Justia U.S. 3rd Circuit Court of Appeals Opinion Summaries

Articles Posted in Arbitration & Mediation

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In 2008, the workers’ compensation insurance policy for South Jersey (SJ), a trash-removal business, neared expiration, SJ, through its insurance agent, entered into a three-year Reinsurance Participation Agreement (RPA) with Applied Underwriters. The RPA stated that any disputes would be arbitrated in Tortola or in an agreed location and indicated that it would be governed by Nebraska law. The RPA and its attachments total 10 pages. SJ claims that it believed the RPA was a workers’ compensation insurance policy; that Applied fraudulently presented it as such; that the RPA is actually a retrospective rating insurance policy under which premiums would be based on claims paid during the previous period; and that it was promised possible huge rebates. SJ acknowledged that Applied is not an insurer and cannot issue workers’ compensation insurance. Applied represented that SJ purchased a primary workers’ compensation policy from Continental, which entered into a pooling agreement with California; all are Berskshire Hathaway companies. The pooling agreement was a reinsurance treaty. According to Applied, the RPA was not insurance, but an investment instrument. For 34 months, SJ paid monthly premiums of $40,000-$50,000, expecting a rebate. Claims paid on its behalf were $355,000 over three years. After the RPA expired, Applied declared that SJ owed $300,632.94. SJ did not pay. Applied filed a demand for arbitration. SJ sought declaratory relief as to the arbitration provision and rescission of the RPA. The district court denied the motion to compel arbitration. The Third Circuit reversed. SJ’s challenges to the arbitration agreement apply to the contract as a whole, rather than to the arbitration agreement alone; the parties’ dispute is arbitrable. View "South Jersey Sanitation Co., Inc v. Applied Underwriters Captive Risk Assurance Co., Inc." on Justia Law

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Plaintiffs represent a putative class of New Jersey real estate purchasers and refinancers who were overcharged $70 to $350 in fees. Plaintiffs allege that settlement agents (Defendants) intentionally charged Plaintiffs more than the county clerk charged for recording deeds and mortgages and kept the difference. The class claims total over $50 million, exclusive of treble damages and interest. Defendants sought dismissal and raised affirmative defenses, but did not seek to enforce arbitration clauses present in their contracts with Plaintiffs. The case was litigated for 30 months with the focus primarily on class certification. Both sides conducted broad discovery and contested substantive motions. Plaintiffs have served 130 non-party subpoenas and spent over $50,000 on experts. In 2011, the Supreme Court held that the Federal Arbitration Act (FAA) preempted state laws that had previously prohibited a party from compelling bipolar (individual) arbitration in certain situations even when it was specifically agreed to by contract. Defendants demanded enforcement of the arbitration agreements in light of this change in the law, then moved to compel bipolar arbitration. The Third Circuit affirmed in favor of Defendants. Futility can excuse the delayed invocation of the right to compel arbitration; any attempt to compel bipolar before the Supreme Court’s decision would have been futile. View "Chassen v. Fid. Nat'l Fin. Inc." on Justia Law

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The Goldmans, proceeding before an arbitration panel operating under the auspices of the Financial Industry Regulatory Authority (FINRA), alleged that their financial advisor and Citigroup had violated federal securities law in their management of the Goldmans’ brokerage accounts. The district court dismissed their motion to vacate an adverse award for lack of subject-matter jurisdiction, stating the Goldmans’ motion failed to raise a substantial federal question. The Third Circuit affirmed. Nothing about the Goldmans’ case is likely to affect the securities markets broadly. That the allegedly-misbehaving arbitration panel happened to be affiliated with a self-regulatory organization does not meaningfully distinguish this case from any other suit alleging arbitrator partiality in a securities dispute. The court noted “the flood of cases that would enter federal courts if the involvement of a self-regulatory organization were itself sufficient to support jurisdiction.” View "Goldman v. Citigroup Global Mkts., Inc" on Justia Law

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Hamilton Park, a long-term care facility, belonged to a multi-employer bargaining group, Tuchman. Tuchman and the employees' union agreed to a CBA beginning in 2008 and extending through February 28, 2013, giving the union the option to reopen negotiations in November 2011 to bargain for new terms for the CBA’s last year and to submit any unresolved items to binding interest arbitration, and allowing the arbitrator to “determine his jurisdiction” and grant “all appropriate remedies.” In 2011, the union invoked its right to reopen negotiations. The parties agreed to arbitrate unresolved issues, including the cost to maintain the existing health benefits. The arbitrator, Scheinman, suggested a multi-year award to spread increased contributions over a longer period. Scheinman claims that “[b]oth sides [orally] agreed my jurisdiction permitted a multi-year Award, at my discretion.” In 2012, Scheinman issued an award that extended through June 2016, dealing with wages and health benefits contributions, and allowing the union to reopen negotiations for the contract’s last year. Scheinman did not address why he included a second generation interest arbitration provision, nor did he claim that the parties consented. Hamilton Park petitioned to vacate the award, arguing that Scheinman exceeded his authority. The Third Circuit reversed in part. Hamilton Park agreed to expand Scheinman’s jurisdiction to a multi-year award, but did not agree to inclusion of a second generation interest arbitration provision. View "Hamilton Park Health Care Ctr., Ltd.v. 1199 SEIU United Healthcare Workers E." on Justia Law

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Hamilton Park, a long-term care facility, belonged to a multi-employer bargaining group, Tuchman. Tuchman and the employees' union agreed to a CBA beginning in 2008 and extending through February 28, 2013, giving the union the option to reopen negotiations in November 2011 to bargain for new terms for the CBA’s last year and to submit any unresolved items to binding interest arbitration, and allowing the arbitrator to “determine his jurisdiction” and grant “all appropriate remedies.” In 2011, the union invoked its right to reopen negotiations. The parties agreed to arbitrate unresolved issues, including the cost to maintain the existing health benefits. The arbitrator, Scheinman, suggested a multi-year award to spread increased contributions over a longer period. Scheinman claims that “[b]oth sides [orally] agreed my jurisdiction permitted a multi-year Award, at my discretion.” In 2012, Scheinman issued an award that extended through June 2016, dealing with wages and health benefits contributions, and allowing the union to reopen negotiations for the contract’s last year. Scheinman did not address why he included a second generation interest arbitration provision, nor did he claim that the parties consented. Hamilton Park petitioned to vacate the award, arguing that Scheinman exceeded his authority. The Third Circuit reversed in part. Hamilton Park agreed to expand Scheinman’s jurisdiction to a multi-year award, but did not agree to inclusion of a second generation interest arbitration provision. View "Hamilton Park Health Care Ctr., Ltd.v. 1199 SEIU United Healthcare Workers E." on Justia Law

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Singer-songwriters John Whitehead and Gene McFadden were “an integral part of the 1970s Philadelphia music scene. In 2002, Pullman approached them about purchasing their song catalogue. The parties signed a contract but never finalized the sale. Pullman claims he discovered tax liens while conducting due diligence and that the matter was never resolved. Whitehead and McFadden passed away in 2004 and 2006, respectively. Pullman became embroiled in disputes with their estates over ownership of the song catalogue. The parties eventually agreed to arbitration. Pullman, unhappy with the ruling, unsuccessfully moved to vacate the arbitration award on the ground that the panel had committed legal errors that made it impossible for him to present a winning case by applying the Dead Man’s Statute, which disqualifies parties interested in litigation from testifying about personal transactions or communications with deceased or mentally ill persons.” The Third Circuit affirmed, stating that the arbitrators did not misapply the law, but that legal error alone is not a sufficient basis to vacate the results of an arbitration in any case. View "Whitehead v. Pullman Group LLC" on Justia Law

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In 2008, Chesapeake, as “Lessee,” entered into oil and gas leases with northeastern Pennsylvania landowners. The Leases indicate that they were “prepared by” Chesapeake and include a provision, stating that, in the event of a disagreement between “Lessor” and “Lessee” concerning “this Lease,” performance “thereunder,” or damages caused by “Lessee’s” operations, “all such disputes” shall be resolved by arbitration “in accordance with the rules of the American Arbitration Association.” In 2013, Scout purchased several leases and began receiving royalties from Chesapeake. In 2014, Scout filed an arbitration demand on behalf of itself and similarly situated lessors, alleging that Chesapeake paid insufficient royalties. Chesapeake objected to class arbitration and sought a declaratory judgment, arguing that “[it] did not agree to resolve disputes arising out of the leases at issue in ‘class arbitration,’ nor did Chesapeake agree to submit the question of class arbitrability ... to an arbitrator.” The district court and Third Circuit ruled in favor of Chesapeake, finding that the issue of arbitrability is a question for the court. Based on the language of the Leases, the nature and contents of the AAA rules, and existing case law, the Leases did not “clearly and unmistakably” delegate the question of class arbitrability to the arbitrators. View "Chesapeake Appalachia LLC v. Scout Petroleum, LLC" on Justia Law

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Athena incurred $1.4 million in losses on investments with Goldman Sachs and believed that Goldman misrepresented the risks, Goldman and Athena participated in arbitration to settle the dispute. Athena asserted misrepresentation, securities fraud, common law fraud and breach of fiduciary duty. After the first panel session, the Financial Industry Regulatory Authority (FINRA) disclosed that a panel member, Timban, had been charged with the unauthorized practice of law based on an appearance in a New Jersey municipal court. Neither party, nor FINRA, objected to Timban’s continued participation; neither party conducted further due diligence. Following a nine-day hearing, the panel ruled in favor of Goldman. Two panel members signed the award, but Timban did not. Under the Subscription Agreement, only two members needed to sign the award for it to have binding effect. After the award, Athena conducted a background investigation on Timban and learned that Timban failed to disclose numerous regulatory complaints against him. The district court ordered a new arbitration hearing, reasoning that Athena’s rights were compromised by an arbitrator who misrepresented his ability to serve and abandoned the panel before its final ruling. The Third Circuit reversed, finding that Athena waived its right to challenge the award. View "Goldman Sachs & Co v. Athena Venture Partners, L.P." on Justia Law

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Devon acquired the rights to distribute robotic medical devices, CytoCare and i.v. Station, from Robotics. DeViedma, Robotics's general counsel, negotiated the contracts. Each contained an arbitration clause. Robotics later agreed to provide management consulting services through DeViedma. DeViedma allegedly obstructed a possible sub-licensing contract with McKesson; Devon failed to make franchise payments, leading Robotics to draw down a $5 million line of credit from Itochu, guaranteed by Devon. Itochu eventually sued Devon. The parties terminated the management consulting services. Robotics terminated Devon's CytoCare contract and entered into an agreement with McKesson. Robotics also alleged breaches of the i.v. Station agreement. DeViedma e-mailed hospital customers telling them that Devon faced financial difficulties and lacked staff qualified to manage i.v. Station installations. Devon sued DeViedma and McKesson, claiming breach of fiduciary duty, tortious interference with current and prospective contractual relations, defamation, and conspiracy. The court rejected a motion to dismiss in favor of arbitration. DeViedma did not appeal that order. Extensive litigation followed. DeViedma later moved for summary judgment on the remaining claims for breach of fiduciary duty and tortious interference with contractual relations. The court rejected his arguments in favor of arbitration. The Third Circuit dismissed DeViedma’s interlocutory appeal, rejecting an argument that the denial of summary judgment was an appealable order under the Federal Arbitration Act, 9 U.S.C. 16(a)(1)(C). View "Devon Robotics LLC v. DeViedma" on Justia Law

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When Khazin began working for TD, he signed an employment agreement and agreed to arbitrate all disputes. Khazin was responsible for due diligence on financial products offered by TD . When he discovered that one product was priced in a manner noncompliant with securities regulations, he reported to his supervisor, Demmissie, and recommended changing the price. Demmissie instructed Khazin to analyze the “revenue impact,” which revealed that remedying the violation would save customers $2,000,000, but would cost TD $1,150,000 and negatively impact Demmissie’s divisions. Demmissie allegedly told Khazin not to correct the problem. Demmissie and TD’s human resources department later confronted Khazin about a purported billing irregularity that, he claims, was unrelated to his duties and nonexistent. His employment was terminated. Khazin sued, asserting violation of the Dodd-Frank Act, premised on the allegation that he had been terminated in retaliation for “whistleblowing.” Khazin contended that the Act prevented TD from compelling the arbitration of his whistleblower retaliation claim, 18 U.S.C. 1514A(e)(2). The district court held that the provision did not prohibit enforcement of arbitration agreements executed before Dodd-Frank was passed. The Third Circuit concluded that Khazin’s whistleblower claim is subject to arbitration because it is not covered by the restrictions. View "Khazin v. TD Ameritrade Holding Corp" on Justia Law