Arkansas Business Litigation Lawyer & Attorney : Allen Law Firm : Serving Little Rock, Fort Smith, North Little Rock

Thanks to Mac Golden for pointing us to Preston v. Ferrer, 552 U.S. __ (2008), which probably invalidates the Eighth Circuit's recent decision, Express Scripts v. Aegon Direct Marketing Services, Inc., (previously posted 2/20/08).

 

Ferrer is television's Judge Alex; Preston is an attorney who provided professional services to Ferrer. Their contract had an arbitration provision that incorporated the rules of the American Arbitration Association (AAA). California has a law called the California Talent Agencies Act (TAA) that gives the California Labor Commissioner jurisdiction over disputes against talent agents. When the parties had a dispute over fees, Preston initiated arbitration, while Ferrer petitioned the labor commissioner. The trial court and state appellate court both held the labor commissioner had exclusive jurisdiction.

 

The Supreme Court reversed, holding that when parties agree to arbitrate, the Federal Arbitration Act supersedes state laws granting primary jurisdiction to an administrative or judicial forum. Part of the Court's reasoning was the contract's incorporation of AAA rules, which let the arbitrator determine arbitrability. Note this argument was untimely brought up in Express Scripts, so the Eighth Circuit did not address it. When this issue comes before the Eighth Circuit again, it will likely find that the arbitrator determines arbitrability when the contract incorporates the AAA rules.

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The Eighth Circuit affirmed a denial of a motion to dismiss pending arbitration in Express Scripts, Inc. v. Aegon Direct Marketing Services, Inc., No. 07-1971 (2/13/08). This is a long post, but this case has two important points for the validity of arbitration clauses in the Eighth Circuit.

 

Aegon and Express Scripts (ESI) entered into a contract in 1995 that contained a broad arbitration provision. The provision adopted the rules of the American Arbitration Association (AAA). The parties proposed an amended contract in 2000 that eliminated the provision, but they never signed the contract. After a billing dispute, Aegon demanded repayment of $5 million from ESI. Aegon felt the 1995 agreement was in effect and filed an arbitration proceeding. ESI claimed the parties adopted the 2000 agreement through performance and filed a declaratory action in the Eastern District of Missouri.

 

The main issue was whether the claim was arbitrable and who should make this determination. Aegon claimed the arbitrator should make this determination; ESI argued the court should. One of the AAA rules in force, which the parties adopted, was that the arbitrator has the power to determine his/her jurisdiction, i.e. the issue of arbitrability. Aegon never raised this argument to the district court. The district court determined: (1) the 1995 arbitration provision did not govern a later dispute of whether a subsequent contract amended the 1995 contract; and (2) it was for the court to determine arbitrability. The court then denied the motion to dismiss pending arbitration.

 

In its appellate brief, Aegon failed to raise its argument that AAA rules grant the arbitrator the right to determine arbitrability. It raised this argument for the first time at oral argument. The Eighth Circuit declined to address this issue. The Eighth Circuit affirmed the district court's decision, stating that courts determine arbitrability unless the contract specifically states otherwise.

 

To sum up, if you want the arbitrator to determine arbitrability, and if you want the arbitration clause to apply to any future argument about whether a superseding contract exists, the clause needs to specifically state that it governs these issues.

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The Arkansas Court of Appeals reversed a refusal to confirm arbitration award in MBNA America  Bank, N.A. v. Gilbert, No. 06-1324 (10/31/07). This is the third case in a recent series involving an arbitration provision used by MBNA America. See MBNA America Bank., N.A. v. Blanks (previously posted (9/20/07); Danner v. MBNA America Bank, N.A. (previously posted 4/27/07).

 

The arbitration provision is a letter MBNA sent to consumers that purported to unilaterally amend the cardholder agreement to include an arbitration provision. Gilbert did one thing different from the other parties: he filed a response with the arbitration forum, arguing that the arbitration provision was not a valid agreement. The forum entered an award for MBNA. Then he failed to challenge the award within 90 days as required by the Federal Arbitration Act.  

 

The court of appeals held that filing the response meant Gilbert participated in the arbitration. Gilbert waived any defenses by  participating in the arbitration proceeding and then failing to comply with the Federal Arbitration Act. The court reversed and directed the trial court to confirm the arbitration award.

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The Western District of Arkansas denied a preliminary injunction in Murphy Oil USA, Inc. v. SR Intern. Business Ins. Co., Ltd., 2007 WL 2752366 (W.D. Ark. 9/20/07).

 

Murphy Oil purchased insurance from the defendants. The policies were negotiated and prepared in Switzerland and delivered to Murphy Oil's broker in London, England. The policies contained arbitration provisions that required arbitration in London and also selected New York law to govern any disputes. Murphy Oil filed this action in Arkansas for damages incurred from Hurricane Katrina and asked for a preliminary injunction to prevent arbitration in London.

 

Several conflicting laws form the basis of this action. Arkansas law prohibits arbitration clauses for insurance contracts, New York law does not. The McCarran-Ferguson Act, 15 U.S.C. § 1101, et seq, preserves state statutes regulating insurance and gives these statutes precedence over federal laws. Meanwhile, the New York Convention, a treaty entered into by the United States, directs courts to honor arbitration agreements between international merchants.

 

The court held that the New York Convention supersedes the McCarran-Ferguson Act because the McCarran-Ferguson Act only applies to domestic commerce. The court denied the preliminary injunction but did not have a motion before it to dismiss the complaint. The language of the opinion implies that the court will dismiss the complaint once the defendants file their motion.

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The Arkansas Court of Appeals affirmed a refusal to confirm arbitration award in MBNA America Bank, N.A. v. Blanks, No. 06-1396 (9/19/07).

 

MBNA unilaterally attempted to amend Blanks' credit card agreement by adding an arbitration amendment, but Blanks never signed a contract agreed to arbitration. Then MBNA procured an arbitration award without Blanks' participation in the arbitration. The facts were similar to an earlier MBNA America case, Danner v. MBNA America, N.A. (previously posted 4/27/07).

 

The trial court refused to confirm the award but gave no grounds (Danner had not yet been decided). The court of appeals applied Danner and affirmed the denial of confirmation because MBNA America could not produce a written agreement authorizing arbitration.

 

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The Arkansas Court of Appeals affirmed an order denying a motion to compel arbitration in Richard Harp Homes, Inc. v. Van Wyk, No. 06-1446 (9/12/07).

 

The Van Wyks hired Harp to build a home. The parties' contract had a lengthy arbitration provision that purported to submit all claims to arbitration. However, later provisions in the contract discussed rights of the parties in the event of a breach, which included "court costs and expenses of litigation." The Van Wyks were sued by neighbors, and they filed a cross claim against Harp. Harp moved to compel arbitration.

 

The trial court ruled that the mutuality of obligation in the arbitration clause was rendered illusory when the contract was read as a whole. The court of appeals agreed and commented on the contractual language discussing litigation remedies: "While this language does not specifically reserve Harp's right to litigate any or all disputes, it does render the agreement ambiguous so that the trial court can construe the agreement."

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"Where an agreement entitles the parties to select interested arbitrators, "evident partiality" cannot serve as a basis for vacating an award under §10(a)(2) absent a showing of prejudice." The  Eighth Circuit affirmed Winfrey, et al., v. Simmons Food, Inc., on this basis.

The underlying dispute was a between a group of poultry growers and a poultry company governed by an arbitration clause that "provided among other things, that 'each party shall appoint one arbitrator' and that these arbitrators 'shall jointly appoint a third arbitrator.'" 

Both sides named their arbitrators, the growers naming J. Dudley Butler and the company Frank Hamlin. The company moved to have Butler struck because as biased because he had previously represented poultry growers and testified on their behalf before Congress. The District Court denied this motion, and the company withdrew Hamlin and nominated the preeminent Fayetteville attorney John Everett. Butler and Everett then named Mr. Hamlin as the "neutral" arbitrator.

The Eighth Circuit, affirming the panel's decision in favor of the growers, held that, unless the arbitration clause specifically provides for neutral arbitrators, an arbitrator's inclination toward one party or the other is not a basis for reversal "unless the objecting party proves that the arbitrator's partiality prejudicially affected the award"--which was not proved in this case.

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In Arkansas Diagnostic Center, P.A. v. Dr. Abdalla Tahiri, M.D., No. 06-667, the Arkansas Supreme Court holds that the Federal Arbitration Act does not reach the employment contract of a local doctor who treats local patients at a local clinic, notwithstanding the local clinic's use of out-of-state medical supply companies, business with out-of-state insurance companies, and treatment of three out-of-state patients.

Dr. Tahiri had an employment contract containing an arbitration provision. He sued the Clinic, which moved to compel arbitration. Pulaski County Circuit Judge Ellen Brantley denied the motion, and the Arkansas Supreme Court affirmed.

The Arkansas Uniform Arbitration Act does not apply to employment contracts, but the FAA does. Thus, the question on appeal was whether the Federal Arbitration Act, which applies to any  "contract evidencing a transaction involving commerce," applied to Dr. Tahiri's contract.

The Court noted that the United States Supreme Court has held that the Act extends to "the broadest permissible exercise of Congress' Commerce Clause power." But at the same time, the United States Supreme Court has also held that the Act does not preempt state arbitration acts.

In this case, the proof offered by the clinic of its out-of-state activities--using out-of-state medical supply companies, dealing with out-of-state insurance companies, even treating three out of state patients--didn't quite reach the threshold. The opinion implies (and Justice Brown's concurrence makes explicit) that the Clinic did not prove a sufficient causal nexus between Dr. Tahiri's activities and the Clinic's limited out-of-state contacts.

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The Arkansas Court of Appeals affirmed a denial of a motion to compel arbitration in Hamilton v. Ford Motor Credit Co., No. 06-0838 (5/23/07).

 

The Hamiltons purchases a Lincoln Navigator from North Point Ford, and the purchase contract was assigned to Ford Motor Credit. The contract contained an arbitration clause that excluded certain claims, including repossession. After the Hamiltons defaulted, Ford filed a replevin action to repossess the vehicle. The Hamiltons moved to compel arbitration, but the trial court denied the request.

 

The court of appeals affirmed on two grounds. First, the arbitration clause specifically excludes any action to repossess the vehicle. Second, the arbitration clause was mutual because the court determined both parties retained rights that could not be subject to arbitration.

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Interpreting the Federal Arbitration Act, the Arkansas Supreme Court reversed and remanded the confirmation of an arbitration award in Betsy R. Danner v. MBNA America Bank, N.A., No. 06-1429. The case calls into question the practice of amending credit card agreements (and by extension, many types of consumer contracts such as insurance policies) by mail.

The holding suggests that summary  confirmation of arbitration awards based on such amendments-by-mail is never appropriate when the consumer claims not to have received the amendment, or not to have agreed to the amendment.

Under Section 12 of the FAA, a party to an arbitration award has ninety days to challenge the validity of an award. Under Section 9 of the FAA the winner of arbitration can apply for an order confirming the judgment.

The plaintiff, Danner, held an MBNA credit card. After she agreed to the original card agreement, MBNA claims to have mailed an amendment to the agreement containing an arbitration clause, mandating that disputes regarding payments be decided by the National Arbitration Forum.

After Danner defaulted on her credit card payments, MBNA submitted a claim to the NAF. The arbitrator found for MBNA and issued an award on August 31, 2005. MBNA filed for confirmation of the award on December 13, 2005. Danner then contested the award, claiming not to have ever received or agreed to the arbitration clause:

Danner contends that she was not required to file a petition to set aside the arbitration award within three months of the filing or delivery of the award because she disputes entering into an arbitration agreement, she did not participate in the arbitration, and MBNA failed to provide proof that she had actually received notice of the award.

(emphasis supplied).

The Arkansas Supreme Court, following a First Circuit case, held that a material issue of fact existed as to whether there was a valid arbitration agreement between the parties, and reversed and remanded for such a determination.

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The Arkansas Supreme Court affirmed a confirmation of arbitration award in The Ruth R. Remmel Revocable Trust v. Regions Financial Corp., No. 06-616 (4/12/07).

 

In 2001, the Remmels family sold Rebsamen Insurance to Regions Bank. The contract contained an arbitration provision. In 2003, the Remmels brought suit against Regions and two officers of Rebsamen for conspiring to sell Rebsamen below market value. The claim alleged numerous torts and statutory violations. Under the Arkansas Arbitration Act, these claims would not be arbitrable. See A.C.A. § 16-108-201(b)(2).

 

The trial court determined that because the contract involved interstate commerce, the Federal Arbitration Act applied, which made all claims arbitrable. See 9 U.S.C. § 2. The trial court compelled arbitration, which was conducted by the American Arbitration Association. The arbitrator ruled in favor of Regions, and the trial court dismissed the Remmels' complaint on grounds of claim and issue preclusion.

 

The Supreme Court affirmed on two grounds. First, the arbitration provision covered the Remmels' claims, which showed the parties intended to arbitrate any such disputes. Second, the Remmels failed to object to the scope of the arbitration, which waived any objection they may have  had.

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