Week's Best Posts

DIVIDED THIRD CIRCUIT PANEL HOLDS THAT WAIVER OF ARBITRATION CLAUSE DOES NOT APPLY TO FUTILE ARGUMENTS

October 3, 2016 by Carlton Fields

On July 13, 2016, a U.S. Court of Appeals for the Third Circuit panel held that an arbitration clause is not waived simply because a party failed to raise a futile argument. The case arose out of a putative class action alleging over $50 million in untrebled damages relating to purported overcharges of fees stemming from the recording of deeds and mortgage instruments. The case was pending in the District of New Jersey, where strong precedent suggested that a motion to compel bipolar arbitration—that is individual, rather than class-wide—would have been futile. Following the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), where the Court found that the Federal Arbitration Act preempted state laws that had previously prohibited a party from compelling bipolar arbitrations, the defendants notified the plaintiffs that they would be seeking to compel arbitration of this kind. The U.S. District Court for the District of New Jersey granted the motion.

On appeal, the Third Circuit found that “futility can excuse the delayed invocation of the defense of arbitration.” Examining what other federal courts had held previously, the Third Circuit panel, over a strong dissent, held that “[w]hy would we require a party to make a futile gesture to prevent waiver when we do not require such gestures in other scenarios?” The panel went on to state that the correct test is whether it was almost certain that a motion to compel arbitration would have been denied. Finding that test satisfied in these circumstances, the panel found that because defendants demanded bipolar arbitration less than a month after Concepcion, the plaintiffs were not prejudiced and affirmed the district court’s order compelling the case to individual arbitration.

Chassen v. Fidelity National Financial, Inc., Case No. 15-3789 (3d Cir. July 13, 2016).

This post written by Zach Ludens.

See our disclaimer.

ORDER COMPELLING ARBITRATION REVERSED DUE TO FAILURE TO DETERMINE THE EXISTENCE AND SCOPE OF ARBITRATION AGREEMENT

September 27, 2016 by Carlton Fields

The Ninth Circuit recently reversed a trial court for compelling arbitration without issuing an order that (1) made “the necessary factual findings as to the parties’ communications,” (2) determined “the law applicable to contract formation,” and (3) ruled “as a matter of law what constituted the offer, acceptance, or terms of the contract.” The appellate court remanded for the trial court to “resolve factual issues and make legal conclusions regarding the scope of the parties’ agreement.” Due to the basic threshold error, the court determined that it did not need to consider the parties’ arguments regarding unconscionability, waiver, and due process. Cunico Corp. v. Custom Alloy Corp., Case No. 14-56544 (9th Cir. Sept. 6, 2016).

This post written by Michael Wolgin.

See our disclaimer.

SECOND CIRCUIT PANEL ADHERES TO CIRCUIT PRECEDENT AND AFFIRMS ENFORCEABILITY OF EMPLOYMENT CLASS ACTION WAIVERS

September 26, 2016 by Carlton Fields

The Second Circuit issued a summary order affirming a decision by the Southern District of New York compelling arbitration pursuant to class-action and collective-action waivers contained in an employment arbitration agreement. The agreement required employees to submit all employment and compensation-related claims to arbitration and mandated that such claims be decided on an individual basis. The sole issue on appeal was whether the arbitration provision’s “prohibition of class or collective adjudication of work-related claims illegally restrict[ed] employees’ substantive rights under the NLRA and the [Norris-La Guardia Act], and [was] unenforceable under the [Federal Arbitration Act].” The court described the landscape of the Circuit split on this issue, noting that the National Labor Relations Board (NLRB) and the Seventh and Ninth Circuits have rejected the class/collective action waivers, whereas the Fifth and Eighth Circuits have held that such waivers may be enforceable. The Second Circuit panel then followed its own precedent, citing its 2013 decision in Sutherland v. Ernst & Young LLP, which is aligned with position of the Fifth and Eighth Circuits. The court then affirmed the enforceability of the waivers here. Patterson v. Raymours Furniture Co., Inc., Case No. 15-2820-cv (2d Cir. Sept. 2, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

TEXAS APPEALS COURT DENIES PETITION FOR A WRIT OF MANDAMUS THAT TRIAL COURT ERRED IN DENYING MOTION TO VACATE ARBITRATION PANEL’S ORDERS

September 20, 2016 by John Pitblado

A Texas appeals court denied a petition for a writ of mandamus filed by Irving Drobny, on behalf of National Accident Insurance Group (“NAIG”) and National Accident Insurance Underwriters (“NAIU”) (collectively, “NAIU”), challenging a trial court’s denial of NAIU’s motion to vacate an arbitration panel’s pre-hearing security and discovery orders in favor of American National Insurance Corporation (“ANICO”).

The background of this case can be found here. In sum, ANICO and NAIU were parties to an Underwriting Agreement, in which ANICO authorized NAIU to market, underwrite, issue and collect premiums for ANICO insurance policies. A dispute arose between the parties because one of NAIU’s vice presidents allegedly defrauded both NAIU and ANICO of approximately $43 million. The parties participated in an arbitration, in which ANICO filed a motion for pre-hearing security. On October 24, 2014, the arbitration panel granted ANICO’s motion and ordered NAIU to post $20 million in pre-hearing security. On January 12, 2015, the panel issued another order granting a motion to compel discovery responses and depositions, a motion to compel compliance with order requiring pre-hearing security and a motion for continuance. On March 4, 2015, NAIU filed in a Texas trial court a motion for temporary restraining order, temporary injunction and motion to compel arbitration, essentially asking the court to vacate the pre-hearing security order. The Texas court found that it had no authority to grant NAIU’s motion to vacate the panel’s pre-hearing security order because under the Federal Arbitration Act (the “FAA”), NAIU had failed to timely challenge it, and thus, the court denied NAIU’s motion. The court did not expressly rule on any discovery issues. NAIU appealed the trial court’s order, or in the alternative, requested that it be treated as a petition for a writ of mandamus. The Texas appeals court held that it did not have jurisdiction over NAIU’s appeal as it was interlocutory, and thus the appeal was treated as a petition for a writ of mandamus.

In its order, the Texas appeals court found that the trial court did not abuse its discretion in denying NAIU’s motion to vacate the arbitration panel’s pre-hearing security order because it was not timely challenged within the 90-day period under Texas law and the 3-month period under the FAA. With respect to NAIU’s argument that there is no authority for pre-hearing security during arbitration, the court noted while the FAA does not speak to pre-hearing security, Texas law allows for pre-hearing security. The court also noted that the trial court held a hearing on the motion to vacate the pre-hearing security order at which NAIU presented no evidence. Thus, the Texas appeals court held that the trial court did not abuse its discretion in denying the motion to vacate the panel’s award of pre-hearing security. Further, as the trial court did not rule on any discovery issues, the Texas appeals court overruled NAIU’s second issue and denied NAIU’s petition for a writ of mandamus.

In Re Irving Drobny, as Representative of National Accident Insurance Group, et al., No. 01-15-00435-CV (Tex. Ct. App. Aug. 30, 2016).

This post written by Jeanne Kohler.

See our disclaimer.

SEVENTH CIRCUIT AFFIRMS SERVICE OF SUIT CLAUSE IN REINSURANCE TREATIES AND GRANTS CEDENT ABSOLUTE RIGHT TO SELECT FORUM

September 19, 2016 by John Pitblado

Based on the plain and ordinary meaning of the service of suit clause, the Seventh Circuit Court of Appeals found a reinsurer waived its right of removal. The service of suit clause provided:

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

Cases interpreting this service of suit clause as far back as 1949 have found such a clause forecloses a defendant’s right of removal. Although the reinsurer urged the Court should adopt a heightened “clear and unequivocal” standard when determining whether it waived its right of removal, the Court declined to do so, as litigation-based waivers are distinguishable from contractual waivers, and such a high standard should not be applied to the right of parties to contract where they will litigate a dispute.

The reinsurance treaties required the reinsurer to submit to the jurisdiction of any court chosen by the cedent “whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or resolve on the merits, a claim not subject to arbitration,” which included the cedent’s breach of contract claim in this instance. Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., No. 16-1073 (7th Cir. Sept. 1, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.