to arbitrate “any dispute” relating to the BSA or use of Amazon’s services. The court was not persuaded by the plaintiffs’ argument that a second “Marketplace Participation Agreement” agreement that they signed, which contained a litigation forum selection clause, took precedence over the arbitration clause in the BSA. The court rejected the argument that the MPA was a separately defined “Program Policy” that was superior to the BSA, finding that the MPA was an inferior “Seller Agreement” within the meaning of the BSA. The court further found that the fact that one of the parties signed the MPA before signing the BSA was immaterial; the BSA and its arbitration provisions represented the parties “entire agreement,” which superseded all prior agreements. Peters v. Amazon Services, LLC, Case No. 14-35294 (9th Cir. Oct. 13, 2016).

This post written by Michael Wolgin.

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COURT CONFIRMS AWARD, HOLDS ARBITRATOR DID NOT ERR IN DETERMINING VESTING STATUS OF FORMER EXECUTIVE’S SHARES

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The case arose from an arbitration initiated under an employment agreement, after the chief operating officer of ACP Investment Group resigned. Addressing a provision in the agreement that required the COO’s forfeiture of only his unvested shares, the arbitrator determined that out of approximately 3 million shares that the COO had accrued, just over 2 million had vested. However, the arbitrator refused to value these shares or order their disposition because she believed that part of the dispute was outside the purview of the arbitration clause.

After the award, ACP sought clarification in a letter, asking the arbitrator whether the portions of the award addressing the vesting status of the COO’s shares were non-binding dicta, and arguing that the arbitrator’s determination was outside the jurisdiction of the American Arbitration Association. The arbitrator denied ACP’s request, reasoning that because the employment contract provided only for forfeiture of the COO’s unvested shares, she was acting within the scope of her authority by determining the vesting status of the shares.

ACP sought a temporary restraining order, which the court denied, and the COO moved to confirm the arbitration award. ACP argued that the arbitrator exceeded her scope, disregarded terms of the employment agreement, and that there were procedural irregularities during arbitration. The court dismissed ACP’s arguments, confirming the award, holding that the vesting determination was squarely within the scope of the arbitrator’s authority. The court also noted the great deference given by federal courts to arbitral panels, as well as the lack of any “abundantly clear” improper procedure at play. ACP Investment Group, LLC et al v. Blake, Case No. 15-CV-9364 (USDC S.D.N.Y. Oct. 13, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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