Reinsurance Focus

The Ninth Circuit affirmed the district court’s grant of the motion to compel arbitration of defendant’s malicious prosecution and abuse of process claims against plaintiff that arose from a previous arbitration. In so affirming, the court determined that the arbitration clause, which stated that it applied to “all controversies” between the parties “which may arise from any account for any cause whatsoever” was broad enough to encompass the tort claims. The court distinguished this language from language that limits application of the arbitration clause only to claims “arising out of” the agreement. This is a fairly traditional articulation of the difference between narrow and broad arbitration provisions. Morgan Keegan & Co. v. Grant, No. 11-56399 (9th Cir. Oct. 25, 2012).

This post written by Abigail Kortz.

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In a recent per curiam opinion, the U.S. Supreme Court reminded state courts that the Federal Arbitration Act is “the supreme Law of the Land” and they must abide by the Supreme Court’s opinions interpreting that law. The Oklahoma Supreme Court ignored Supreme Court precedent, which holds that a court has authority to decide the validity of an arbitration clause, but that the validity of the contract is left to the arbitrator to decide once the arbitration clause is deemed valid. Improperly assuming the role of arbitrator, the Oklahoma Supreme Court declared a noncompetition agreement that included a valid arbitration clause to be “void and unenforceable against Oklahoma’s public policy,” elevating Oklahoma law over the FAA. Nitro-Lift Technologies, L.L.C. v. Howard, No. 11-1377, 586 U.S. __ (U.S. Nov. 26, 2012).

Accepting an opportunity to provide further guidance with respect to class arbitrations, the Supreme Court has also granted certiorari in an arbitration case decided by the Second Circuit to decide “[w]hether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim.” As profiled in a prior post, the Second Circuit held that arbitration agreements that do not provide for class arbitration are unenforceable if the claimant can demonstrate that “the cost of . . . individually arbitrating their dispute . . . would be prohibitive.” It will be intertesting to see whether the Court decides this case on a narrow statement of the issue or uses it to provide broader principled guidance for post-Concepcion cases. In re American Express Merchants’ Litigation, No. 12-133 (U.S. Nov. 9, 2012).

This post written by Abigail Kortz.

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Ipcon Collections sued Costco over a dispute regarding a series of agreements in which Costco agreed to sell karaoke systems on a consignment basis on behalf of Ipcon’s predecessor in interest. Costco initiated arbitration and moved to dismiss the lawsuit based on arbitration clauses in the agreements, and for sanctions. The lower court granted Costco’s motion to dismiss in favor of the pending arbitration proceedings and denied its motion for sanctions. The Second Circuit affirmed. The Court of Appeals held that Ipcon’s argument that Costco “never intended to honor” the contracts sounded in fraud in the inducement, and it was up to the arbitrators to decided the merits of such claim. The court also rejected Ipcon’s alternative argument that there had been no “meeting of the minds,” holding that the executed contracts constituted objective evidence of a meeting of the minds. Though finding that Ipcon’s argument was “weak,” the court affirmed the decision not to award Costco sanctions “given the confusing nature of the division of responsibility between courts and arbitrators as to contract formation.” Ipcon Collections, LLC v. Costco Wholesale Corp., No. 11-3944 (2d Cir. Oct. 9, 2012).

This post written by Ben Seessel.

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Employment Disputes

Mesa Airlines, Inc. v. Air Line Pilots Association International, Case No. 2:11-cv-02106 (USDC D. Ariz. Sept. 14, 2012) (granting summary judgment upholding labor arbitration award; arbitrator’s reinstatement of airline pilot did not exceed jurisdiction by ignoring language of collective bargaining agreement, did not violate public policy, and did not exhibit bias by ignoring evidence).

Hamerslough v. Hipple, Case No. 1:10-cv-03056 (USDC S.D.N.Y. Oct. 25, 2012) (denying petition to vacate award; granting cross-petition to confirm award; award providing additional commissions to former salesperson, but only based on revenue collected prior to termination, was not based on arbitrator “exceeding their powers,” was not a “manifest disregard,” and was not contrary to public policy, including determination that salesperson was not “prevailing party” for purposes of awarding attorney’s fees).

Class Waiver

Webster v. Freedom Debt Relief, LLC, Case No. 1:12-cv-01654 (USDC N.D. Ohio Sept. 25, 2012) (denying petition to vacate award finding that underlying agreement precluded class arbitration; arbitrator did not commit “manifest disregard”).

Exceeding Authority/Manifest Disregard

Estate of Wildhaber v. Life Care Centers of America, Case No. 2:10-cv-00015 (USDC D. Nev. Oct. 23, 2012) (granting application for confirmation of award; denying motion to vacate and modify award; award for $1.5 million for pain and suffering and statutory double damages was not excessive for wrongful death, elder abuse, and elder neglect; no “manifest disregard” for award of prejudgment interest on attorney’s fees, statutory double damages, and grief and sorrow).

Day & Zimmerman, Inc. v. SOC-SMG, Inc., Case No. 2:11-cv-06008 (USDC E.D. Pa. Oct. 22, 2012) (granting motion to confirm award; denying motion to vacate award; rejecting argument that filing of “complaint” to vacate award instead of “motion” under FAA was grounds for dismissal of action, but confirming award because arbitrators did not exceed authority and other vacatur arguments were not viable under FAA).

Oehme, Van Sweden & Associates, Inc. v. Maypaul Trading & Services Ltd., Case No. 1:12-cv-00005 (USDC D.D.C. Nov. 6, 2012) (granting motion to confirm award; denying motion to vacate award; non-signatory bound to arbitration agreement under “apparent agency”; arbitrator did not commit “manifest disregard”).

CD&L Realty LLC v. Owens-Illinois, Inc., Case No. 1:11-cv-07248 (USDC D.N.J. Sept. 25, 2012) (granting motion to confirm award after removal; denying vacatur; arbitrator did not exceed authority, or violate public policy; plaintiff could not challenge arbitrator’s rejection of fraud and breach of contract claims for legal or factual error).

Procedural Issues

Degrate v. Broadcast Music Inc., Case No. 1:12-cv-01700 (USDC S.D.N.Y. Oct. 25, 2012) (dismissing sua sponte pro se petition to vacate award as untimely; deadlines for petition under state law and FAA would not be extended due to “unique circumstances” or “equitable tolling”).

Nuzzi v. Coachmen Industries, Inc., Case No. 3:09-cv-00116 (USDC N.D. Ind. Oct. 26, 2012) (denying motion to vacate award; action stayed against entities that filed Chapter 7 bankruptcy, but would proceed against viable defendant parent company; perceived “unfairness” of summary arbitration procedures not viable grounds for vacatur under FAA; arbitrator did not commit “manifest disregard”).

This post written by Michael Wolgin.

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The First Circuit affirmed a district court’s denial of a motion to vacate an arbitration award issued in a dispute between Bangor Gas, a pipeline owner, and H.Q. Energy, a natural gas supplier, concerning responsibility for certain costs regulated by the Federal Energy Regulatory Commission. The arbitration panel designed a remedy consistent with the FERC’s shipper-must-have-title rule, but that placed Bangor at risk for violating a different FERC regulation. Following the arbitration award’s issuance, Bangor received guidance from the FERC staff that the panel’s remedy “would violate the Commission’s posting and bidding regulations.” While the First Circuit does not recognize “manifest disregard of the law” as a valid ground for vacating an arbitral award, it analyzed the award as if the doctrine applied since there is a circuit split on the issue. The court determined that the arbitrators did not disregard the law because the FERC’s intentions were not clear cut. The staff’s guidance is not binding on FERC and the arbitrators provided for the contingency of a violation in the award. Bangor Gas Co. v. H.Q. Energy Servs. (U.S.) Inc., No. 12-1386 (1st Cir. Sept. 26, 2012).

This post written by Abigail Kortz.

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The Vermont Supreme Court reversed a trial court order that had the effect of precluding class arbitration where the parties’ agreement was silent on the issue. The trial court based its ruling on the then-recent U.S. Supreme Court decision in Stolt-Nielsen SA v. AnimalFeeds Int’l Corp. However, on appeal, the Vermont Supreme Court reversed, holding that the trial court’s involvement was premature, as it was not based on a timely vacatur or confirmation action, as required to invoke a court’s jurisdiction under the Vermont Arbitration Act. The defendant bank failed to timely challenge the arbitrator’s pre-Stolt-Nielsen decision allowing class arbitration, and failed to re-raise the issue of arbitrability with the arbitrator in light of Stolt-Nielsen. Bandler and Bandler & Co. v. Charter One Bank, No. 2011-249 (VT Oct. 5, 2012).

This post written by John Pitblado.

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In an arbitration dispute brought in the Western District of Wisconsin over the inability of the parties to choose an arbitrator for reinsurance disputes, the court found that venue was improper and transferred the case to the Southern District of New York under 28 U.S.C. § 1404. Petitioners sought an order compelling the respondent to comply with the method for choosing arbitrators provided for in the arbitration agreement and respondent counterclaimed asking the court to choose an arbitrator since the parties could not agree on one. Respondent also argued that venue was not proper as to petitioners claims because the arbitration agreements included an agreement to hold arbitrations in New York, but argued at the same time that it should be allowed to assert its counterclaim in Wisconsin because it related to appointing an umpire under 9 U.S.C. § 5, which does not include a venue limitation, rather than enforcing an arbitration agreement under 9 U.S.C. §4, which includes a venue limitation. The court determined that the transfer of all claims was appropriate because the Seventh Circuit held in Haber v. Biomet that § 4 requires district courts to enforce forum selection clauses in arbitration agreements and that the counterclaim could not be tried separately from petitioners’ claims because the claims were too intertwined. Employers Ins. Co. of Wausau v. Arrowood Indemnity Co., Case No. 12-283 (USDC W.D. Wis. Oct. 26, 2012).

This post written by Abigail Kortz.

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In a putative class action, a court denied the defendant’s motion to compel individual arbitration, pending discovery as to the appropriate law governing the dispute and the scope of two potentially applicable agreements between the parties. The dispute surrounded the appropriate charges for propane delivery. Plaintiff, a propane customer, contended that an oral contract existed between him and the company which set the price at a “market rate” and did not include an agreement to arbitrate. The company, on the other hand, contended that the parties’ relationship was governed by a written agreement sent to the customer following the initial propane services, and that the agreement contained a class-waiver arbitration clause. The court found that it lacked sufficient facts to determine both which state laws and which of the two purported contracts applied. The court denied the motion to compel arbitration and ordered “limited discovery as to the appropriate choice-of-law as well as the scope of the oral and Master Agreements.” Howard v. Ferrellgas Partners, L.P., Case No. 10-02555 (USDC D. Kan. Aug. 27, 2012).

This post written by Michael Wolgin.

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In a class action suit against a company that sells online programs offering discounts on goods and services, the Second Circuit affirmed the district court’s denial of defendant’s motion to compel arbitration. Defendants argued that they provided plaintiffs with notice about the arbitration provision through a hyperlink on a webpage plaintiffs would have seen before enrolling in defendants’ service and in an email sent to plaintiffs after enrollment. The court held that an unsolicited email from an online consumer business sent after enrollment does not put recipients on inquiry notice of its terms and that failure to cancel the membership does not, by itself, constitute assent. The court declined to decide the issue of whether the hyperlink on the enrollment screen provided notice of the arbitration provision because defendants failed to raise the issue in the district court. However, the court hinted that the hyperlink “might have created a substantial question as to whether the [arbitration] provision was part of a contract between the parties.” Schnabel v. Trilegiant Corp., No. 11-1311 (2d Cir. Sept. 7, 2012).

This post written by Abigail Kortz.

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In a three-way dispute between Exxon, BP, and a provider of drilling services over the alleged breach of an assignment agreement, a federal appeals court reversed based on the lower court’s improper resolution of a “lapse” in the parties’ ineffective two-party arbitrator selection procedures. The agreement provided that the dispute would be arbitrated before three arbitrators appointed in accordance with the rules of the Arbitration and Conciliation Act of 1990. ACA’s procedures, however, address a two-party dispute, in which each party selects an arbitrator, with the third selected by the arbitrators themselves.

When the three-way dispute arose in this case, and the parties could not agree on how the two-party arbitration selection process could be implemented, suit was filed in federal court under the New York Convention and the FAA. The court found that the arbitration agreement procedure reached a “mechanical breakdown” or “lapse,” and that it would order the appointment of five arbitrators. While the appellate court agreed with the district court’s determination that it was entitled to intervene under the FAA, it reversed the process that the district court instituted, holding that the FAA limited the court to enforce the underlying arbitration agreement, which in this case provided for only three arbitrators. On remand, the appellate court recommended a procedure for the district court to “consider” to achieve the equitable appointment of three arbitrators in a three-party dispute context. BP Exploration Libya Ltd. v. Exxonmobil Libya Ltd., No. 11-20547 (5th Cir. July 30, 2012).

This post written by Michael Wolgin.

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