Week's Best Posts

UK COURT OF APPEALS AFFIRMS INJUNCTION AGAINST ACTION IN US COURTS

June 24, 2008 by Carlton Fields

In an August 28, 2007 post, we reported on the decision of the UK Commercial Court granting a permanent injunction against an insurer seeking to challenge a UK arbitration award, which was governed by New York law, in US courts. The UK Court of Appeals has denied an appeal, affirming that decision, in a situation in which: (1) the contract was a Bermuda insurance form; (2) the contract provided that it was governed by New York substantive law; and (3) the contract provided that any arbitration would occur in London, subject to UK arbitration law. The decision turned on the interpretation of the insurance contract, with the Court of Appeals agreeing with the analysis and conclusion of the Commercial Court judge. The Court of Appeal found that disputes as to the confirmation or vacation of an award had to be brought in the UK courts, and that a permanent injunction barring the insurer from challenging the award in US courts was appropriate. C and D [2007] EWCA Civ. 1282 (Dec. 5, 2007).

This post written by Rollie Goss.

COURTS ARE OBLIGED TO DEFER TO ARBITRATOR’S FACTUAL FINDINGS EVEN WHEN EVALUATING AN AWARD FOR VIOLATION OF PUBLIC POLICY

June 23, 2008 by Carlton Fields

In a published opinion issued on June 16, the Ninth Circuit reversed a district court that had vacated an arbitral award as contrary to public policy. The circumstances leading to the arbitration stemmed from a “no-match” letter sent by the Social Security Administration to the plaintiff, Aramark, indicating that information for 48 of Aramark’s employees did not match the Administration’s database. Suspecting immigration violations, Aramark gave the employees three days to prove they had begun an application for a new Social Security card, and fired 33 of the employees who did not timely comply. The defendant labor union filed a grievance on behalf of the employees, alleging violations of the governing collective bargaining agreement. The arbitrator ruled for the union, and awarded back pay and reinstatement to the employees. Thereafter, Aramark successfully moved in district court to vacate the arbitration award on public policy grounds, arguing that the “no-match” letter put it on constructive notice that it was employing illegal workers, and that the award would force it to violate immigration law. On appeal, however, the Ninth Circuit independently determined that Aramark had not established constructive knowledge of immigration law violations and that, in any event, it was obliged to defer to the arbitrator’s factual findings. It reversed the district court’s judgment and confirmed the award. Aramark Facility Services v. Service Employees International Union, Local 1877, AFL CIO CLC, No. 06-56662 (9th Cir. June 16, 2008).

This post written by Brian Perryman.

STATES CONTINUE TO AMEND CAPTIVE INSURER PROVISIONS

June 17, 2008 by Carlton Fields

Competition continues among the states with respect to captive insurer regulation.

The proposed Missouri regulations described in our March 10, 2008 post relating to the financial management and control of captives has been adopted, with an effective date of June 30, 2008.

On May 20, 2008, the Governor of Arizona signed an enacted bill which amended its captives law to permit branch captives to cover any risk a traditional single-parent captive could write. Last year, Arizona amended its rules to permit its branch captives to fund employee benefit risks.

On June 2, 2008, the Governor of Connecticut signed into law Senate Bill 281 (mentioned in our March 10, 2008 post), which provides for the formation and regulation of captives under Connecticut law. See an analysis of the new law and its final text.

This post written by Rollie Goss.

COURT OF APPEAL DECLINES TO ADDRESS WHETHER MANIFEST DISREGARD OF LAW DOCTRINE SURVIVES HALL STREET V. MATTEL

June 16, 2008 by Carlton Fields

In Rogers v. KBR Technical Services Inc., No. 08-20036 (5th Cir. June 9, 2008), the Fifth Circuit was presented with the applicability of the manifest disregard of law standard for vacating arbitration awards after the Supreme Court’s decision of Hall Street Associates v. Mattel (see March 28, 2008 post on Mattel, and the Special Focus posting of April 28, 2008 relating to the future of the manifest disregard of law doctrine after the Mattel decision). The court declined to rule on the issue, instead confirming the award on other grounds. This pro se case involved a claim for benefits by Rogers, an employee of Halliburton, arising out of his provision of services in Afghanistan. His lawsuit was stayed pending arbitration pursuant to a process contained in his employment agreement.

After an award was issued in his favor in the amount of only $252.84, Rogers moved to vacate the award, Halliburton moved to confirm, and after the award was confirmed, Rogers filed a FRCP 59 post-trial motion to alter or amend the final judgment. Some of the bases for the Rule 59 motion alleged that the arbitrator had manifestly disregarded the law, raising the issue of whether the manifest disregard of law doctrine survived Mattel. The court confirmed the arbitration award, finding that the arbitrator’s decision could be reasonably inferred from the provisions of the employment agreement. The court held that “because we affirm the district court and hold that the arbitration award is confirmed, there is no need in the instant case to determine whether those non-statutory grounds for vacatur of an arbitration award remain good law after Mattel.” The court essentially rejected the substance of the manifest disregard arguments on the basis that the actions of the arbitrator were rationally based upon the specific provisions of the employment agreement and the rules applicable to the arbitration.

Since the briefs are not available on PACER or Westlaw in this unreported, pro se case, it is not possible to determine the extent to which the continuing viability of the manifest disregard of law doctrine was briefed. The Mattel decision was issued after the Appellant filed his initial brief, but prior to the opposition and reply briefs being filed. It is unlikely that the Appellee would have raised the issue, and if the issue was raised for the first time in Appellant’s reply brief, the court likely would have permitted a supplemental response from the Appellee. According to the docket sheet, no supplemental briefing was submitted, and the case was decided less than four months after the briefing notice was issued, without oral argument.

Although not addressing the issue of the impact of Mattel on the manifest disregard of law doctrine, this decision does indicate that Mattel brings into question the continued viability of the manifest disregard of law doctrine. Expect further developments in this area.

This post written by Rollie Goss.

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

June 10, 2008 by Carlton Fields

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.