Reinsurance Focus

Two recent appellate decisions highlight the subtleties involved in determining whether multiple contracts are sufficiently interconnected and relied upon to compel arbitration in a dispute that purportedly involves a contract lacking arbitration provisions. In Robinson Brog Leinwand Green Genovese & Gluck P.C. v. John M. O’Quinn & Associates, the Second Circuit affirmed an order compelling arbitration in a case brought by one law firm against a co-counsel firm to recover attorneys’ fees and expenses for legal work in a stock fraud case. The plaintiff firm sought fees under a joint legal representation agreement, which did not contain an arbitration clause. The defendant moved to compel arbitration, contending that the related client agreement, which contained a broad arbitration clause, supported arbitration. The court agreed with the defendant and compelled arbitration, and the Second Circuit affirmed, holding that the client agreement, which detailed the attorney client relationship, set the contingency fee, and memorialized the client’s promise to pay attorney fees and expenses “function[ed] together with the other agreements” and provided the “basis for generating a potential recovery” for the plaintiff firm’s claim for attorneys’ fees and expenses. Robinson Brog Leinwand Green Genovese & Gluck P.C. v. John M. O’Quinn & Associates, Case No. 12-2915 (2d Cir. April 22, 2013).

In contrast, in Dental Associates, P.C. v. American Dental Partners of Michigan, LLC, the Sixth Circuit affirmed an order denying arbitration in a dispute involving a service agreement for administrative services entered in connection with the purchase of dental practices. The court found that the dispute was not arbitrable because the plaintiff’s claims for breach of fiduciary duty and breach of contract, and related claims arose only under the service agreement, which did not provide for arbitration of such a dispute. The court found that the related purchase agreement, which did contain relevant arbitration provisions, was not “an umbrella agreement” and did not create the relationship between the parties. The purchase agreement, the court explained, governed only a “one time purchase and transfer of assets,” whereas the service agreement defined “the ongoing business relationship between the parties,” created the fiduciary duty in question, and was capable of interpretation independently. The court also construed the service agreement to find that the parties did not intend to arbitrate the claims at issue in the case. Dental Associates, P.C. v. American Dental Partners of Michigan, LLC, Case No. 12-1008 (6th Cir. March 28, 2013).

This post written by Michael Wolgin.

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In a unanimous opinion authored by Justice Kagan, the Supreme Court concluded that an arbitrator did not “exceed [his] powers” under §10(a)(4) of the Federal Arbitration Act (“FAA”) when he found that the parties’ contract provided for class arbitration. The arbitrator interpreted an arbitration clause which provided for final and binding arbitration in lieu of civil action and determined that the clause authorized class arbitration. The party opposing class arbitration twice moved in federal court to vacate the arbitrator’s decision on the ground that he “exceed [his] powers” under § 10(a)(4) and was twice denied by the district court and the Third Circuit. The Supreme Court concluded that the limited judicial review of §10(a)(4) did not allow it to find that the arbitrator exceeded his powers because the only question for a judge under § 10(a)(4) “is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Since the arbitrator “articulate[d] a contractual basis for his decision” he did not exceed his powers. Justice Kagan distinguished the Court’s holding in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., in which the Court relied on § 10(a)(4) to vacate an arbitrator’s decision approving class proceedings. According to the Court, the distinction lies in the fact that in Stolt-Nielsen the parties stipulated that they had not reached an agreement regarding class arbitration and the arbitrator simply imposed his own views rather than interpret an agreement. Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013).

This post written by Abigail Kortz.

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