Law Updates on Arbitration Topics

The federal courts frequently make decisions on arbitration. Outlined below, are a few relevant decisions from the first few months of 2012 discussing various aspects of arbitration:

Arbitral forum unavailable
KHAN v. DELL, INC., No. 10-3655 (3rd Cir. 2012) (1/20/12) Arbitration provision provided for the parties to arbitrate exclusively before the National Arbitration Forum, an arbitration service provider that was unavailable when suit was commenced. Section 5 of the FAA provides a mechanism for substituting an arbitrator when the designated arbitrator is unavailable. There is a fundamental presumption in favor of arbitration. In order to deny a motion to compel arbitration based on unavailability of the arbitral forum, the parties must have unambiguously expressed their intent not to arbitrate their disputes in the event that the designated arbitral forum is unavailable. The unavailability of NAF to hear the disputes between Khan and Dell constitutes a “lapse” within the meaning of Section 5.

Arbitrability: Subject matter jurisdiction, FAA § 4
VOLVO TRUCKS NORTH AMERICA, INC. v. CRESCENT FORD TRUCK SALES, INC., No.09-30782 (5th Circuit 2012) (1/5/12) District Court lacked subject matter jurisdiction to compel arbitration. The court lacked diversity jurisdiction because both parties were Delaware corporations. Under FAA § 4, the court is required to look to the claims in the complaint, other than the request for arbitration, to determine if there is an independent basis for federal jurisdiction. A federal court may ‘look through’ a § 4 petition and order arbitration if, ‘save for [the arbitration] agreement, ’ the court would have jurisdiction over ‘the [substantive] controversy between the parties. No authority exists under Title 28 for a federal court to assert jurisdiction over a state-law dispute between non-diverse parties.

Award non-dischargeable in bankruptcy
IN THE MATTER OF SHCOLNIK, No. 10-20800 (5th Circuit 2012) (2/8/12) Arbitration award of attorneys fees may be non-dischargeable in bankruptcy under 11 U.S.C. § 523(a)(4) or (a)(6). If the debt arose for willful and malicious injury, it may be excepted from discharge by § 523(a)(6). Case remanded for trial on the issue in bankruptcy court.

Jurisdiction; 9 USC § 202
S & T OIL EQUIPMENT & MACHINERY, LTD. v. JURIDICA INVESTMENTS LIMITED, No. 11-20400 (5th Circuit 2012) (not precedential) (1/5/12) Article 2 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides a court should compel arbitration if (1) there is a written agreement to arbitrate the matter; (2) the agreement provides for arbitration in a Convention signatory nation; (3) the agreement arises out of a commercial legal relationship; and (4) a party to the agreement is not an American citizen. Here the legal relationship envisaged performance abroad. The Investment Agreement specifically states that it was executed in Guernsey and would be performed “exclusively and wholly in and from Guernsey.” And the legal relationship involved foreign property to be provided as collateral. Court compelled arbitration and dismissed the US litigation.

MARMET HEALTH CARE CENTER, INC. V. BROWN, 565 U. S. ____ (No. 11-391, 2012) (2/21/12) FAA preempts W. VA state public policy against pre-dispute arbitration agreements that apply to personal injury or wrongful death claims against nursing homes.

by Judge Suzanne Nusbaum
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