Arbitrability | Loree Reinsurance and Arbitration Law Forum

Posts Tagged ‘Arbitrability’

The Seventh Circuit Issues a Landmark Reinsurance Arbitration Opinion in Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.): Part II

February 24th, 2011 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Evident Partiality, Practice and Procedure, United States Court of Appeals for the Fifth Circuit, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit 1 Comment »

I. Introduction

Part I (here) briefly discussed Chief Judge Frank H. Easterbrook’s decision in Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.), No. 09-3682, slip op. (7^th Cir. Jan. 31, 2011), and its implications on the pending Second and Fifth Circuit appeals in Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co, No. 09 Civ. 9531(SAS), 2010 WL 653481 (S.D.N.Y. Feb. 23, 2010), and Dealer Computer Svcs., Inc. v. Michael Motor Co., No. H-10-2132, slip op. (S.D. Tex. December 29, 2010). This Part II examines in some detail Trustmark’s background and rationale, and Part III will focus on Trustmark’s implications on the Scandinavian Re and Dealer Computer appeals.

II. Trustmark Background

The following facts were gleaned from both the district court and Seventh Circuit opinions (the district court opinion is reported at 680 F. Supp. 2d 944 and can be found here): Continue Reading »

Introducing Guest Blogger John (Jay) McCauley

June 23rd, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Guest Posts, Practice and Procedure, Unconscionability, United States Supreme Court 1 Comment »

Today we are pleased and honored to feature an article by our good friend John (Jay) McCauley, a distinguished arbitrator, mediator, attorney and professor of arbitration law. Jay’s article is entitled “A Commercial Arbitrator’s Take on Rent-A-Center v. Jackson,” and can be found here.

Jay debunks the media hype surrounding the United States Supreme Court’s recent decision in Rent-A-Center v. Jackson, ___ U.S. ___, slip op. (June 21, 2010), and argues (persuasively) that the case is a reasonable, natural and modest interpretation of the Court’s prior Federal Arbitration Act jurisprudence. With one minor caveat we agree wholeheartedly with his insightful and pragmatic view of the case.

Our view of the decision may differ very slightly in that we believe that its scope is broader than the holding might suggest. Jay is absolutely correct when he says that the decision permits parties to challenge delegation agreements (agreements to arbitrate arbitrability) on unconscionability grounds. He says that there may be “dozens” of grounds on which to make such a challenge, and we think he is right about that, too.

But we think that it will be very difficult to mount a successful challenge specifically directed at a delegation agreement. And if we are right about that, then the practical effect of the decision will be that delegation agreements will usually be enforced, enabling arbitrators to decide most unconscionability challenges. The scope of the decision is, in our view, therefore quite broad.

We nevertheless agree with Jay that the decision makes perfect sense in light of the Court’s prior Federal Arbitration Act jurisprudence, and apart from our caveat about the decision’s scope, we are otherwise on the same page as Jay. Of course, it may turn out that challenges to delegation agreements prove more successful than we think they will.

Jay is an American-Arbitration-Association certified arbitrator and mediator, and serves on the AAA’s Large Complex Case Panel. He is a Fellow of the College of Commercial Arbitrators and a Distinguished Fellow of the International Academy of Mediators. He offers arbitrator and mediator services through Judicate West and Professional Mediation Associates.

Jay also serves as an adjunct professor of arbitration law at Pepperdine Law School, the University of Missouri-Kansas City Law School and the Werner Institute of Creighton Law School. An AV-rated attorney, he is a member of the California bar and is admitted to practice before the United States Supreme Court. He is listed in “Best Lawyers in America” for ADR, and in “Southern California Super Lawyers,” also for ADR. You can visit his website here.

We hope you enjoy Jay’s article.

Guest Post: A Commercial Arbitrator’s Take on Rent-A-Center v. Jackson

June 23rd, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Practice and Procedure, Unconscionability, United States Supreme Court 3 Comments »

By John (Jay) McCauley

Despite all the alarmist reaction already showing up in the press, the holding in Rent-A-Center v. Jackson, ___ U.S. ___, slip op. (June 21, 2010) is both modest and predictable. Arbitration agreements always do one thing: take decisions from judges and give them to arbitrators. Ever since 1925, such agreements have always been enforced to exactly the same extent as any other agreement is enforced. Not less so, but also not more so. Are they enforced even when the decision in question is the “gateway” decision of whether the parties must arbitrate their dispute? Yes, as long as the agreement delegating even that decision to the arbitrator is explicit and unmistakeable. Is that news? No. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (dictum).

Should it matter that this delegation language is physically located within the challenged arbitration agreement itself? No. (If the answer were “Yes,” any contract drafter could “solve” the problem by plucking out the delegation provision and pasting it onto another sheet of paper to be separately executed as the “delegation agreement.”) What does matter is whether the challenge brought against the arbitration agreement is the kind that goes to the enforceability of the delegation provision itself. Are there such challenges in theory? Sure, dozens of them. Does that fact put severe brakes on the implications of the Rent-a-Center holding for other cases? Yes, that’s the point. Were there any such challenges in the Rent-a-Center case? No. None whatsoever. As the Court noted, the party challenging arbitration in this particular case did not even attempt to raise one. Would the Court have been open to listening to such a challenge? Yes. Not just by implication. It expressly said it would.

Some of the alarmist commentary stands on the cynical premise that law is pure politics, such that the statement “the outcome of this case is pro-business” is thought to serve as a principled basis the court should have used to distinguish the precedent it is required to honor. Some of these commentaries, remarkably enough, even come from lawyers.

The more sophisticated of the alarmist commentaries made a more sophisticated mistake. They took the way Justice Scalia framed the issue in the first sentence of the decision, and leaped to the conclusion that that sentence could serve as the entire holding.

Justice Scalia said: “We consider whether. . . a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator.”

His answer (the holding) was not exactly “It may not.” His answer was really, “It may not, unless, of course, the provision assigning the decision to the arbitrator is itself subject to any challenge whatsoever (including unconscionability) recognizable to anyone familiar with the common law of contracts.

To which I would only add the not very dramatic commentary: “Nothing very remarkable about that.”

EDITOR’S NOTE: John (Jay) McCauley is an American-Arbitration-Association certified arbitrator and mediator, and serves on the AAA’s Large Complex Case Panel. He is a Fellow of the College of Commercial Arbitrators and a Distinguished Fellow of the International Academy of Mediators. He offers arbitrator and mediator services through Judicate West and Professional Mediation Associates.

Our post introducing Jay is here.

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

June 18th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court 5 Comments »

Part V.A

A. Introduction

In this Part V.A of our consolidated-reinsurance-arbitration series, we delve into Stolt-Nielsen’s legal implications on consolidated reinsurance-arbitration practice, focusing on how courts are likely to decide the allocation-of-power question: Who gets to decide whether the parties consented to consolidated arbitration? In Part V.B we shall examine Stolt-Nielsen’s other specific legal and practical implications, focusing on what a party will likely need to show to obtain consolidated arbitration and how frequently consolidated arbitration is likely to be granted after Stolt-Nielsen.

B. Who Gets to Decide Whether the Parties Consented to Consolidated Arbitration?

Readers will recall from Part III (here) that courts interpreted Bazzle as governing the allocation-of-power issue. Now that the Court has said Bazzle never commanded a majority on that issue, and that it remains open, courts must reconsider it not only in the class-, but in the consolidated-arbitration context.

Consolidated arbitrations, like class arbitrations, raise two types of questions: Common-dispute and party-consent questions. We think that courts will likely conclude that both are questions of arbitrability for the court to decide in the first instance, unless the parties clearly and unmistakably agree otherwise. Arbitrators may play a role in resolving contractual ambiguities identified by the court.

1. Who Gets to Decide Common-Dispute Questions?

All consolidated-arbitration questions concern whether at least one arbitration agreement encompasses not only disputes concerning one, but all other contracts at issue. We call this the “common-dispute” question.

In some consolidated-arbitration disputes the “common dispute” question is the only one presented. Suppose reinsurer R enters into two treaties with cedent C, Contracts A and B, each of which incept on the same date and are in force for one year. Contract A’s limits are $1 million per occurrence excess a $500,000 retention. Contract B has per occurrence limits of $2 million excess of $1.5 million. Both contain broad arbitration clauses under which the parties agreed to arbitrate “any dispute arising out of or relating to this contract.” Continue Reading »

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 »

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 »

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.

SCOTUS Oral Argument in Jackson v. Rent-A-Center West, Inc. Set for April 26, 2010

February 17th, 2010 Arbitrability, Authority of Arbitrators, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Supreme Court No Comments »

The United States Supreme Court has set for April 26, 2010 oral argument in Jackson v. Rent-A-Center West, Inc., ___ F.3d ___, slip op. (9^th Cir. Sept. 9, 2009), petition for cert. granted Jan. 15, 2010 (No. 09-497) (oral argument calendar here). Jackson addresses the question who decides unconscionability of an arbitration agreement when the agreement clearly and unmistakably says arbitrators decide arbitrability. The Ninth Circuit said the court decides the question, but we think there is a reasonable chance the United States Supreme Court will reverse. We touched on some of the reasons why in prior posts, here and here.

We shall keep readers apprised of further developments as and when they occur. . . .

Stolt-Nielsen Oral Argument Analysis: Part IV

January 6th, 2010 Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court 1 Comment »

Introduction

Stolt-Nielsen turns on the allocation of power between courts and arbitrators. No matter how thoroughly and neatly you parse the issues, the question that repeatedly and continuously begs for an answer is: who decides? Answer that question as it relates to one issue and it pops up again in relation to the next.

Up until Bazzle the Supreme Court did an admirable job of delineating the bounds of arbitral versus judicial authority. The lines were blurred in Bazzle, where under the peculiar facts there was a question whether the agreement precluded class arbitration. (See our Disputing guest post here.) The question required interpretation of ambiguous contract language – a task arbitrators have both the authority and the competence to perform – so it was remanded to the arbitrators. The four-Justice plurality said the question was not one of arbitrability, but concerned the “kind” of arbitration to which the parties agreed.

But many of the lower courts — including the United States Court of Appeals for the Second Circuit — read Bazzle to mean that arbitrators have the authority under a broad arbitration agreement to determine whether the parties agreed to class arbitration when their agreements say nothing about class or consolidated arbitration. That is a very different question from whether an arbitration agreement precludes class arbitration, and it is not one that the parties in Stolt-Nielsen clearly and unmistakably submitted to the arbitrators.

Stolt-Nielsen presents the United States Supreme Court with a unique opportunity to draw a sharper and stronger line between the arbitrable and non-arbitrable in cases concerning class or consolidated arbitration. Whether or not the Court will seize it is an open question, because, as explained in Part III, AnimalFeeds has articulated a plausible argument that Stolt-Nielsen has not established the predicate for the Court’s grant of certiorari: that the parties’ agreements were silent on class arbitration. If at least five justices are satisfied with the (we believe, unsatisfactory) status quo concerning class arbitration, or otherwise believe that the best course is to allow class arbitration to continue (and even flourish), then AnimalFeed’s argument may provide an interpretive path for a ruling that the case is not properly before the Court.

Today we explain why accepting AnimaFeeds’ argument would contravene the letter and spirit of the Federal Arbitration Agreement, breed further litigation, and undermine confidence in arbitration as an effective alternative dispute resolution mechanism. More to the point, we discuss why and how the Court can reach the merits of Stolt-Nielsen consistently with how Stolt-Nielsen presented the question. Continue Reading »

Stolt-Nielsen Oral Argument Analysis: Part III

December 23rd, 2009 Arbitrability, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, United States Supreme Court 2 Comments »

On December 9, 2009 the United States Supreme Court held oral argument in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) (oral argument transcript here). Stolt-Nielsen concerns whether class or consolidated arbitration may be imposed on parties whose contracts are silent on that point, and we have written extensively on it, including an ongoing series of guest-post articles for our friend Karl Bayer’s Disputing blog. (Posts available here, here, here, here, here, here, here, here and here.)

On December 16, 2009 we posted Part II of our analysis of the oral argument (Parts I, here, Part II, here). In this Part III we focus on what transpired with respect to the second of four key interrelated issues raised at oral argument and identified in Part I: What exactly did the arbitrators decide? Continue Reading »

Posts Tagged ‘Arbitrability’

The Seventh Circuit Issues a Landmark Reinsurance Arbitration Opinion in Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.): Part II

Introducing Guest Blogger John (Jay) McCauley

Guest Post: A Commercial Arbitrator’s Take on Rent-A-Center v. Jackson

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?

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

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

SCOTUS Oral Argument in Jackson v. Rent-A-Center West, Inc. Set for April 26, 2010

Stolt-Nielsen Oral Argument Analysis: Part IV

Stolt-Nielsen Oral Argument Analysis: Part III

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