Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Tenth Circuit Affirms Arbitration Award in Soaring Victory for Jet Engine Manufacturer

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Williams International designs, manufactures, and services small jet engines. In May 2013, Dodson International Parts Inc., a company that sells new and used aircraft parts, purchased a damaged aircraft fitted with two engines manufactured by Williams. After purchasing the aircraft, Dodson contracted with Williams to inspect the engines and prepare an estimate of repair costs, intending to sell the repaired engines. The quotes for the work provided by Williams, and signed by Dodson, contained an arbitration clause requiring that “all disputes arising from or in connection with maintenance performed by Williams International shall be submitted to binding arbitration.” After inspecting the engines, Williams determined that the engines were so badly damaged that they could not be rendered fit for flying. However, because Dodson had not paid the requisite fees, Williams refused to return one of the engines.

Dodson sued Williams in federal court alleging federal antitrust and state law tort claims. Williams moved to compel arbitration under the Federal Arbitration Act, relying on the arbitration clause in the original signed quotes. The district court granted the motion, and the arbitrator resolved all of Dodson’s claims in favor of Williams. Dodson then moved to reconsider the order compelling arbitration and to vacate the arbitrator’s award. The court denied both motions and, construing Williams’s opposition to the motion for vacatur as a request to confirm the award, confirmed the award. Dodson appealed, challenging the district court’s order compelling arbitration and its order confirming the award and denying the motions for reconsideration and vacatur.

The Tenth Circuit Court of Appeals ruled in favor of Williams on all three issues. On the primary question of arbitrability, Dodson argued that its claims were not arbitrable because its antitrust and state law tort claims were not “arising from or in connection with maintenance performed” by Williams. The court determined that “maintenance” included more than just repair work — simply inspecting machinery is typically referred to as maintenance work as well. And, acknowledging that language such as “arising out of or in connection with” is interpreted quite expansively, the court held that all of Dodson’s claims were connected to Williams’s work and therefore encompassed by the arbitration clause. Dodson also argued that its claims were not arbitrable because they arose either before its contracts with Williams were executed or after they terminated, but the court rejected this argument as well, as the arbitration clause at issue had no temporal element. All that was required for a dispute to be arbitrable was that it be one “arising from or in connection with maintenance performed by Williams.”

With respect to its motion for reconsideration, Dodson moved under District of Kansas Local Rule 7.3(b), which requires that parties seeking reconsideration must file a motion within 14 days after an order is issued, and must be based on (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. While the Tenth Circuit agreed with the district court that no new controlling law had been established, nor had there been any manifest injustice visited on Dodson, it needed to look no further than Dodson’s filing date — nearly three years after entry of the order compelling arbitration. The district court’s denial of Dodson’s motion for reconsideration was sufficient on this ground alone.

Finally, Dodson challenged the district court’s order confirming the arbitration on the grounds that the district court lacked subject matter jurisdiction to confirm the award and that the confirmation order was improper on the merits. The Tenth Circuit found none of these arguments remotely persuasive and affirmed the district court’s order.

Dodson International Parts Inc. v. Williams International Co., No. 20-3193 (10th Cir. Sept. 13, 2021).

Federal Circuit Declines to Hear Challenge to Patent Board’s Decision Even Though Decision Allegedly Involved Adjudicating Issues Subject to Arbitration

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The Federal Circuit Court of Appeals recently declined to hear an appeal or grant a writ of mandamus seeking review of a decision by the Patent Trial and Appeal Board to institute inter partes review proceedings even though those proceedings were allegedly subject to arbitration.

MaxPower Semiconductor Inc. sought to appeal the Patent Trial and Appeal Board’s decision to institute inter partes review proceedings involving four of MaxPower’s patents. In the alternative, MaxPower sought a writ of mandamus to review the board’s decision. In relevant part, MaxPower argued that “the collateral order doctrine warrant[ed] immediate review because its challenge implicates questions of whether the Board can institute proceedings that are subject to arbitration.”

The Federal Circuit rejected MaxPower’s arguments for review, including its argument that it was entitled to immediate review because the question whether the board could institute proceedings subject to arbitration was implicated. The court explained that “[i]f MaxPower [was] truly not raising matters that are absolutely barred from appellate review … then MaxPower can meaningfully raise its arbitration-related challenges after the Board’s final written decisions. We therefore cannot say that MaxPower has established jurisdiction to review these decisions under the collateral order doctrine.”

In re MaxPower Semiconductor, Inc., No. 2021-146 (Fed. Cir. Sept. 8, 2021).

Seventh Circuit Concludes That Arbitration Clause That Waives ERISA Remedies Is Invalid

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The Seventh Circuit Court of Appeals recently concluded that an arbitration clause that prohibited claimants from seeking or receiving any remedy that provided additional retirement benefits or other relief was unenforceable because it prospectively waived ERISA remedies.

James Smith worked for Triad Manufacturing Inc. Triad offered Smith and other employees a defined contribution employee retirement plan. In 2018, after Smith had left Triad, Triad added an arbitration provision with a class action waiver to the plan, which stated:

Each arbitration shall be limited solely to one Claimant’s Covered Claims, and that Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than the Claimant.

In 2020, Smith filed a putative ERISA class action alleging that Triad’s board had breached fiduciary duties and engaged in prohibited transactions based on the board’s governance of the retirement plan. The board filed a motion to compel arbitration or, in the alternative, to dismiss.

The district court denied the board’s motion. The district court concluded that Smith had not consented to the arbitration clause because his employment with Triad ended in 2016 but the arbitration clause had been added in 2018 and there was no evidence that Smith had even received notice of the amendment. The court also concluded that the arbitration clause was “unenforceable because it prospectively waived Smith’s right to statutory remedies provided by ERISA.”

The Seventh Circuit affirmed the district court’s decision. It agreed that the arbitration clause was unenforceable because its language prohibiting claimants from seeking or receiving any remedy that provided additional benefits or other relief was inconsistent with ERISA’s allowance of “such other equitable or remedial relief as the court may deem appropriate, including removal of [a] fiduciary.” The Seventh Circuit did not address whether Smith had agreed to the arbitration clause, whether he had received notice of the provision, or whether a plan sponsor can unilaterally add an arbitration clause. The Seventh Circuit did, however, conclude that “ERISA claims are generally arbitrable” and noted that the arbitration clause’s class action waiver did not present any problem, as the Seventh Circuit “has blessed that arbitration maneuver many times.”

Smith v. Board of Directors of Triad Manufacturing, Inc., No. 20-2708 (7th Cir. Sept. 10, 2021).

Ninth Circuit Affirms Order Confirming Arbitration Award

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The Ninth Circuit Court of Appeals affirmed a California district court order granting the plaintiff-union’s motion to confirm an arbitration award against the defendant. On appeal, the defendant claimed the district court erred in determining that the collective bargaining agreement between the parties continued beyond the expiration date of June 30, 2017. But the Ninth Circuit disagreed, finding that certain events necessary for the agreement to expire on that date had not taken place. As such, the court rejected the argument that the plaintiff implicitly waived its grievance under the collective bargaining agreement by failing to raise it before June 30, 2017. Instead, the court found that the defendant waived its argument that certain pleadings submitted by the plaintiff contained judicial admissions that the collective bargaining agreement expired on June 30, 2017, as the argument was not raised in the district court.

Sheet Metal Workers Local Union 105 v. Titan Sheet Metal, Inc., No. 20-55849 (9th Cir. Sept. 10, 2021).

Eighth Circuit Holds Company Waived Its Right to Arbitration Where It Litigated the Case for Nearly a Year

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The Eighth Circuit Court of Appeals recently held that a parent company of a lender could not compel homeowners to arbitrate a case that it had already litigated for almost a year in a Missouri federal court.

In Sitzer v. National Association of Realtors, several homeowners filed a putative class action against various real estate entities, including HomeServices of America Inc., the parent company of the lender, alleging that the real estate entities engaged in anticompetitive practices.

Despite actively litigating the case in federal court for 305 days, HomeServices moved to compel arbitration under a listing agreement between the homeowners and the real estate entities, which required “[a]ny controversy or claim between the parties to this Contract, its interpretation, enforcement or breach[,] … [to] be settled by binding arbitration.” The Missouri district court denied the motion because HomeServices was not itself a party to the listing agreement. HomeServices appealed to the Eighth Circuit.

On appeal, the circuit judge first addressed the threshold question of whether the court or the arbitrators get to decide default-based waiver questions (i.e., whether a party has waived its right to arbitration based on active participation in a lawsuit or other action inconsistent with the right to arbitration). Relying on 40 years’ worth of precedent in the Eighth Circuit as well as in other jurisdictions, the circuit judge found it was up to the court, not an arbitrator, to decide default-based waiver questions.

The circuit judge then addressed the issue of waiver and held that HomeServices waived its right to arbitrate by aggressively litigating the case in federal court for close to a year, having joined other defendants’ motions to dismiss and to transfer the case to another judicial district, negotiated a proposed scheduling order, participated in a scheduling hearing, filed an answer to the complaint, and replied to written discovery. “A party cannot keep a contractual right to arbitration in its back pocket and pull it out only when it is ready for a ‘do over,’” said the circuit judge. Having actively litigated the case in court for 305 days, the company was required to “live with the consequences.”

Sitzer v. Nat’l Ass’n of Realtors, No. 20-1779 (8th Cir. Sept. 10, 2021).