In confirming an arbitration award in favor of an employee, the Eighth Circuit Court of Appeals rejected the employer's contention that one of the arbitrators was not selected in accordance with the arbitration agreement.

In Crawford Group, Inc. v. Holekamp, No. 07-3454, 2008 WL 4455550 (8th Cir. Oct. 6, 2008), Holekamp was an executive vice president of the Crawford Group. As part of his compensation, Holekamp was awarded stock and entered into a Stock Award and Shareholder Agreement with Crawford Group that provided for arbitration of any disputes under the rules of the American Arbitration Association (AAA).

Some time later, Crawford Group informed Holekamp that it intended to repurchase Holekamp's stock and tendered him payment of $25.32 per share. Holekamp demanded arbitration, alleging that Crawford Group's valuation of the stock was not in accord with the agreement.

The agreement provided that each of the parties would select one arbitrator, and the two party-appointed arbitrators would select a third arbitrator. Crawford Group selected Arbitrator Best, Holekamp selected Arbitrator Ruffalo, and Arbitrator Dietrich was appointed as the third arbitrator.

Crawford Group objected to Arbitrator Ruffalo, stating that he was not qualified under the AAA's Commercial Arbitration Rules. After considering Crawford Group's arguments, the AAA concluded that Arbitrator Ruffalo was qualified and reaffirmed his status as an arbitrator.

The arbitrators determined that the purchase price of Holekamp's stock was $49.50 per share. The district court confirmed the arbitration award. On appeal, Crawford Group argued that the selection and appointment of Arbitrator Ruffalo was not in accordance with the agreement, which resulted in the arbitration panel exceeding its powers in issuing the award.

The Court stated that arbitrators would have exceeded their powers if the method of appointment provided for in the agreement had not been followed. Crawford Group claimed that the method was not followed because Ruffalo did not have the arbitrator experience required by the arbitration agreement.

The Court rejected this claim because the AAA entertained that challenge and found that Ruffalo had the requisite experience. Moreover, as the Court noted, the AAA had authority under its rules to make this determination. Accordingly, the Court affirmed the lower court order confirmed the arbitration award. BACK TO TOP?

Court Refuses Challenge to Choice of Law Provision Where Both Parties Acknowledged Validity of Arbitration Agreement

An Arizona federal district court has refused to decide whether an arbitration agreement's choice of law provisions violated Arizona public policy, noting that neither party challenged the validity of the arbitration agreement as a whole.

In Millenium 3 Techs. v. ARINC, Inc., No. CV 08-1257-PHX-JAT, 2008 WL 4737887 (D. Ariz. Oct. 29, 2008), ARINC contracted with the City of Phoenix to construct security systems in its airport. Millenium entered into a contract as a subcontractor on the project.

After a dispute arose over payments, Millenium and ARINC agreed that the dispute was to be resolved by arbitration in accordance with their contract, but disagreed about the enforceability of the choice of law provisions contained in the arbitration agreement. Millenium brought suit for a declaratory judgment that the choice of law provisions were unenforceable as a violation of Arizona public policy.

The Court acknowledged that another Ninth Circuit district court previously held that the enforceability of a choice of law provision in an arbitration agreement was a matter for the court to decide. See Smith v. Paul Green School of Rock Music, No. CV 08-00888, 2008 WL 2037721 (C.D. Cal. May 5, 2008). However, the Court noted that, unlike in Paul Green, Millenium and ARINC agreed that the dispute was subject to arbitration and the agreement as a whole was enforceable. Under those circumstances, the Court held it was inappropriate for a court to decide the choice of law issue.

Accordingly, the Court dismissed Millenium's action seeking a declaratory judgment on the choice of law provisions and ordered the parties to proceed to arbitration.