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Arbitration / Court Decisions

COURT APPLIES CONCEPCION AND COMPELS ARBITRATION DESPITE PROHIBITIVE COSTS OF INDIVIDUAL CLAIMS

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In what was a putative class action, a federal court recently applied the U.S. Supreme Court’s Concepcion decision and compelled arbitration on an individual basis, despite the potential prohibitive costs of asserting claims individually. A putative consumer class action was brought against AT&T Mobility by a plaintiff who had agreed to arbitrate disputes only on an individual basis – and not as a class action. The plaintiff initially prevailed in avoiding arbitration, relying on California law. Prior to class certification, however, the U.S. Supreme Court decided the Concepcion case, which held the FAA preempts state laws that preclude class action waivers. Arguing that Concepcion conflicts with the court’s initial decision in this case, AT&T renewed its motion to compel arbitration. The court granted AT&T’s motion, rejecting plaintiff’s argument that Concepcion should only be applied where arbitration on an individual basis would be cost effective, i.e., where the plaintiff had substantial individual claims. The court was not persuaded by the plaintiff’s citation to an earlier Supreme Court ruling and a Second Circuit decision predating Concepcion, and noted that plaintiff’s position that a court should conduct a case-by-case cost-benefit analysis was “unworkable.” Kaltwasser v. AT&T Mobility LLC, Case No. 5:07-cv-00411 (N.D. Cal. Sept. 20, 2011).

This post written by Michael Wolgin.

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COURT DISMISSES FRAUD-BASED CHALLENGES TO PARTY-APPOINTED ARBITRATOR BROUGHT ANEW AFTER LOSING APPEALS

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Trustmark Insurance Company challenged in court the impartiality of John Hancock Life Insurance Company’s party-selected arbitrator. As we have reported at each stage, Trustmark’s challenge lost at the district court, lost in the Seventh Circuit, and was denied review by the U.S. Supreme Court. Trustmark then filed a second amended complaint, in an attempt to avoid the issues it lost on appeal, including new fraud allegations. Trustmark also brought a Rule 60(b)(3) motion for relief from the court’s original order, based on alleged fraud by the opposing party. The court dismissed the new claims in the second amended complaint and denied the 60(b)(3) motion, finding it time-barred. Trustmark Ins. Co. v. John Hancock Life Ins. Co., No. 1:09-cv-03959 (USDC N.D. Ill. Nov. 15, 2011).

This post written by John Pitblado.

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TREATY TIP: NAILING DOWN THE ARBITRATION PROCESS

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Arbitration can proceed more quickly and efficiently if one pays appropriate attention to the arbitration process in drafting reinsurance agreements. Tony Cicchetti continues his series of Treaty Tips with advice on how to avoid unnecessary litigation through better agreement drafting, in Nailing Down the Arbitration Process.

This post written by Anthony Cicchetti.

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COURT REFUSES TO COMPEL ARBITRATION OVER “COLLATERAL” MATTERS IN THE INTERESTS OF JUSTICE AND JUDICIAL ECONOMY

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In a shareholder dispute over the alleged improper termination of a company president, a court recently compelled arbitration of issues central to the case, but retained jurisdiction over a collateral issue related to ownership of corporate shares. The underlying shareholder agreement provided that all parties agreed to arbitrate “any controversy relating to [the] Agreement.” The court held that “all issues and claims raised in the plaintiffs’ complaint, relating to defendant’s performance of his duties as president and his alleged breaches of duty to plaintiffs” related to the shareholder agreement and therefore should be referred to arbitration. With respect to an ancillary dispute as to the status of the company shares of a former shareholder who left the United States, the court decided to retain jurisdiction in “the interests of justice and judicial economy.” The court explained that matters relating to the ownership dispute were collateral to the termination dispute, and that at least one pending issue would continue to involve the court “even were the question of share ownership referred to arbitration.” Boz Export & Import, Inc. v. Karakus, Case No. 8738/11 (N.Y. Sup. Ct. Sept. 15, 2011).

This post written by Michael Wolgin.

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FIFTH CIRCUIT HOLDS CLASS ARBITRATION NOT EQUIVALENT TO CLASS ACTION FOR PURPOSES OF CAFA

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Homeland Insurance Company recently appealed to the Fifth Circuit Court of Appeals a district court’s remand of a class action to Louisiana state court. The action arose when a medical doctor brought a putative class action in Louisiana state court on behalf of Louisiana medical providers against a number of Louisiana and non-Louisiana PPO providers. One defendant agreed to settle, but before the settlement was approved, another defendant removed to federal court under CAFA. The settling defendant moved for (and was granted) remand to state court based on the local controversy exception to the Class Action Fairness Act. Subsequently, another of the defendants (Homeland Insurance) filed the instant motion to appeal the remand.

The Court of Appeals affirmed the remand order under the local controversy exception, finding that (a) at least two-thirds of the class (business entities incorporated in the state) are Louisiana citizens; (b) at least one of the defendants was a “local” defendant; (c) the principal injuries occurred in Louisiana, and (d) no other class action has been filed alleging similar facts against any of the defendants in the prior three years. Two key facts are important to consider. First, the Court of Appeals noted that even inactive corporations are still citizens of the state in which they were incorporated. Second, class arbitration does not count as a class action for purposes of the CAFA local controversy exception. Williams v. Homeland Ins. Co. of New York, No. 11-30646 (5th Cir. Sept. 19, 2011).

This post written by John Black.

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