Reinsurance Focus

In deciding a motion to compel arbitration in a dispute over insurance coverage to be provided after Hurricane Ike, a district court in Louisiana found that the parties intended for a draft version of an arbitration clause, rather than the final version of the clause contained in a written contract, to be in effect. Interpreting the draft version, the court found that the narrowly drafted clause that called for arbitration of disputes “as to the amount to be paid under this Policy” encompassed the dispute at issue. A non-signatory insurance adjustor was also allowed to compel arbitration because plaintiff’s claims against that particular defendant referenced or presumed the existence of the agreement and centered on the adjustor’s alleged misconduct in its role as an adjustor for the defendant insurers who were parties to the agreement containing the arbitration clause. Aker Kvaerner IHI v. National Union Fire Insurance Co. of Louisiana, Case No. 10-CV-00278 (W.D. La. Dec. 2, 2013).

This post written by Abigail Kortz.

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Creating an interesting procedural posture, a German engineering company, GEA Group AG, brought suit against Flex-N-Gate Corporation and its CEO, billionaire Shahid Khan, in federal district court after instituting arbitration proceedings against Flex-N-Gate in Germany. Immediately after filing suit, GEA sought a stay of all proceedings, including discovery, in the district court pending the outcome of the arbitration proceedings. Khan, not a party to the arbitration or to the contract authorizing arbitration, sought a limited lift of the stay in order to conduct enough discovery to defend himself, which the district court allowed. Over GEA’s objections that Khan would simply pass along the “fruits of his discovery” to Flex-N-Gate to use in the German arbitration, the Seventh Circuit affirmed the district court’s decision as “eminently sensible.” The Seventh Circuit wondered “[w]hat business is it of an American court” whether the German arbitration panel decides to allow in the evidence obtained through discovery in American litigation? GEA Group AG v. Flex-N-Gate Corporation, No. 13-2135 (7th Cir. Jan. 10, 2014).

This post written by Abigail Kortz.

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In a recent case involving an unsuccessful aquatic ecosystem restoration project in Clearwater, Florida, the Middle District of Florida applied the Federal Arbitration Act to resolve an arbitrability dispute, which involved a marine and dredging construction company, its performance bond sureties, and a dredging contractor. First granting a motion to compel arbitration with respect to the construction company and the contractor, both of which had signed the arbitration agreement, the court then reviewed common law contract and agency principles to determine whether the non-signatory sureties could also be bound by the agreement on some other theory, ultimately holding that they could not be because there existed no (1) incorporation by reference of another contract to which the sureties were signatories, (2) assumption by the sureties, (3) agency relationship, (4) veil-piercing/alter-ego, or (5) estoppel. Additionally, the court found that the arbitration agreement unambiguously limited its reach only to claims or disputes between the signatories because it listed those parties – and only those parties – regardless of the fact that it did not expressly exclude application to others. The court next determined that those claims found to be proper for arbitration – breach of contract and indemnity – did not predominate the nonarbitrable claims. Rather, the nonarbitrable claims – fraud in the inducement, negligent misrepresentation, rescission, personal liability, civil theft, and conversion – could be resolved in independent litigation without resulting in either duplicative proceedings or preclusive effect on the arbitrable claims. The court also denied the individual defendant’s motion to dismiss. U.S. Surety Company v. Edgar, Case No. 8:13-cv-1207-T-33TGW (M.D. Fla. Dec. 5, 2013).

This post written by Kyle Whitehead.

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A California appellate court has confirmed that the issue of whether a party has waived the right to arbitrate is an issue to be decided by the trial court, not the arbitrator. Defendants in a dispute regarding a stock purchase agreement moved to compel arbitration pursuant to that agreement, but only after they filed a demurrer to the complaint, moved to require plaintiffs to furnish a bond, and commenced their own lawsuit against plaintiffs for alleged misrepresentations made in connection with the purchase agreement. Plaintiffs opposed the motion to compel arbitration by arguing that defendants waived the right to arbitrate through this litigation conduct. The trial court and the appellate both agreed that the waiver issue is one for the court to decide and that defendants had waived their right to arbitrate. Hong v. CJ GGV America Holdings, Inc., Case No. B246945 (Cal. Ct. App. Dec. 18, 2013).

This post written by Abigail Kortz.

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In Hill v. Wackenhut Services International, an employment-related dispute involving alleged unpaid compensation for employees’ work on American military bases overseas, the U.S. District Court for the District of Columbia upheld an arbitral award authorizing class arbitration, basing its decision on the extremely limited availability of judicial review of arbitral awards and two Supreme Court cases. Stolt-Nielsen S.A. v. Animal Feeds International Corp. (2010) held that a court may not uphold an arbitrator’s decision to permit class arbitration if it reflects the arbitrator’s personal policy preferences rather than an interpretation of the parties’ agreement. Consistent with Stolt-Nielsen, Oxford Health Plans, LLC v. Sutter (2013) teaches that a court must uphold an arbitrator’s decision to permit class arbitration so long as that decision was “arguably construing” the parties’ agreement, even if the interpretation is mistaken. The Hill court found that the arbitrator had authorized class arbitration based upon the doctrines of collateral and judicial estoppel, which stemmed from the Hill defendants’ acceptance of a class arbitration award in an earlier related class proceeding. Because the Hill employment agreement’s choice-of-law clause incorporated federal and Florida law, both of which recognize the principles of estoppel on which the arbitrator relied, the arbitrator’s decision to invoke those doctrines “drew its essence from the contract,” consistent with the mandate of Oxford Health. Hill v. Wackenhut Services International, Case No. 11-2158 (JEB) (D.D.C. Sept. 18, 2013).

This post written by Kyle Whitehead.

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Scope of Arbitration

Citigroup, Inc. v. Abu Dhabi Investment Authority, Case No. 1:13-cv-06073 (USDC S.D.N.Y. Nov. 25, 2013) (dismissing action to enjoin arbitration; granting motion to compel arbitration; defense of res judicata based on prior confirmation of arbitration award is an issue for arbitration panel)

Unconscionability

Lombardi v. Kahaly, Case No. 11-56752 (9th Cir. Dec. 2, 2013) (reversing denial of motion to compel arbitration of claims for injunctive relief under California Unfair Competition Law and Consumer Legal Remedies Act; following precedent holding that FAA preempts California unconscionability law and that “effective vindication” exception does not apply to state statutes; arbitration agreement not unconscionable for nonmutuality)

Lombardi v. Twyman, Case No. 10-56602 (9th Cir. Dec, 2, 2013) (reversing order that denied motion to compel arbitration based on unconscionability of class waiver arbitration provision; following Concepcion and American Express; arbitration agreement not substantively unconscionable for nonmutuality, nor procedurally unconscionable for alleged penalty for rejecting arbitration agreement)

Due Process

Staples v. Morgan Stanley Smith Barney, Case No. 6:13-cv-00013 (USDC D. Mont. Oct. 28, 2013) (confirming FINRA award; finding proper service of process by FINRA; no corruption, fraud, undue means, or arbitrator bias, misconduct, or exceeding of powers)

Labor Disputes

Northern New England Telephone Operations LLC v. Local 2327, International Brotherhood of Electrical Workers, AFL-CIO, Case Nos. 13-1167, 13-1186 (1st Cir. Nov. 12, 2013) (affirming confirmation of award and denial of Rule 11 costs and fees; panel did not exceed authority in LMRA arbitration by wrongfully adding/subtracting terms in interpreting the relevant collective bargaining agreement)

Reyco Granning LLC v. International Brotherhood of Teamsters, Local Union No. 245, Case No. 13-1002 (8th Cir. Nov. 15, 2013) (reversing district court’s order granting summary judgment in favor of union and confirming award on collective bargaining agreement; directing court to grant employer’s motion for summary judgment and vacate arbitration award; arbitrator exceeded authority by looking to contract negotiations to discern intent with respect to unambiguous contract language)

Concurrent Proceedings

Alstom Chile S.A. v. Mapfre Compania de Seguros Generales Chile S.A., Case No. 1:13-cv-02416 (USDC S.D.N.Y. Oct. 31, 2013) (compelling arbitration and permanently enjoining defendant from prosecuting related tort proceedings in Chile; holding that broad arbitration clause for all disputes “arising out of or relating to” agreement covered both breach of contract and tort claims; finding that failure to comply with requirement to negotiate dispute did not bar enforcement of arbitration provision)

This post written by Michael Wolgin.

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On appeal from the S.D.N.Y., Citibank challenged the district court’s denial of Citibank’s motion to compel arbitration and decision that the agreement to arbitrate was not binding on the parties. The S.D.N.Y. concluded that Signature Cards signed by appellees when opening their accounts with Citibank did not incorporate by reference the Client Manual, which contains the arbitration agreement. The Second Circuit vacated the district court judgment and remanded for further proceedings because several issues of fact existed as to the making of the arbitration agreement, therefore requiring a trial. The issues of fact identified are (1) whether Citibank provided the Client Manual to appellees; (2) whether the Client Manual appears to be a contract on its face; and (3) whether appellees are estopped from arguing they did not agree to arbitrate because they “knowingly exploited” the benefits of the agreement. Hirsch v. Citibank, N.A., No. 12-1172-cv (2d Cir. Oct. 22, 2013).

This post written by Abigail Kortz.

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In the ongoing dialectic between West Virginia’s high court and the U.S. Supreme Court (e.g., Marmet Health Care Center Inc. v. Brown, 132 S. Ct. 1201 (2012)) regarding enforcement of arbitration provisions, the state court has issued its latest contribution. In West Virginia v. Webster, the Court heard an appeal from an order denying a motion to compel individual arbitration in a case arising from a dispute between Ocwen Loan Servicing, LLC (“Ocwen”) and mortgage holders, respondents Robert and Tina Curry (the case is styled to reflect the procedural posture of a writ of prohibition, which the state brings on behalf of the petitioner, against the trial judge). Ocwen sought to compel arbitration of a dispute about certain fees Ocwen charged, pursuant to an arbitration provision contained in the parties’ relevant agreement. The trial court found the agreement unenforceable under the Dodd-Frank Act, and also unconscionable under West Virginia state law contract principles. The high court reversed, finding the Act was not applicable because the agreement was formed before it took effect. The West Virginia Supreme Court also disagreed with the trial court’s conclusion that the contract was unconscionable, and entered granted the request for a writ prohibiting the trial court from enforcing its order denying the motion to compel. West Virginia v. Webster, No. 13-0151 (W. Va. Nov. 13, 2013).

This post written by John Pitblado.

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Faced with a question of first impression, the Ninth Circuit recently held that a clause in an arbitration agreement that eliminates any and all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is unenforeceable. The Court reasoned that allowing parties to “contractually eliminate all judicial review of arbitration awards . . . run[s] counter to the text of the FAA,” and “would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” In re Wal-Mart Wage and Hour Employment Practices Litigation, No. 11-17718 (9th Cir. Dec. 17, 2013).

This post written by Abigail Kortz.

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The Fifth Circuit Court of Appeals reversed in part a decision by the National Labor Relations Board which held that D.R. Horton, a homebuilder with operations in over twenty states, had violated the National Labor Relations Act by requiring its employees to sign an arbitration agreement that prohibited them from pursuing collective or class claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial. Deferring to the NLRB’s interpretation of the National Labor Relations Act to the extent it could, the Fifth Circuit nonetheless found that the NLRB paid insufficient respect to other federal statutes and policies, namely the Federal Arbitration Act. The Court first emphasized that the FAA’s purpose is to ensure the enforcement of arbitration agreements according to their terms. However, requiring class arbitration interferes with fundamental attributes of arbitration, primarily its informality, and thus creates a scheme inconsistent with the FAA. Thus, consistent with the FAA, D.R. Horton’s prohibition should be upheld, absent an overriding contrary congressional command in the NLRA. Because (1) the NLRA contains no explicit language about, and does not even mention, collective action, much less the procedures such an action would employ, (2) the legislative history of the NLRA discusses no right to file class or consolidated claims against employers, and because (3) the NLRA was enacted prior to the advent of modern class action practice, the Court held that the class arbitration agreement must be enforced according to its terms. Additionally, the Court upheld the NLRB’s determination that D.R. Horton must clarify with its employees that the arbitration agreement language did not eliminate entirely their right to pursue claims of unfair labor practices with the NLRB. D.R. Horton, Inc. v. National Labor Relations Board, No. 12-60031 (5th Cir. Dec. 3, 2013).

This post written by Kyle Whitehead.

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