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Arbitration / Court Decisions

Supreme Court of Idaho Finds That District Court Had Jurisdiction to Determine Enforceablity of Non-Compete Provision in Employment Agreement, Which Included a Mandatory Arbitration Provision

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In Blaskiewicz v. Spine Institute of Idaho, P.A., after being terminated with less than one year of employment, Donald Blaskiewicz, “a highly-trained neurosurgeon” filed a complaint for declaratory judgment in the state district court of Idaho to determine the enforceability of a Professional Services Agreement with his former employer, the Spine Institute of Idaho. The PSA contained a noncompete clause that “contractually proscribed Blaskiewicz from practicing medicine within fifty miles of the Spine Institute’s office (with an explicit exception for Caldwell) for a period of eighteen months, should his employment with the Spine Institute be terminated for any reason.” The PSA also included an arbitration clause, which required that “‘any dispute arising out of or related to [the PSA] be settled by arbitration in Ada County, Idaho.’”

The Spine Institute moved to dismiss, or in the alternative, to stay the proceedings, arguing that “the sole way … to challenge the noncompete provision was through arbitration and, as such, the district court was without jurisdiction to consider Blaskiewicz’s complaint.” Significantly, the Spine Institute “did not seek an order compelling arbitration, apparently because Blaskiewicz had not breached the PSA.” The district court denied the Spine Institute’s motion, concluding that it had jurisdiction over the matter. Thereafter, the district court granted Blaskiewicz’s motion for summary judgment, finding that the noncompete provision in the PSA was void as against public policy, and awarded attorney’s fees in favor of Blaskiewicz.

The Supreme Court of Idaho vacated the district court’s grant of summary judgment and remanded the case for further proceedings. First, the court addressed whether the appeal was moot, since the 18-month noncompete period had expired and Blaskiewicz did not accept employment during that time. The court concluded that the appeal was not moot since the district court had awarded attorney’s fees to Blaskiewicz, and “if we were to conclude the district court erred in granting summary judgment (as we do below) … this case presents a real and substantial controversy.”  Second, the court held that “the district court had jurisdiction to determine whether the noncompete provision was enforceable,” and that while the Spine Institute moved to dismiss the case or stay the proceedings, they did not file a demand for arbitration and “cannot now complain that this controversy should have been arbitrated.” Third, the court found that the district court erred in granting summary judgment in favor of Blaskiewicz, concluding that “there are genuine issues of material fact such that summary judgment was inappropriate as to whether the noncompete provision was void as a matter of public policy or otherwise enforceable.” Finally, the court vacated the district court’s award of attorney’s fees since Blaskiewicz was no longer the prevailing party, and remanded the case for further proceedings.

Blaskiewicz v. Spine Institute of Idaho, P.A., Docket No. 48785 (Supreme Court of Idaho, Oct. 31, 2022)

Ninth Circuit Court of Appeals Notes That Review of Arbitration Awards Under the MPPAA is “Notably Less Deferential” than under the FAA

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The Ninth Circuit Court of Appeals recently affirmed in part and reversed in part a district court’s order confirming an arbitration award under the Multiemployer Pension Plan Amendments Act of 1980, noting in the process that judicial review of such awards is “notably less deferential” than review of awards pursuant to the Federal Arbitration Act.

The MPPAA imposes liability on employers who withdraw — partially or completely — from multiemployer pension funds. MNG Enterprises, Inc. withdrew in 2014 from GCIU-Employer Retirement Fund, a multiemployer pension plan. The MPPAA imposes “withdrawal liability” on employers that withdraw from pension plans to cover the employer’s proportionate share of the plan’s unfunded vested benefits and to ensure that such pension plans remain viable.  After MNG’s withdrawal from the fund, GCIU’s actuary calculated its withdrawal liability. MNG disputed the actuary’s calculation and initiated arbitration pursuant to the dispute resolution requirements of the MPPAA.

The arbitrator agreed with MNG on two points but ruled for GCIU on the third. Both parties sought judicial review in the federal court for the Central District of California. The district court affirmed the arbitration award except for the interest rate it utilized, because the judge believed the arbitrator made a typographical error. Both parties appealed again, this time to the Ninth Circuit Court of Appeals.

The Ninth Circuit stated that “the standard of review for MPPAA arbitrations is notably less deferential than under the Federal Arbitration Act.” The court presumed that findings of fact made by the arbitrator were correct unless rebutted by a clear preponderance of the evidence, and further, reviewed the arbitrator’s conclusions of law de novo and applications of equitable relief for an abuse of discretion. Applying these standards of review, the Ninth Circuit affirmed in part and vacated in part the district court’s rulings. The court remanded for further consideration as to whether MNG, as a purchaser of earlier withdrawn participants in the GCIU, could have been liable as a successor as a matter of equity, and whether GCIU correctly applied the contribution histories at the time of the relevant asset sales.

GCIU-Employer Retirement Fund v. MNG Enterprises, Inc, Nos. 21-55864, 21-55923 (9th Cir. Oct. 28, 2022).

Georgia Court of Appeals Confirms Arbitration Award Holding That Arbitrator Did Not Manifestly Disregard Law or Overstep Authority

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Concluding that the arbitrator did not manifestly disregard contract law or overstep his authority, the Georgia Court of Appeals confirmed the arbitrator’s award and remanded the matter for consideration of an award of attorneys’ fees and post-award interest.

Claimants Southern Mountain Adventures LLC and Adventure Motorsports Reinsurance Ltd. entered into an arbitration agreement with Interstate National Dealer Services Inc. (INDS) to resolve their claims that INDS overcharged Southern Mountain Adventures. The limited facts included in the court’s decision confirm that the dispute between the claimants and INDS involved “payments collected by INDS pursuant to motorsport vehicle service contracts sold to customers by [Southern Mountain Adventures] and administered by INDS” and claims by the claimants that “INDS overcharged [Southern Mountain Adventures].” After the arbitrator found in favor of the claimants, INDS challenged the confirmation of the arbitration award. The Georgia Court of Appeals reversed the confirmation of the award, finding that the arbitrator manifestly disregarded the law. The Court of Appeals based its decision, in part, on the finding that “INDS charged an amount of money agreed to by the parties in a Rate Card” and that “the parties did not depart from the Rate Card structure.” Thereafter, the Supreme Court of Georgia reversed the holding of the Court of Appeals, holding that the arbitrator had not manifestly disregarded the law. The Supreme Court noted that “an arbitrator who incorrectly interprets the law has not manifestly disregarded it. The arbitrator has simply made a legal mistake,” and the legal standard for manifestly disregarding the law has not been met. The Supreme Court then remanded the case to the Court of Appeals.

On remand, the Court of Appeals confirmed the arbitrator’s award, concluding that the arbitrator did not manifestly disregard contract law. The court adopted the reasoning of the Supreme Court that the arbitrator had fashioned a remedy that he deemed “just and equitable within the scope of the agreements of the parties.” The Court of Appeals also considered INDS’ argument that the arbitrator overstepped his authority under Georgia’s arbitration statute, concluding that overstepping “like the other grounds for vacating arbitration awards is very limited in scope” and involves “addressing issues not properly before the arbitrator,” which the court concluded did not occur in this case. Finally, the court addressed the claimants’ argument that they were entitled to attorneys’ fees and post-award interest. The court held that “[b]ecause the court never addressed these issues, we remand for consideration of the appropriateness of awarding attorney fees arising out of the arbitration requested in the Claimant’s motion to confirm the award, attorney fees arising out of collection efforts as stated in the arbitration award, and post-award interest as stated in the arbitration award.”

Adventure Motor Sports Reinsurance, Ltd. v. Interstate National Dealer Services, Inc., No. A20A0036, A20A0037 (Ga. Ct. App. Oct. 18, 2022).

Sixth Circuit Rejects Claim of “Implicit Vacatur” of Arbitration Award and Affirms District Court’s Entry of Preliminary Injunction

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This case involves a dispute concerning the use of the name of a family business. The Grewal family managed real estate companies using the name “Singh” in the company name, and the companies obtained a trademark on their name. A member of the family, referred to in the opinion as Darshan, left the business and formed new companies that also used the Singh name. One of the original companies sued the new Singh companies alleging that the new companies infringed the Singh trademark. The dispute was submitted to arbitration where the original Singh companies prevailed. The arbitrator’s award prohibited the new companies from using the name Singh “as the only identifying proper noun used to describe their business.” The district court confirmed the arbitrator’s award and entered a permanent injunction. Thereafter, the new Singh companies “rebranded” and added “Michigan” to their company names. The original Singh companies filed a new suit requesting that the district court hold Darshan in contempt and modify the prior permanent injunction to prohibit the new companies from adding “Michigan” to their names. Before addressing those claims, the district court entered a preliminary injunction enjoining Darshan from “any use of, or Promotion with the term ‘Singh,’” including “the ‘Singh Michigan’ names.”

Darshan appealed the preliminary injunction in the new suit, contending that the preliminary injunction “implicitly vacated the arbitration award.” The Sixth Circuit rejected the argument, concluding that “[c]ourts use preliminary injunctions as temporary devices to maintain the status quo while they adjudicate disputes.” The court noted that “the district court entered the preliminary injunction while it considered how the arbitration award applied to Darshan’s new act of alleged infringement.” With regard to Darshan’s argument that the preliminary injunction “implicitly vacated” the arbitration award, the Sixth Circuit explained that “implicit vacatur can occur when a district court rules on a motion to confirm, modify, or vacate an arbitration award.” The court then ruled that because the district court had yet to rule on the original Singh companies’ motion to modify the earlier award, no implicit vacatur had occurred. The court also rejected Darshan’s argument that the arbitration confirmation action resolved all issues and claims in the new action and that “claim and issue preclusion” applied. The court held that claim and issue preclusion “apply to claims and arguments that were resolved before,” which it concluded did not apply in this case. Finally, the court rejected Darshan’s argument that “law of the case precludes us from reconsidering issues decided in the previous action,” finding that “[t]his is a separate suit, arising out of Darshan’s actions after the arbitration award was confirmed. So law of the case does not apply.” The Sixth Court affirmed the district court’s rulings.

Singh Management Co. v. Singh Michigan Homes, LLC, No. 21-1826 (6th Cir. Oct. 26, 2022).

Schwab Wins Battle Over Confirmation of FINRA Arbitration Award Predicated on Alleged Discovery Abuses

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Charles Schwab & Co. successfully petitioned the Southern District of New York for confirmation of a FINRA arbitration award against one of its account holders, fending off challenges predicated on Schwab’s alleged discovery abuses in the process.

The Evan K. Halperin Revocable Living Trust initiated arbitration against Schwab through FINRA’s dispute resolution office. The trust alleged that certain security features of the schwab.com trading platform caused the trust to be logged out of its schwab.com account without explanation while attempting to execute various options trades. The trust alleged that these unexplained interruptions in service caused approximately $1.5 million in losses for which Schwab was liable. The “key dispute” in the arbitration was whether the trust was logged out due to certain malfunctions or security features internal to schwab.com or whether it occurred due to the computer and systems used by the trust.

The discovery process during the arbitration proceeding was highly contentious. The trust repeatedly filed motions alleging that Schwab was engaging in discovery abuses and refusing to produce certain materials that it alleged were key to its case, chiefly in the form of certain electronically stored information (ESI) that Schwab purportedly maintained related to a “fraud detection system.” Schwab repeatedly denied that it was withholding discovery, going so far as to file a declaration from its director of client authentication stating that no such “fraud detection system” existed. In addition, Schwab produced substantial amounts of other ESI related to a user’s activity and log-on/log-off records. The FINRA arbitration panel ruled in Schwab’s favor and, pursuant to the parties’ arbitration agreement, ordered the trust to pay Schwab’s attorneys’ fees and costs totaling $142,750.

The trust petitioned the district court for vacatur based on its view that the arbitrators had exhibited “evident partiality or corruption” or had engaged in misconduct. Its arguments were principally based on the FINRA panel’s refusal to compel Schwab to produce the ESI that the trust alleged pertained to the fraud detection system maintained by Schwab.

The court found that the FINRA panel did not refuse to hear evidence by not compelling Schwab to produce the ESI sought by the trust, information that did not exist per Schwab’s representation in a declaration executed under penalty of perjury. The court noted that “[t]he Trust provides no evidence beyond the Panel’s denial of several of its motions and Schwab’s ultimate success in the Arbitration to support its claim of the Panel’s ‘evident partiality’ in favor of Schwab.” The court stated that “bias” of an arbitration panel is “not even established by showing that an arbitrator consistently agrees with the arguments of one side and repeatedly finds in their favor. … Fundamental fairness does not mean that a party must win a minimum percentage of motions.”

The trust’s “dissatisfaction with the Panel’s rulings and the Award” did not render the arbitration fundamentally unfair. The court denied the trust’s petition for vacatur and granted Schwab’s cross-petition for confirmation, including the award of fees and costs, and awarded Schwab prejudgment interest at the rate of 9% per annum, based on the presumption in favor of the award of prejudgment interest on a motion to confirm an arbitration award.

Evan K. Halperin Revocable Living Trust v. Charles Schwab & Co., No. 1:21-cv-08098 (S.D.N.Y. Sept. 19, 2022).