Interstate National Dealer Services, Inc. (“INDS”) challenged an arbitration award pursuant to OCGA § 9-9-13(b)(3), alleging the arbitrators overstepped their authority, and (5) the arbitrator’s manifest disregard of the law. Here, the arbitrator’s award found that respondent drafted the insurance agreements at issue with explicit authorization to recover certain fees, namely, “warranty claims” and “fees associated with contracts written.” INDS argued that the award ignored the fact the contracts expressly required the parties to utilize pricing structures set out by INDS in the Rate Card. The Court concluded that by rejecting the Rate Card, the arbitrator manifestly disregarded the law. The trial court’s ruling affirming the arbitration award was reversed on appeal.
Supreme Court of Mississippi Enforces Arbitration Agreement
The Supreme Court of Mississippi has reversed and remanded a trial court’s refusal to enforce an arbitration agreement after rejecting the plaintiff’s arguments against arbitration. The Court also instructed the trial court to try to determine which arbitration agreement applied and, if that could not be determined, to look to the FAA to determine the specific terms of the arbitration.
Bettye Turner invested approximately $2 million with David Carrick, an investment broker employed by Morgan Stanley Smith Barney. Carrick subsequently moved to Stern, Agee & Leech, Inc. To facilitate the transfer of Turner’s funds to the new brokerage, Turner signed an account application. That referenced a client account agreement, which the account application stated (in bold, capital letters) “contained in numbered paragraph 22, a pre-dispute arbitration clause requiring all disputes under this agreement to be settled by binding arbitration.” Carrick subsequently left Stern, Agee & Leech, Inc. and joined Stifle, Nicolaus & Company, Inc. (“Stifel”). Turner (through her daughters) subsequently sued Stifel for mismanagement in Mississippi state court. Stifel moved to compel arbitration. The trial court denied that motion.
On appeal, the Supreme Court of Mississippi reversed and remanded. Contrary to the trial court’s conclusion that there was “no contract, [and] thus no agreement to arbitrate” because the a agreement was “‘confusing and conflicting.'” The Supreme Court concluded that the “parties entered into a valid and enforceable arbitration agreement in the account application.” The account agreement itself, the Court held, was “sufficient to indicate the unambiguous intent of the parties to arbitrate.” The Court also rejected Turner’s argument that Stifel could not enforce the agreement because it was not a party to it. Turner alleged, the Court explained, that Stifel was a successor in interest to Stern, Agee & Leech, Inc., and Stifel could therefore invoke arbitration. Finally, the Court also rejected Turner’s argument that the provision was invalid because the account application referred to the arbitration clause as being in paragraph 22 of the account agreement, even though the arbitration clause was in paragraph 19 of one of the two account agreements in existence at that time. The Court remanded the case, however, for a determination regarding which of the two arbitration clauses contained in the two account agreements applied and, if that could not be determined, to apply the FAA to determine the specifics of arbitration.
Georgia Supreme Court Finds Mandatory Arbitration Clause in Law Firm Engagement Agreement Is Neither Unconscionable nor Void as Against State Public Policy
The plaintiff sued its former lawyer and law firm for legal malpractice. The defendants moved to dismiss and compel arbitration based on a mandatory arbitration clause in the parties’ engagement agreement. The trial court denied the motion, finding the arbitration clause was unconscionable, and thus unenforceable, having been entered into in violation of the Georgia Rules of Professional Conduct (GRPC). The appellate court reversed, finding the clause was neither void as against public policy nor unconscionable. Plaintiff appealed to the Supreme Court of Georgia, which granted review of two questions: (1) whether the GRPC requires an attorney to obtain the informed consent of his/her client before including a clause mandating arbitration of legal malpractice claims in the parties’ engagement agreement; and if so, (2) whether failing to obtain that consent renders such a clause unenforceable under Georgia law.
Substantively addressing the second question only, the Court affirmed the decision of the appellate court, finding the first question need not be answered. Specifically, the Court held, even assuming the failure to obtain a prospective client’s informed consent does violate the GRPC, the arbitration clause at issue here would still not be unenforceable. The Court rejected the argument that clauses of this kind violate state public policy, noting that Georgia has a clear public policy in favor of arbitration, and that “[t]here is nothing about attorney-client contracts in general that takes them outside this policy and makes mandatory arbitration of disputes arising under them illegal.” The Court also found Georgia does not have a categorical policy against mandating arbitration of legal malpractice claims. Rather, and contrary to the plaintiff’s argument, the Court held that a contract is void as against public policy, and thus unenforceable, where the agreement itself effectuates illegality, not because the process of entering the contract was allegedly improper. Thus, because the arbitration clause at issue would still be lawful even if the defendants had complied with the GRPC, the Court found the clause is not void as against public policy. In addition, based on the limited record before it, the Court found no basis to conclude the arbitration clause at issue is either procedurally or substantively unconscionable.
Innovative Images, LLC v. James Darren Summerville, et al., Case No. S19G1026 (Ga. Sept. 8, 2020)
Fifth Circuit Finds Incorporation of AAA Rules Into Arbitration Agreement Presents “Clear Unmistakable Evidence” of Parties’ Intent To Have Arbitrator Decide Issue of Arbitrability
This appeal arises from a class action suit alleging violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227. In 2015, plaintiff Manuel Mendoza bought a car from defendant car dealer Fred Haas Motors, and signed an arbitration agreement and a personal information notice. The arbitration agreement was broadly worded, covering “all claims, demands, disputes, or controversies of every kind or nature” relating to the transaction between the parties. Any arbitration was to be conducted pursuant to the provisions of the Federal Arbitration Act and “according to the Commercial Rules of the American Arbitration Association” (AAA Rules).
Years later, in 2019, the plaintiff alleged that the defendant sent four prerecorded voicemail marketing messages to his phone, and filed a class action lawsuit asserting TCPA violations. The defendant moved to compel arbitration based on the arbitration agreement, arguing that the plaintiff’s execution of the personal information notice constituted prior written consent and any dispute over the meaning of the document is subject to arbitration. The defendant also contended that the arbitration agreement delegates questions of arbitrability to the arbitrator.
The U.S. District Court for the Southern District of Texas denied the motion to compel arbitration, and the defendant thereafter filed an interlocutory appeal.
On appeal, the Fifth Circuit reversed and remanded, noting that the issue of whether a particular claim is covered by an arbitration agreement “changes when the parties include a delegation clause giving the arbitrator the primary authority to rule” on that question. The focus then shifts to whether there is “‘clear unmistakable’ evidence” that the parties intended to have an arbitrator make that decision. The Fifth Circuit found that the incorporation of the AAA rules into the arbitration agreement presented that clear unmistakable evidence, particularly where Rule 7(a) provides in relevant part that “the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect…to the arbitrability of any claim or counterclaim.”
The Fifth Circuit further rejected the plaintiff’s argument that the delegation only related to claims regarding the vehicle transaction, finding that the plaintiff waived this argument by raising this theory for the first time on appeal.
In closing, the Fifth Circuit cautioned that it was expressing “no views on the scope of the arbitration clause or the merits of the underlying dispute,” and was simply respecting the parties’ decision to delegate the threshold issue of arbitrability to the arbitrator.
Mendoza v. Fred Haas Motors, Limited, No. 20-20123 (5th Cir. Sept. 1, 2020).
Federal Court Confirms $112 Million Foreign Arbitral Award Against Ukraine, Finding No Arbitrator Impartiality
Pao Tatneft filed suit in Washington, D.C., district court seeking to enforce a $112 million foreign arbitral award entered in its favor against the nation of Ukraine. Confirmation was sought pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention.”
Ukraine argued against confirmation of the award on the grounds that the arbitration panel was not impartial, and that confirmation would be contrary to U.S. public policy. Regarding impartiality, Ukraine claimed the panel’s neutral arbitrator was, in fact, not neutral, having failed to disclose that he accepted an offer from Pao Tatneft’s law firm to serve as an arbitrator in a wholly separate arbitration in which he would earn upwards of $300,000. The parties disputed the standard by which to assess any alleged impartiality. Ukraine argued that the less stringent “evident partiality” standard set forth in Section 10(a)(2) of the Federal Arbitration Act applied. Pao Tatneft argued that Article V of the New York Convention contained the only grounds upon which the court could refuse to enforce the award. The court agreed with Pao Tatneft, but found Ukraine failed to meet its burden under both standards in any event. Ukraine argued alternatively that the award should not be confirmed based on U.S. public policy, but these claims were found to be speculative and/or factually unsupported. As such, the court granted Pao Tatneft’s petition to confirm the award and left the total amount payable after interest for additional briefing.
Pao Tatneft v. Ukraine, Case No. 17-cv-00582 (D.D.C Aug. 24, 2020)