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Arbitration / Court Decisions

COURT RULES THAT IT CANNOT CONFIRM AN ARBITRATION AWARD THAT CONFLICTS WITH A SUPERSEDING AGREEMENT BETWEEN THE PARTIES

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A labor union cannot continue litigating the validity of an arbitration award concerning a contract that no longer controlled the parties’ relationship, an Arkansas federal district court has held. In 2006, the plaintiff corporation became the successor in interest to a collective bargaining agreement that had been entered into in 2005 with the defendant labor union. This 2005 CBA was scheduled to terminate in February 2008. After a dispute arose over the plaintiff’s right to oppose the defendant’s attempts to organize employees, the defendant filed a grievance with an arbitrator, who upheld the grievance in July 2007. The plaintiff subsequently moved in federal district court to vacate the arbitration award. While the litigation was pending, the 2005 CBA expired. In the interim, the parties had entered into a new collective bargaining agreement which did not contain the same limitations on the plaintiff’s right to oppose employee organization that had been contained in the 2005 CBA. The plaintiff, therefore, sought to dismiss the case as moot, which the defendant opposed, requesting that the court confirm the arbitration award. In its ruling, the court sided with the plaintiff, and dismissed the case as moot. The court noted that judicial economy counseled against confirming an arbitration award where it would not effect the present relations of the parties, and that the arbitration award conflicted with the now-controlling 2008 CBA. Windstream Corp. v. Communication Workers of America, AFL-CIO, Case No. 07 CV 1158 (USDC E.D. Ark. May 9, 2008).

This post written by Brian Perryman.

ARBITRATION PROVISIONS IN ANCILLARY AGREEMENTS DO NOT WARRANT ARBITRATION AS TO ISSUES ARISING OUT OF THE PRINCIPAL AGREEMENT

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In a case presenting a messy set of facts, a federal district court ordered the arbitration of certain claims, allowed litigation to proceed as to other claims, but ordered a stay of the litigation pending the outcome of the arbitration. The defendants acquired certain intellectual property rights from the plaintiff inventors. The parties’ acquisition agreement addressed potential litigation, but not arbitration. However, attached to the acquisition agreement as exhibits were eleven separately executed ancillary agreements, including a consulting agreement and net sales agreement which did contain arbitration agreements. The consulting agreement governed the parties’ rights and obligations with respect to one of the plaintiff’s post-closing consulting services for one of the defendants. The net sales agreement governed the parties’ rights and obligations with respect to specific post-closing sales. Three other agreements which referenced the acquisition agreement, but which were not incorporated into the acquisition agreement, were also relevant: an operating agreement, trust agreement and subscription agreement. Of these, only the operating agreement contained an arbitration clause; that agreement governed the parties’ rights with respect to defendants’ business operations and internal governance.

The defendants paid the plaintiffs $2 million at closing, and agreed to pay additional consideration in connection with the acquisition. However, before the additional consideration was tendered, the defendants filed an arbitration principally alleging that the plaintiffs breached at closing by misrepresenting inventorship and ownership of the subject products. That same day, the plaintiffs filed a lawsuit in federal district court principally alleging that the defendants breached at closing by not transferring the closing documents to a trustee as required in the trust agreement and acquisition agreement. The defendants moved to stay the litigation and to compel arbitration. After initially determining that there were valid arbitration agreements, the court turned to the question of the agreements’ scope. The defendants argued that the plaintiffs should not be allowed to pursue litigation on selective portions of the acquisition dispute to avoid the inventorship/ownership issue. The court disagreed, finding that the plaintiffs did not agree to arbitrate all claims simply because three ancillary agreements contained arbitration provisions. The acquisition agreement contemplated litigation alone on disputes relating the plaintiffs’ claims. The court did conclude, however, that the defendants’ claims for breach of the consulting agreement, net sales agreement and operating agreement were arbitrable. This limited conclusion was not disputed by the plaintiffs. The court, exercising its discretion, also ordered a stay of the arbitration pending resolution of the inventorship/ownership issue because certain aspects of the plaintiffs’ nonarbitrable claims could have a preclusive effect on resolution of the arbitrable claims. Brennan v. Global Safety Labs, Inc., Case No. 07 CV 546 (USDC N.D. Okla. May 29, 2008).

This post written by Brian Perryman.

REINSURER PREVAILS ON IMPROPER PLACEMENT OF RISKS

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In two prior posts (February 28 and October 1, 2007), we reported on discovery disputes in a case in which a reinsurer contended that it was not liable on trucking risks due to the improper placement of the risks by a broker. The reinsurer has now prevailed on summary judgment, having established that trucking risks could not be ceded to its reinsurance without specific permission or special acceptance, and that the broker did not seek such permission or acceptance. Scottsdale Ins. Co. v. American Re-Insurance Co., Case No. 06-16 (USDC D. Neb. May 6, 2008).

This post written by Rollie Goss.

UK COURT DETERMINES THAT UNDERWRITING AGENCY DOES NOT HAVE AN ENTITLEMENT TO CONDUCT RUN-OFF

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Following the termination of an underwriting agency agreement, Temple Legal Protection sought to continue managing the run-off of the business originated under the agreement. The other party to the agreement contested the right of Temple to manage the run-off. An arbitrator found that Temple was not entitled to manage the run-off. On appeal, the Commercial Court found that the agreement did not provide a clear answer to the issue, but considering the agreement, custom and practice and other factors, the court concluded that while the arbitrator's analysis was faulty, the correct result had been reached. Temple Legal Protection Limited v. QBE Insurance (Europe) Limited [2008] EWHC 843 (Comm. Apr. 23, 2008).

This post written by Rollie Goss.

SIGNATORY TO AGREEMENT CONTAINING ARBITRATION PROVISION MAY NOT EVADE ARBITRATION BY SUING NON-SIGNATORIES

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A corporate signatory to a written partnership agreement that requires international arbitration of their commercial disputes may not escape arbitration of such disputes by naming as defendants two non-signatories, on the basis that there was no written agreement to arbitrate with those defendants, according to the First Circuit.

The plaintiff in this case, Sourcing Unlimited, entered into a partnership agreement with Asimco Technologies, Inc. (“ATL”) that contained an agreement to arbitrate. When the business relationship soured, Sourcing Unlimited filed suit in a Massachusetts court naming only one of ATL’s subsidiaries and corporate officer of ATL, but not ATL itself. The defendants argued that, under the doctrine of equitable estoppel, the plaintiff should not be permitted to evade its obligation to arbitrate under the contract by suing two non-signatories for matters that clearly arose from the agreement. The First Circuit agreed, stating “[t]he present dispute is sufficiently intertwined with the…Agreement for application of estoppel to be appropriate” and concluded that “[t]he fact that the defendants are not signatories is not a basis on which arbitration may be denied.” Sourcing Unlimited v. Asimco International, No. 07-2754 (1st Cir. May 22, 2008).

This post written by Lynn Hawkins.