A comprehensive weekly ADR overview from the National Arbitration Forum
Week of December 11, 2008

Federal Cases

• Clause Construction Award Not Ripe for Judicial Review According to Sixth Circuit
• Class Waiver Allegedly Operates As Exculpatory Clause and Thus Renders iPhone Arbitration Agreement Unenforceable
• California Court Upholds Expedited Discovery and Hearing Provisions in Employee’s Arbitration Agreement
• Mississippi Federal District Court Enforces Unsigned Arbitration Agreement Under Direct-Benefit Estoppel Doctrine
• Missouri Federal Court Finds That Arbitration Agreement Survived Contract Termination
• Court Enjoins Arbitration of Dispute Involving Credit Default Swap Because Party Failed to Demonstrate “Customer” Status Under FINRA Rules

State Cases

• Arbitration Agreement Invoking NASD Rules Not Substantively Unconscionable
• Judicial Intervention to Lift Stay of Arbitral Proceedings Granted By Arbitrator “Wholly Incompatible” with the Law
• Carve-Out for Intellectual Property Claims Renders Employee’s Arbitration Agreement Unenforceable Based on Lack of Mutuality
• Claiming Breach of Contract Does Not Necessarily Preclude Party from Opposing Enforcement of Contract’s Arbitration Agreement
• Failure of Claimant to Obtain Written Confirmation of Notice and Claim Delivery Fatal to Resulting Award
• Court Finds Arbitrator Did Not Exceed Powers Because She Applied New Jersey Law as Required by the Arbitration Agreement
• Party Waived Right to Arbitrate By Engaging in Extensive Litigation Activity for Twenty Months and Raising the Right to Arbitrate Only Eight Weeks Before Trial
• Where Parties Invoked Only AAA Rules, AAA Must Be the Arbitration Administrator

Federal Cases

Clause Construction Award Not Ripe for Judicial Review According to Sixth Circuit
Dealer Computer Services, Inc. v. Dub Herring Ford, No. 07-1819, 2008 WL 4911169 (6th Cir. Nov. 18, 2008)
11/18/2008 12:00:00 AM

The Sixth Circuit Court of Appeals has held that private arbitral rules cannot expand an Article III court’s jurisdiction to hear an appeal by circumventing the requisite showing of ripeness.  Accordingly, the Court held that a clause construction award was not subject to judicial review under the Federal Arbitration Act, partly because the arbitrator had only determined that arbitration might proceed on a class-wide basis, not that it would proceed on a class-wide basis.

In Dealer Computer Services, Inc. v. Dub Herring Ford, No. 07-1819, 2008 WL 4911169 (6th Cir. Nov. 18, 2008), a group of automobile dealers obtained computer systems from Dealer Computer Services (DCS).  The contracts all contained broadly-worded arbitration agreements invoking the rules of the American Arbitration Association (AAA)...   Full Story

Class Waiver Allegedly Operates As Exculpatory Clause and Thus Renders iPhone Arbitration Agreement Unenforceable
In re Apple & AT&TM Antitrust Litigation, No. C 07-05152 JW, 2008 WL 4810067 (N.D. Cal. Oct. 1, 2008)
10/1/2008 12:00:00 AM

In denying a motion to compel arbitration, a federal court in California held that where an arbitration agreement contains a class action waiver that functions as an exculpatory clause, the arbitration agreement is unconscionable under California law and thus unenforceable.

In In re Apple & AT&TM Antitrust Litigation, No. C 07-05152 JW, 2008 WL 4810067 (N.D. Cal. Oct. 1, 2008), a group of iPhone purchasers (Plaintiffs) brought a class action lawsuit against Apple and AT&T Mobility (ATTM), alleging violations of the Sherman Act and Magnuson-Moss Warranty Act...  Full Story

California Court Upholds Expedited Discovery and Hearing Provisions in Employee’s Arbitration Agreement
Rutter v. Darden Restaurants, Inc., No. CV 08-6106 AHM (SSx), 2008 WL 4949043 (C.D. Cal. Nov. 18, 2008)
11/18/2008 12:00:00 AM

An employment arbitration agreement may restrict the breadth of discovery or length of arbitration hearings without offending California law, as long as the agreement gives the arbitrator discretionary authority to extend discovery or proceedings upon a showing of good cause, according to a California federal district court.

In Rutter v. Darden Restaurants, Inc., No. CV 08-6106 AHM (SSx), 2008 WL 4949043 (C.D. Cal. Nov. 18, 2008), Rutter filed wrongful termination and discrimination claims against former employer Darden. Darden responded by moving to compel arbitration of the claims pursuant to an agreement between the parties. Rutter resisted arbitration, alleging that the agreement merely provided that arbitration was permissive, not mandatory. Also, Rutter argued that the agreement was unconscionable under the minimum standards for employment arbitration agreements articulated in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000)...  Full Story

Mississippi Federal District Court Enforces Unsigned Arbitration Agreement Under Direct-Benefit Estoppel Doctrine
Masztal v. Meritplan Ins. Co., Civ. No. 1:08-CV-277-HSO-JMR, 2008 WL 4875675 (S.D. Miss. Nov. 12, 2008)
11/12/2008 12:00:00 AM

Even if an insured could be considered a “non-signatory” to an arbitration agreement because of his failure to sign the document, the insured cannot avoid arbitration under the direct-benefit estoppel doctrine if he has sought enforcement of the policy’s other provisions, according to a federal district court in Mississippi.

In Masztal v. Meritplan Ins. Co., Civ. No. 1:08-CV-277-HSO-JMR, 2008 WL 4875675 (S.D. Miss. Nov. 12, 2008), Masztal filed a complaint against Meritplan, alleging economic loss and mental distress from the insurer’s denial of his property insurance claim. Meritplan responded by moving to compel arbitration as provided in the parties’ policy...  Full Story

Missouri Federal Court Finds That Arbitration Agreement Survived Contract Termination
Medscript PBM, Inc. v. Procare PBM, Inc., No. 4:08CV0293 AGF, 2008 WL 4941002 (E.D. Mo. Nov 17, 2008)
11/17/2008 12:00:00 AM

Granting a motion to compel arbitration in a business dispute, a Missouri federal court held that an arbitration agreement survives termination of a contract even when the contract expressly states that all obligations cease save those provisions specifically referenced as surviving termination.

In Medscript PBM, Inc. v. Procare PBM, Inc., No. 4:08CV0293 AGF, 2008 WL 4941002 (E.D. Mo. Nov 17, 2008), prescription benefits administrator Medscript hired prescriptions benefits consultant Procare. The contract stated that “all obligations specified herein shall cease except any provision specifically referenced as surviving this agreement’s termination.” Additionally, the contract contained an arbitration agreement...  Full Story

Court Enjoins Arbitration of Dispute Involving Credit Default Swap Because Party Failed to Demonstrate “Customer” Status Under FINRA Rules
Citigroup Global Markets Inc. v. VCG Special Opportunities Master Fund Ltd., No. 08-CV-5520 (BSJ), 2008 WL 4891229 (S.D.N.Y. Nov. 12, 2008)
11/12/2008 12:00:00 AM

A New York federal district court granted a broker’s motion to temporarily enjoin arbitration proceedings involving a credit default swap dispute, finding that the party seeking arbitration had failed to clearly show that it was a “customer” that could unilaterally seek and compel FINRA arbitration proceedings.

In Citigroup Global Markets Inc. v. VCG Special Opportunities Master Fund Ltd., No. 08-CV-5520 (BSJ), 2008 WL 4891229 (S.D.N.Y. Nov. 12, 2008), VCG and Citibank Global Markets (CGMI) entered into a prime brokerage contract (PBC) covering the “clearance and settlement of trades performed by other executing brokers” involving fixed income securities. The PBC contained a provision stating that no dispute or controversy arising out of or relating to the PBC would be subject to or settled by arbitration...  Full Story

 

State Cases

Arbitration Agreement Invoking NASD Rules Not Substantively Unconscionable
Brown v. Wells Fargo Bank, NA, No. B196258, 2008 WL 4986125 (Cal. Ct. App. Nov. 25, 2008)
11/25/2008 12:00:00 AM

A California appellate court has held that an arbitration agreement invoking NASD arbitration rules is not substantively unconscionable and is therefore enforceable. However, it remanded the case to the trial court to determine whether there was sufficient evidence of fraud in the execution of the entire contract.

In Brown v. Wells Fargo Bank, NA, No. B196258, 2008 WL 4986125 (Cal. Ct. App. Nov. 25, 2008), Brown was a customer of Wells Fargo. Wells Fargo designated a staff member to coordinate banking services provided to the Browns, including the introduction of a financial planner. Eventually, Brown sued Wells Fargo, alleging wrongdoing stemming from the financial planning services. Wells Fargo moved to compel arbitration of Brown’s claims under their agreement. The trial court denied the motion due to the “procedural unconscionability” of the agreement...  Full Story

Judicial Intervention to Lift Stay of Arbitral Proceedings Granted By Arbitrator “Wholly Incompatible” with the Law
Briggs v. Resolution Remedies, No. A121594, 2008 WL 4958308 (Cal. Ct. App. Nov. 21, 2008)
11/21/2008 12:00:00 AM

A California appellate court has affirmed a trial court’s denial of a writ of mandate seeking to lift a stay of arbitral proceedings, noting that judicial intervention once arbitration commences is improper.

In Briggs v. Resolution Remedies, No. A121594, 2008 WL 4958308 (Cal. Ct. App. Nov. 21, 2008), Briggs was injured in a car accident and filed a demand for arbitration with insurer GEICO in accordance with an arbitration agreement. GEICO petitioned the arbitrator for a stay for arbitral proceedings, maintaining that the injuries occurred while Briggs was acting within the scope of her employment, and she was required to exhaust worker’s compensation remedies before seeking benefits under the policy. The arbitrator granted the motion...  Full Story

Carve-Out for Intellectual Property Claims Renders Employee’s Arbitration Agreement Unenforceable Based on Lack of Mutuality
Kalmbach v. Sportsmobile West, Inc., No. F054648, 2008 WL 4988663 (Cal. Ct. App. Nov. 25, 2008)
11/25/2008 12:00:00 AM

According to a California appellate court, the inclusion of a non-mutual scope provision exempting intellectual property claims from arbitration in the face of clear precedent invalidating such provisions constitutes bad faith by the drafting employer and warrants invalidation of the entire arbitration agreement.

In Kalmbach v. Sportsmobile West, Inc., No. F054648, 2008 WL 4988663 (Cal. Ct. App. Nov. 25, 2008), Kalmbach was employed by SWI as a manager. Upon joining the company in 2003, Kalmbach signed an employee handbook acknowledgment. The handbook contained a binding arbitration agreement. In 2007, Kalmbach signed an amendment to the handbook, again acknowledging the arbitration agreement and indicating assent was a condition of employment...  Full Story

Claiming Breach of Contract Does Not Necessarily Preclude Party from Opposing Enforcement of Contract’s Arbitration Agreement
Michelle’s Diamond LLC v. Remington Financial Group, Inc., No. G040163, 2008 WL 4951032 (Cal. Ct. App. Nov. 20, 2008)
11/20/2008 12:00:00 AM

According to a California appellate court, a party cannot carry the burden of showing a valid arbitration agreement by merely relying on the adverse party’s breach of contract claims and the estoppel doctrine.

In Michelle’s Diamond LLC v. Remington Financial Group, Inc., No. G040163, 2008 WL 4951032 (Cal. Ct. App. Nov. 20, 2008), Michelle’s Diamond LLC (MDL) sued Remington, alleging that Remington and other parties had engaged in a scheme to defraud MDL and others in various commercial loan transactions. MDL brought breach of contract and RICO claims against Remington. MDL also maintained that Remington acted in violation of an order by the California Department of Corporations to “cease and desist” offering these types of contracts...  Full Story

Failure of Claimant to Obtain Written Confirmation of Notice and Claim Delivery Fatal to Resulting Award
Barbera v. AIS Servs., LLC, No. 45A05-0803-CV-159, 2008 WL 5006454 (Ind. Ct. App. Nov. 26, 2008)
11/26/2008 12:00:00 AM

Once the parties agree to a particular set of arbitral rules, claimants must precisely comply with those rules governing service of process in order to obtain confirmation of resulting awards, according to an Indiana appellate court.

In Barbera v. AIS Servs., LLC, No. 45A05-0803-CV-159, 2008 WL 5006454 (Ind. Ct. App. Nov. 26, 2008), AIS filed an arbitration claim against Barbera with the National Arbitration Forum (FORUM), alleging an unpaid credit card debt assigned to AIS by MBNA. Copies of the claim and notices of arbitration were delivered to Barbera’s home address, once by Federal Express and once by U.S. Mail. Barbera did not respond, and the arbitrator entered an award in favor of AIS...  Full Story

Court Finds Arbitrator Did Not Exceed Powers Because She Applied New Jersey Law as Required by the Arbitration Agreement
Kadi v. Massotto, No. A-2555-07T2, 2008 WL 4830951 (N.J. Super. Ct. App. Div. Nov. 10, 2008)
11/10/2008 12:00:00 AM

Affirming confirmation of an arbitration award in a dispute over a non-compete agreement, a New Jersey appellate court found that the arbitrator applied the law and did not exceed her authority because the arbitrator articulated and applied New Jersey’s standard for determining whether a non-compete agreement is enforceable.

In Kadi v. Massotto, No. A-2555-07T2, 2008 WL 4830951 (N.J. Super. Ct. App. Div. Nov. 10, 2008), Kadi and Massotto owned a dental consulting business. After their business relationship soured, Kadi sold his one-half share to Massotto. The sales contract contained non-compete and non-solicitation agreements that limited Kadi’s involvement in the dental consulting business. Further, the sales contract contained an arbitration agreement requiring the parties to arbitrate disputes and mandating that the arbitrator apply New Jersey law...  Full Story

Party Waived Right to Arbitrate By Engaging in Extensive Litigation Activity for Twenty Months and Raising the Right to Arbitrate Only Eight Weeks Before Trial
Citizens National Bank v. Bryce, Nos. 12-07-00064-CV, 12-07-00103-CV, 2008 WL 4815785 (Tex. App. Nov. 5, 2008)
11/5/2008 12:00:00 AM

A Texas appellate court has held that extensive, prejudicial litigation activity over the course of twenty months constituted a waiver of the right to arbitrate when the right to arbitration was first asserted a mere eight weeks before the parties’ trial date.

In Citizens National Bank v. Bryce, Nos. 12-07-00064-CV, 12-07-00103-CV, 2008 WL 4815785 (Tex. App. Nov. 5, 2008), a dispute arose regarding the alleged misappropriation and mismanagement of Bryce’s funds by Citizens Bank. When Bryce brought suit, Citizens Bank at first actively participated in preparation for litigation. Twenty months after the suit was first filed, Citizens Bank then moved to compel arbitration. The trial court denied the motion, holding that Citizens Bank had waived its right to arbitrate...  Full Story

Where Parties Invoked Only AAA Rules, AAA Must Be the Arbitration Administrator
In re Crosstex CCNG Processing Ltd., No. 05-08-01091-CV, 2008 WL 4823229 (Tex. App. Nov. 7, 2008)
11/7/2008 12:00:00 AM

According to a Texas appellate court, parties that contractually adopt arbitral rules requiring the administration of proceedings by a particular organization must submit their disputes to that designated administrator.

In In re Crosstex CCNG Processing Ltd., No. 05-08-01091-CV, 2008 WL 4823229 (Tex. App. Nov. 7, 2008), Crosstex and Denbury entered into a gas processing contract. The contract included an arbitration agreement that invoked the Federal Arbitration Act and the Patent Arbitration Rules of the American Arbitration Association (“AAA”)...  Full Story

ADR Legislation & Regulation

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