Week's Best Posts

An Alabama court claimed authority under Section 5 of the Federal Arbitration Act to appoint an umpire in an arbitration upon complaint by the plaintiff that “a lapse in the naming of an arbitrator . . . or umpire” had occurred in the arbitration selection process. 9 U.S.C. § 5. The arbitration provision at issue required each party to nominate one non-impartial arbitrator and required the two chosen arbitrators to select a neutral umpire within thirty days of the second arbitrator’s appointment. The Supreme Court of Alabama reversed the circuit court’s appointment, holding that 1) defendants’ delay in providing a list of potential umpires by six days beyond the prescribed thirty days was so minimal it did not warrant judicial intervention, and 2) defendants did not act in bad faith by proposing two potential umpires plaintiffs contend were biased because there was no showing that the potential umpires would not disclose facts relevant to their ability to be fair if selected and defendants offered to propose an additional umpire when plaintiffs complained of bias. Lexington Insurance Co. v. Southern Energy Homes, Inc., No. 1091617 (Ala. Aug. 17, 2012).

This post written by Abigail Kortz.

See our disclaimer.

In opinions issued the same week, the 11th and 3rd Circuits affirmed district court orders granting defendants’ motions to compel arbitration on an individual, rather than on a class-wide, basis over plaintiffs’ objections that class-arbitration waiver clauses in their credit card and wireless telephone service agreements were unconscionable and unenforceable. The circuit courts followed Supreme Court precedent from AT&T Mobility LLC v. Concepcion, which held that Section 2 of the Federal Arbitration Act, which provides that arbitration agreements are “valid, irrevocable, and enforceable,” preempts state laws that hold class-arbitration waivers to be unconscionable and unenforceable. Consistent with the Supreme Court’s reasoning, the circuit courts found that preemption trumps the public policy argument, accepted by some other courts, that when arbitration is mandated, “class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system.” Homa v. American Express Co., No. 11-3600 (3rd Cir. Aug. 22, 2012); Pendergast v. Sprint Nextel Corp., No. 09-10612 (11th Cir. Aug. 20, 2012).

This post written by Abigail Kortz.

See our disclaimer.

Pacific West Securities Inc. made a claim for coverage with its insurers, relating to underlying securities claims alleged against it in a FINRA proceeding brought by investors. The insurers contested coverage and initiated arbitration under the contracts. Pacific West brought suit in Washington state court, seeking to stay arbitration and have the matter heard in court based on the service-of-suit provision in the parties’ contracts. The insurers removed the case to federal court and moved to dismiss the petition to stay the arbitration. Citing the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, the court granted the motion, finding that the service-of-suit clause and the arbitration clause were compatible and could be read in a reasonable way to further the strong federal policy embodied in the FAA of enforcing arbitration agreements. Pacific West Securities Inc. v. Illinois Union Insurance Co., No. C12-539RSM (USDC W. D. Wash. Aug. 29, 2012).

This post written by John Pitblado.

See our disclaimer.

In 2009 Delaware adopted a rather unique process for the arbitration of business disputes by a sitting judge of the Court of Chancery, which was intended “to preserve Delaware’s pre-eminence in offering cost-effective options for resolving disputes, particularly those involving commercial, corporate, and technology matters.” Del. H.B. 49, at 4 (2009). A public interest group filed suit challenging the section of the new statute requiring that the proceedings be considered “confidential and not of public record.” 10 Del C. § 349(b). The federal district court in Delaware recently held that since the arbitration process essentially functions like a civil trial the confidentiality provision violates the qualified right of access to criminal and civil trials protected by the First Amendment. The court concluded that the proceedings function like a non-jury trial because: 1) the Chancellor, not the parties, selects the judge; 2) the Chancery Court discovery rules apply instead of the rules for arbitration discovery, and 3) a sitting judge of the Chancery Court, rather than a third party arbitrator, presides. The arbitration process remains in force in all other respects. Delaware Coalition for Open Government v. Strine, Case No. 1:11-01015 (USDC D. Del. Aug. 30, 2012).

This post written by Abigail Kortz.

See our disclaimer.