Arbitration / Court Decisions

NINTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION THAT BANKRUPTCY COURT DID NOT ABUSE ITS DISCRETION IN DENYING MOTION TO COMPEL ARBITRATION

June 8, 2016 by John Pitblado

This appeal is from an order by a district court in California, affirming a bankruptcy court’s denial of a motion to compel arbitration in a Chapter 7 bankruptcy trustee’s adversary proceeding, in which the trustee sought avoidance of fraudulent transfers.

The trustee for EPD Investment Co. and Jerrold Pressman (collectively “EPD”) had filed an adversary proceeding against defendant John Kirkland, an attorney who acted as counsel for EPD, claiming that Kirkland transferred assets from EPD, a purported Ponzi scheme, to a family trust named the “Bright Conscience Trust.” Kirkland moved the bankruptcy court to compel arbitration of the bankruptcy proceeding, which was denied. Kirkland then appealed the bankruptcy court’s decision to the California district court, which affirmed the bankruptcy court’s decision, and an appeal followed to the Ninth Circuit.

The Ninth Circuit noted that the bankruptcy court has jurisdiction over “core proceedings,” and that in a core proceeding, “a bankruptcy court has discretion to decline to enforce an otherwise applicable arbitration provision only if arbitration would conflict with the underlying purposes of the Bankruptcy Code.” The Ninth Circuit agreed with the bankruptcy court that the trustee’s causes of action for fraudulent conveyance, subordination, and disallowance were core proceedings, “thereby giving the bankruptcy court discretion to weigh the competing bankruptcy and arbitration interests at stake.” The Ninth Circuit found that the bankruptcy court did not abuse its discretion by determining that the arbitration provisions in Kirkland’s agreements with EPD conflicted with the Bankruptcy Code’s purposes of having bankruptcy law issues decided by bankruptcy courts, of centralizing resolution of the dispute and protecting parties from piecemeal litigation, and thus affirmed the district court’s ruling.

In the Matter of EPD Investment Co., No. 14-56478 (9th Cir. May 9, 2016).

This post written by Jeanne Kohler.

See our disclaimer.

CIRCUIT SPLIT DEVELOPS OVER THE ENFORCEABILITY OF CLASS WAIVERS IN EMPLOYMENT AGREEMENTS

June 6, 2016 by Carlton Fields

Affirming a district court’s denial of a motion to compel arbitration, the United States Court of Appeals for the Seventh Circuit has held unenforceable a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” The provision further provided that if the waiver provision was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.” Employees were not permitted to opt out of this provision; it was a requirement of continued employment. The Court found the waiver of collective action prohibited by the National Labor Relations Act (“NLRA”), and rejected the contention that the case involved any conflict between the NLRA and the Federal Arbitration Act (“FAA”). This decision appears to conflict with decisions of the Second, Fifth, Eighth and Ninth Circuits, laying the potential basis for the review of this issue by the Supreme Court.

The Court found that the contractual waiver of the right to proceed in a collective manner was an unlawful restriction of the exercise by the employee of the right to collective action protected by section 7 of the NLRA, a right it termed substantive and “at the heart” of the purpose of the NLRA rather than a procedural right. Addressing the employer’s contrary interpretation of section 7, the Court found persuasive interpretations of the scope of the protections of section 7 by the National Labor Relations Board, which the Court found to be “a sensible way to understand the statutory language, and thus we must follow it.”

The Court then rejected the employer’s assertion that the case involved a conflict between the NLRA, as it interpreted it, and the FAA, as interpreted by the Supreme Court. The Court reasoned that since the contractual provision at issue is unlawful under section 7 of the NLRA, “it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement.” The FAA’s savings clause provides that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Stating that finding the NLRA in conflict with the FAA “would render the FAA’s savings clause a nullity,” the Court rejected the contention that its decision created a Circuit split, contending that none of the opinions from the other four Circuits “has engaged substantively with the relevant arguments.” Regardless of the analytical claim, the result of the Seventh Circuit’s opinion does conflict with the result of the decisions of the other Circuits on the same issue, and accords the FAA a different role and emphasis than do the opinions of other Circuits. Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016).

This post written by Rollie Goss.
See our disclaimer.

COURT PARTIALLY GRANTS AND PARTIALLY DENIES MOTION FOR SUMMARY JUDGMENT IN CROP INSURANCE COMMISSION DISPUTE

June 2, 2016 by Carlton Fields

Plaintiff Hudson Insurance Company brought suit against DuRussel Insurance Agency, Inc. and Blue Water Agribusiness LLC concerning the alleged breach of two separate crop insurance contracts issued by Hudson. The first contract was between only Hudson and DuRussel and provided that DuRussel would sell crop insurance and place it with Hudson. The first contract also provided that commissions might be paid by Hudson to DuRussel in advance based on projected policy placement and that DuRussel would be obligated to Hudson for any resulting overpayment of commissions. Both parties conceded the existence of this obligation and that DuRussel owed Hudson an amount of overpaid commissions. The second contract was between all three parties and provided an identical sale structure and advance commission provision as the first contract. The parties conceded that Hudson did not pay Blue Water any advance commissions pursuant to the second contract.

On Hudson’s motion for summary judgment, the court examined each contract separately. For the first contract, the court granted summary judgment against DuRussel because there was no genuine dispute between the parties as to DuRussel’s obligation to pay back any overpaid commission and the pending amount owed to Hudson. Although DuRussel claimed that since Hudson sought summary judgment against both DuRussel and Blue Water, its otherwise meritorious claim against just DuRussel cannot be sustained, the court reasoned that either Blue Water is not liable because it signed a separate agreement, or it is jointly liable with DuRussel because it signed the same agreement. For the second contract, the court held that summary judgment for breach of contract was inappropriate against Blue Water because Hudson did not pay Blue Water any advance commissions. Hudson Insurance Co. v. DuRussel Insurance Agency, Inc., No. 15-cv-12073 (USDC E.D. Mich. May 9, 2016).

This post written by Brian Perryman.

See our disclaimer.

COURT PARTIALLY ALLOWS POST-PROCEEDING MODIFICATION OF PROTECTIVE ORDER FOR DOCUMENTS SOUGHT IN ARBITRATION

June 1, 2016 by Carlton Fields

A federal district court dealt with a novel approach where parties to an arbitration wanted to gain access to documents from a previous proceeding. The original case before the court pitted one plaintiff against three defendants—and the parties had a protective order entered following two differing proposals. The plaintiff opposed language in a protective order that would allow the confidential documents to be used in a subsequent arbitration, while the defendants advocated for the documents’ use. The court entered hybrid language allowing “information derived from any Protected Material” to be used in other matters but not allowing the documents themselves to be used. That case was later dismissed.

The matter is now being arbitrated between two of the defendants to the earlier action. The tribunal ordered the parties to produce the relevant documents. The two remaining parties returned to court to modify the protective order to allow the documents to be disclosed. One party sought to have only documents of the third defendant disclosed while the other party sought to have only documents of the plaintiff disclosed. In a March 9, 2016 opinion, the court determined that it had retained jurisdiction to modify the protective order, even though the case was dismissed. Rio Tinto PLC v. Vale, S.A., No. 14-3042 (USDC S.D.N.Y. Mar. 9, 2016).

In an April 18, 2016 opinion, the court took a split approach, determining that the defendant’s documents could be used, while the plaintiff’s could not. In reaching this determination, the court reasoned that the third defendant “had no or minimal reliance interest” because they had advocated for language allowing the documents’ use, whereas the plaintiff had “insisted” that the documents not be used. Rio Tinto PLC v. Vale, S.A., No. 14-3042 (USDC S.D.N.Y. Apr. 18, 2016).

This post written by Zach Ludens.

See our disclaimer.

FEDERAL DISTRICT COURT CONFIRMS ARBITRATION AWARD IN HOSPITAL SERVICES DISPUTE

May 31, 2016 by Carlton Fields

Weirton Medical Center, Inc. (“WMC”), a hospital in West Virginia, entered into an agreement with QHR Intensive Resources, LLC, under which QHR provided hospital administrative services. WMC ultimately terminated the agreement and refused to pay QHR’s invoices. As a result, QHR commenced arbitration in accordance with the arbitration provision in the operative agreement, alleging that WMC was in breach of contract for failing to reimburse QHR for amounts owed thereunder and seeking to recover those amounts.

After three years of discovery and an evidentiary hearing on the merits, the arbitrator issued an award in favor of QHR. WMC then brought an action in the U.S. District Court for the Northern District of West Virginia to vacate the award under Section 10 of the Federal Arbitration Act, and QHR cross-moved for confirmation. The Court ruled in QHR’s favor, finding that the arbitrator did not exceed his powers in basing the award on the proposed findings of fact and conclusions of law submitted by QHR in lieu of those submitted by WMC, as there was sufficient evidence to support the arbitrator’s decision, and it was apparent he considered the claims and defenses asserted by WMC. Moreover, the Court held that the arbitrator’s ruling was not in manifest disregard of the law, as he did not refuse to apply a legal principle that was clearly defined and not subject to reasonable debate. Last, the Court found that the award was not procured by fraud, corruption or undue means based on QHR’s having paid four of its fact witnesses for the time spent traveling to and preparing for their testimony at the arbitration, as WMC did not show by clear and convincing evidence that the witnesses were paid for their testimony, the arrangements did not materially influence the outcome of the hearing, and WMC failed to address this issue before the award was rendered, even though it was aware of the situation. Weirton Medical Center, Inc. v. QHR Intensive Resources, LLC, No. 5:15CV131 (USDC N.D.W.Va May 12, 2016).

This post written by Rob DiUbaldo.

See our disclaimer.