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In a matter between Petitioner Vitaly Smagin and Respondent Ashot Yegiazaryan, the London Court of International Arbitration awarded Smagin about $72 million in damages plus about $20 million in interest and fees. A U.S. district court then confirmed the award. Yegiazaryan then appealed to the Ninth Circuit, taking issue with (1) an order of attorneys’ fees against him; (2) a post-judgment injunction against him, freezing some $115 million in assets; and (3) a turnover order against him regarding a Liechtenstein trust that is now the subject of ongoing proceedings in Liechtenstein courts.

With respect to the grant of attorney’s fees, the Ninth Circuit vacated the award as an abuse of discretion, finding that the district court granted Smagin’s request for attorney’s fees without entering any finding on bad faith. With regard to the injunction resulting in the freezing of Yegiazaryan’s assets, however, the Ninth Circuit upheld the decision, reasoning that the district court identified a clear, case-specific risk that Yegiazaryan might evade the court’s jurisdiction or contravene its judgment by funneling assets through a “reshuffled deck of shell companies and bank accounts across the Caribbean, Cyprus, Monaco, Liechtenstein, or whatever other amicable havens he finds.” Regarding the turnover order, which commanded Yegiazaryan to turn over assets of a Liechtenstein trust, the Ninth Circuit vacated the order as premature. The Ninth Circuit reasoned that its decision was guided by the principles of “adjudicatory comity,” that is, “discretion of a national court to decline to exercise jurisdiction over a case before it when that case is pending in a foreign court with proper jurisdiction.” Smagin v. Yegiazaryan, Case No. 17-56467 (9th Cir. May 18, 2018).

This post written by Gail Jankowski.

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This lawsuit centered around a contract providing a guaranty of performance in connection with an underlying broadband network access contract. The underlying contract called for binding arbitration of any disputes and required the parties “to continue performing their respective obligations under the Agreement … while the dispute is being resolved.” The guaranty did not contain the same “continuing performance” clause, but it did include a clause incorporating “all other provisions [of the underlying agreement] relating to dispute resolution or arbitration.” The guarantor argued that the “continued performance” clause of the underlying contract only imposed an obligation on its subsidiary, the party to the underlying contract. But, according to the court, “this argument makes no sense.” “[W]hen the parties to the Guaranty agree that they incorporate a clause saying that the ‘Parties agree to perform their respective obligations under the Agreement … while a dispute is being resolved,’ then that incorporation plainly means that the parties to the incorporating contract (i.e., the Guaranty) agree to perform their obligations under that contract pending resolution of any dispute. Otherwise, the incorporation would do no work.” As such, the guaranty’s incorporation of “all other provisions relating to dispute resolution or arbitration” subjected the guarantor to the underlying contract’s continuing performance obligations pending resolution of the dispute. Axia Netmedia Corp. v. Massachusetts Tech. Park Corp., Case No. 17-1607 (1st Cir. Apr. 25, 2018)

This post written by Benjamin E. Stearns.

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The procedural history of the case can be found here. However, in sum, the case involves five consolidated class actions brought in Florida federal court against banks by bank customers in 2008 and 2009 alleging that they were unlawfully charged overdraft fees. Early in the case, the court ordered all defendant banks to file motions directed to the complaints, including those to compel arbitration. Wells Fargo did not file a motion to compel arbitration as to the named class representatives, but instead joined several other banks in filing a motion to dismiss. Wells Fargo also reserved its arbitration rights against unnamed class members in the event of class certification. Wells Fargo later filed answers to the complaints, stating that “’[a]bsent members of the putative classes have a contractual obligation to arbitrate any claims they have against Wells Fargo.’”

After the Supreme Court decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act preempted state laws purporting to void prohibitions on class arbitration, Wells Fargo then moved to compel the named class representatives to arbitrate their claims. However, the Florida district court found that Wells Fargo waived its right to arbitrate against the named class representatives, and the Eleventh Circuit affirmed. After remand to the district court, the plaintiffs moved for class certification. Wells Fargo opposed the motion on the grounds of lack of numerosity because the unnamed class members had arbitration agreements with the bank, and also filed conditional motions to compel arbitration as to the unnamed class members. The district court denied Wells Fargo’s motions to compel arbitration. Wells Fargo appealed, and the Eleventh Circuit vacated the district court’s decision, finding that because no class had been certified, the district court lacked jurisdiction to rule on the arbitration obligations of unnamed class members. On remand, the district court then granted the plaintiffs’ motion to certify the class. Wells Fargo then moved to compel arbitration of the claims of the unnamed class members. The district court denied the motion, finding that Wells Fargo waived its right to seek arbitration by acting “inconsistently with its arbitration rights during its pre-certification litigation efforts” and that the plaintiffs would suffer “significant prejudice” if Wells Fargo were allowed to invoke arbitration after nearly 10 years of litigation. Wells Fargo appealed.

The Eleventh Circuit first noted that a party asserting waiver of arbitration faces a heavy burden of proof: it requires a showing that the party seeking arbitration has acted inconsistently with the arbitration right and that the opposing party has in some way been prejudiced. The court held that, even though Wells Fargo had waived its arbitration rights as to the named class representatives, it provided “fair notice at a relatively early stage of litigation” that it wished to preserve its right to compel arbitration as to unnamed plaintiffs in the event the classes were certified. The court also noted that “it would have been impossible in practice to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the District Court to rule on those motions before the class was certified.” The court rejected the argument that, to avoid waiver, filing a conditional motion to compel was required much earlier in the litigation, because the district court would lack jurisdiction over such a motion until the class was certified.

Thus, the Eleventh Circuit vacated the district court’s order denying Wells Fargo’s motion to compel arbitration of the unnamed plaintiffs’ claims and remanded for further proceedings.

Gutierrez v. Wells Fargo Bank, No. 16-16820 (11th Cir. May 10, 2018).

This post written by Jeanne Kohler.

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