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Archive for the ‘Appraisal’ Category

Expert-Determination Clauses: Third Circuit Holds Dispute Resolution Clause Provided for Expert-Determination, not Arbitration

July 31st, 2023 Applicability of Federal Arbitration Act, Application to Compel Arbitration, Application to Stay Litigation, Appraisal, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Challenging Arbitration Agreements, Challenging Arbitration Awards, Contract Interpretation, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Practice and Procedure, Questions of Arbitrability, Section 3 Stay of Litigation, Section 4, United States Court of Appeals for the Third Circuit Comments Off on Expert-Determination Clauses: Third Circuit Holds Dispute Resolution Clause Provided for Expert-Determination, not Arbitration

Introduction: Third Circuit’s Ruling on Expert-Determination Clauses Versus Arbitration Clauses

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Not every dispute resolution clause contained in a contract is an arbitration clause, let alone an arbitration clause governed by the Federal Arbitration Act (“FAA”). Absent a statute stating otherwise, dispute resolution clauses that are not arbitration agreements must be enforced via ordinary contract-law rules only, not through FAA- or state-arbitration-statute-authorized motions to compel arbitration, motions to stay litigation pending arbitration, or motions to confirm, vacate, or modify awards.

The U.S. Court of Appeals for the Third Circuit recently decided a case that turned on whether the dispute resolution clause in the contract was an arbitration clause, or simply a contractual provision calling for resolution of an issue by experts, sometimes referred to as an “expert-determination provision[,]” slip op. at 14, or “expert-determination clause.” In Sapp v. Indus. Action Servs., No. 22-2181, slip op. (3d Cir. July 20, 2023) the Court held that the clause before it was not an arbitration agreement, but an expert clause and consequently reversed the district court’s decision to compel arbitration and vacated the Court’s order granting the motion to confirm the expert’s decision and denying the motion to vacate it. Slip op. at 3, 19.

Whether or not you are—in a particular case—advocating for or opposing arbitration, Sapp demonstrates how important it is to make an early determination as to whether the alternative dispute resolution clause at issue is, in fact, an arbitration agreement whose enforcement is governed by the FAA or a state arbitration statute.

Another point about Sapp is that its interpretation of the Federal Arbitration Act is arguably more narrow than that of the Second Circuit. The Second Circuit has said that a dispute resolution provision otherwise falling under Section 2 of the FAA is an “arbitration agreement” for purposes of the FAA, including an “appraisal” provision in an insurance contract. The test is whether the dispute resolution provision  “clearly manifests an intention by the parties to submit certain disputes to a specified third party for binding resolution.” McDonnell Douglas Finance Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988); Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140, 143 (2d Cir. 2013). That dispute resolution clauses, such as appraisal clauses, typically do not use the term “arbitration” is of no moment—all that counts “is that the parties clearly intended to submit some disputes to their chosen instrument [e.g., appraisal] for the definitive settlement of certain grievances under the Agreement.” Id. (quotations omitted); see Bakoss, 707 F.3d at 143. (See also Arbitration Law Forum post here.)

The reason for this difference is most likely because, as we shall see, Sapp ruled that state law—specifically, that of Delaware—not federal common-law, governs what constitutes an arbitration agreement for purposes of the FAA. See Slip op. at 12-16. In the Second Circuit, however, federal common-law governs that question. See Bakoss, 707 F.3d at 143. Continue Reading »

Second Circuit Denies Motion to Compel Appraisal because Insurer Sought to Submit Question of Law to Appraisers

April 7th, 2019 Applicability of Federal Arbitration Act, Appraisal, Arbitrability, Arbitration Agreements, Authority of Arbitrators, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Practice and Procedure, Rights and Obligations of Nonsignatories, United States Court of Appeals for the Second Circuit Comments Off on Second Circuit Denies Motion to Compel Appraisal because Insurer Sought to Submit Question of Law to Appraisers
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In the Second Circuit, appraisal provisions in insurance policies and other contracts are, as a matter of federal common law, considered arbitration agreements for purposes of the Federal Arbitration Act. Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140, 143 (2d Cir. 2013). That is because they “clearly manifest[] an intention by the parties to submit certain disputes to a specified third party for binding resolution.” McDonnell Douglas Finance Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988); Bakoss, 707 F.3d at 143. That appraisal clauses typically do not use the term “arbitration” is of no moment—all that counts “is that the parties clearly intended to submit some disputes to their chosen instrument [appraisal] for the definitive settlement of certain grievances under the Agreement.” Id. (quotations omitted); see Bakoss, 707 F.3d at 143.

In Milligan v. CCC Info. Servs. Inc., ___ F.3d ___, No. 18-cv-1405, slip op. (2d Cir. April 3, 2019) the Second Circuit affirmed a district court decision that denied an insurer (the “Insurer”)’s motion to compel, under the Federal Arbitration Act, appraisal of a dispute concerning the Insurer’s obligation to indemnify the insured (the “Insured”) for total loss of a leased vehicle. The Second Circuit held that the dispute the Insurer sought to submit to appraisal concerned interpretation of the policy, and thus presented a question of law that was outside the scope of the appraisal clause.

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