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Clause Conflicts: Supreme Court, New York County Finds Arbitration and Jurisdiction/Venue Clauses do not Conflict

September 30th, 2024 American Arbitration Association, Applicability of Federal Arbitration Act, Application to Stay Arbitration, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Authority of Arbitrators, Clear and Unmistakable Rule, Conflict between Arbitration Clause and Another Clause, Drafting Arbitration Agreements, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Formation of Arbitration Agreement, Gateway Disputes, Gateway Questions, Jurisdiction Clause, New York County, New York State Courts, State Courts, Stay of Arbitration, Venue No Comments »

clauseWhat happens if a contract containing a broad arbitration clause also contains a clause that provides for federal or state court personal jurisdiction and venue over claims that would also fall within the scope of the arbitration clause? If you’ve ever worked on an insurance or reinsurance case in which the policy or contract contained both an arbitration agreement and a service of suit clause, then you’re probably familiar with how courts typically deal with apparent conflicts of that sort.

A service of suit clause—commonly found in, among others, London Market insurance and reinsurance policies and contracts—is a consent to personal jurisdiction provision that provides for personal jurisdiction in a court of competent subject-matter jurisdiction selected by the plaintiff or petitioner. See, e.g., Brooke Group Ltd. v. JCH Syndicate 488, 87 N.Y.2d 530, 534 (1996). It might provide, for example: “‘in the event of the failure of the Underwriters hereon to pay any amount claimed to be due’ the underwriters will, ‘at the request of the Insured. . . submit to the jurisdiction of a Court of competent jurisdiction within the United States.’” JCH Syndicate 488, 87 N.Y.2d at 534 (quoting service-of-suit clause).

At least at first glance, service of suit clauses appear to conflict with the kind of broad arbitration agreements typically found in reinsurance treaties and many London Market policies written for the U.S. excess and surplus lines market. Submitting to the jurisdiction of a court of competent jurisdiction in the event of a party’s failure to pay any amount claimed to be due under a contract seems antithetical to submitting the same failure to pay claim to arbitration.

Contentions of this sort have—not surprisingly—been made, but the Courts usually resolve them by harmonizing the service-of-suit clause with the arbitration clause, finding that the service-of-suit clause complements the arbitration clause by facilitating arbitration enforcement litigation. See, e.g., Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., 836 F.3d 784, 787 (7th Cir. 2016) (“Read as a whole, the reinsurance agreement[’s service of suit clause] requires Transfercom to submit to the jurisdiction of any court of competent jurisdiction chosen by PTRIL, whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or to resolve on the merits, a claim not subject to arbitration—including PTRIL’s breach of contract claim”); The Pointe on Westshore LLC v. Certain Underwriters at Lloyd’s of London, 670 F. Supp. 3d 1342, 1349-53 (M.D. Fla. 2023) (citing numerous cases).

As today’s case—Kennelly v. Myron & Selina Siegel Family Ltd. P’ship LP, No. 654950/2023, 2024 N.Y. Slip Op. 33278 (Sup. Ct. N.Y. Co. Sept. 17, 2024)—aptly demonstrates, apparent conflicts between arbitration agreements and venue or jurisdiction provisions in other types of contracts are addressed in a similar manner. They are resolved according to state law contract interpretation principles, and if the contract provisions can be harmonized, then the interpretation that gives effect to both provisions must prevail.

Clause Conflicts: Background

The interpretation issue in Kennelly arose out of an operating agreement (the “Operating Agreement”) for a limited liability company (the “LLC”). Two members and a manager (the “Arbitration Petitioners”) demanded arbitration against another member and another manager (the “Arbitration Respondents”), alleging that the LLC “and. . . [the Arbitration Respondent manager] failed to pay [those Arbitration Petitioners] all of the monies owed to [them] under the Operating Agreement, including the proper distributive share of [the LLC’s] net profits, and failed to properly manage and operate the venture’s property.” 2024 N.Y. Slip Op. at * 3. The Arbitration Petitioners sought between $1 million and 10 million dollars in damages, as well as interest, legal fees and expenses. Id.

The Operating Agreement (at Section 12.13) contained an arbitration agreement, which provided, in pertinent part:

Each Member agrees that the arbitration procedures set forth below shall be the sole and exclusive method for resolving and remedying claims for money damages arising out of a breach of this agreement (the ‘Disputes’); provided that nothing in this Section 12.13 shall prohibit a party hereto from instituting litigation to enforce any Final Determination (as defined below). The Members hereby acknowledge and agree that except as otherwise provided in this Section 12.13 or in the Commercial Arbitration Rules (the ‘Rules’) promulgated by the American Arbitration Association as in effect from time to time, the arbitration procedures and any Final Determination hereunder shall be governed by, and shall be enforced pursuant to the United States Arbitration Act, 9 U.S.C. § 1, et seq. . . .

(b) . . . . The arbitration shall be conducted in New York, NY, under the Rules as in effect from time to time. The arbitrator shall conduct the arbitration so that a final result, determination, finding, judgment and/or award (the “Final Determination”) is made or rendered as soon as practicable.

(c) Any applicable Member may enforce any Final Determination in any state or federal court of competent jurisdiction. For the purposes of any action or proceeding instituted with respect to any Final Determination, each party hereto hereby irrevocably submits to the jurisdiction of such courts, irrevocably consents to the service of process by registered mail or personal service and hereby irrevocably waives, to the fullest extent permitted by law, any objection which it my have or hereafter have as to personal jurisdiction, the laying of the venue of any such action or proceeding bought in any such court and any claim that any such action or proceeding brought in any court has been brought in an inconvenient forum.

2024 N.Y. Slip Op. 33278 at *4 (quoting Operating Agreement, § 12.13).

Section 12.14 of the Operating Agreement, “Venue,” stated:

Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with this Agreement or the transactions contemplated hereby or thereby may be brought in any state or federal court in The City of New York, Borough of Manhattan, and each Member hereby consents to the exclusive jurisdiction of any court in the State of New York (and of the appropriate appellate courts therefrom) in any suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objections which he, she or it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Each Member hereby waives the right to commence an action, suit or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with this Agreement or the transactions contemplated hereby or thereby in any court outside of The City of New York, Borough of Manhattan.

2024 N.Y. Slip Op. 33278 at *4 (quoting Operating Agreement, § 12.14).

The Arbitration Respondent brought a special proceeding in Supreme Court, New York County (the “special proceeding”), which sought, among other things,  to stay the arbitration on the ground that the Arbitration Petitioner’s  claims were not arbitrable. According to the Arbitration-Respondent (petitioner in the special proceeding), “the Operating Agreement’s separate venue provision, Section 12.14, conflicts with the arbitration provision and, as such, there was no meeting of the minds. . . .” N.Y. Slip Op. 33278 at *7. The Court rejected this argument. N.Y. Slip Op. 33278 at *7 & 8.

Clause Conflicts: Discussion

At the outset the Court noted that the parties agreed that the Federal Arbitration Act (“FAA”) applied, and that where, as here, the existence of an arbitration agreement is at issue, the court decides the question. N.Y. Slip Op. 33278 at *6-7 (citations omitted). It pointed out that there is no dispute that the parties entered into the Operating Agreement and that the Agreement is binding. In the arbitration provision,  Section 12.13, the parties unambiguously agreed that arbitration pursuant to the American Arbitration Association (“AAA”)’s Commercial Arbitration Rules was the “‘sole and exclusive method for resolving and remedying claims for money damages arising out of a breach’ of the Operating Agreement.” N.Y. Slip Op. 33278 at *7.

The Court explained that the alleged conflict between Section 12.13 and Section 12.14 was false. Under New York contract interpretation rules, courts must avoid interpretations that would render contractual provisions without meaning, and if reasonably possible, allegedly conflicting provisions should be harmonized, giving both force and effect. N.Y. Slip Op. 33278 at *7 (citations omitted).

The Court cited five cases where New York courts had harmonized similar apparent conflicts between arbitration clauses and jurisdiction-related clauses, including one involving a clause providing for “exclusive jurisdiction” in New York State courts. N.Y. Slip Op. 33278 at *7.  Three of these were decided by the Appellate Division, First Department, and two by the Supreme Court, New York County. See N.Y. Slip Op. 33278 at *7 (citing cases).

The Court had little difficulty harmonizing the arbitration (Section 12.13) and jurisdiction and venue clause (Section 12.14). The arbitration clause applied only to claims for money damages. That arbitration clause further provided that “the arbitration mandate [did] not ‘prohibit a party hereto from instituting litigation to enforce  any’ final arbitration determination.” N.Y. Slip Op. 33278 at *8 (quoting Section 12.13). The jurisdiction and venue clause said that “any ‘suit, action, or proceeding’ seeking to enforce any provision of the Operating Agreement, or any matter arising out of the agreement, ‘may be brought in any state or federal court’ located in new York County and that the parties consent to exclusive jurisdiction in any such court.” N.Y. Slip Op. 33278 at *8 (quoting Section 12.14).

From that, in turn, the Court drew three conclusions, which collectively demonstrated that the clauses were in harmony:

  1. Because Section 12.13 required arbitration only of monetary relief claims, claims for “equitable or other relief —e.g., specific performance or to stay or compel arbitration—must be brought in a court, and Section 12.14 would apply to any such suit.” N.Y. Slip Op. 33278 at *8 (citation omitted; emphasis in original).
  2. The arbitration clause (Section 12.13) refers to suits brought to enforce arbitration awards and Section 12.14 governed jurisdiction and venue for those suits. N.Y. Slip Op. 33278 at *8.
  3. The ejusdem generis canon of contract construction indicates that the specific should prevail over the general, and here the arbitration clause is “a specific, mandatory clause” while the jurisdiction and venue provision is “a general clause. . . .” Id.  

The Court thus held that “the plain language of Sections 12.13 and 12.14 permits an interpretation that does not result in an irreconcilable conflict between the two provisions or in one provision being rendered meaningless.” N.Y. Slip Op. 33278 at *8.

Delegation of Arbitrability to the Arbitrator

There were two other issues before the Court, one of which we’ll briefly address. The Arbitration Respondent argued that the Arbitration Petitioner’s claims were all “derivative in nature and should be precluded on that ground as well.” N.Y. Slip Op. 33278 at *8. In response, the Arbitration Petitioner argued that whether the claims were derivative [i.e., would have to be brought on behalf of the LLC], and if so, whether they were subject to arbitration, presented questions of arbitrability—questions the parties had delegated to the arbitrator by incorporating the AAA Commercial Rules into their contract. The Arbitration Respondent also apparently made arguments about “lack of proper service or notice,” but the Court’s opinion does not provide details on those claims.

The Arbitration Petitioner argued that these questions concerning the allegedly derivative nature of the claims, and proper service and notice, all had to be submitted to arbitration. The Court agreed with the Arbitration Petitioner.

The parties did not dispute that they had agreed to arbitrate according to the AAA Commercial Rules, which provided “that the ‘arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.’” N.Y. Slip Op. 33278 at *9 (quotation and citation omitted).

Citing Second Circuit and New York state court authority, the Court explained that incorporation of the AAA Commercial Rules into an arbitration agreement delegates arbitrability questions to the arbitrator. See N.Y. Slip Op. 33278 at *9 (citing and quoting Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 208 (2d Cir. 2005); other citations omitted); see, e.g., post here. The Court therefore held that the derivative-claim, notice, and service claims raised questions of arbitrability, which the Arbitration Respondent was required to submit to arbitration. N.Y. Slip Op. 33278 at *10.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has nearly 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance or reinsurance-related and other matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

 Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

Ineffective Objections and Untimely Filings Lead to FAA Forfeiture: Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024)

September 4th, 2024 Applicability of Federal Arbitration Act, Application to Confirm, Application to Vacate, Arbitrability, Arbitrability - Nonsignatories, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Award Confirmed, Challenging Arbitration Awards, Clear and Unmistakable Rule, Confirm Award | Exceeding Powers, Confirmation of Awards, Delegation Agreements, Enforcing Arbitration Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 10, FAA Section 11, FAA Section 9, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 9, First Department, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Formation of Arbitration Agreement, Grounds for Vacatur, Modify or Correct Award, New York Arbitration Law (CPLR Article 75), Petition or Application to Confirm Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Procedural Arbitrability, Questions of Arbitrability, Rights and Obligations of Nonsignatories, Second Department, Section 10, Section 11, Section 9, Service of Process, State Arbitration Law, Time Limit for Vacating, Modifying, or Correcting Award, Vacate Award | 10(a)(4), Vacate Award | Arbitrability, Vacate Award | Excess of Powers, Vacate Award | Existence of Arbitration Agreement Comments Off on Ineffective Objections and Untimely Filings Lead to FAA Forfeiture: Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024)

Objections Must be Timely and Effective in Federal Arbitration Act Litigation, Including Litigation Relating to Consulting AgreementsA good chunk of FAA practice and procedure —including FAA practice and procedure in state court—involves knowing when, how, and why to make timely and effective objections and filings in arbitration enforcement litigation.  Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024), which New York’s Appellate Division, Second Department, decided on August 28, 2024, illustrates this point well.

Appellants were not signatories to the arbitration agreement, did not agree to arbitrate any matters, and did not clearly and unmistakably agree to arbitrate questions of arbitrability. But the Court found that they participated in the arbitration without lodging adequate objections to the arbitrator’s jurisdiction and did not timely file in the confirmation litigation their petition to vacate the awards at issue. Accordingly, the Appellants were—by their participation in the arbitration without effective objections to the arbitrator’s jurisdiction—deemed to have impliedly consented to arbitrate all issues before the arbitrator, including whether they were bound by the contract and arbitration agreement as successors-in-interest. Not a happy place to be.

Background

The transactions pertinent to Sivanesan began in 2008 when YBF, LLC (“YBF”) sold to Cosmetics Specialties, East LLC (“CSE”) an exclusive license to Continue Reading »

Seventh Circuit Blocks Mass Arbitration: Wallrich v. Samsung Electronics America, Inc.  

July 16th, 2024 American Arbitration Association, Appellate Jurisdiction, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Class Arbitration Waivers, Clear and Unmistakable Rule, Delegation Agreements, Equal Footing Principle, FAA Chapter 1, FAA Chapter 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 4, Federal Subject Matter Jurisdiction, Mass Arbitration, Petition to Compel Arbitration, Practice and Procedure, Procedural Arbitrability, Questions of Arbitrability, Richard D. Faulkner, Section 4, United States Court of Appeals for the Seventh Circuit Comments Off on Seventh Circuit Blocks Mass Arbitration: Wallrich v. Samsung Electronics America, Inc.  

Mass ArbitrationIntroduction: Mass Arbitration

For many years consumers, employees, and others fought hard—with varying degrees of success—to compel class arbitration, and sellers, employers, and other more economically powerful entities fought equally hard to compel separate arbitrations in multi-claimant situations. Over time, companies included in their agreements—and courts enforced—clear class-arbitration waivers.

That might have been the end of the story but for a stroke of genius on the part of certain plaintiffs’ attorneys. These clever attorneys devised what is now known as “mass arbitration.”

In mass arbitration, as in class arbitration, multiple claimants—each represented by the same lawyer or group of lawyers—assert at the same time numerous  claims against a corporate defendant.

The result is that business entity defendants may be are forced to pay upfront hundreds of thousands or millions of dollars in arbitration provider and arbitrator fees as a precondition to defending thousands of individual arbitration proceedings that raise one or more common issues.

Saddling the business entity defendants at the outset with those enormous arbitration fees obviously puts them in an untenable settlement position. The business entities also incur very substantial legal costs for arbitration-related litigation.

Given the vigor with which business entities have opposed class arbitration—which, despite its cumbersome nature, purports to be (but really isn’t) a workable mechanism for resolving multiple, similar, arbitral claims—one can hardly fault a judge for concluding that business entity defendants have reaped what they’ve sown. But it would be strange to think that Federal Arbitration Act (“FAA”) arbitration should, in multiple claimant situations, boil down to the business entity choosing one form of economic extortion (endless, inefficient, and prohibitively expensive class arbitration) over another (being forced to pay millions of dollars of arbitration fees upfront before being able to defend any of the individual arbitrations).

There have been some recent efforts on the part of arbitration providers to amend their rules to address mass arbitration in a more equitable manner. But those rules, and the ins, outs, and idiosyncrasies of mass arbitration are beyond this post’s ambit.

Our focus instead is on a very important mass-arbitration development: the first U.S. Circuit Court of Appeals decision to address mass arbitration, Wallrich v. Samsung Electronics America, Inc., No. 23-2842, slip op. (7th Cir. July 1, 2024). The case is especially significant because it may portend the end of mass arbitration, at least in the form it typically takes.

The U.S. Court of Appeals for the Seventh Circuit derailed petitioners’ efforts to compel judicially the respondent to pay millions of dollars of arbitration fees demanded by mass arbitration claimants. It did so in two blows, the second more decisive than the first. Continue Reading »

S.K.A.V. v. Independent Specialty Ins. Co.: Fifth Circuit Decides Louisiana Statute Invalidating Arbitration Agreements in Insurance Contracts Applies to Surplus Lines Policies

June 27th, 2024 Anti-Arbitration Statutes, Applicability of Federal Arbitration Act, Application to Compel Arbitration, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreement Invalid, Arbitration Law, Arbitration Practice and Procedure, Clear and Unmistakable Rule, Delegation Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Preemption of State Law, FAA Section 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Formation of Arbitration Agreement, Gateway Disputes, Gateway Questions, Insurance Contracts, Louisiana Supreme Court, McCarran-Ferguson Act, Motion to Compel Arbitration, Petition to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Questions of Arbitrability, Section 2, Section 4, State Arbitration Law, State Arbitration Statutes, State Courts, Statutory Interpretation and Construction, United States Court of Appeals for the Fifth Circuit Comments Off on S.K.A.V. v. Independent Specialty Ins. Co.: Fifth Circuit Decides Louisiana Statute Invalidating Arbitration Agreements in Insurance Contracts Applies to Surplus Lines Policies

Introduction: LA Stat. Ann. § 22.868 and its Application to Surplus Lines Policies

surplus lines policy regulation

Louisiana has a statute, LA Stat. Ann. § 22.868, that courts have construed to make unenforceable arbitration provisions in insurance contracts, including surplus lines policies. The statute has an exception or savings provision that removes from the statute’s scope “a forum or venue selection clause in a policy form that is not subject to approval by the Department of Insurance[,]” LA Stat. Ann. § 22.868(D), for example, a venue- or forum-selection provision in a surplus lines policy.

The question before the U.S. Court of Appeals for the Fifth Circuit in S.K.A.V. v. Independent Specialty Ins. Co., ___ F.4th ___, No. 23-30293, slip op. (5th Cir. June 5, 2024), was whether the statute invalidates arbitration provisions contained in surplus lines insurance policies, that is, whether arbitration provisions in such contracts fall within the subsection (D) exception. Predicting how it thinks the Louisiana Supreme Court would rule if faced with the question, the Court held that the subsection (D) exemption did not apply, and accordingly, the statute rendered unenforceable arbitration agreements in surplus lines contracts. The Court accordingly affirmed the judgment of the district court, which denied the arbitration proponent’s motion to compel arbitration.

Pushing the Elephant Out of the Room. . .

Before taking a closer look at how the Court arrived at its conclusion, let’s deal with the “elephant in the room.” Why is the Court in a case governed by the Federal Arbitration Act (“FAA”) even considering enforcing a state statute that would (or could) render unenforceable an FAA-governed arbitration agreement? Doesn’t the FAA preempt state law that puts arbitration agreements on a different footing than other contracts?

The answer is “undoubtedly”, but, as insurance and reinsurance practitioners know, under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011, et seq., “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. . . .” 15 U.S.C. § 1012(b).

LA Stat. Ann. § 22.868 has been construed to be one that “regulat[es] the business insurance[,]” and the FAA is not an “Act [that] specifically relates to the business of insurance. . . .” Section 22.868 thus “reverse preempts” the FAA under McCarran-Ferguson. See slip op. at 2. (See, e.g., here.)

The Court’s Interpretation of Section 22.868, Including its Surplus Lines Policy Exemption

  LA Stat. Ann. § 22.868, provides, in pertinent part: Continue Reading »

U.S. Supreme Court Decides Coinbase II and Promulgates a New Arbitrability Rule Applicable to Multiple, Conflicting Contracts

June 11th, 2024 Application to Compel Arbitration, Application to Stay Litigation, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Challenging Arbitration Agreements, Clear and Unmistakable Rule, Enforcing Arbitration Agreements, Equal Footing Principle, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 2, Federal Arbitration Act Enforcement Litigation Procedure, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Forum Selection Agreements, Gateway Disputes, Gateway Questions, International Institute for Conflict Prevention and Resolution (CPR), Motion to Compel Arbitration, Professor Angela Downes, Richard D. Faulkner, Russ Bleemer, Section 2, Separability, Severability, Substantive Arbitrability, United States Court of Appeals for the Ninth Circuit, United States Supreme Court 1 Comment »

Introduction

 

Coinbase II - Dogecoin Photo

Coinbase, Inc. v. Suski, 602 U.S. ___ (2024) (“Coinbase II”), which the U.S. Supreme Court (“SCOTUS”) decided on May 23, 2024, was the last of the three arbitration-law cases SCOTUS heard and decided this 2023 Term. Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), recently interviewed University of North Texas-Dallas College of Law Professor Angela Downes; arbitrator, mediator, arbitration-law attorney, and former judge, Richard D. Faulkner; and the author about Coinbase II, and the other two cases, Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024), and Smith v. Spizzirri, 601 U.S. ___ (2024). (See posts here and interview here.) Russ also interviewed Angela, Rick, and the author about Coinbase II back when SCOTUS granted certiorari to hear it, an interview you can view here (see also post, here).

Coinbase II concerned the allocation of power between courts and arbitrators in a situation in which agreements with conflicting dispute-resolution provisions cover or appear to cover some or all of the same, disputed subject matter. The general principles and rules of arbitrability, as applied to the facts,  did not clearly answer the question of who gets to decide whether the parties’ merits dispute was arbitrable, and so the Court created a new rule of arbitrability: “where. . . parties have agreed to two contracts—one sending arbitrability disputes to arbitration and the other either explicitly or implicitly sending arbitrability disputes to the courts—a court must decide which contract governs.” Coinbase II, slip op. at 8. Applying the new rule to the facts, the Court concluded “that a court, not an arbitrator must decide whether the [Coinbase II] parties’ first agreement was superseded by their second.” Slip op. at 8.

Coinbase II: Background

Petitioner Coinbase, Inc. (“Coinbase”) is a cryptocurrency exchange platform Continue Reading »

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the Three SCOTUS Cases Decided this Term and More  

June 3rd, 2024 Application to Stay Litigation, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Clear and Unmistakable Rule, CPR Alternatives, CPR Video Interviews, Delegation Agreements, Exemption from FAA, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 1, FAA Section 2, FAA Section 3, FAA Transportation Worker Exemption, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Courts, Federal Subject Matter Jurisdiction, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Forum Selection Agreements, Loree and Faulkner Interviews, Professor Angela Downes, Questions of Arbitrability, Richard D. Faulkner, Russ Bleemer, Stay of Litigation, Stay of Litigation Pending Arbitration, United States Supreme Court 1 Comment »

CPR SCOTUS Wrap Up

As readers may know, over the last four years or so, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), has hosted presentations about significant arbitration-law developments (principally in the United States Supreme Court (“SCOTUS”)) that feature interviews of our friends and colleagues: Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, and former judge, Richard D. Faulkner; and yours truly, Loree Law Firm principal, Philip J. Loree Jr.  (See, e.g., here, here, and here.) These interviews are posted on CPR’s YouTube channel, @CPRInstituteOnline.

On Wednesday, May 29, 2024, Russ interviewed Professor Downes, Rick and me about the three arbitration cases SCOTUS heard and decided this 2023 Term: (a) Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024); (b) Smith v. Spizzirri, 601 U.S. ___ (2024); and (c) Coinbase, Inc. v. Suski, 602 U.S. ___ (2024). We also discussed what one might expect on the arbitration front from the 2024 SCOTUS Term, Samsung’s mass arbitration case pending in the Seventh Circuit, and recent, controversial arbitration awards rendered against a major U.S. retail pharmacy company and their implications. You can view that interview here.

As always, we express our gratitude to Russ and CPR for hosting these interviews, and, along with Angela and Rick, look forward to contributing to future programs hosted by CPR.

On a related matter,  CPR Alternatives recently published parts I and II of our article discussing and analyzing SmartSky Networks LLC v. DAG Wireless Ltd., ___ F.4th ___, No. 22-1253, slip op. (4th Cir. Feb. 13, 2024) (available at https://bit.ly/4aviBLS). That case has created a split in the circuits concerning whether a Court having the requisite subject matter jurisdiction to hear a federal question lawsuit on the merits, and thus the requisite subject matter jurisdiction to grant a Section 3 stay of litigation pending arbitration, can be deemed to have subject matter jurisdiction over a post-award application to confirm, vacate, or modify an award—or an application to appoint an arbitrator or enforce a Section 5  arbitral summons—in circumstances where, if the application were made in a standalone, independent action, the Court would not have had subject matter jurisdiction under Badgerow. Prior to Spizzirri, we wrote a number of articles concerning this sometimes-vexing issue. (See here, here, and here.)

Part I of the article is entitled Philip J. Loree Jr., The Fourth Circuit Weighs the Post-Badgerow Jurisdictional Anchor—and Finds It Won’t Set, 42 Alternatives 73 (May 2024), and was published in the May 2024 issue of Alternatives. Part II is entitled Philip J. Loree Jr., More on Independent Actions and the “Jurisdictional Anchor”: Where the Law on Award Enforcement May Be Going, 42 Alternatives 95 (June 2024), which was published in the June 2024 issue of Alternatives. We recently submitted to Alternatives a short, post-script article about how the Spizzirri case, which was not decided until after the other two articles had been submitted, might bear on SmartSky. We expect that article will be published in CPR Alternatives next issue.

Although CPR Alternatives is a subscription-only publication (available to CPR Members only), Russ has said that upon email request, CPR will provide, for fair use purposes only, a copy of each of these articles. You can make your  request by emailing Alternatives@cpradr.org.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has nearly 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance or reinsurance-related and other matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

 Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in Coinbase II Delegation Agreement Dispute

November 14th, 2023 Arbitrability, Arbitrability - Nonsignatories, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Challenging Arbitration Agreements, Clear and Unmistakable Rule, Contract Interpretation, CPR Alternatives, CPR Speaks Blog of the CPR Institute, CPR Video Interviews, Delegation Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, Presumption of Arbitrability, Questions of Arbitrability, Richard D. Faulkner, Russ Bleemer, Section 2, Separability, Small Business B-2-B Arbitration, The Loree Law Firm, United States Court of Appeals for the Ninth Circuit Comments Off on International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in Coinbase II Delegation Agreement Dispute

CoinbaseOn November 3, 2023, the United States Supreme Court (“SCOTUS”) granted certiorari in Coinbase, Inc. v. Suski, No. 23-3 (U.S.) (“Coinbase II”), a case that is related to Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023) (“Coinbase I”), which was decided on June 23, 2023, and discussed here. Coinbase II involves an issue entirely different from Coinbase I: the application of a “delegation provision”—an agreement to arbitrate arbitrability disputes. That issue arises in a unique context: who decides whether a dispute concerning a later agreement is arbitrable when that later agreement, among other things, expressly submits all disputes concerning it to the exclusive jurisdiction of the California courts and not to arbitration? Is the delegation provision, as applied to this dispute over a subsequent contract, clear and unmistakable, as required by prior SCOTUS precedent?

On November 10, 2023, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), interviewed our friends and colleagues, University of Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, and former judge,  Richard D. Faulkner; and yours truly, Loree Law Firm principal, Philip J. Loree Jr., about the recent certiorari grant, what it means, and how the Court might rule on it.

You can watch the video-conference interview HERE.

As we discuss in the interview Coinbase II promises to be an extremely interesting case, one which could (and perhaps should) result in a decision that the parties did not clearly and unmistakably agree to arbitrate an arbitrability dispute concerning a contract that: (a) was entered into some time after the contract containing the arbitration and delegation provisions; (b) expressly provides that any disputes concerning it must be decided in a judicial forum only; and (c) features as a party a person who is not a party to the arbitration and delegation provisions or any other aspect of the earlier contract.

Lee Williams, a CPR Intern, and a second-year law school student, wrote for CPR Speaks (CPR’s blog) an excellent article about Coinbase II, which CPR Speaks recently published, here. Among other things, the article explains the relationship between Coinbase II and other matters previously before SCOTUS, including the very similar Schein II matter. (For a discussion of Schein II, including a link to a CPR video, see here.)

The U.S. Supreme Court ultimately dismissed certiorari in that Schein II matter as improvidently granted, and as we briefly touch on in the interview, a similar fate might also befall Coinbase II. Perhaps more on that in another post, but for now, enjoy!

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of the Loree Law Firm. He has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

Assignment and Separability: Can an Assignor Compel Arbitration? The South Carolina Supreme Court Says the Arbitrators Get to Decide

August 2nd, 2023 Application to Compel Arbitration, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Clear and Unmistakable Rule, Contract Defenses, Existence of Arbitration Agreement, FAA Chapter 1, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, Gateway Disputes, Gateway Questions, Practice and Procedure, Questions of Arbitrability, Section 4, Separability, Severability, South Carolina Supreme Court, United States Supreme Court Comments Off on Assignment and Separability: Can an Assignor Compel Arbitration? The South Carolina Supreme Court Says the Arbitrators Get to Decide

Introduction: Assignment and the Separability Doctrine 

Separability and Assignment

Suppose A and B enter a contract imposing mutual obligations on them. The contract contains an arbitration agreement requiring arbitration of all disputes arising out of or related to the contract. The contract does not purport to prohibit assignment, and the parties’ rights under the contract are otherwise capable of assignment.

A assigns to assignee C its rights to receive performance under the contract. B commences an action against A under the contract and A demands arbitration. B resists arbitration, arguing that A has assigned to C its right to enforce the contract (we’ll call it a “container contract” because it contains an arbitration agreement) and thus there is no longer any arbitration agreement that A can enforce against B. Judgment for whom?

In Sanders v. Svannah Highway Auto Co., No. 28168, slip op. (July 26, 2023),  the Supreme Court of North Carolina said that, under the Federal Arbitration Act’s “separability” doctrine, the claim that the contract—including the arbitration agreement— could no longer be enforced was an issue that concerned the enforceability of the container contract as a whole, not the enforceability of the arbitration agreement specifically. And because the assignment concerned only the continued existence of the container contract, and not a claim that the container contract was never formed, the exception to the separability doctrine under which courts get to decide whether a contract has been concluded did not apply.

Accordingly, explained the South Carolina Supreme Court, it was for the arbitrator to decide what effect, if any, the assignment had on A’s right to enforce the container contract, including the arbitration agreement. Continue Reading »

SCOTUS Decides Coinbase, Ruling that District Court Proceedings on Merits Must be Stayed Pending Interlocutory Appeal of Order Denying Motion to Compel Arbitration

July 14th, 2023 Appellate Jurisdiction, Appellate Practice, Application to Compel Arbitration, Arbitrability, Arbitrability | Existence of Arbitration Agreement, Arbitration Practice and Procedure, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 16, Federal Arbitration Act Enforcement Litigation Procedure, Federal Courts, Federal Policy in Favor of Arbitration, International Institute for Conflict Prevention and Resolution (CPR), Loree and Faulkner Interviews, Richard D. Faulkner, Stay Pending Appeal, United States Court of Appeals for the Fifth Circuit, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States Supreme Court Comments Off on SCOTUS Decides Coinbase, Ruling that District Court Proceedings on Merits Must be Stayed Pending Interlocutory Appeal of Order Denying Motion to Compel Arbitration

Coinbase - Stay Pending Appeal

Introduction: Must District Courts Grant a Stay Pending Appeal of an Order Denying a Motion to Compel?  

Section 16(a) of the Federal Arbitration Act authorizes interlocutory appeals of orders denying motions to compel arbitration. 9 U.S.C. § 16(a)(1)(B) & (C). This is a “rare statutory exception to the usual [federal] rule that parties may not appeal before final judgment.”   Coinbase, Inc. v. Bielski, 599 U.S. ___, No. 22-105, slip op. at 3 (June 23, 2023).  It authorizes interlocutory “appeals of orders denying—but not of orders granting—motions to compel arbitration.” Slip op. at 3 (emphasis in original).

Where such an order is made in a pending litigation on the merits, and an interlocutory appeal is taken, should the trial court litigation on the merits be stayed pending appeal? On June 23, 2023, in Coinbase, the U.S. Supreme Court (“SCOTUS”) ruled 5-4 that the answer was yes: a “district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing.” Slip op. at 1.

Discussion

To Stay or Not to Stay: SCOTUS says the Griggs Principle Controls

The Court initially noted the text of Section 16 says nothing about whether a stay of litigation pending an appeal of a denial of a motion to compel is required. See slip op. at 3. That said, “Congress enacted § 16(a) against a clear background principle prescribed by” Court “precedents[,]” which the Court referred to as the “Griggs principle[:]” “[a]n appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal.’” Slip op. at 3 (quoting Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)). Continue Reading »

Jury Trial | Application to Compel Arbitration | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice under Sections 2, 3, and 4 (Part V)

April 28th, 2020 Application to Compel Arbitration, Arbitrability | Existence of Arbitration Agreement, Arbitration Law, Arbitration Practice and Procedure, Challenging Arbitration Agreements, Existence of Arbitration Agreement, FAA Chapter 1, Gateway Disputes, Gateway Questions, Nuts & Bolts, Nuts & Bolts: Arbitration, Pre-Award Federal Arbitration Act Litigation 1 Comment »
Trial Application to Compel Arbitration

This segment of the Businessperson’s Federal Arbitration Act FAQ Guide discusses the provisions of Section 4 relating to the jury trial of arbitrability issues.

The last instalment discussed the following FAQs related to Section 4 applications to compel arbitration:

  1. How does a Federal Court “Hear” an Application to Compel Arbitration? 
  2. In what Federal Court may an Application to Compel Arbitration be Filed?

This segment addresses the FAQ “What Happens when a Court Determines there is a Genuine Issue of Material Fact Concerning the Making of the Arbitration Agreement or the Failure, Neglect, or Refusal to Perform that Agreement?”  

What Happens when a Court Determines there is a Genuine Issue of Material Fact Concerning the Making of the Arbitration Agreement or the Failure, Neglect, or Refusal to Perform that Agreement?

In the last post we explained that district courts adjudicate applications to compel by applying a standard akin to that which applies to summary judgment motions. Courts therefore ascertain whether there are any genuine issues of material fact in dispute. If the material facts are not in dispute, then the Court determines whether the motion should be granted or denied by applying the law to the undisputed facts.

Continue Reading »

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