Last week, the Global Arbitration Review published an interesting article about a recent case, ReliaStar Life Ins. Co, of N.Y. v. EMC Nat’l Life Co., No. 07-0828 (2nd Cir. Apr. 9, 2009). As previously blogged here, in ReliaStar, the Second Circuit held that inclusion in an arbitration agreement of a broad statement that each party will bear the expenses of its own arbitrator and attorney’s fees, does not deprive the arbitration panel of authority to award those expenses as a sanction against a party whom the panel determines failed to arbitrate in “good faith.” The court explained that an arbitrators’ finding of “bad faith” gives rise to an exception to the general rule that each party bears their own expenses. Thus, the arbitration panel did not exceed its authority in awarding attorney’s and arbitrator’s fees. The article quotes attorney Philip J. Loree, Jr., co-founder of our LinkedIn Commercial and Industry Arbitration and Mediation Group and contributor to this blog: Writing shortly after the appeal court’s decision, Philip Loree Jr of New York firm Loree & Loree, said the court had “violated New York contract interpretation rules.” He said that, according to New York law, “to ascertain whether a contract is ambiguous, courts are required to focus on what is said, not what is omitted.” “Given that the pre-eminent purpose of the Federal Arbitration Act is to enforce the parties’ arbitration agreement as written, this case may be one of those rare Second Circuit decisions that warrant rehearing and reversal en banc,” he added. Find the article (subscription only) here: ‘Bad Faith’ Costs Decision Upheld, Global Arbitration Review, July 13, 2009. Also, read Phillip J. Loree, Jr. summary here, critique here, and recent mention of the case here. Technorati Tags: arbitration, ADR, law, Second Circuit, attorney’s fees, arbitrator’s fees, ReliaStar

The Supreme Court of Texas held that a court abused its discretion by permitting discovery instead of deciding a motion to compel arbitration. In re Houston Pipe Line Co., __S.W.3d __ (Texas 2009) (No. 08-0800) involves a gas purchase agreement between Houston Pipe Line Company, L.P. and O’Connor & Hewitt, Ltd. The agreement was based on the Houston Ship Channel Price Index (the “Index”) and contained the following arbitration clause: Except for matters within the jurisdiction of the Railroad Commission of Texas, any and all claims, demands, causes of action, disputes, controversies, and other matters in question arising out of or relating to this Agreement, any of its provisions, or the relationship between the Parties created by this Agreement . . . shall be resolved by binding arbitration pursuant to the Federal Arbitration Act. . . .If a Party refuses to . . . arbitrate, the other Party may seek to compel arbitration in either federal or state court. . . .The final hearing shall be conducted within 60 days of the selection of the third arbitrator. . . [and] shall not exceed 10 business days. A few years later, O’Connor sued Houston Pipe Line claiming manipulation of the Index, which, according to O’Connor, caused the company to receive lower payments for the gas purchased under the contract. Houston Pipe Line moved to compel arbitration. O’Connor challenged the motion arguing that “it would be impossible to identify all potential defendants and to complete damages calculations within the sixty days allotted for discovery as set out in the arbitration provision.” Instead of ruling on the motion, the trial court ordered discovery to determine: (1) if additional defendants could invoke the arbitration clause, (2) whether the claims fell within the scope of the arbitration clause, and (3) if the discovered time limits on the agreement where jurisdictional. Houston Pipe Line appealed and the Court of Appeals refused to issue writ. The Texas Supreme Court now decides whether the trial court abused its discretion by permitting discovery on damage calculations and other potential defendants, instead of ruling on the motion to compel arbitration. Citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the court stated that “[w]hen a party disputes the scope of the arbitration provision or raises a defense to the provision, the trial court, not the arbitrator must decide the issues.” Pre-arbitration discovery is authorized under the Texas Arbitration Act, the court noted, when a court lacks sufficient information on the scope of the arbitration provision, and therefore, cannot make a decision on the motion to compel arbitration. However, the court concluded that this is not the case because determinations of liability must be answered by the arbitrator. The court pointed out that a party cannot avoid arbitration by merely alleging that there may be other potential defendants. Accordingly, the court directed the trial court to vacate the discovery order and rule on the motion to compel arbitration. Technorati Tags: arbitration, ADR, law

To follow up on our post of last week and as reported by the ADR Prof Blog and Professor Ross Runkel’s Law Memo Arbitration Blog, the National Arbitration Forum (“NAF”) announced that is settling its lawsuit with Minnesota’s Attorney General and agrees to step aside from the credit card and consumer debt arbitration business. Lory Swanson released this statement today: National Arbitration Forum Barred From Credit Card And Consumer Arbitrations Under Agreement With Attorney General Swanson: Swanson Also Wants Congress to Ban “Fine Print” Forced Arbitration Clauses. On a related note, the U.S. Congress hearing blogged here is scheduled for Wednesday, July 22. AG Lori Swanson and Michael Kelly, National Arbitration Forum COO are invited to testify at the hearing. Related Posts: Big Arbitration Firm Pulls Our of Credit Card Business, Business Week, July 19, 2009 An AG’s Quick Victory: Arbitration Forum Exits Credit Dispute Business, ABA Journal, July 20, 2009 In Settlement, Arbitration Company Agree to Largely Step Aside, Wall Street Journal, July 20, 2009.

As announced by this press release, the U.S. Subcommittee on Domestic Policy will hold a hearing related to arbitration on July 22, 2009. The hearing is entitled “Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts.” Experts invited to testify include: Michael Kelly, Chief Operating Officer, National Arbitration Forum Richard W. Naimark, Senior Vice-President, International Centre for Dispute Resolution, a division of the American Arbitration Association F. Paul Bland, Staff Attorney, Public Justice Professor Christopher R. Drahozal, John M. Rounds Professor of Law, University of Kansas The Honorable Lori Swanson, Attorney General, State of Minnesota. Stay tuned to Disputing for updates on this controversial topic! Technorati Tags: arbitration, ADR, law, consumer arbitration