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A federal court in New York held that the question of whether to disqualify an attorney representing a party in dispute subject to arbitration is properly before a state court because such issue does not fall within the scope of the arbitration agreement.
In Munich Reinsurance America, Inc. v. ACE Property & Casualty Insurance Co., No. M-82 (HB), 2007 WL 1056707 (S.D.N.Y. April 10, 2007), Munich was involved in a dispute concerning ACE's alleged underpayment of invoices. Both parties agreed that under the terms of their contract, the billing matter should be resolved through arbitration.
However, the process stalled when ACE demanded that counsel for Munich withdraw because he previously represented ACE. Munich's counsel refused to withdraw, and ACE filed suit seeking his removal.
Munich argued that the arbitration panel should determine the question of attorney disqualification. ACE argued that "disqualification" went beyond the scope of the arbitration agreement and was properly before a Pennsylvania state court.
The Court agreed with ACE and refused to send the disqualification question to the arbitrator. Under contract law, the Court noted, a party is obligated to arbitrate only those matters it intended to arbitrate. Since the question of attorney disqualification is not capable of settlement by arbitration under applicable state law, the parties could not have intended to arbitrate such a dispute.
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