Reinsurance Focus

The plaintiff sued the successor corporation of his former employer in state court alleging claims arising from the termination of his employment. The plaintiff asserted a claim for breach of contract and a tort “whistleblower” claim for wrongful discharge in violation of public policy. The defendant removed the action to federal court and filed a motion to stay proceedings and compel arbitration. The plaintiff opposed the motion, contending the arbitration provision in his employment agreement was invalid and unenforceable because it eliminated a right of judicial appeal, which provision was not severable from the agreement. The plaintiff also argued that even if the arbitration provision is enforceable, his whistleblower/public policy tort claim was not subject to mandatory arbitration.

The court found that the “no appeal” clause in the arbitration provision, to the extent it attempts to preclude any court access, was invalid. Parties seeking judicial enforcement of an arbitration provision or to enforce arbitration awards through confirmation judgments may not divest the courts of their statutory and common law authority to review both the substance of the awards and the arbitral process for compliance with the Federal Arbitration Act. However, the court concluded the “no appeal” clause could be severed, leaving intact the provision’s other portions. The court also found that the arbitration provision was broad, and covered the tort claim. The tort claim “touches the contract,” since it raised the issue of whether the plaintiff was terminated because, as asserted by the defendant, he violated the employment agreement or because, as asserted by the plaintiff, he was retaliated against for whistleblowing. As the court found the arbitration provision enforceable and that all the plaintiff’s claims were arbitrable, the defendant’s motion was granted. Strom v. First American Professional Real Estate Services, Inc., Case No. CIV-09-0504-HE (USDC W.D. Okla. July 24, 2009).

This post written by Brian Perryman.

The Tenth Circuit previously held that a revised state statute rendered the parties’ arbitration agreements enforceable, and, on remand, the Oklahoma district court compelled the parties to arbitrate their entire dispute. When Mid-Continent Casualty Company (“Mid-Continent”) moved to reopen the case for the purpose of filing an amended complaint adding a bad faith claim that Mid-Continent admitted it would not assert in the arbitrations, the court had to determine whether the arbitration agreements required Mid-Continent to arbitrate the bad faith claim. The court ultimately denied Mid-Continent’s motion, finding that the agreements used broad language and showed a clear intent to arbitrate all claims and that the tort claim, which was part of the same cause of action, fell within the broad arbitration clause. Mid-Continent Cas. Co. v. Gen. Reins. Corp., No. 06-0475 (N.D. Okla. Aug. 18, 2009).

This post written by Dan Crisp.

Blogmaster Roland Goss is now a regular contributing editor to Harris Martin's Reinsurance publication, contributing articles on arbitration-related issues. We publish his first contribution to Reinsurance here, which is an expanded look at the Supreme Court's decision in Arthur Andersen v. Carlisle, which we previously posted on. The article describes the Circuit conflict that gave rise to this opinion as well as the Court's holding that a non-party to an arbitration agreement may appeal the denial of a motion to stay pending arbitration under the Federal Arbitration Act.

This post written by Rollie Goss.

Prior to the parties remanding the case for the determination of a remedy, the American Postal Workers’ Union (“APWU”) filed a complaint in federal court alleging that the United States Postal Service (“USPS”) had not unequivocally stated it would comply with the award, which constituted a breach of the collective bargaining agreement. The USPS moved to dismiss for lack of jurisdiction, which the district court granted, reasoning that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. The court also stated that the APWU has not shown the exhaustion of remedies to be unworkable. American Postal Workers’ Union v. United States Postal Serv., Case No. 08-2200 (USDC D.D.C. July 14, 2009).

This post written by Dan Crisp.

Last month, the Ninth Circuit Court of Appeals reviewed an arbitration panel’s awards against Leonard Bosack and Sandy Lerner, founders of Cisco Systems. The panel issued a series of preliminary and final awards. Bosack and Lerner challenged the panel’s awards in favor of their former financial manager David Soward on three primary bases: (1) the panel violated Rule 46 of the Commercial Arbitration Rules and the common law functus officio doctrine (forbidding an arbitrator from redetermining an issue which he has already decided); (2) the panel manifestly disregarded the law; and (3) the awards were “irrational.”

The Court ruled against Bosack and Lerner on all accounts. First, as a matter of first impression for the Ninth Circuit, the Court applied the Eighth Circuit’s rule that the functus officio doctrine applies only to “final” awards, and does not bar revisiting an issue addressed in a preliminary award, which the arbitrators did not intend to be their final word on the subject. Applying this standard, the Ninth Circuit held that only one of the five arbitration awards should be considered “final” for purposes of the doctrine, and the sole final award was not in violation of functus officio or Rule 46. Further, the Court concluded that in reaching the award, the panel neither acted irrationally or in manifest disregard of the law. The Court explained that Bosack and Lerner accepted the risk that goes along with arbitration, and could not avail themselves of expanded judicial review simply because the awards were unfavorable. Bosack v. Soward, Case No. 08-35248 (9th Cir. July 23, 2009).

This post written by John Black.

Six months after the Petitioners’ party-appointed arbitrator resigned from the three-person panel due to a cancer diagnosis requiring immediate and intensive treatment, the district court issued an Opinion and Order (the “Order”) applying the Second Circuit’s general rule that, when an arbitrator dies in the middle of a proceeding, the arbitration must commence anew. Unknown to the court and the Respondent, one month prior the Order, the arbitrator attended an arbitration conference, which the Petitioners’ legal counsel also attended. One month after the Order, the Respondent learned that the arbitrator’s health improved and that the arbitrator actively sought employment as an arbitrator. The Respondent subsequently moved for relief from the Order pursuant to Rule 60(b)(2). The district court granted the motion for relief, holding that the Respondent met each of the preconditions to relief from the Order on the basis of the newly discovered evidence of the arbitrator’s recovery. The court then reappointed the arbitrator to the panel, reasoning that the court was permitted to do so because the arbitration agreement was silent as to the procedure to fill a panel vacancy created by the death or resignation of an arbitrator. Ins. Co. of N. Am. v. Pub. Serv. Mut. Ins. Co., Case No. 08-7003 (USDC S.D.N.Y. June 29, 2009).

This post written by Dan Crisp.

Litigation was stayed pending concurrent arbitration in a dispute arising out of the theft of cell phones during international shipping. The complaint sought over $804,000 for the subrogated loss of approximately 15,000 cell phones. One of the defendants – companies involved in the phones’ shipping – moved to dismiss or, in the alternative, to stay on the basis of an arbitration clause between itself and the plaintiff’s subrogor. The court found that the litigation was intended to hold the defendants liable on the contract, which governed the parties’ relationship with respect to the transportation and delivery of cargo. Noting a strong bias in favor of international arbitration, the court found that the dispute should proceed through nonappealable arbitration in Peru. The court also denied another defendant’s motion to dismiss under the doctrine of forum non conveniens or, in the alternative, to transfer venue, holding that no factors “strongly” favored forcing the plaintiff to re-file elsewhere; there was no significant burden on the parties, nor were than any witnesses who would be inconvenienced. Rimac Internacional Cia. de Seguros y Reaseguros, S.A. v. Exel Global Logistics, Inc., Case No. 08-3915 (USDC S.D.N.Y. June 29, 2009).

This post written by Brian Perryman.

OrbitCom, Inc. (“OrbitCom”) brought suit against Qwest Communications Corp. (“Qwest”) seeking the recovery of telecommunications access fees. This claim was not independently arbitrable. Qwest refused to pay later charges under an agreement that contained an arbitration clause, essentially asserting a set off or right of recoupment with respect to the prior “overcharges.” Qwest then filed this Motion to Stay Proceedings and Petition to Compel Arbitration, arguing that even though not pleaded as a counterclaim, its refusal to pay amounted to a counterclaim, which arose out of or related to the contract, and that arbitration should be compelled of all claims, because the non-arbitrable claim was collateral to an arbitrable claim. Noting that the arbitration clause was a “broad clause,” which resulted in a presumption of arbitrability, the court granted Qwest’s motion, following Tenth Circuit precedent which requires the arbitration of claims that are collateral to an arbitrable claim. The court also concluded that OrbitCom had not overcome the presumption of arbitration. OrbitCom, Inc. v. Qwest Comm’ns Corp., Case No. 09-00181 (USDC D. Colo. June 25, 2009).

This post written by Dan Crisp.

After a coverage decision by the arbitration panel, the parties disagreed as to the terms of the security interest agreement as stated in the “Memo of Understanding.” The panel subsequently issued an order directing Robinson Outdoors, Inc. (“Robinson”) to sign the other party’s proposed security agreement, which the trial court confirmed. Before the appellate court, Robinson argued that the panel exceeded its authority when it ordered Robinson to sign the agreement. However, the appellate court found that the record demonstrated that the panel had such authority because: (1) the memo expressly provided for a security agreement; (2) the language in the memo did not limit the scope of arbitration; (3) holding the parties to a broad reading of the scope of arbitration was fair; and (4) such authority was necessary in order to effectuate the intent of the memo. American Employers Ins. Co. v. Robinson Outdoors, Inc., Case No. 25-06-702 (Minn. Ct. App. June 9, 2009).

This post written by Dan Crisp.

A New York State Court allowed the issuance of judicial subpoenas to non-parties at the request of Petitioner corporations in a pre-arbitration discovery action. The Petitioners and Respondents had agreed to arbitrate under FINRA rules, but the arbitration had not yet commenced, as Petitioners sought discovery to determine if other parties should be joined in the arbitration.

The Court noted that FINRA provides a comprehensive discovery scheme, and allows for the issuance of arbitral subpoenas, but is ambiguous as to pre-arbitral discovery. The Court also noted a general judicial reluctance to order discovery where the parties have agreed to arbitrate, but ruled that it was nonetheless appropriate for the limited purpose of determining whether any other parties exist that should be brought into the arbitration. VP Trader Pro, LLC v. Joseph Azevedo Pires, No 102334-09 (N.Y. Sup. Ct. April 21, 2009).

This post written by John Pitblado.