Arbitration / Court Decisions

The Supreme Court of Hawaii vacated the decisions of the intermediate appellate court and the circuit court, which found that the plaintiff’s claims against her former law firm and law partner were subject to the arbitration clause in the partnership agreement, remanding the case to the circuit court for further proceedings consistent with its opinion.

In Yamamoto v. Chee, the plaintiff, a former law firm partner, brought an action against the law firm and another partner after they refused to return personal funds that the plaintiff had tendered to repay a retirement account loan, which had already been repaid from the plaintiff’s partnership capital account. The circuit court granted the defendants’ motion to compel arbitration. The plaintiff appealed, and the intermediate appellate court affirmed. The Supreme Court granted certiorari review.

On certiorari, the Supreme Court of Hawaii found that the intermediate appellate court erred when it concluded that (1) the plaintiff’s claims were “in connection with” the partnership agreement; and (2) compliance with Hawaii Revised Statutes section 658A-9’s notice requirements was not required to initiate arbitration.

First, the Supreme Court held that the plaintiff’s conversion claims were not subject to the arbitration provision in the partnership agreement. The court noted that the partnership agreement by its own terms limited the scope of its provisions, including the arbitration clause, to “the conduct of the partnership business,” which was “solely for the purpose of rendering legal services and services ancillary thereto.” Because the “partnership business” was not to lend money or administer 401(k) plans, the arrangement fell outside the “partnership business.” As such, the Supreme Court found that any claims arising from the arrangement did not comprise a dispute “in connection” with the partnership agreement and were therefore not subject to the arbitration clause.

Second, the Supreme Court held that the defendants’ failure to comply strictly with the statutory arbitration notice requirements precluded granting the motion to compel. Relying on the guiding principles in Ueoka v. Szymanski, which mandate strict compliance with section 658A-9’s notice requirements, the Supreme Court found that the requirements of section 658A-9 must be met before a party files a motion to compel arbitration under section 658A-7. The Supreme Court noted that at the time the defendants filed their motion to compel, no letter had been issued by certified mail, no return receipt had been obtained, and therefore any allegations in the motion that the plaintiff had refused to arbitrate were baseless as a matter of law because a party “cannot be found to have refused to arbitrate” until the formal requirements for initiating an arbitration are met.

Accordingly, the Supreme Court vacated the intermediate appellate court’s judgment on appeal and the circuit court’s order compelling arbitration, and remanded to the circuit court for further proceedings consistent with its opinion.

Yamamoto v. Chee, No. SCWC-16-0000260 (Haw. Mar. 2, 2020).

The Seventh Circuit affirmed a district court order that the defendant waived its right to arbitrate by withdrawing a venue-based arbitration argument from its motion to dismiss. The arbitration clause in a joint venture agreement between the parties stated that “[a]ny matter in dispute, and which is not provided for in this agreement, shall be submitted to arbitration.” The plaintiff filed suit after a dispute arose, and the defendant moved to dismiss on various grounds, although it did not assert the arbitration provision. The district court ultimately granted the motion on jurisdictional grounds that were later cured. The defendant then moved to dismiss again, this time asserting improper venue based on the arbitration provision. Plaintiff’s counsel then wrote to defendant’s counsel demanding that the arbitration argument be withdrawn on the ground that it was waived, having not been asserted in the defendant’s first motion to dismiss. The argument was withdrawn the same day. One month later, the defendant moved to compel arbitration, claiming its earlier arbitration argument was not decided.

The district court denied the motion to compel based on express waiver and found no grounds to allow the defendant to rescind that waiver under these circumstances. The Seventh Circuit agreed, finding that withdrawing the arbitration argument was a litigation choice “inconsistent with the right to arbitrate.” The court was sure to note that a party does not automatically waive the right to file a motion to compel arbitration by failing to do so immediately. Here, however, “[h]aving put the arbitration card on the table and then taken it back,” the court held that the defendant “was not permitted to play that card again later.”

Brickstructures, Inc. v. Coaster Dynamix, Inc., No. 19-2187 (7th Cir. Mar. 11, 2020).

Affirming the Central District of California’s order compelling arbitration, the Ninth Circuit Court of Appeals held that the Washington anti-arbitration statute, RCW § 48.18.200(1)(b), which has been held to prohibit binding arbitration agreements in insurance contracts in Washington, was preempted by the federal Liability Risk Retention Act of 1986 (LRRA) as it applied to risk retention groups chartered in another state. The LRRA broadly preempts the authority of nonchartering states to regulate the operation of risk retention groups within their borders.

Plaintiff Allied Professionals Insurance Co. is a risk retention group, a liability insurance company owned by its insured members, chartered in Arizona and doing business in Washington. Allied previously insured Dr. Michael Anglesey, a chiropractor in Washington. In December 2012, Dr. Anglesey provided chiropractic treatment to Eliseo Gutierrez, which allegedly resulted in Gutierrez suffering a stroke. A few months later, Dr. Anglesey renewed his coverage with Allied but, in doing so, did not inform the company of the potential malpractice claim against him by Gutierrez and his wife. When Dr. Anglesey later notified Allied of this potential claim, the company advised him that it was denying coverage and rescinding his 2012 and 2013 insurance policies.

A year later, Dr. Anglesey informed Allied that he was planning to execute a consent judgment in favor of the Gutierrezes and to assign his rights against Allied to them. They had agreed to seek satisfaction on the judgment from Allied and not from Dr. Anglesey. Allied responded by demanding that all claims against Allied be sent to arbitration, pursuant to the arbitration clause in the underlying policies. Dr. Anglesey refused, and Allied filed suit against both Dr. Anglesey and the Gutierrezes, moving to compel arbitration.

The district court initially held that Allied did not have standing to bring the underlying action to compel the defendants to arbitrate. Allied appealed that decision to the Ninth Circuit. The Ninth Circuit ruled that Allied had standing to bring the action against Dr. Anglesey to seek rescission of the policy and declaratory relief and had standing against all defendants to compel arbitration of those claims. On remand, the district court granted Allied’s motion to compel arbitration, granted the motion to stay proceedings pending arbitration, denied the defendants’ motion to transfer venue to the Eastern District of Washington, and certified a controlling interlocutory question of law to the Ninth Circuit. The Ninth Circuit granted permission to appeal.

The question certified by the district court was “whether the Liability Risk Retention Act preempts Wash. Rev. Code. § 48.18.200(1)(b) as applied to risk retention groups.” The Ninth Circuit held that the LRRA does preempt Washington’s anti-arbitration statute, RCW § 48.18.200(1)(b), as it applies to risk retention groups chartered in other states. In reaching that conclusion, the court found that the federal McCarran-Ferguson Act, which generally protects state regulation of insurance, did not reverse preempt the LRRA. The court also found that Washington’s anti-arbitration statute offended the LRRA’s preemption language and that no exception applied to save the law. The court therefore concluded that the Washington statute was preempted by the LRRA as it applied to a risk retention group charted in Arizona but doing business in Washington.

Allied Professionals Insurance Co. v. Anglesey, No. 18-56513 (9th Cir. Mar. 12, 2020).

Plaintiffs, former shareholders of a holding company for two New Jersey-based insurance companies, sued various affiliates of Aon Risk Services Companies alleging that Aon was negligent in failing to secure insurance coverage after the plaintiffs became obligated to indemnify the insurance companies for losses arising from a reinsurance program gone wrong. Aon moved to dismiss for lack of personal jurisdiction. In opposition, the plaintiffs argued that there was general jurisdiction over one of the Aon entities based on a “consent” theory. The court disagreed, finding that the U.S. Supreme Court’s decision in Daimler “precludes the exercise of personal jurisdiction over a corporation simply because the corporation is registered to do business in New Jersey.”

The plaintiffs also argued that there was specific jurisdiction over each of the defendants, including because Aon allegedly “agreed to notice claims under an insurance policy that primarily insured against a New Jersey risk.” Again, the court disagreed, finding that none of the Aon entities had sufficient contacts with New Jersey to confer jurisdiction. The court emphasized that any contact Aon had with New Jersey was “fortuitous” and did not stem from a “deliberate targeting” of the state but rather from the “unilateral activity” of a third party. The court therefore granted Aon’s motion to dismiss without prejudice.

Ferguson v. Aon Risk Services Companies, Inc., No. 3:19-cv-09303 (D.N.J. Feb. 26, 2020).