Arbitration / Court Decisions

THIRD CIRCUIT SIDE-STEPS SPLIT ON MANIFEST DISREGARD OF LAW

March 31, 2010 by Carlton Fields

The Third Circuit Court of Appeals heard the appeal of Bapu Corporation from a district court’s denial of its motion to vacate an arbitration award. The dispute centered on Choice Hotels International Inc.’s decision to terminate a Quality Inn license agreement with Bapu on the basis that Bapu had failed to make required renovations to the hotel. Bapu asserted that Choice’s claim for damages was barred by the applicable three year statute of limitations, and raised that issue and others in the parties’ arbitration. Ultimately, both the district court and the Third Circuit Court agreed that the arbitrator’s decision against Bapu, based partly on the fact that Bapu had waived its statute of limitations claim by failing to pursue it after initially raising it, did not provide a basis for vacatur. The Court side-stepped the question, however, of whether manifest disregard of law constituted an independent basis for vacatur of arbitration awards, after the Supreme Court’s ruling in Hall Street Associates, L.L.C. v. Mattel Inc., but noted a split of authority in the sister circuits on that question. The Court also rejected Bapu’s claim of arbitrator bias or corruption. Bapu Corp. v. Choice Hotels Int’l, Inc., No. 09-1011 (3d Cir. March 16, 2010).

This post written by John Pitblado.

COLORADO RIVER ABSTENTION WHACK-A-MOLE

March 30, 2010 by Carlton Fields

A federal court in Iowa heard a motion to dismiss or stay brought by The Samuels Group, Inc., a design/build company who undertook a construction project in Wisconsin. Samuels had entered into a contract with the property owner, Alta Vista Properties, LC, to build a facility on one of its properties. Samuels subcontracted to Hatch Grading & Contracting, Inc. During the course of construction, a tornado destroyed the partially finished project. Hatch asserted a mechanic’s lien against the property to recover payment for the work it had done, and brought an action in state court to enforce the lien. It initially brought in both Alta Vista and Samuels, but ultimately, after various machinations by the parties, agreed to withdraw the petition as against Samuels, as Samuels and Hatch agreed to arbitrate corollary disputes that impacted the mechanic lien issue, and the state court proceedings were stayed. Samuels and Hatch arbitrated, with an award in favor of Hatch. Hatch thereafter sought to bring Samuels back into the state court action to confirm the arbitration award. Samuels filed a petition in federal court to vacate the award on various grounds. Hatch argued that Colorado River abstention applied, and that the action should be dismissed or stayed pending resolution of the state court action. Samuels argued Colorado River did not apply, in part because the FAA created a federal law basis requiring the federal court to maintain jurisdiction, and in part because the parties were not identical in the state court proceeding. The court generally rejected these arguments, noting that the parties were not identical in Colorado River itself, and that Samuels effectively had been part of the state court proceedings at various points. The court nonetheless agreed to maintain jurisdiction, but granted Hatch’s motion to stay the federal action pending the outcome of the state court proceeding. The Samuels Group, Inc. v. Hatch Grading and Contracting, Inc., No. 09-2058 (USDC N.D. Iowa March 23, 2010).

This post written by John Pitblado.

FIRST CIRCUIT CLARIFIES STANDARD OF REVIEW, CONCLUDES THAT AGREEMENT MANDATES ARBITRATION

March 29, 2010 by Carlton Fields

In this dispute between two parties to a joint venture agreement, one party filed a lawsuit and the other submitted an arbitraiton demand. Motions were filed to stay the lawsuit pending arbitration and to stay the arbitration. The motions were assigned to a magistrate judge. The magistrate judge concluded that arbitration was optional under the agreement and granted the plaintiff’s motion to stay the arbitration. The defendant contested this decision, but the district court stated that this decision was not “clearly erroneous or contrary to law.” In a case of first impression to the federal courts of appeal, the First Circuit held that the correct standard of review for a district judge’s review of a magistrate judge’s ruling on a motion to stay pending arbitration was whether the ruling was contrary to law. The First Circuit further stated that, for questions of law, no practical difference exists between review under the “contrary to law” and de novo standards. Next, in interpreting the arbitration provision at issue, the First Circuit concluded that a statement that the parties had the right to seek legal and equitable relief merely granted the authority to award such relief to the arbitrator, and did not make a provision that the parties “shall” arbitrate disputes permissive. The First Circuit thus reversed the decision and remanded to the district court for the entry of an order staying the litigation. PowerShare, Inc. v. Syntel, Inc., No. 09-1625 (1st Cir. Mar. 1, 2010).

This post written by Dan Crisp.

DISCOVERY RESTRICTION IN ARBITRATION CLAUSE HELD NOT UNCONSCIONABLE

March 25, 2010 by Carlton Fields

An arbitration provision in an employment contract provided that each party to the arbitration could take one fact deposition, depose experts, request documents, and take additional depositions if authorized by the arbitrator for good cause. A California trial court held the limit on depositions to be unconscionable, refused to sever the discovery limit provision and denied a motion to compel arbitration. The California Court of Appeals reversed, finding that such limits on discovery were permissible in arbitration, in that it provided the arbitrator with discretion to permit further depositions without setting an extraordinarily high standard for obtaining further depositions. The Court also held that a contractual provision that the arbitrator, rather than a court, should interpret and implement the arbitration provision was permissible, especially in light of court decisions at both the state and federal levels holding that arbitrators have the authority to resolve disputes over the meaning of specific terms of an arbitration agreement. Dotson v. Amgen, Inc., Civil No. B212965 (Cal Ct. App. Feb. 3, 2010).

This post written by Rollie Goss.

STATUTORY REQUIREMENT OF NOTICE TO INSURED OF NONRENEWAL IS NOT EXCUSED IF THE INSURED OBTAINS REPLACEMENT COVERAGE

March 23, 2010 by Carlton Fields

In an unpublished disposition, a California appellate court reversed a summary judgment order as to a reinsured’s claims for breach of contract and insurance bad faith where the policy period was extended by statute (California Insurance Code section 678.1) because the underlying insured was not provided with the requisite notice of nonrenewal, but affirmed the summary judgment order as to the reinsured’s negligence claim. The defendants reinsured plaintiff Norcal Mutual Insurance Company for any liability Norcal might incur under a managed health care professional liability policy for the initial policy period of August 1999 through August 2000. Although the claim by Norcal’s insured that created Norcal’s liability fell outside the period of the 1999/2000 policy, Norcal contended the policy period was extended until June 2001 because its insured was not provided with notice of nonrenewal of the 1999/2000 policy, as required by section 678.1.

On appeal, the court held that notice of nonrenewal was not excused by a statutory provision that notice is not required where the insured “has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.” Norcal’s insured agreed in writing to obtain replacement coverage, but section 678.1 “taken as a whole” compelled the conclusion that a “replacement” policy “is not synonymous with renewal of existing coverage.” The court found that “replacement” coverage referred to in one subsection of the statute means insurance obtained from a different insurer, while renewal of coverage referred to elsewhere in the same statute means coverage obtained from the same insurer for a subsequent policy period. The court, however, rejected Norcal’s negligence claim because section 678.1 “clearly” places the duty to provide notice of nonrenewal on the insurer, not a reinsurer. Norcal Mutual Insurance Co. v. Certain Underwriters at Lloyd’s of London, No. B213122 (Cal. Ct. App. Feb. 22, 2010).

This post written by Brian Perryman.