Arbitration / Court Decisions

SECOND CIRCUIT: CLASS ARBITRATION WAIVER UNCONSCIONABLE UNDER CALIFORNIA LAW

July 29, 2010 by Carlton Fields

Defendant-Appellant Affiliated Computer Services appealed an order of the US District Court for the Southern District of New York denying Affiliated’s motion to compel arbitration. The district court held that the arbitration clause of a promissory note was unconscionable under California law because of its class action and class arbitration waiver provision. On appeal, Affiliated argued that the clause was not unconscionable, and in the alternative, that California law on this issue was preempted by the FAA. The Second Circuit affirmed the district court’s order, finding that the class arbitration waiver was unconscionable and unenforceable under California law according to principles applicable to contracts generally, and that California law is therefore not preempted by the FAA. Fensterstock v. Education Fin. Partners, Case No. 09-1562 (2d Cir. July 12, 2010)

This post written by John Black.

LAWSUIT ALLEGING UNDERREPORTING OF WORKERS COMPENSATION PREMIUMS WILL PROCEED, IN PART

July 28, 2010 by Carlton Fields

Motions to dismiss a lawsuit brought by plaintiff American Insurance Group, Inc., and its affiliates and subsidiaries, has been dismissed in part, and granted in part. Some of what the court has described as a “long and tortured procedural history” of the case is reported in our posts of March 27, 2008 and April 6, 2009. Plaintiffs’ claims against defendants stemmed from five underlying allegations. First, plaintiffs alleged that the defendant insurance companies improperly underreported to the National Council on Compensation Insurance, administrator for the National Worker’s Compensation Reinsurance Pool, the amount of their voluntary market workers compensation premiums, which resulted in a decrease in their residual market obligations. Second, plaintiffs alleged that the Pool board members blocked participation in an AIG settlement fund established to compensate third parties allegedly injured by AIG. Third, plaintiffs contended that Pool board members suppressed investigations into premium underreporting. Fourth, plaintiffs alleged that certain of the defendants conspired to direct NCCI to issue false quarterly Pool statements. Finally, plaintiffs allege that the Pool board directed NCCI to ignore amended premium filings with the intent of further disabling the effectiveness of the AIG settlement fund. Several of the defendants also filed counterclaims, which AIG unsuccessfully moved to dismiss. American International Group, Inc. v. Ace INA Holdings, Inc., Case No. 07 CV 2898 (USDC N.D. Ill. June 30, 2010).

This post written by Brian Perryman.

EIGHTH CIRCUIT HOLDS THAT HALL STREET ELIMINATED MANIFEST DISREGARD OF LAW DOCTRINE; AFFIRMS ARBITRATION AWARD

July 27, 2010 by Carlton Fields

Following an arbitration award and district court confirmation granting Medicine Shoppe International lost future profits and future license fees, defendants/appellants Turner Investments and Donnie Turner (President of Turner Investment) appealed to the Eighth Circuit arguing that the district court erred in confirming the award because the arbitrator showed a manifest disregard for the law. Specifically, Turner Investments assert that Medicine Shoppe failed to demonstrate future profits with reasonable certainty as required by Missouri law, that Medicine Shoppe failed to mitigate damages, and that the award of future fees to a franchisor hampered the growth of important franchise markets contrary to public policy. The Eighth Circuit affirmed the award, citing Hall Street Assoc. LLC v. Mattel, Inc., 552 U.S. 576 (2008) for the proposition that only the enumerated reasons listed in the FAA justify vacatur of an arbitration award. Having found that none of the enumerated reasons existed, the Court affirmed the judgment of the district court. The Eighth Circuit therefore joins the list of Circuit Courts of Appeal which have held that the doctrine of manifest disregard of law did not survive Hall Street. Medicine Shoppe Int’l, Inc. v. Turner Investments, Inc., Case No. 09-2179 (8th Cir. July 21, 2010).

This post written by John Black.

ANOTHER NAME AT LLOYDS’ MOUNTS AN UNSUCCESSFUL ENFORCEABILITY CHALLENGE TO A JUDGMENT AGAINST HIM

July 26, 2010 by Carlton Fields

The Second Circuit has affirmed the dismissal of another of a rash of lawsuits by Names at Lloyd’s challenging the enforceability of judgments obtained against them by Lloyd’s in the United Kingdom. The plaintiff Richard A. Tropp, a Name at Lloyd’s, brought a suit in federal district court to declare that a judgment obtained against him by Lloyd’s was unenforceable, as well as for an accounting from Lloyd’s. Tropp invested $160,000 of his retirement savings in the market but, due to its collapse, became liable to Lloyd’s on a $900,000 judgment entered by a UK court. Lloyd’s moved to dismiss for improper venue, since Tropp agreed in the “Choice Clause” of his contract with Lloyd’s to litigate all disputes in England, and for failure to state a claim. Tropp’s primary argument was that this forum selection clause is unenforceable because UK law deprived him of any remedy. The district court rejected this, because a “close reading” of the UK litigation revealed Tropp was not denied any remedy, but “simply was not victorious on the merits of his claims.” The UK courts provided due process. Tropp v. Corporation of Lloyd’s, Case No. 07 Civ. 414 (USDC S.D.N.Y. Mar. 26, 2008).

In a summary order, the Second Circuit affirmed, principally reasoning that, although Tropp was unsuccessful in his attempts to assert defenses and counterclaims against Lloyd’s in the UK courts, “his experiences do not cause us to revisit our holding that the Lloyd’s forum selection clauses (of which this is one) are valid because UK remedies are available.” Tropp v. Corporation of Lloyd’s, No. 08-2332 (2d Cir. July 19, 2010).

This post written by Brian Perryman.

NO MANIFEST DISREGARD IN AWARD AGAINST TEAMSTERS’ UNION

July 22, 2010 by Carlton Fields

A federal court in New Jersey granted an employer’s motion to dismiss a complaint filed by the union representing a terminated employee. The union sought to vacate an arbitrator’s award in an employment dispute pertaining to the employee’s termination. The court noted the “narrow” standard in overturning an arbitrator’s award, and that even “improvident” or “silly” factfinding by the arbitrator would not constitute a “manifest disregard” of the law. The court analyzed whether the collective bargaining agreement containing the arbitration clause was valid, for lack of signature by an authorized employer representative, but ultimately agreed with the arbitrator’s decision on that point and others, finding the decision “well-reasoned” and “supported by the record.” Int’l Brotherhood of Teamsters, Local 701 v. Stroehmann Bakeries, No. 09-6205 (USDC D.N.J. June 22, 2010)

This post written by John Pitblado.