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Arbitration / Court Decisions

COURT COMPELS ARBITRATION OF PAST DISPUTE UNDER ARBITRATION CLAUSE COVERING FUTURE TRANSACTIONS

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In a suit over an energy developer’s alleged failure to pay for energy services, a court has granted a motion to compel arbitration based on an arbitration clause in a contract that was made after the transaction in dispute, and despite the contract’s express application to future transactions between the parties. The court reasoned that, despite the bulk of the agreement’s application to future contingencies and dealings, some of the agreement’s provisions, including the arbitration clause, evidenced a present agreement that would take effect immediately. The court further held that, given that the arbitration clause at issue was a broad one and that federal and Oklahoma policies favor arbitration, the clause would apply “despite the fact that the dealings giving rise to the dispute occurred prior to the execution of the agreement.” Warrior Energy Services Corp. v. Last Run, LLC, Case No. CIV-10-0961 (USDC W.D. Okla. Dec. 1, 2010).

This post written by Michael Wolgin.

REINSURANCE DISPUTE DISMISSED FOR LACK OF PERSONAL JURISDICTION

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A federal district court recently granted two individual corporate officer defendants’ motion to dismiss against plaintiff Capitol Insurance. Capitol sued a number of individuals and corporations for alleged losses arising from a reinsurance agreement Capitol entered into with Aldrostar, S.A. The defendants included, among others, Alison Dvorak and Charles Dvorak who allegedly represented themselves as “officers, employees, agents, or servants of the corporate defendants.” The court found that Capitol failed to establish the court’s personal jurisdiction over the Dvoraks. The court held that Alison did not have the requisite minimum contacts with Pennsylvania and that the action against Richard did not arise out of his contracts with the state. Capitol also failed to demonstrate why the corporate shield would not protect the Dvoraks in their individual capacities. Accordingly, Capitol’s assorted claims were dismissed. Capitol Ins. Co. v. Dvorak, Case No. 10-01195 (USDC E.D. Pa. Oct. 29, 2010).

This post written by John Black.

ARBITRATION BY BISHOPS NOT UNCONSCIONABLE

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The Catholic Bishop of Northern Alaska (CBNA) has been directed to arbitrate an insurance dispute. The CBNA filed for chapter 11 bankruptcy relief as a result of sexual abuse lawsuits against it. In the course of its bankruptcy proceeding, it sought a declaratory judgment as against its insurer, Catholic Mutual Relief Society of America, concerning the scope of coverage for the abuse claims. Catholic Mutual asserted that CBNA’s settlement of the underlying claims was without Catholic Mutual’s consent as required by the policies, and therefore voided the policies, relieving Catholic Mutual of any coverage obligation. The policy for one year contained an arbitration provision, and Catholic Mutual moved to compel arbitration of the dispute with respect to all claims potentially covered under that particular policy. CBNA resisted arbitration, claiming the arbitration provision was unconscionable, as it required submission of any dispute to Catholic Mutual’s president, and thereafter, by appeal to the chairman of Catholic Mutual’s board, who would then select a committee from amongst board members, each of whom are archbishops or bishops. The Court held this provision was not unconscionable, since the board members were as likely to align, in terms of any potential biases, with Catholic Mutual’s policyholders, who are also bishops and archbishops, as with the insurer of which they are board members. In re Catholic Bishop of Northern Alaska, No F08-00110-DMD (USDC Bankr. Alaska Dec. 13, 2010).

This post written by John Pitblado.

ADMINISTRATIVE SERVICES AGREEMENT PROVIDES FOR PERMISSIVE ARBITRATION; PLAINTIFF PERMITTED TO AMEND COMPLAINT

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PCH Mutual Insurance Company (“PCH”), a risk retention group providing insurance to assisted living facilities, entered into an Administrative Services Agreement with Casualty & Surety, Inc. (“CSI”), a wholesale insurance broker and program manager. The Agreement’s arbitration provision stated that: “Any disputes . . . may be submitted to binding arbitration. The prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys fees.” After PCH filed suit (alleging breach of contract, breach of fiduciary duty, and unjust enrichment), CSI moved to compel arbitration. The court denied the motion to compel arbitration, holding the arbitration provision was ambiguous and could be read to contemplate permissive arbitration. The court focused on the use of the term “may,” which indicated that arbitration was not required, particularly when juxtaposed with the term “shall,” which signaled that payment of costs to the prevailing party was compulsory. The court also cited the lack of specifics regarding arbitration procedure in the Agreement, further indicating ambiguity to the court. For example, the Agreement did not identify an arbitrator or provide a method for choosing one.

In a separate order issued the same day, the court granted PCH’s motion to amend the complaint to add a claim that CSI had improperly issued occurrence based endorsements, in contravention of underwriting guidelines that limited PCH’s coverage to claims made policies. The court rejected CSI’s argument that PCH’s motion to amend should be denied because of CSI’s “contractual expectancy for arbitration,” finding that it was “dubious” whether a pending motion to compel arbitration could constitute grounds for rejecting a motion to amend the complaint, and, furthermore, CSI had failed to establish that the parties had agreed to mandatory arbitration. The court also held that the proposed amendment would not be futile, and was not offered in bad faith or untimely. PCH Mutual Insurance Co., v. Casualty & Surety, Inc., Case No. 08-00282 (USDC D.D.C. Nov. 11, 2010).

This post written by Ben Seessel.

APPEALS COURT DERAILS ATTEMPT TO VACATE ARBITRATION AWARD

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Burlington Northern and Santa Fe Railway Company (BNSF) and the Public Service Company of Oklahoma (PSO) entered into a long-term agreement in 1985 pertaining to the transport of coal. A dispute about rates arose and the matter was submitted to arbitration, as per the parties’ agreement. The arbitration provision was limited to rate disputes. The panel awarded PSO the rate decrease it sought, and BNSF thereafter moved to vacate the award in federal district court, arguing the panel (1) exceeded its authority by deciding matters outside the scope of the submission; and (2) incorrectly interpreted the contract in manifest disregard of the law. The district court ultimately confirmed the award, and BNSF revived its arguments on appeal to the Tenth Circuit Court of Appeals. The Tenth Circuit affirmed, finding that BNSF was merely seeking to alter its burden by disguising the issue as one of arbitrability, when really it was seeking review of the decision on the merits. Applying the correct standard of “extreme deference” to the panel’s decision on the merits, the court affirmed the district court’s ruling confirming the panel’s award. Burlington Northern and Santa Fe Railway Co. v. Public Service Company of Oklahoma, No. 09-5133 (10th Cir. Dec. 10, 2010).

This post written by John Pitblado.