Monday, April 26, 2010

Arbitration - Part II

B. Commencement and Submission to Arbitration to AAA

1. A party to an existing dispute may commence an arbitration under the AAA’s rules by filing two copies of a demand for arbitration, signed by the party or its attorney with AAA’s regional office. (See www.adr.org for various forms and rules). The demand must contain a statement of the nature of the dispute, the names and addresses of all parties, the amount of the claim, if known, the remedy sought, the hearing locale requested and the name and address of the respondent. The demand must also attach a copy of the arbitration clause in question.

2. Under AAA’s Commercial Arbitration Rules, the respondent to the arbitration is not required (but is encouraged) to file an answer to the claims, in which case they will be deemed denied. If the respondent desires to assert a counterclaim, then it must comply with substantially all requirements as those for a demand for arbitration.

C. Compelling Arbitration and Stays

1. After a dispute arises, the threshold issue is whether there is a right to arbitration of the dispute. If such a right is present, a motion to compel arbitration is appropriate where a party files a legal action and refuses to participate in the arbitration. When a party to an agreement refuses to arbitrate, application may be made to the court for an order directing the party to proceed with arbitration. Fla. Stat. § 682.03(1). Upon application, the court must decide the following:

a. Whether a valid written agreement exists containing an arbitration clause;

b. Whether an arbitrable issue exists that is encompassed within the scope of the arbitration clause; and

c. Whether the right to arbitration has been waived.
Orkin Exterminating Co. v. Petsch, 872 So. 2d 259 (Fla. 2d DCA 2004); Flyer Printing Company, Inc. v. Robbin Hill, 805 So. 2d 829 (Fla. 5th DCA 2001); Stinson-Head, Inc. v. City of Sanibel, 661 So. 2d 119 (Fla. 2d DCA 1995), rev. dism., 671 So. 2d 788 (Fla. 1996); North American Van Lines v. Collyer, 616 So. 2d 177 (Fla. 5th DCA 1993); Piercy v. School Bd. of Washington County, 576 So. 2d 806 (Fla. 1st DCA 1991).

2. If the court decides that there is an arbitrable issue, it must compel arbitration. If the court determines that there is an issue concerning the making of the agreement or waiver, it must summarily hear and resolve the issue. Fla. Stat. § 682.03 (1). See also Bill Heard Chevrolet v. Wilson, 877 So. 2d 15 (Fla. 5th DCA 2004).

3. Where an arbitration clause is valid and not interdependent with the remaining clauses of an agreement, any offending or unlawful provision contained therein could be severed without affecting the intent of the parties or the agreement to arbitrate. Healthcomp Evaluation Serv. Corp. v. O’Donnell, 817 So. 2d 1095 (Fla. 2d DCA 2002).

4. If an underlying contract containing an arbitration clause is challenged as void ab initio, it is submitted to arbitration, unless the challenged is to the specific arbitration clause. Buckeye Check Cashing, Inc. v. Cardegna, 126 S.Ct. 1204 (U.S. Feb. 21, 2006).

5. Whether a demand for arbitration was timely served is a question of fact to be decided by the arbitrator, not the trial court. CED Construction, Inc. v. Kaiser-Taulbee Assoc., Inc., 816 So. 2d 813 (Fla. 5th DCA 2002).

6. An action to rescind a contract in its entirety may be subject to arbitration where the contract contained an arbitration clause and the validity of that clause was not specifically attached, as opposed to the whole contract. Sanchez v. Criden, 899 So.2d 326 (Fla. 3d DCA 2005).

7. When a dispute within the scope of an arbitration provision is pending before a state court, a stay of the court action may be obtained pending the outcome of the arbitration. If the issue subject to the arbitration is severable from the remainder of that action, the stay should apply only to the dispute that is subject to arbitration. Fla. Stat. § 682.03(3).

8. When an arbitration has begun or is about to begin, a party challenging the right to arbitrate may obtain a stay by applying to the court. The court must summarily hear and determine the issue and grant or deny the application for the stay of the arbitration proceedings. Fla. Stat. § 682.03(4).

9. A party may be bound to arbitrate a dispute even though the party did not physically sign a written contract to arbitrate. See, e.g., Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1074 (5th Cir. 2002) (agency required non-signatory to arbitrate); Qubty v. Nagda, 817 So. 2d 952 (Fla. 5th DCA 2002) (investors suing stockbrokers compelled to arbitrate under thirty-party beneficiary theory); Employers Ins. of Wausau v. Bright Metal Spec., Inc., 251 F.3d 1316 (11th Cir. 2001); Thomson-CSF, S.A. v. American Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995); Gottfried, Inc. v. Paulette Koch Real Estate, Inc., 778 So. 2d 1089 (Fla. 4th DCA 2001). See also Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir. 1993).

10. On the other hand, courts have refused to require non-signatories to arbitrate in various circumstances. See, e.g., Benasra v. Marciano, 112 Cal. Rptr. 2d 358 (2001) (president of corporation who signed contract in corporate capacity could not be compelled to arbitrate individually); Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773 (2d Circ. 1995) (corporate parent not required to arbitrate on claim relating to subsidiary's arbitration agreement).

11. The Pritzker Case -

a. The trustees of a profit sharing plan brought suit against a brokerage company and one of its brokers alleging, among other claims, breach of fiduciary duty arising from alleged mismanagement of pension funds. Pritzker, 7 F.3d at 1113.

b. In response to the defendants’ motion to compel arbitration under an arbitration provision located in the contract governing the relationship between the trustees and the brokerage firm, the trustees argued that their claims against the individual broker were not subject to the arbitration agreement because the broker was not a signatory to the underlying contract. Id. at 1121.

c. The Third Circuit Court of Appeals rejected this argument finding that the broker, as an agent and representative of the brokerage firm, was bound by the brokerage firm’s arbitration agreement under traditional agency principles. Id. See also Drulcrest Pty. Ltd v. Jamar Prods., Inc., No. 85 Civ. 2174 (PNL), 1986 WL 4547, at *2-3 (S.D. N.Y. April 11, 1986).

12. The Drulcrest Case -

a. A promoter brought suit against a theatrical producer alleging that the producer failed to perform its obligations under the parties’ touring agreement. Drulcrest Pty. Ltd., 1986 WL 4547, at *1. The promoter also brought suit against the escrow agent named in the Touring Agreement alleging that the escrow agent breached its fiduciary duties with respect to the funds placed in escrow under the Touring Agreement. Id.

b. The Touring Agreement contained an agreement to arbitrate and was not signed by the escrow agent. Id. In response to a motion to compel arbitration, the promoter argued that the claim against the escrow agent was not subject to arbitration because the escrow agent was not a signatory to the underlying agreement containing the arbitration clause. Id. at *2. In rejecting this argument as “irrelevant,” the district court found that the escrow agent was bound by the agreement to arbitrate under ordinary contract and agency principals. Id.

c. The district court found that by agreeing to act as the escrow agent under the Touring Agreement and by accepting the escrow funds, the escrow agent signified its intent to be bound by the arbitration provisions under the Touring Agreement. Id. at *3.

13. A party who personally guaranteed the obligations of another under a written agreement containing an arbitration clause was bound as a matter of law to arbitrate the dispute regarding the guarantee. Berti v. Cedars Healthcare Group, Ltd., 812 So. 2d 580 (Fla. 3d DCA 2002).

14. Where a party was appointed as the agent for a principal who was bound to a contract containing an arbitration clause, agent must arbitrate all disputes relating to the contract. URS Koechli v. BIP Int'l, 870 So. 2d 940 (Fla. 1st DCA 2004).

15. Arbitration provisions are binding on third-party beneficiaries of a contract that contains an arbitration provision, provided that the contract clearly expresses an intent to primarily and directly benefit the third party. Technical Aid Corp. v. Tomaso, 814 So. 2d 1259 (Fla. 5th DCA 2002).

16. In the absence of a signature, a party may still be bound by an arbitration clause contained in a contract, if the party’s conduct indicates that the party agreed to be bound by the contract in question. Thomson-CSF, S.A., 64 F.3d at 776. One’s intention to be bound by a contract containing an arbitration clause may be evidenced by one’s performance under other provisions of the contract. Chanchani v. Salomon/Smith Barney, Inc., No. 99 CIV 9219 RCC, 2001 WL 204214, at *3 (S.D. N.Y. March 1, 2001); Frynetics (Hong Kong) Ltd. v. Quantum Group, Inc., No. 99 C 4704, 2001 WL 40900, at *4 (N.D. Ill. Jan. 11, 2001) (party’s attempts to comply with other terms of the contract bound the party by the arbitration provision in the same contract); In the Matter of the Arbitration Between John Thallon & Co., Inc. and M&N Meat Co., 396 F.Supp. 1239 (E.D. N.Y. 1975) (party’s participation in performance under other provisions of a contract evinced such party’s intention to be bound by the contract’s arbitration provision).

17. Even if not joined in the arbitration, a surety on a construction bond can be bound by the results of an arbitration. Fewox v. McMerit Constr. Co., 556 So. 2d 419, 425 (Fla. 2d DCA 1990).

1 comment:

Unknown said...

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