Arbitration / Court Decisions

Special Focus: Supreme Court Holds That Class Arbitration Must Be Consensual

May 7, 2010 by Carlton Fields

The United States Supreme Court issued a long anticipated opinion last week addressing the circumstances under which parties may be compelled to arbitrate disputes on a class-wide basis. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 2010 WL 1655826 (Apr. 27, 2010). Although we posted a brief item about this case earlier this week, this opinion is important enough that we are posting a longer Special Focus piece today describing the Court’s reasoning in more detail. This post also notes that the Court had the opportunity to address the issue of the continued viability of manifest disregard of law as a basis for vacating arbitral awards in this opinion, but declined to do so. More on that issue next week, as the Eleventh Circuit last week joined the debate on that issue.

This post written by Rollie Goss.

Fifth Circuit Reverses – Finds Arbitrator’s Adverse Inference Protected Employee’s Interests

May 6, 2010 by Carlton Fields

In a suit arising out of alleged employment discrimination, Dillard’s Inc. appealed the district court’s decision to vacate an arbitration award to the Fifth Circuit Court of Appeals. At the initial arbitration pursuant to Ms. Barahona’s employment contract, despite drawing an adverse inference against Dillard’s for its failure to produce relevant emails, the arbitrator ruled that Ms. Barahona failed to carry her burden of proof on her discrimination and retaliation claims. Upon Ms. Barahona’s motion, the district court at first remanded the dispute to the arbitrator, but after the arbitrator’s refusal to reconsider the case on jurisdictional grounds, the District Court granted Ms. Barahona’s motion to vacate the award based on Dillard’s fraudulent conduct in failing to produce the emails.

The Fifth Circuit reversed and remanded, holding that Dillard’s allegedly fraudulent conduct – failing to produce the emails – was brought to the attention of the arbitrator who addressed it by drawing an adverse inference against Dillard’s. Accordingly, Ms. Barahona could not meet her burden for vacatur under the FAA and the case should be remanded. Trinidad Suyapa Barahona v. Dillard’s Inc., Case No. 09-31142 (5th Cir. 2010).

This post written by John Black.

“Reinsurance Accepted” Clause Interpreted to Define Maximum Exposure, Including Expenses

May 5, 2010 by Carlton Fields

A court has found that a reinsurer’s (Global Reinsurance Corporation of America) maximum exposure under a facultative certificate is $1 million dollars, inclusive of expenses. The issue raised in the case by the parties’ cross-motions for judgment on the pleadings was whether expenses are subject to the $1 million limit stated in the certificate’s “Reinsurance Accepted” section. The reinsured (Pacific Employers Insurance Company) alleged the $1 million cap did not apply to the expenses, and requested that the court find that as a matter of law that Global was obligated for up to $1 million of loss and, in addition thereto, a pro rata share of expenses. In turn, Global sought a declaration that the cap is the maximum Pacific Employers could potentially recover. The “Reinsurance Accepted” section stated: “$1,000,000 ANY ONE OCCURRENCE AND IN THE AGGREGATE[.]” Examining the certificate’s plain language, the court found that this section’s “broad and unambiguous language” encompassed expenses because it defined Global’s maximum exposure. The section did not differentiate between reinsurance accepted for “losses” versus reinsurance accepted for “expenses,” but simply provided a total cap on liability for loss payments, expense payments, or any combination thereof. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. Apr. 23, 2010).

This post written by Brian Perryman.

Supreme Court Torpedoes Class Arbitration Where Parties Reached No Agreement on the Issue

May 3, 2010 by Carlton Fields

A party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so, according to a recent decision from the United States Supreme Court. The parties in the case stipulated that the arbitration provision was silent on the issue of whether an arbitration could be brought on a class-wide basis, and they had reached “no agreement” on that issue. On this basis, the Court concluded that the parties could not be compelled to submit their dispute to class arbitration. The decision is based on the long-standing principle that arbitration is a matter of consent, not coercion, that private agreements to arbitrate are enforced according to their terms, and that arbitrators must give effect to the contractual rights and expectations of the parties. The Court noted that class arbitration “changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”

The decision also clarifies the Supreme Court’s decision in Green Tree Financial Corp. v. Bazzle (2003). The Court confirmed that “Bazzle did not yield a majority decision,” and that the parties wrongly believed “the judgment in Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration.” In fact, Bazzle did not establish the rule to be applied in deciding whether class arbitration is permitted. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 08-1198 (U.S. Apr. 27, 2010).

This post written by Brian Perryman.

Continued Employment Suffices as Adequate Consideration for an Arbitration Agreement

April 29, 2010 by Carlton Fields

The plaintiff’s employer adopted a dispute resolution program containing language stating that by continuing or accepting employment each employee agreed to submit all covered claims to the dispute resolution program and to accept the resulting arbitration award. The employer later amended the dispute resolution program, clarifying, among other things, that the employer was equally bound to submit all claims to arbitration. When a dispute arose between the parties, the plaintiff filed suit in federal district court, arguing that the amended dispute resolution program was not supported by any consideration and, consequently, was not a valid contract. The court disagreed and found that by continuing his employment the plaintiff’s conduct manifested intent to be bound by, and constituted acceptance of and consideration for, the amended dispute resolution program. The court alternatively found that mutual promises to submit claims to binding arbitration constituted adequate consideration. Rangel v. Hallmark Cards, Inc., Case No. 10-04003 (USDC D. Kan. Mar. 4, 2010).

This post written by Dan Crisp.