“Virginia Supreme Court: Arbitration Clauses in Trusts Are Not Enforceable Against Beneficiaries”

“It might come as no surprise that many settlors and advisors seek to include [an arbitration] clause in their trusts…. Despite [the] potential benefits, the question remains whether such a clause can be enforced against a beneficiary or a trustee, when such beneficiary or trustee wants to proceed in court.” So begins this JD Supra article by Michael Barker, Hunter Glenn, Jodie Herrmann Lawson and Stephen Murphy of McGuire Woods, discussing the Virginia Supreme Court’s recent decision in Boyle v. Anderson, in which the court, interpreting the Federal Arbitration Act and its Virginia statutory counterpart, held that insofar as a trust is not a contract, the settlor of the trust cannot require that trustees and beneficiaries submit disputes to arbitration and the inclusion of an arbitration provision.

“Splitting with Sister Courts, the Dallas Court of Appeals Holds Post-Judgment Interest Applies to Judgments Confirming Arbitration Awards”

Robert Fountain of Carrington Coleman has this interesting article, available at JD Supra, discussing the Texas appellate opinion in Bluestone Resources, Inc. v. First National Capital, LLC.

As the article notes, the decision raises interesting issues about whether and when a court may impose statutory interest on an award when the arbitrators fail to provide for interest.

“State Securities Regulator Moves To Vacate A FINRA Arbitration Expungement Award”

Attorney Robert Herskovits has authored this interesting article, available at JD Supra, discussing the intervention of the Alabama Securities Commission (“ASC”) in a Florida action brought by a registered financial advisor to confirm an arbitration award that expunged certain customer complaints from his record. According to the article, the ASC has stated its intention to vacate the award on grounds that the arbitrator acted with corruption, fraud, partiality, refused to hear evidence and exceeded his powers.

The article suggests that the ASC’s concerns go beyond the specific case and encompass a wholesale attack on the expungement process.

“Binding Nonsignatories to Arbitration Agreements”

Franklin McRoberts authored this article, available at JD Supra, discussing in a business divorce context an unsuccessful attempt by one of the owners to bring nonparties into a contractually compelled arbitration. As the article explains, the New York court in Fritch v. Bron held that, insofar as the company held itself out as operating under a corporate structure, the plaintiff shareholder could not argue that there were “silent partners” who should be subject to arbitration under the corporate documents.

Online Arbitration Agreements: Enforceable Or Not

Two articles discussing two cases from California.

In Berman v. Freedom Financial Network LLC, discussed in this Lexology article by Om Alladi at Proskauer Rose, the Ninth Circuit held that an arbitration provision contained in websites was not sufficiently conspicuous to make it enforceable against consumers who ostensibly agreed to it by clicking on a “Continue” button.

On the other hand, Buckley has posted this article, also in Lexology, discussing a California state appellate decision in B.D. v. Blizzard Entertainment, Inc. holding that the “terms of an arbitration agreement contained in a defendant video game company’s online license agreement” were sufficiently conspicuous to make them enforceable.

The takeaway–or the unifying thread, such as it is–is that these cases are fact specific, and perhaps subject to a court’s view as to whether the glass is half full or half empty. Those seeking to provide for enforceable arbitration provisions should err in taking necessary steps to overcome any claims that a reasonable site visitor would not understand they were agreeing to arbitrate disputes.

Maryland Court Unanimously Holds That Statute Of Limitations Does Not Preclude Arbitration Claim For Breach Of Contract

In Park Plus, Inc. v. Palisades of Towson, LLC, the Maryland Court of Appeals held that the three year statutory period for suing for breach of contract did not bar the assertion of the contract claim in an arbitration proceeding contemplated by the parties’ agreement. As the court explained,

Statutes of limitations have historically been considered procedural, not substantive defenses, and are generally understood to extinguish the remedy for enforcing a right, not the right itself… So, if Park Plus and Palisades had not included the arbitration provision in the contract, then Palisades could have filed a complaint seeking monetary damages in the circuit court instead of a petition to compel arbitration. In that scenario, the statute of limitations could have extinguished the remedy of a circuit court action, resulting in its dismissal.

But because the parties did include an arbitration provision and given the limited nature of our role, the only substantive right we are concerned with here is the contractual right to arbitrate, not Palisades’ contractual right to a functioning parking system. Based on our traditional understanding of statutes of limitations, the expiration of the statute of limitations did not extinguish Palisades’ right to arbitrate.

The court further held that compelling arbitration was consistent with the parties agreement:

When Park Plus and Palisades executed the contract with a binding arbitration clause, they agreed to the limitations imposed by Maryland law on the nature and scope of the court’s involvement over arbitrable disputes. As discussed above, when faced with a petition to compel arbitration, the court’s only function is to decide whether an agreement to arbitrate the dispute exists, and, if so, to enforce it with an order compelling arbitration. Also, [the statute of limitations] applies only to civil actions at law, therefore it does not apply to petitions to compel arbitration. Thus, our holding honors the parties’ agreement and applies Maryland law precisely as the General Assembly intended.

“In the Weeds: Why Arbitration May Be the Key to Preserving Enforcement of Cannabis M&A and VC Contracts”

Brian Koosed, Whitney Smith, Kodey Haddox and Ashley Song of K&L Kates have this article in The National Law Review, in which they discuss a “lingering problem” of courts that “will not enforce a contract between cannabis companies” based on their view that awarding relief under the agreements would endorse violating the federal Controlled Substances Act. The authors explain that a way out of the conundrum is for the parties to contractually provide for arbitration of their disputes, providing a checklist of terms that “a carefully-crafted arbitration agreement and thoughtful selection of which laws govern the contract” will maximize the likelihood of enforceability.

“Can I Enforce The Arbitration Clause In A Terminated Agreement?”

Joseph A. Apatov , Stephanie Hand-Cannane , James W. Sandy , Chase Stoecker and Alyssa Weiss of McGlinchey Stafford have this article, available at Mondaq, discussing the Ohio Court of Appeals recent decision in Franklin Dissolution L.P. v. Athenian Fund Management, Inc. As the article explains, the court held that “a party does not waive enforcement of an agreement’s arbitration provisions simply because that agreement has been terminated.” Accordingly, an investment advisor seeking payment for fees was required to take its claim to arbitration, even though the underlying agreement had been terminated by the investment fund.

Company’s Shortened Contractual Period To Assert Claim Invalidates Arbitration Provision

The New Jersey appellate division recently invalidated an company’s attempt to compel arbitration of claims brought by a former employee. In Guc v. Raymours Furniture Company, Inc., the court was presented with a contractual provision that required the employee to commence an arbitration of her employment related claims within 180 days. Because the contractual time limit was shorter than that provided by New Jersey law, the court, relying on judicial precedent, found it to be unenforceable.

Moreover, the court rejected the company’s argument that the arbitration should nonetheless proceed, with the time limitation being severed from the contract. Reviewing the agreement in its entirety, the court held that the company “chose to link and intertwine the time-limitation concept with the agreement to arbitrate. To sever the time-limitation provisions would require a rewriting of the contract…” Accordingly, the court refused to compel arbitration, leaving the company to judicially defend the employee’s claims.

“Wisconsin high court punts case of sleeping arbitrator”

Courthouse News Service has published this article discussing the Supreme Court of Wisconsin’s decision in Loren Imhoff Homebuilder, Inc. v. Taylor, in which the court was required to take up the awkward issue of an arbitrator who allegedly fell asleep multiple times during a five day hearing. Summarizing testimony by one of the parties during proceedings to vacate the arbitrator’s award, the court observed that:

The homeowners testified that his sleeping happened repeatedly and that “[t]here was never a day . . . where he was not sleeping.” Specifically, the homeowners noted that the arbitrator had “glazed eyes, haziness, drowsiness, and sometimes [went into a state of outright] sleep.” The homeowners further testified that the arbitrator’s sleeping prejudiced their case because it often coincided with their expert witness’s testimony.

The issue on appeal was whether the homeowners had waived their right to seek vacatur by waiting until after the close of evidence to raise the sleeping issue, as opposed to doing so contemporaneously at the time(s) when the arbitrator allegedly was dozing. Disagreeing with the appellate court, which found waiver, the Supreme Court found that it was sufficient that the homeowners flagged the issue before the arbitrator issued his award.

As the Courthouse News Service article explained, the homeowners’ counsel at oral argument explained “that they’d waited until after the hearing to bring it up because ‘figuring out a way to delicately raise [the issue of sleeping] during a hearing is difficult.’” 

As for whether an arbitrator sleeping on the job warrants vacating an award, the Supreme Court has sent that issue back to the appellate court. Stay awake and stay tuned.