Recent Developments in Dispute Resolution
Willamette University, College of Law
Center for Dispute Resolution

March 1 - 7, 2004
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THIS WEEK:

1. Arbitration: A third-party beneficiary cannot enforce an arbitration provision contained within a contract for services with another party. (Pa. Super Ct.)

2. Arbitration: A plaintiff can neither change allegations in a former complaint to avoid arbitration, nor seek to vacate an award when a panel determined issue of arbitrability at plaintiff's request. (9th Cir.)

3. Arbitration: If coverage by the insurer is not an arbitrated issue, the insured cannot recover attorney fees. (Wash. App.)

4. Arbitration: An agreement to arbitrate is not rendered ineffective upon a failure of the parties to select an arbitrator or provide for a method of selection in the event of impasse. (Tex. App. (14 Dist.))

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CASE SUMMARY:

1. Arbitration: A third-party beneficiary cannot enforce an arbitration provision contained within a contract for services with another party.

McNulty v. H & R Block, Inc., 2004 WL 351782 (Pa. Super Ct., Feb. 26, 2004)

H & R Block is a tax-preparation firm offering electronic filing of federal income taxes for a fee. Customers may also choose to receive anticipated refunds in the form of a loan made by Household Bank (bank) for an additional fee. The loan contract contains an arbitration provision, but is separate from the contract for services provided by Block. McNulty and several other customers brought a class action suit against Block, alleging that its service fees were excessive. Block objected, arguing that contract with the bank requires these complaints to be arbitrated individually. The trial court held that Block could not enforce the arbitration provision because the contract containing the provision did not relate to Block's tax services, but instead related to the banks's refund loan. Block appealed, arguing that the trial court erred in finding that it was not a party to the contract. The Pennsylvania Superior Court held that Block was essentially a third-party beneficiary because it provided no money to the customers, was not responsible for repaying the loan, and did not process the loan application. Therefore, Block had no right to enforce the arbitration provision. (JB)

Full opinion available online at:
http://www.aopc.org/OpPosting/Superior/out/a43010_03.pdf

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2. Arbitration: A plaintiff can neither change allegations in a former complaint to avoid arbitration, nor seek to vacate an award when a panel determined issue of arbitrability at plaintiff's request.

Poweragent Inc. v. Electronic Data Sys. Inc., 2004 WL 345741 (9th Cir. Feb. 25, 2004)

Poweragent Inc. entered into a series of agreements with Electronic Data Systems (EDS). One of the agreements contained an arbitration provision making "related" disputes arbitrable. Poweragent sued EDS in the United States District Court for the Northern District of California for breach of contract and RICO violations. EDS sought to compel arbitration, arguing that the allegations were interrelated with the agreement containing the arbitration provision. The District Court compelled arbitration. Poweragent then amended its claim, to circumvent the arbitration provision. The District Court denied Poweragent's amended claim, concluding that a plaintiff cannot contradict allegations in a prior complaint to avoid arbitration. The United States Court of Appeals for the Ninth Circuit agreed with the District Court and denied Powergent's appeal. Poweragent then filed notice with the American Arbitration Association, asking the arbitration panel to determine the arbitrability of the amended complaint. The arbitration panel found Poweragent's amended complaint arbitrable and awarded in favor of EDS. Poweragent then sought to vacate the award, arguing that in the absence of agreement, courts must decide issues of arbitrability. The District Court disagreed and upheld the award. In affirming the District Court's decision, the Court of Appeals recognized that while the issue of arbitrability is normally for the courts to decide, Poweragent's request of the panel to determine arbitrability bound the company to the panel's decision. (GC)

Full opinion available online at: http://www.ca9.uscourts.gov/ca9/newopinions.nsf/9643E2F50F5C82A988256E45005E74DF/$file/0217022.pdf?openelement

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3. Arbitration: If coverage by the insurer is not an arbitrated issue, the insured cannot recover attorney fees.

Nelson v. Farmers Ins. Co. of Wash., 2004 WL 341487 (Wash. App., Feb. 24, 2004)

In July 1997, Casey Nelson was waiting at a stoplight when she was rear-ended. She did not get the name of the person who hit her but was able to write down the license plate as the car passed. Due to neck pain from the accident, Nelson filed an underinsured motorist claim (UIM) with Farmers Insurance (Farmers). Nelson demanded arbitration after Farmers denied her claim. Farmers initially refused to arbitrate and claimed that Nelson was without coverage because she failed to follow the conditions of coverage under her policy. Farmers agreed to arbitrate, however, after Nelson filed a "Complaint to Compel UIM Arbitration." The arbitrators found for Nelson and she successfully moved for confirmation of the award and attorney fees. Farmers appealed the attorney fees and argued it was beyond the superior court's jurisdiction. The Court of Appeals of Washington agreed. First, the appellate court reasoned that the arbitrators did not award attorneys fees and the superior court had no authority to alter the award. Second, based on prior case law, the appellate court determined that attorney fees are not recoverable unless the insured denies coverage. Therefore, Nelson could not recover attorney fees because Farmers admitted coverage by submitting to arbitration. (KSK)

Full opinion available online at: http://www.courts.wa.gov/opinions/?fa=opinions.opindisp&docid=299844MAJ

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4. Arbitration: An agreement to arbitrate is not rendered ineffective upon a failure of the parties to select an arbitrator or provide for a method of selection in the event of impasse.

Goetz v. Goetz, 2004 WL 349919 (Tex. App. (14 Dist.), Feb. 26, 2004)

The Mediated Settlement Agreement (MSA) between divorcing spouses called for binding arbitration in the event of a dispute. The former wife objected to a provision in the subsequent divorce decree that permitted the court to appoint an arbitrator in the event of the parties' failure to mutually agree on an arbitrator. Ms. Goetz argued that the trial court's insertion of the provision was an abuse of discretion. She further argues that unless the parties are able to agree on an arbitrator that the issue is not to be submitted to arbitration under the MSA. The Court of Appeals of Texas rejected this argument since a failure to select an arbitrator, or to designate a method of selecting one, will not make an agreement to arbitrate unenforceable. The court held that the trial court's insertion of the selection method was a valid exercise of authority as it merely incorporated existing law that would be applied in the event of an impasse in selecting an arbitrator. (CN)

Full opinion available online: http://www.14thcoa.courts.state.tx.us/opinions/HTMLopinion.asp?OpinionID=79306

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Editor-in-Chief: Michael T. Greene
Writers: Juliet Bates, Grant Cook, Katy Kellogg, & Cynthia Norton
Faculty Advisor: Richard Birke
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