Arbitration / Court Decisions

IN BATTLE OVER PATENTS, NON-SIGNATORY TIES TOO UNCERTAIN TO GRANT MOTION TO DISMISS

January 29, 2015 by Carlton Fields

The District Court of Colorado recently denied Defendant Garmin International’s motions to dismiss and to stay pending arbitration, concluding that Plaintiff MSPBO was not bound by an arbitration agreement to which it was not a signatory. In late 2006, PhatRat Technology, Inc., (“PhatRat”) entered into a settlement and arbitration agreement (“agreement”) with Garmin International to resolve a licensing dispute. The agreement stipulated that Garmin International would be released from all liability from PhatRat and its affiliates associated with the licensed patents. Seven years later, MSPBO sued Garmin International for patent infringement.

Garmin argued that the dispute as to whether MSPBO was an affiliate of PhatRat, and therefore subject to arbitration, should be covered by the agreement’s arbitration clause. The Court disagreed, holding that a non-signatory cannot be bound to arbitrate unless there is a “close relationship” between the parties and the claims relate to the underlying dispute. Garmin International alleged that MSPBO was merely a shell company, but the Court found no support for these allegations. The nature of the relationship between the parties is somewhat convoluted. MSPBO and PhatRat shared common ownership, but MSPBO was later sold to Deer Creek Capital, after which they acquired the disputed patent. The Court further found that “the agreement between PhatRat and Garmin contains no clause placing upon PhatRat’s affiliates equal rights and obligations under the agreement.” As such, Garmin International motions were denied and MSPBO would not be bound by the arbitration agreement to which it was not a signatory. MSPBO, LLC v. Garmin International, Inc., Case No. 13-cv-03388-PAB-KMT (USDC D. Colo Sept. 11, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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REINSURER OBTAINS AWARD OF ATTORNEY’S FEES AGAINST CEDENT THAT FAILED TO TIMELY PRODUCE ELECTRONICALLY STORED INFORMATION

January 28, 2015 by Carlton Fields

This case was brought by the cedent, Michigan Millers Mutual Insurance Co., seeking indemnity and expense payments arising from various underlying lawsuits, under a Casualty Excess Reinsurance Agreement. A discovery dispute arose when Michigan Millers failed to comply with its repeated promises to produce a substantial amount of electronically stored material. In an order awarding attorney’s fees to the defendant, reinsurer Westport Insurance Corp., the court found that Michigan Millers delayed for months, and then, “compliance was obtained only after Westport filed its motion to compel” on the eve of the scheduled hearing. Michigan Millers Mutual Insurance Co. v. Westport Insurance Corp., Case No. 1:14-cv-00151 (USDC W.D. Mich. Nov. 7, 2014).

This post written by Michael Wolgin.

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THE IMPORTANCE OF SELECTING AN AVAILABLE ARBITRATION FORUM

January 27, 2015 by Carlton Fields

The Eleventh Circuit affirmed a Florida district court’s denial of Cashcall’s motion to compel arbitration, as the forum selected in the parties’ loan agreement was not available. Appellee Abraham Inetianbor initially borrowed $2,600 from Western Sky Financial LLC. He subsequently repaid $3,252.65 to the servicer of the loan, CashCall, over twelve months. Mr. Inetianbor refused to pay a subsequent bill from Cashcall because he believed his financial obligations had been fulfilled. CashCall disagreed, and reported Mr. Inetianbor’s purported default to credit agencies. Mr. Inetianbor then sued, inter alia, for defamation and usury violations.

The loan agreement mandated any dispute be arbitrated by the Cheyenne River Sioux Tribal Nation (the “Tribe”). Despite attempts to comply with arbitration, the Tribe explained to Mr. Inetianbor and the district court on multiple occasions that the Tribe does not authorize arbitration. CashCall argued that the specified arbitral forum was not integral to the agreement, and therefore its unavailability should not cause the court to deny its motion to compel. The Court looked to “how important the term was to one or both of the parties at the time they entered into the agreement” – to determine whether the arbitration agreement is integral. In this case, the agreement made multiple references to the Tribe. In nine paragraphs regarding arbitration in the contract, the Tribe was specifically mentioned in five of them. The Court concluded that the contract’s use of “shall” and “is required to” was sufficient evidence of the intent to make the Tribal arbitral forum the exclusive forum. Since that arbitral forum was unavailable, Appellant’s motion to compel arbitration was denied. Inetianbor v. Cashcall, Inc., No. 13-cv-60066-JIC (11th Cir. 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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ILLINOIS COURT ISSUES CORRECTED OPINION ON EXPENSES BEING INCLUDED IN REINSURANCE LIMIT

January 22, 2015 by Carlton Fields

As we previously reported, an Illinois appellate court recently concluded that the limit stated on certain reinsurance certificates applied to both indemnity expenses as well as defense expenses, relying on the often cited case from the Second Circuit, Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2nd Cir. 1990.) On December 16, 2014, the court issued a substituted opinion, making non-substantive changes to its prior opinion. Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Dec. 16, 2014.)

This post written by Catherine Acree.

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CALIFORNIA’S “THIRD PARTY LITIGATION EXCEPTION” NOT PREEMPTED BY THE FAA

January 21, 2015 by Carlton Fields

A California appellate court recently examined that state’s legislative response to the situation where a party moves to compel arbitration and some of the parties to the dispute are not parties to the arbitration agreement. In a situation including an arbitration provision of a reinsurance agreement, the court interpreted the so-called “third party litigation exception” to compelling arbitration, which according to the Court of Appeals addresses “the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate.” Section 1281.2(c) of the California Code of Civil Procedure provides that a court need not order arbitration if it determines that: (1) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party; (2) the dispute arises out of the same transaction or series of related transactions; and (3) there is a possibility of conflicting rulings on a common issue of law or fact. The court concluded that the California statute was not preempted by the Federal Arbitration Act, relying on an opinion of the Untied States Supreme Court which held that the application of the third party litigation exception of section 1281.2(c) to stay the arbitration of a contract dispute involving interstate commerce did not undermine the goals and policies of the FAA, and was not preempted by the FAA. Arrow Recycling Solutions, Inc. v. Applied Underwriters, Inc., No. B245379 (Cal. Ct. App. Jan. 8, 2015), modified (Cal. Ct. App. Jan. 12, 2015).

This post written by Catherine Acree.

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