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Subrogation suit dismissed based on contractual limitations period in arbitration clause
In Vigilant Insurance Company v. American Mechanical Services of Maryland, LLC, the U.S. District Court for the District of Columbia dismissed a subrogation action by an insurance company against a contractor on the grounds that the claim was barred by a contractual limitations period.

Vigilant sued American Mechanical Services to recover amounts paid by Vigilant to Venable, LLP following a fire at Venable's offices which Vigilant claimed was caused by American Mechanical Services. As Vigilant was subrogated to the rights of its insured, it was bound by the contract between American Mechanical Services and Venable, LLP, which included a mandatory arbitration clause. That clause included a requirement that a written demand for arbitration needed to be served within one year after the date the dispute arose.

Vigilant conceded that no written demand for arbitration was made, but argued that a demand letter sent to American Mechanical Services (which did not mention arbitration) was sufficient to discharge American Mechanical Services' obligation to initiate arbitration. The Court disagreed, finding that the term was unambiguous, and that no reasonable jury could find that American Mechanical Services had lulled Vigilant into disregarding the contractual period of limitations.

Posted by Padraic K. Keane on 11/22/2011 at 07:13 PM
ArbitrationDistrict of ColumbiaInsurancePermalink

Employment discrimination action dismissed in favor of arbitration under employment agreement
In Ratliff v. Costar Realty Information, Inc., No. 11-0813 (D. Md. July 7, 2011), the U.S. District Court for the District of Maryland granted a motion to compel arbitration of an employment discrimination action. At the time she was hired, the plaintiff signed an employment agreement with Costar, which included an arbitration clause. The arbitration clause expressly included that obligation to arbitrate employment disputes concerning claims for discrimination or harassment.

Nine months after she was hired, the plaintiff was terminated. He later filed suit, alleging racial discrimination and retaliation in violation of federal and state laws. After removing the action to federal court, Costar filed an answer and then three days later, filed its motion to compel arbitration.

The plaintiff opposed the motion to compel arbitration on the grounds that (1) the arbitration agreement was illusory; (2) the arbitration agreement was unsconsionable; and (3) Costar waived its right to arbitrate due to delay in demanding arbitration. The district court rejected all three arguments.

The district court ruled that the arbitration agreement was not illusory, notwithstanding that the employee handbook stated that the employer had the right to change any of its guidelines, policies, practices, working conditions, or benefits at any time, because the arbitration agreement was a separate document from the employee handbook. The agreement to arbitrate was not a policy or benefit contained in the employee handbook. Further, the arbitration agreement contained mutual promises, so it was supported by consideration.

The court rejected the argument that the arbitration agreement was unconscionable, because the agreement did not deprive plaintiff of the right to raise any of the substantive claims she brought in her civil complaint. Further, not only did the arbitration agreement impose the same obligations on Costar, it provided that Costar would pay all costs of commencing arbitration and the remainder of the arbitration fees.

Finally, the court rejected the waiver argument, since Costar moved to arbitration just three days after it filed its answer.

Since all the issues presented in the lawsuit were arbitrable, the court dismissed the lawsuit, rather than stay the proceedings.

This opinion illustrates how an employer can draft an arbitration agreement for employment disputes that will pass muster with the courts.

Posted by David B. Stratton on 09/09/2011 at 06:04 PM
ArbitrationEmployment DiscriminationMarylandPermalink

Surety must arbitrate disputes based on contract incorporated by reference in bonds
In Developers Surety and Indemnity Co. v. Resurrection Baptist Church, Case No. RWT 10cv1224 (D. Md. Dec. 1, 2010), the Court held that the surety must arbitrate disputes related to performance bonds where the performance bonds specifically incorporated by reference construction contracts containing an arbitration clause. In so holding, the district court followed precedent in the First, Second, Fifth, Sixth and Eleventh Circuits.

In addition, the Court found that the surety is equitably estopped from refusing to arbitrate its disputes with the co-obligees under the performance bonds. The Fourth Circuit has held in a non-surety context that a nonsignatory is estopped from refusing to comply with an arbitration clause when it receives a direct benefit from a contract containing an arbitration clause. Here, the surety asserted claims against the co-obligors for breach of the building contract, but simultaneously sought to avoid enforcement of the arbitration clause in the same contract.

The Court also rejected the surety's argument that arbitration was waived because the opposing parties had filed their answers, asserted crossclaim and counter-claims, and engaged in some discovery. The Court, following Fourth Circuit precedent, observed that absent a showing of prejudice, a court will not find waiver where the parties seeking to arbitrate merely answered pleadings and engaged in minimal discovery. Thus, the Court held that defendants did not waive their right to insist upon arbitration of this dispute.

Posted by David B. Stratton on 01/19/2011 at 06:59 PM

No immediate right in D.C. to appeal an order compelling arbitration and staying the lawsuit
In Stuart v. Walker , No. 09-CV-900 (D.C. Oct. 28, 2010), the Court held that a trial court's order granting a motion to compel fee arbitration and to stay the case, was not a final judgment and therefore, was not immediately appealable.

In this case, the plaintiff, who is an attorney, brought suit to recover attorney's fees from her former client. The former client then moved to compel fee arbitration under D.C. Bar Rule XIII, which mandates binding arbitration of all attorney-client fee disputes in D.C. The trial court granted the motion and stayed the case pending an arbitral award. The attorney than appealed.

The Court held that it did not have jurisdiction to hear the appeal as it was taken from a non-final order, and the Court's jurisdiction is limited to review of final orders of the Superior court.

The Court reasoned that while an order compelling arbitration that dismissed the action would be an appealable final order, in this case there was no final appealable order since the action was only stayed.

The Court also held that an amendment to D.C. Code sec. 16-4427(a) that purported to make orders granting a motion to compel arbitration immediately appealable was invalid. That was because the D.C. Council does not have authority to pass laws enlarging the Court of Appeals' jurisdiction.

Posted by David B. Stratton on 01/19/2011 at 04:06 AM
ArbitrationDistrict of ColumbiaPermalink