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Archive for the ‘Arbitrability’ Category

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 8th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, Reinsurance Arbitration, United States Supreme Court 6 Comments »

Part IV

A. Introduction

In Part I (here) we explained why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice. And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, we explained how the Court has established for itself and the lower courts a fairly searching standard of review. Part II (here) explored the legal and practical implications of that standard of review.

Part III (here) turned to the other key area that will likely change because of Stolt-Nielsen — consolidated reinsurance-arbitration practice — and discussed the state of consolidation law pre-Stolt-Nielsen. This Part IV discusses Stolt-Nielsen’s rationale for finding that imposing class arbitration on parties whose agreements are silent on that point is inconsistent with the Federal Arbitration Act, and explores how the Court’s ruling may affect consolidated reinsurance-arbitration practice in general.

B. The Supreme Court’s Decides that Imposing Class Arbitration on Parties whose Contracts are Silent on that Score is Inconsistent with the Federal Arbitration Act

When we last left Stolt-Nielsen, the Court had determined that the arbitrators exceeded their authority by issuing an award that was based on their own notions of public policy gleaned from other arbitral decisions imposing class arbitration in the face of silence. When a court vacates an award it has to decide whether to remand the matter to the arbitrators, for Section 10(b) of the Federal Arbitration Act authorizes a court to “direct a rehearing by the arbitrators.” The Court decided not to remand, because “there can be only one possible outcome on the facts,” that is, where the parties’ contracts are undisputedly silent on class arbitration, save for the parties’ agreement to a broad arbitration clause. The Court then set about to explain why that was so. Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 4th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Reinsurance Arbitration, Uncategorized, United States Supreme Court 6 Comments »

Part III

A. Introduction

In Part I (here) we explained why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice. And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, we explained how Stolt-Nielsen has established for the lower courts a fairly searching standard of review. Part II (here) explored the legal and practical implications of that standard of review.

This Part III turns to the other key area that will likely change because of Stolt-Nielsen: Consolidated reinsurance-arbitration practice.

As most reinsurance practitioners know, there is a brief history relevant to this subject and that will be the focus of this post. For to fully understand the implications of Stolt-Nielsen on consolidated reinsurance-arbitration practice, it is necessary to understand how the pre-Stolt-Nielsen practice evolved.

Parts IV (here) and V (here, here and here) will address how Stolt-Nielsen will likely change consolidated reinsurance-arbitration practice, and what the implications of those changes are to the industry. Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

May 25th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Grounds for Vacatur, Practice and Procedure, Reinsurance Arbitration, United States Court of Appeals for the Second Circuit, United States Supreme Court 6 Comments »

Part I

A. Introduction

Shortly before the United States Supreme Court decided Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., ___ U.S. ___, slip op. (April 27, 2010), we wrote about the implications the case might have on reinsurance arbitration practice. (See our post here.) But since then, you have not heard much from us, other than our brief report (here) about the Supreme Court vacating and remanding to the United States Court of Appeals for the Second Circuit the American Express Merchants’ Litigation judgment for further consideration in light of Stolt-Nielsen. One — but by no means the only — reason is that after Stolt-Nielsen was decided, we wrote a comprehensive article on it, which will be published in a subscription-only publication in June.

But that article – while comprehensive in scope – is directed at folks interested in the Federal Arbitration Act in general, not necessarily those interested in reinsurance arbitration in particular. And that’s what we want to cover in this multi-part series: Stolt-Nielsen’s implications on reinsurance arbitration practice.

Stolt-Nielsen affects reinsurance arbitration in two very important ways. First, it has set a fairly liberal standard of review that now applies to commercial arbitration awards in cases where a party asserts that the arbitrators exceeded their powers under Federal Arbitration Act Section 10(a)(4) because of the award’s outcome. That, as we shall see, has all sorts of implications for persons involved in reinsurance arbitrations.

Second, it has changed the rules applicable to consolidated-reinsurance-arbitration practice – or at least it requires a wholesale reevaluation of those rules. That, too, has a number of important implications for reinsurance-arbitration practice.

This Part I of the series explains why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice. And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, it explains how Stolt-Nielsen has established for the lower courts a fairly searching standard of review. Part II (here) will delve into what the implications of that standard of review will likely be.

Part III (here) will provide the background necessary to understand how Stolt-Nielsen affects the law applicable to consolidated reinsurance arbitration. Part IV (here) will delve into the details of how Stolt-Nielsen changes – or at least requires reconsideration of – the legal status quo in this area. And Part V will discuss the implications of all of this.

We do not set out to discuss the background of Stolt-Nielsen in any detail or to provide a play-by-play of how the Court decided the case. If you are a regular reader you probably already know the background in detail, and our upcoming article does a pretty good job of mapping out the Court’s reasoning. Instead, we focus our attention on the aspects of the decision that are relevant to the two key subjects of discussion.

But before we delve into what Stolt-Nielsen has to say about the standard of review, we pause briefly to address why the standard of review applicable to an outcome-based challenge is so important in reinsurance and other forms of commercial arbitration. Continue Reading »

The United States Supreme Court Decides Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.!

April 27th, 2010 Arbitrability, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Grounds for Vacatur, United States Supreme Court No Comments »

As we predicted in prior posts, the United States Supreme Court reversed the judgment of the United States Court of Appeals for the Second Circuit in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., holding (5-3) that it was inconsistent with the Federal Arbitration Act to impose class arbitration on parties whose agreements were concededly silent on that point. We are in the process of analyzing the decision (copy here), and intend to post a comprehensive, critical analysis soon.

Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.: What are the Implications for Reinsurance Arbitration?

April 18th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Reinsurance Arbitration, United States Supreme Court 1 Comment »

We have written extensively on Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., No. 08-1198, a case pending before the United States Supreme Court in which a decision is expected in the not too distant future. Stolt-Nielsen presents the question whether a court or arbitration panel may, consistent with the Federal Arbitration Act, impose class arbitration on a party whose arbitration agreements are silent on that subject. The answer to that question will likely answer a related question that is of special concern to those involved in reinsurance arbitration: Can a panel or court impose consolidated arbitration on a party whose arbitration agreements are silent on that subject? You can read our prior posts on Stolt-Nielsen here, here, here, here, here, here, here, here, here, here, here, here, here and here. (Certain of these posts contain links to articles on Stolt-Nielsen we wrote for Karl Bayer’s Disputing blog.)

But those posts principally concern the legal issues raised by the case, discuss various ways it might be decided, and argue that the correct answer to the question is that a court or arbitration panel cannot, consistent with the Federal Arbitration Act, impose class or consolidated arbitration in the face of silence. To date we have not discussed in any detail the practical implications that the case may have on reinsurance arbitration, if any. So today let’s look at what those implications may be. Continue Reading »

When Do Cost Provisions in an Arbitration Agreement Effectively Deny a Party a Forum in Which to Vindicate Statutory Rights?

April 6th, 2010 Arbitrability, Authority of Arbitrators, Employment Arbitration, New York Court of Appeals, United States Supreme Court No Comments »

Introduction

Under the federal Federal Arbitration Act statutory claims are generally arbitrable if they fall within the scope of the arbitration agreement, but arbitrator and arbitration-service-provider fees that may impose undue financial burdens on employees or other individuals seeking to vindicate those rights. Cost provisions in arbitration agreements allocate these fees and costs, and even when the allocation is 50-50, disputes may arise concerning whether they are so burdensome as to effectively deny one of the parties a forum in which to pursue his or her claims.

In Green Tree Financial Corp v Randolph, 531 U.S. 79 (2000), the United States Supreme Court acknowledged that “the existence of large arbitration costs could preclude a litigant from effectively vindicating her federal statutory rights in the arbitral forum.” 531 U.S. at 90. And it said that “where, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring costs that would deter the party from arbitrating the claim.” 531 U.S. at 92. While the Court did not purport to enunciate the standards courts should apply in evaluating challenges to cost provisions, it held that the “risk” of “prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.” 531 U.S. at 91. Continue Reading »

International Institute for Conflict Prevention and Resolution Newsletter Features Philip J. Loree Jr. Cover Story on Rent-A-Center and Granite Rock

March 16th, 2010 Arbitrability, Authority of Arbitrators, United States Court of Appeals for the Ninth Circuit, United States Supreme Court, labor arbitration Comments Off

The March 2010 issue of Alternatives to the High Cost of Litigation, the excellent newsletter of the International Institute for Conflict Prevention and Resolution (“CPR”), featured as its cover story an article I wrote on Rent-A-Center West v. Jackson, No. 09-497, and Granite Rock Co. v. Int’l Brotherhood of Teamsters, No. 08-1214, two of the three cases pending before the United States Supreme Court this term. The article is entitled “It’s Time for Doctrines: The Supreme Court Wrestles with ‘Severability’ and the ‘Clear and Unmistakable’ Standard.”

These two cases involve, to some degree, the Buckeye Check Cashing/Prima Paint doctrine of severability—a/k/a “separability.” Rent-A-Center also examines the “clear and unmistakable doctrine,” under which arbitrators can decide arbitrability questions if the parties clearly and unmistakably so agree.

Rent-a-Center, which arises under the Federal Arbitration Act, raises the question whether courts or arbitrators get to decide whether an arbitration agreement is unconscionable if the parties clearly and unmistakably agree to submit arbitrability questions to arbitration. (See our prior posts here, here and here.) Granite Rock, which arises under Section 301 of the Labor Management Relations Act, concerns whether, on the facts presented, arbitration must go forward and what it should encompass. (See our prior post here.)

In the article I argue that both cases were wrongly decided by the Court of Appeals for the Ninth Circuit, and that, in Granite Rock, the Ninth Circuit reached the right result (an order compelling arbitration) for the wrong reasons. I predict that the United States Supreme Court will reverse the Rent-A-Center decision and vacate the Granite Rock decision.

Alternatives to the High Cost of Litigation is a subscription-only publication. Anyone interested in obtaining a copy of the article can request one at this page. Subscription information is available at that page, too, as well as publisher John Wiley & Sons, here.

I would like to take this opportunity to thank CPR, and Russ Bleemer, Editor of Alternatives, for their kind assistance and support in featuring my article. Russ is not only a keen, professional editor, but a pleasure to work with as well.

First Circuit Considers Whether an Arbitration Clause is Mandatory or Optional: PowerShare, Inc. v. Syntel, Inc.

March 5th, 2010 Arbitrability, Stay of Litigation, United States Court of Appeals for the First Circuit 1 Comment »

Not all arbitration agreements are mandatory. Strange as it may seem, some are optional.

In PowerShare, Inc. v. Syntel, Inc., ___ F.3d ___, No. 09-1625, slip op. (1^st Cir. Mar. 1, 2010) the Court addressed a claim that the following arbitration clause was optional:

All disputes, controversies and claims directly or indirectly arising out of or in relation to this Agreement or the validity, interpretation, performance, breach, enforceability of the Agreement (collectively referred to as “Dispute”) shall be resolved amicably between Syntel and PowerShare at an operational level in consultation with the top management of both companies. If any such Dispute cannot be resolved, as stated above, the same shall be settled in accordance with the principles and procedures of the American Arbitration Association and per the decision of an accredited arbitrator acceptable to both parties. Nothing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.

A dispute arose under the parties’ contract, and PowerShare commenced an action in the Federal District Court in Massachusetts. Syntel moved for a stay under Federal Arbitration Act Section 3. PowerShare said the arbitration agreement was optional, a Magistrate Judge denied the motion for a stay, and the District Court affirmed the Magistrate Judge’s order.

The key question before the First Circuit was whether the Magistrate Judge’s finding that the clause was optional was contrary to law. The First Circuit reversed, finding that the arbitration clause was mandatory. (The First Circuit also answered a question about the standard of review under which a district court should review a Magistrate Judge’s decision on a motion to stay litigation under Section 3 of the Federal Arbitration Act, but we need not dwell on that.)

The crux of the Magistrate Judge’s order, and PowerShare’s position on appeal, was the last sentence of the arbitration clause: “[n]othing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.” The Magistrate Judge read that as preserving a party’s right to seek a jury trial in the event of a dispute — notwithstanding anything to the contrary in the arbitration clause — because a jury trial is a “remedy” “under law.”

But the First Circuit disagreed. According to the First Circuit, the parties’ choice-of-law clause required application of the laws of the United States, which the parties agreed brought into play federal common and statutory law. Under federal common law, “courts must be guided by commonsense rules of contract construction,” and one of those rules is that “an interpretation which gives effect to all the terms of a contract is preferable to one that harps on isolated provisions, heedless of context.” (citations and quotation omitted)

The Court reasoned that interpreting the third sentence as making arbitration optional would be to negate the mandatory nature of the second sentence:

[PowerShare's]. . . interpretation cannot be reconciled with the unvarnished language of Paragraph 18′s second sentence. That sentence states explicitly that disputes between the parties “shall” be settled through arbitration. The word “shall” denotes obligation, not choice; therefore, accepting PowerShare’s interpretation of the third sentence would drain the second sentence of its essential meaning. Put bluntly, the word “shall” in the second sentence would be rendered nugatory were we to read the arbitration provision as creating nothing more than an option. That PowerShare’s interpretation of Paragraph 18 would negate the obvious meaning of the second sentence is a powerful argument against accepting that interpretation. (citations and quotations omitted).

The Court concluded that the only “plausible interpretation” of the arbitration clause that gave effect to the “plain meaning” of the second sentence was that “the second sentence mandates arbitration and the third sentence furnishes the arbitrator with broad legal and equitable powers should either party seek special kinds of relief (say, an injunction).”

The Court based its decision solely on contract interpretation principles without deciding whether the federal presumption of arbitrability applied. The presumption of arbitrability requires ambiguities concerning the “scope” of an arbitration clause to be resolved in favor of arbitration. PowerShare argued that the presumption did not apply where, as here, the question was not the scope of an arbitration clause, but whether a mandatory arbitration clause existed in the first place.

Fourth Circuit Vacates Securities Arbitration Award: Raymond James Financial Services, Inc. v. Bishop

March 2nd, 2010 Arbitrability, Authority of Arbitrators, Awards, Grounds for Vacatur, Securities Arbitration, United States Court of Appeals for the Fourth Circuit 1 Comment »

I. Introduction

Arbitration is not a perfect process for resolving disputes, but neither is court adjudication. One advantage of court adjudication is a fairly rigorous standard of review: appellate courts generally review the trial court’s factual findings for clear error and legal conclusions de novo. By contrast, courts review arbitration awards under the very deferential standards of review prescribed by Sections 10 and 11 of the Federal Arbitration Act. The trade-off is one of informality, speed and reduced expense for a heightened risk that the decision maker will commit unreviewable legal and factual errors — even some pretty egregious ones.

But every so often an arbitration award can be so far off the mark that one of the parties is deprived of the benefit of the bargain it made when it agreed to arbitrate. These are not cases where the arbitrators merely did a shoddy job, but ones where the arbitrators did not do the job the parties asked them to do. These are the cases that Section 10(a)(4) of the Federal Arbitration Act was designed to address: ones where “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final award on the subject matter was not made.”

Today we take a brief look at Raymond James Financial Serv., Inc. v. Bishop, ___ F.3d ___, No. 09-1038, slip op. (4^th Cir. Feb. 22, 2010), a recent example of one of those rare cases. And we’ll see how how confusion about the scope of Section 10(a)(4) resulting – quite unintentionally – from the United States Supreme Court decision in Hall Street Assoc., L.L.C. v. Mattel , Inc, 552 U.S. ___, slip op. at __ (March 25, 2008) apparently motivated the United States Court of Appeals for the Fourth Circuit to decide the case solely on the ground that the arbitrators were not authorized to rule on the claim on which they admittedly based their award. (See, generally, “Hall Street Meets Pearl Street: Stolt-Nielsen and the Federal Arbitration Act’s New Section 10(a)(4).”)

The Court reached the right result, but its decision is of limited utility in future cases. For under many broad arbitration agreements and submissions the arbitrators have authority to rule on pretty much any claim that is related to the subject matter of the parties’ dispute. Abitrators may have the authority to resolve a claim, but may do so in a way that has not even a barely colorable justification under the law and facts.

We would have liked to see the Court rule not only on the authority issue, but also on two other grounds relied upon by the district court: manifest disregard of the law and the award’s failure to “draw its essence” from the parties’ agreements. As we have said before, we believe that those grounds are statutorily permitted by Section 10(a)(4), and that they provide a useful safety valve for addressing those (thankfully) rare cases where the arbitrators resolve a dispute within the scope of their authority, but do so in a way that completely deprives one of the parties of the benefit of its arbitration agreement. Continue Reading »

Professor Aaron Bruhl’s Analysis of Rent-A-Center, West v. Jackson (No. 09-497)

February 24th, 2010 Arbitrability, Authority of Arbitrators, United States Court of Appeals for the Ninth Circuit, United States Supreme Court 1 Comment »

Professor Aaron Bruhl, an Assistant Professor of Law at the University of Houston Law Center, recently published in PrawfsBlawg a thought-provoking and insightful article on Rent-A-Center West v. Jackson (No. 09-497). (Post here) Regular readers no doubt remember that the United States Supreme Court recently granted certiorari in Rent-A-Center, and will be hearing argument on April 26, 2010. (See our prior posts here and here).

Professor Bruhl points out that, in addition to being of interest to those practicing employment, consumer or plain old arbitration law, Rent-A-Center “is just as interesting for those who study federal courts and judicial politics.” He reminds us that one of the few remaining “safety valves” for challenging arbitration agreements is unconscionability:

In the last few years, as other routes for challenging arbitration have been closed off, unconscionability has become a surprisingly common and surprisingly effective way of attacking arbitration agreements. The challenges do not attack arbitration per se – federal law favors arbitration – but instead target various aspects of a particular arbitration process: a given clause might forbid class arbitrations, bar punitive damages or otherwise restrict remedies, sharply curtail discovery, require a consumer to pay hefty arbitrator’s fees, etc. There have been many cases on these topics in recent years, and a good number of them sustain the challenge to the arbitration clause.

He notes that the United States Supreme Court has consistently denied certiorari in cases where lower courts have invalidated arbitration agreements on state-law unconscionability grounds and the question is whether the invalidation offended the Federal Arbitration Act. He suspects “the Court has avoided these cases because it feels ill-equipped to resolve whether a lower court is discriminating against arbitration:”

First, unconscionability analysis often requires a fact-intensive inquiry. Second, and more important, determining whether a lower court is using unconscionability differently when it comes to arbitration requires an engagement with the details of state law and a comparison of lots of prior unconscionability cases. Third, and maybe most important of all, a holding that the lower court is applying unconscionability unfairly, especially when the lower court says it is applying the same analysis it applies elsewhere, carries with it some serious expressive baggage. Essentially, it requires the Supreme Court to say that the lower court is being dishonest. That happens, but when it does so, it is a big deal (think cases like Bush v. Gore or the cases from the 50s/60s rejecting supposed procedural defaults in the state courts).

But the Court granted certiorari in Rent-A-Center, a case involving not the merits of a state law unconscionability challenge, but the question who gets to decide unconscionability when the parties clearly and unmistakably submit it to the arbitrators. Professor Bruhl believes certiorari was granted because addressing the “who” question, and resolving it in favor of arbitration, will cleanly dispose of the unconscionability problem from the standpoint of the federal courts, at least in cases where the parties clearly and unmistakably agreed to arbitrate arbitrability:

That doesn’t require diving into the weeds of state law and the record. If the Court assigns the issue to the arbitrator, that will be a very easy rule to monitor for compliance (unlike deciding whether the lower court applied unconscionability correctly). All of those unconscionability cases out there will instantly become not wrong but irrelevant – because courts won’t be deciding the issue anymore. And it won’t matter whether some lower courts can be trusted to apply unconscionability correctly, because they will be cut out of the picture. Continue Reading »

Archive for the ‘Arbitrability’ Category

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

The United States Supreme Court Decides Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.!

Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.: What are the Implications for Reinsurance Arbitration?

When Do Cost Provisions in an Arbitration Agreement Effectively Deny a Party a Forum in Which to Vindicate Statutory Rights?

International Institute for Conflict Prevention and Resolution Newsletter Features Philip J. Loree Jr. Cover Story on Rent-A-Center and Granite Rock

First Circuit Considers Whether an Arbitration Clause is Mandatory or Optional: PowerShare, Inc. v. Syntel, Inc.

Fourth Circuit Vacates Securities Arbitration Award: Raymond James Financial Services, Inc. v. Bishop

Professor Aaron Bruhl’s Analysis of Rent-A-Center, West v. Jackson (No. 09-497)

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