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Arbitration / Court Decisions

COURTS, NOT ARBITRATORS, TO DETERMINE EXISTENCE OF CONTRACT “AS A WHOLE”

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MemberWorks, Inc.’s (“MemberWorks”) enrolled Sanford in a discount shopping program without her consent, charging her a fee for the program. The membership agreement contained an arbitration provision. Sanford sued MemberWorks, challenging the validity of the contract and seeking damages. The District Court compelled arbitration, holding that Sanford's challenge to the contract should be decided by an arbitrator. The arbitrator intially opined that he did not have jurisdiction to consider the validity of the contract; rather, that the validity of the contract was an issue for the court. The arbitrator then found the contract to be invalid, awarding Sanford $72 in damages, plus interest and arbitration fees, but denying Sanford's other claims. The District Court confirmed the award.

The Ninth Circuit found that Sanford had not waived her right to challenge the order compelling arbitration by waiting to challenge that decision after the arbitration award had been entered, and that the District Court should have ruled on the validity of the contract prior to compelling arbitration. The Court vacated the arbitration award and remanded the case for a determination by the District Court of whether a contract had been formed between Sanford and MemberWorks. Sanford v. MemberWorks, Inc., Case No 05-55175 (9th Cir. April 16, 2007).

Minnesota Court of Appeals affirms vacation of arbitration award procured by "undue means"

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Cincinnati Insurance Company (“CIC”) brought a subrogation action against Tyco Fire Products (“Tyco”), alleging that Tyco negligently designed, manufactured, and installed a sprinkler system that malfunctioned, causing property damage to CIC’s insured. The parties agreed to submit the matter to binding arbitration by Arbitration Forums, Inc. (“AF”). AF’s rules provide, among other things: (1) that an arbitration is commenced by the filing of a completed P-Form; (2) that a respondent answers by filing its materials with AF and all other involved parties; and (3) that “personal representation will not be allowed in cases when an answer has not been filed as outlined above.” Despite submission of an incomplete P-Form by CIC (neglecting to “x” the boxes requesting notice of and attendance at the arbitration hearing) and failure by Tyco to provide CIC with copies of its answer, AF, contrary to its own rules, concluded that CIC had waived notice and appearance and allowed Tyco to be represented at the hearing. The arbitration proceeded without attendance of CIC’s counsel and a decision favorable to Tyco was issued. Thereafter, CIC petitioned the Minnesota District Court to vacate the arbitration award under Minn. Stat. § 572.19, subd. 1(1) (2004), as procured by “other undue means.” The District Court granted the petition and Tyco appealed.

The Minnesota Court of Appeals affirmed the District Court’s decision, concluding that Tyco’s failure to provide its arbitration documents to Cincinnati resulted in Tyco having an ex parte communication with the neutrals in the case and constituted procurement of an award by “other undue means.” The Court of Appeals reasoned that, even if CIC could be said to have waived notice of and appearance at the hearing, CIC never waived its right to receive copies of Tyco’s submissions or its right to amend its own submissions in response. Additionally, the Court concluded that the arbitration award should be vacated under Minn. Stat. § 572.19, subd. 1(4), on the alternative ground that the hearing was conducted without due process, in violation of Minn. Stat. § 572.129(a), requiring that the arbitrators have notification of the arbitration hearing served on the parties “personally or by certified mail not less than five days before the hearing.” In re Arbitration Cincinnati Ins. Co. v. Tyco Fire Prod., f/k/a Cent. Sprinkler Co., Case No. 82C806001071 (Minn. Ct. App. May 1, 2007).

THIRD CIRCUIT RULES RIGHT TO ARBITRATE WAIVED BY ACTIVELY LITIGATING CASE

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In a personal injury action brought by a casino employee against the property owner in the Virgin Islands, the Third Circuit affirmed the denial of the defendant’s motion to stay the proceedings pending arbitration, pursuant to the Federal Arbitration Act. The Court of Appeal held that it had jurisdiction pursuant to section 16(a)(1)(A) of the Federal Arbitration Act, that the issue of whether a party seeking arbitration has waived its right to arbitrate by litigating the case in court remains a question for the trial court to decide, rather than an arbitrator, and that the defendant had waived any right it had to arbitrate by actively litigating the case for nearly four years before seeking to compel arbitration. Ehleiter v. Grapetree Shores, Case No. 06-2542 (3d Cir. Apr. 6, 2007).

UK HIGH COURT ORDERS “FURTHER REASONS” IN EXPERT DETERMINATION

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In March, the United Kingdom’s High Court ruled that courts have the authority to order further explanations from the umpire in an expert determination. The parties in this case entered into an agreement whereby the claimant, Halifax Life Limited (“Halifax”) agreed to reinsure the defendant’s business. A dispute arouse as to the precise balance of premium payable for the reinsurance. Pursuant to the agreement, an umpire was appointed, who would act as an expert, not an arbitrator, whose decision would be binding on the parties. In September, 2006, the umpire issued a ruling. The claimants, unsatisfied with the ruling, challenged the umpire’s determination on several grounds.

Mr. Justice Cresswell found that the reasons given by the umpire for arriving at his decision were inadequate under the circumstances. Although Justice Cresswell declined to make a declaration that the expert determination was not binding, he referred to section 70(4) of the Arbitration Act of 1996, which allows a court to order the tribunal to state the reasons in detail where it appears that the award does not contain sufficient detail to enable the matter to be properly considered. Justice Cresswell stated that “[i]t would be highly anomalous if an expert’s failure to give reasons caused the determination not to be binding, when this is not the position in the case of arbitration awards.” Instead, he adjourned the hearing and directed the umpire to state further reasons for his ruling. Halifax v. Equitable Life Assurance Society, [2007] EWHC 503 (Mar. 13, 2007).

Court dismisses RICO and antitrust claims (again) in insurance brokerage litigation

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The District Court Judge in the Insurance Brokerage Antitrust Litigation MDL action has again dismissed the RICO and Sherman Act claims asserted by the Plaintiffs. Separate opinions were issued with respect to the antitrust claims and the RICO claims. Both types of claims have been dismissed, before, and in both of the recent opinions, the Court stated that it would give the Plaintiffs “one final opportunity” to amend their claims. In re Insurance Brokerage Antitrust Litigation, MDL Docket No. 1663 (USDC D.N.J. April 5, 2007). There are prior posts to this blog with respect to this action, dated September 14, 2006 and October 16, 2006.