Litigation vs. Arbitration

Two courts recently refused to compel arbitration because the defendants could not prove that the parties had entered into an arbitration agreement at all.  Therefore, the musical accompaniment to this post is “Do Re Mi” from The Sound of Music.  “Let’s start at the very beginning, a very good place to start.  When you read, you begin with ABC,” [and I add]  “when you compel you begin with we agree.”

In Bellman v. i3Carbon, LLC, 2014 WL 2210739 (10th Cir. May 29, 2014), two plaintiffs sued for securities fraud, alleging that defendants had made misstatements when convincing plaintiffs to invest $600,000 in an energy company.  Defendants then moved to compel arbitration based an arbitration agreement in the (unsigned) Operating Agreement.   However, Defendants were unable to prove that there was any meeting of the minds with respect to an arbitration agreement, so the district court denied the motion and the appellate court affirmed the denial.  As the Tenth Circuit explained:

Defendants’ argument essentially boils down to their assertion that Plaintiffs’ mere investment in i3Carbon following their receipt of a binder containing an unsigned Operating Agreement somehow establishes that Plaintiffs agreed to, and accepted, the terms of the Operating Agreement, including its arbitration provision.  However… this argument is unpersuasive.

Because the plaintiffs had never signed the Operating Agreement at issue, nor was there any evidence that the parties understood the Operating Agreement to be necessary to the investment, the court found defendants had not created any genuine issue of material fact “as to whether or not there was a meeting of the minds” that would require a trial on the issue.  It affirmed the trial court’s denial of the motion to compel arbitration.  [The Tenth Circuit reiterated its recent guidelines for when formation issues can be decided on motion versus by a trial: the court may decide the existence of an arbitration agreement if “there are no genuine issues of material fact regarding the parties’ agreement.”  If such a genuine dispute exists, the court shall move to a summary trial.”]

The Tenth Circuit also rejected the defendants’ argument that plaintiffs were equitably estopped from denying their acceptance of the Operating Agreement.  Importantly, plaintiffs were not claiming a breach of the Operating Agreement, nor trying to enforce any rights or remedies contained in the Operating Agreement.

Bank of the Ozarks, Inc. v. Walker, __S.W.3d__, 2014 WL 1946742 (Ark. May 15, 2014), reached a similar holding.  In that case, a putative class of customers sued a bank over overdraft fees, and the bank moved to compel arbitration.  The trial court denied the motion, finding the arbitration clause unconscionable, and the court of appeals reversed that decision.  The Supreme Court of Arkansas found both courts had jumped the gun.  In response, the plaintiffs argued that not all of the bank’s account agreements had arbitration clauses and the bank had waived any right it had to arbitrate by moving to dismiss.  However, the lower courts did not make any findings about whether arbitration agreements existed for all customers.  Therefore, the court “reverse[d] and remand[ed] to the [trial court] to determine, in the first instance, whether there is a valid agreement to arbitrate between the parties.”

Just how hard is it to vacate an arbitration award?  The Sixth Circuit recently held that even if the arbitrator reached a result directly contrary to federal precedent, the arbitration award would be upheld.  And the Tenth Circuit found that even if the arbitrator based his award on an agreement that does not support the award, it will be upheld if there is any other basis to confirm.

In Schafer v. Multiband Corp., 2014 WL 30713 (6th Cir. 2014), two directors of a holding company sold that company to Multiband.  Everyone involved knew that the federal government was investigating whether the holding company had purchased stock for its ESOP at inflated prices.  (ESOP = Employee Stock Ownership Plan.)  As part of the deal, Multiband agreed to indemnify the directors if they were found to have wrongly purchased stock.  Later, however, when the federal government actually sued the directors, Multiband refused to indemnify them.  So, the directors settled the suit with their own funds and started an arbitration against Multiband.

In arbitration, Multiband argued that the indemnification agreement was void against public policy (under ERISA) and therefore unenforceable.  The arbitrator agreed.  The directors moved to vacate the award, and the district court granted the motion.  The district court concluded the arbitration award was in “manifest disregard of the law” because the arbitrator was aware of controlling Sixth Circuit precedent and chose to ignore it.  The Sixth Circuit was able to look past the arbitrator’s error and rely on the extraordinary deference to arbitration awards to confirm the award:

Even assuming that manifest disregard of the law is a basis for vacatur of an arbitral decision, the scope of the basis has to be very narrow. Manifest disregard of the law is not just manifest error of law. If the arbitrator expressed disagreement with the law, rather than interpretation of the law, that might suggest “disregard.” But there is little evidence of that in the arbitrator’s decision. Instead, the arbitrator relied on a very broad “plain” reading of the ERISA provision invalidating contractual provisions that relieve a fiduciary of liability, and relied on a narrow and formal meaning of the insurance exception to that provision.

But here’s the opinion’s real kicker:

Moreover, the very idea that an arbitral decision is not appealable for legal error leads to the conclusion that the arbitrator is not necessarily bound by legal holdings of this court. If an arbitrator relies on a colorable meaning of the words of the statute—as the arbitrator did here—the fact that there is Sixth Circuit precedent to the contrary is not necessarily determinative. Sixth Circuit holdings are binding in courts and on agencies whose decisions are appealable to the Sixth Circuit, ultimately because of that appealability. An arbitrator cannot reject the law, but can disagree with nonbinding precedent without disregarding the law.

What can one learn from this opinion?  First, in drafting arbitration provisions, parties need to think carefully about whether they want to forego even this type of legal challenge to an arbitrator’s award.  If not, consider either staying in court or opting to build in an arbitral appeal.  Second, the Sixth Circuit appears to believe “manifest disregard of the law” may be a valid challenge to an arbitration award.  But they consider manifest disregard to be so narrow (the arbitrator disagreeing with a controlling statute and refusing to apply it) that it might as well have died with Hall Street.  And finally, the Sixth Circuit is willing to say in a published opinion what I have only heard others whisper in select company: that if the grounds for appeal of an arbitration award are this constrained, maybe arbitrators really do not have to follow the law after all…

In a less dramatic opinion, the Tenth Circuit also recently affirmed a portion of an arbitration award that the district court had vacated.  In Adviser Dealer Services, Inc. v. Icon Advisers, Inc., 2014 WL 541914 (10th Cir. Feb. 12, 2014), it upheld the arbitration panel’s award forcing Party X to pay attorneys’ fees, even though the award had indicated the fees were “pursuant to the terms of” an agreement, and Party X was not a signatory to that agreement.  However, the appellate court found all parties had requested attorneys’ fees and the rules allowed the panel to award attorneys fees in that situation.  “Because the arbitration panel had general authority  . . . to award attorneys’ fees, an erroneous reference to the [agreement] as a basis for its award was merely an error of fact, which does not justify overturning the panel’s award of attorneys’ fees.”

A new opinion from the Eleventh Circuit highlights an issue that can be confusing to those encountering FAA case law for the first time: when does the federal presumption of arbitrability apply?  The answer is the presumption only applies to whether the scope of an arbitration agreement is broad enough to encompass the parties’ dispute, not whether a valid arbitration agreement exists between the parties.

In Dasher v. RBC Bank (USA), __ F.3d __, 2014 WL 504704 (11th Cir. Feb. 10, 2014), the class action plaintiffs allege a bank charged excessive overdraft fees in breach of their account agreement.  While the parties were conducting discovery related to the bank’s motion to compel arbitration, the bank was acquired by another bank, who issued new account agreements to all the customers (including the named plaintiff).  The new account agreement had no agreement to arbitrate disputes; the old account agreement did.  A dispute then arose as to which account agreement controlled.

The defendant bank argued that the FAA’s presumption in favor of arbitrability should apply to find the parties still had an arbitration agreement.  The Eleventh Circuit set it straight, noting that in Granite Rock SCOTUS said courts may apply “the presumption of arbitrability only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand.”  It also cited the Second Circuit which has explicitly recognized that “the presumption does not apply to disputes concerning whether an agreement to arbitrate has been made.”  In this case, because the dispute centered on whether the parties had an arbitration agreement at all, the FAA did not provide a presumption in favor of arbitrability.  (For a classic case in which the presumption operates to find a dispute falls within the scope of an arbitration agreement, despite a “lack of clarity” in the agreement, see Pureworks, Inc. v. Unique Software Solutions, Inc., 2014 WL 211831 (6th Cir. 2014).)

The Eleventh Circuit ended up finding there was no valid arbitration agreement between the Dasher plaintiffs and the bank.  The account agreements had language showing that the new agreement completely superseded the old agreement, therefore the court concluded that the absence of any arbitration clause in the new agreement was controlling.  Furthermore, even though the alleged excessive charges took place while the old agreement was effective, the court found the new agreement controlled the dispute resolution.  That was because the amendment clause stated that the “most current version” of the account agreement “will at all times govern,” which the court interpreted to mean that the parties intended the new agreement to apply retroactively.  In my view, this is a curious result, which places a great deal of reliance on very few words in the contract, and may show that the Eleventh Circuit was working hard to avoid the plaintiffs’ backup argument: that the arbitration agreement was invalid because it deterred him from vindicating his rights, an argument that is likely not supportable after Concepcion and AmEx.

The Tenth Circuit ruled last week that arbitration case law from New Mexico is preempted by the FAA.  This decision calls into question whether states can find arbitration agreements unconscionable simply for being unilateral, i.e. one party is bound to arbitrate its claims while the other party is free to litigate in court.

In 2012, the New Mexico appellate court had found that arbitration agreements are unconscionable, and thereby unenforceable, if they are one-sided.  Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 306 P.3d 480 (N.M. Ct. App. 2012).  The context was an arbitration agreement in a contract between a nursing home resident and the facility itself.

In THI of New Mexico at Hobbs Ctr, LLC v. Patton, __ F.3d __, 2014 WL 292660 (10th Cir. Jan. 28, 2014), the very same arbitration agreement was at issue, but this time in federal court.  The wife of a deceased nursing home resident sued the facility for negligence and misrepresentation, and the facility moved to compel arbitration.  The wife opposed the motion, pointing out that the agreement required arbitration of claims that residents are likely to have (like personal injury and consumer protection claims) while allowing court litigation of claims that the facility is likely to have (“guardianship proceedings, collection and eviction”).  The federal district court denied the motion to compel arbitration, finding that under the generally applicable uncosncionability law of New Mexico, the arbitration agreement was unenforceable, citing Figueroa. 

After marching through thirty years of arbitration case law (a little overboard, law clerk, Concepcion probably would have sufficed!), the Tenth Circuit reversed the district court and found arbitration must be compelled.  In short, the opinion found that “the only way the [agreement] can be deemed unfair or unconscionable is by assuming the inferiority of arbitration to litigation.  After all the state court spoke of ‘subjecting the weaker party to arbitration’ clearly evincing the view that having to arbitrate a claim is disadvantageous.”  Put more succinctly “A court may not invalidate an arbitration agreement on the ground that arbitration is an inferior means of dispute resolution.”  Because Concepcion made clear that the FAA preempts state common law contract defenses that depend on the underlying contract being one for arbitration, the FAA preempted Figueroa.  The Tenth Circuit went further and noted that a 2008 decision from the New Mexico Supreme Court (Fiser v. Dell) is also preempted by the FAA.

Whether arbitration agreements are enforceable in personal injury cases against nursing homes has been a repeat issue in courts across the country in the past year.  At least five state courts  and the Eighth Circuit have opined on whether arbitration agreements signed by family members of the residents are enforceable.  In two additional decisions last month, the Massachusetts Supreme Court found arbitration agreements unenforceable because neither a resident’s child or spouse had authority to execute an arbitration agreement for the resident, even if the relative had been named a health care proxy under state law.  Johnson v. Kindred Healthcare, Inc., __ N.E.2d __, 2014 WL 92187 (Mass. Jan. 13, 2014); Licata v. GGNSC Malden Dexter LLC, __ N.E.2d __, 2014 WL 92185 (Mass. Jan. 13, 2014).

Just four months ago, SCOTUS suggested (but did not hold) that the decision to allow class arbitrations might be a “gateway” issue of arbitrability that defaults to courts.  This week, the Sixth Circuit was the first to take the bait and declare the availability of class actions a gateway question that a court decides unless the parties clearly assign the question to the arbitrator.

In Reed Elsevier, Inc. v. Crockett, __ F.3d __, 2013 5911219 (6th Cir. Nov. 5, 2013), a lawyer filed an arbitration demand with the AAA against LexisNexis on behalf of himself, a putative class of law firms, and a putative class of law firm clients.  The lawyer alleged that LexisNexis misrepresented its subscription services and sought damages of over $500 million.  In response, LexisNexis brought a declaratory judgment action in federal court, asking the court to find that the arbitration clause did not authorize class arbitration.  The clause itself said nothing explicit about the availability of class arbitration — it did not preclude or allow class actions.  It provided that “any controversy, claim or counterclaim…arising out of or in connection with this Order…will be resolved by binding arbitration…”

The district court granted summary judgment in favor of LexisNexis and the Sixth Circuit affirmed.  The critical analysis related to whether the courts even had the power to decide whether the arbitration clause authorized class actions.  The court started by dividing questions of arbitrability into “gateway disputes” and “subsidiary questions.”  (I have never heard the latter group called subsidiary questions, have you?  I have heard of substantive v. procedural, and gateway v. other, but not this new paradigm.)  It recited the two universally recognized gateway issues — whether a valid arbitration agreement exists and whether it applies to the controversy at hand.  Those two questions are reserved for judges, unless the parties have “clearly and unmistakably” given the arbitrator the power to decide them.  On the other hand, it defined the “subsidiary” questions as those that bear on the dispute’s final disposition, including waiver, delay, and any failure to satisfy a condition precedent.  It characterized the subsidiary questions (unfairly) as “mere details.”

The Sixth Circuit then had to decide whether class arbitration falls into the “gateway” or “subsidiary” camp.  It acknowledged that the Supreme Court has not held that the availability of class arbitration is a gateway issue to be reserved for the courts, but instead has hinted strongly in recent years that this issue belongs in the courts.  Those hints began with Stolt-Nielsen, continued in Concepcion, and grew louder in Sutter this summer.  Therefore, even though a plurality of the Supreme Court concluded in Bazzle that classwide arbitration is a question for arbitrators, the Sixth Circuit held this week that it is a gateway question that is presumptively for judges.  Furthermore, in this case the parties had not clearly and explicitly authorized arbitrators to determine the availability of class action, so the default rule governed.

Once the court gave itself permission to decide the issue, it quickly found the parties’ arbitration agreement did not allow a class action.  “The principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it.”  The court also noted that the agreement provided for arbitration of claims arising out of “this Order,” suggesting the arbitration was limited to the two parties to that agreement.  Finally, applying AmEx, the court found the arbitration was not unconscionable, even if it “favors LexisNexis at every turn.”

This is a significant decision.  It allows parties who want a court to decide whether class arbitration is available to cite to a published opinion from a federal appellate court, instead of just hints and whispers from the Supreme Court.  It also suggests that at least the Sixth Circuit will require fairly specific language in an arbitration agreement to support the parties’ intent to allow class arbitration.

The Third Circuit ruled last week that Delaware’s Chancery Court could not offer its judges’ services as neutral arbitrators in its courtrooms, unless those arbitrations were open to the public.

In 2009, the Delaware courts decided to provide arbitration.  The state amended its laws to create an arbitration process that was only open to disputes worth more than a million dollars with at least one party being a business incorporated in Delaware (and no party being a consumer).  The parties did not need to have a pre-dispute arbitration agreement.  As long as they both consented, they could file their arbitration in the Delaware courts for a$12,000 initial fee and have the Chancellor select a Chancery Court judge to hear the arbitration in the Delaware courthouse (for another $6,000/day).  However, “the statute and rules governing Delaware’s proceedings bar public access.”  Only parties and their representatives could attend the proceedings.

In Delaware Coalition for Open Government, Inc. v. Strine, __ F.3d __, 2013 WL 5737309 (3d Cir. Oct. 23, 2013), the Third Circuit found that it violates the First Amendment to bar the public from Delaware business arbitrations.  Applying the “experience and logic” test (sounds like the kind of test courts should always apply!), the Court found “[w]hen we properly account for the type of proceeding that Delaware has instituted — a binding arbitration before a judge that takes place in a courtroom…the right of access to government-sponsored is deeply rooted in the way the judiciary functions in a democratic society.”  Further, the court noted that public access would be beneficial for stockholders, ensure transparency of the process, and discourage perjury.  For all those reasons, the Third Circuit found a right of public access to state-sponsored arbitrations in Delaware.

I haven’t heard of other states trying to compete with the AAA, so this decision does not have broader implications, but it is worth pondering whether the same benefits of public access the Third Circuit noted in this case also apply to private arbitrations.

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Now for some brief updates on recent topics:

  • The Minnesota Supreme Court granted review of this case, in which the Minnesota Court of Appeals confirmed an arbitration award involving a significant sanction against a party who was accused of manufacturing evidence.
  • The defense of illusoriness is still on the upswing.  Last week the Fifth Circuit affirmed a district court’s refusal to compel arbitration based on a finding that the agreement was illusory under Texas law.  Scudiero v. Radio One of Texas II, 2013 WL 5755484 (5th Cir. Oct. 24, 2013).
  • In case anyone thought Sutter was limited to deference for arbitrators who find arbitration agreements allow for class actions, the Eleventh Circuit clarified the same deference applies to arbitrator decisions to allow collective actions as well.  DirecTV v. Arndt, 2013 WL 5718384 (11th Cir. Oct. 22, 2013).
  • A thoughtful reader drew my attention to a case the U.S. Supreme Court will hear on November 13: Unite HERE Local 355 v. MulhallThe central question in the case is one of labor law, not arbitration, but the labor law questions were interpreted by arbitrators under the parties’ agreement, and the National Academy of Arbitrators has weighed in to support the use of “pre-recognitional governance systems” including arbitration.

 

In a decision that confirms arbitrators’ broad discretion to not only fashion remedies, but also fashion sanctions, the Minnesota Court of Appeals held that an arbitrator did not exceed his power by issuing a severe sanction: denying one party the right to defend against certain claims after finding that party had fabricated evidence relating to those claims.  Seagate Technology, LLC v. Western Digital Corp., __N.W.2d __, 2013 WL 3779231 (Minn. Ct. App. July 22, 2013).

The case involved Seagate’s claims that one of its former employees had taken multiple trade secrets to a competitor, Western Digital Corporation.  The arbitrator found that after the employee went to Western Digital, he had added slides to old PowerPoint files he had created at Seagate in order to falsely suggest that three of the trade secrets at issue had been publicly disclosed during his time at Seagate.  Because the arbitrator concluded that Western Digital was complicit in the fabrication of evidence, the arbitrator determined that “severe sanctions” were in order.  The arbitrator precluded Western Digital and the employee from presenting any defense to Seagate’s claims about those three trade secrets and entered judgment against them for misappropriation and use of the trade secrets.  As a result of that judgment on the three trade secrets, and his conclusion that the employee breached his employment contract, the arbitrator awarded Seagate $634 million (including $109 million in interest).

Not surprisingly, given the size of the award, Western Digital moved to vacate it.  The district court granted the motion and vacated critical aspects of the arbitration award based on its finding that the arbitrator did not have authority to impose such a severe sanction, and ordered a rehearing by a different arbitrator.  In a rare move, the Court of Appeals accepted an interlocutory appeal from the district court order and reversed.

The Court of Appeals found three separate reasons to reverse the district court on the critical issue of whether the arbitrator had “exceeded his powers” sufficient to vacate the award under the FAA and the Uniform Arbitration Act.  First, the court found that Western Digital had waived its right to argue that the arbitrator had exceeded his power by not raising that issue with the arbitrator.  Second, the court found Western Digital had doubly waived the issue by asking the arbitrator to issue discovery sanctions against Seagate, thereby implicitly acknowledging the arbitrator’s power to issue any sanctions.  Third and most importantly, the court addressed the merits and held that a broadly worded arbitration agreement grants arbitrators inherent authority to sanction a party that participates in arbitration in bad faith, even absent specific AAA employment rules regarding sanctions.

The court did not stop after it had analyzed the main issue of the arbitrator’s power to severely sanction Western Digital, which was enough to reverse the district court.  Instead, the court also confirmed that district courts may not vacate awards just because they think the arbitrator got the result wrong.  Echoing the U.S. Supreme Court’s recent decision in Sutter, the court held that the “district court’s excursion in the merits of sanction law violated [] bedrock principles” that awards will not be set aside for mistake of law and courts may not overturn awards just because they disagree with the merits of the decision.

Why did the Minnesota Court of Appeals take this interlocutory appeal and go out of its way to issue a lengthy, published opinion?  I would hazard that it wants to drive home to litigators (and district court judges) in my fair state that there are very limited bases to overturn an arbitration award.  The case also offers a message to parties considering arbitration agreements: arbitration is not always speedy (this one took more than four years), nor cheap (six separate law firms are listed as counsel for these parties, cha ching!), nor confidential (once the award is challenged, it becomes public), and a losing party will have a much more difficult time appealing the award than if it lost in district court.

*If you find this blawg useful or interesting–and definitely if the posts have helped you brief an arbitration issue or draft an arbitration agreement–please consider nominating it for the ABA Journal’s list of the top 100 Blawgs!  ArbitrationNation would be honored to be listed for a second year.  http://www.abajournal.com/blawgs/blawg100_submit/

 

Just after I posted about the awesome power of federal courts to enjoin other cases, the Federal Circuit reminds us the power is not absolute.  In Sanofi-Aventis Deutschland Gmbh v. Genentech, Inc., __ F.3d __, 2013 WL 1921073 (Fed. Cir. May 10, 2013), it affirmed the district court’s decision not to enjoin a foreign arbitration over a patent dispute, even though a very similar issue had been fully litigated in the U.S. courts.

Sanofi claimed that Genentech’s drug sales had infringed Sanofi’s patents. The parties had a licensing agreement, which called for the application of German law and for arbitration of disputes with the International Chamber of Commerce. The alleged infringement started in 1997 and constituted a breach of that agreement, but was first raised by Sanofi in 2008.  Once it was raised, Genentech terminated the agreement.

Sanofi started an ICC arbitration on October 24, 2008.  Genentech then filed an action in U.S. federal court, asking the court to find no infringement of the patent.  Genentech won; the district and appellate court found it had not infringed the patent.  However, the district court refused to enjoin Sanofi from continuing with the ICC arbitration.

[In a prime example of how proceeding in multiple venues can lead to conflicting results, the ICC arbitrator then ruled against Genentech.  Applying German substantive law, it found Genentech liable for damages under the licensing agreement.]

Genentech appealed the denial of its motion to enjoin the arbitration.  The federal circuit affirmed the district court’s decision.  A three-factor test applies when district courts decide whether to enjoin parties from pursuing foreign arbitration or litigation: whether the parties and issues are the same, whether the foreign case frustrates a U.S. policy, and “whether the impact on comity would be tolerable.”  Here, the first factor was dispositive.  The U.S. case had determined whether Genentech infringed the patent under U.S. law after the agreement was terminated, while the foreign arbitration centered on whether under German law Genentech had breached the agreement while it was in effect.  Because of those differences, the issues were not the same and the U.S. policy of res judicata was not frustrated.  Furthermore, the court found no reason to override the parties’ selection of the ICC as the forum for disputes under the agreement.

One judge wrote a concurring opinion to make sure this decision would not be misused.  That opinion emphasized that the U.S. policy favoring enforcement of forum selection clauses is not, by itself, enough to prevent the injunction of a foreign proceeding.  If the issues raised in the U.S. courts had been identical to those in the international forum, the judge wrote, “the patent holder should not be allowed to make an end run around the U.S. determination by later invoking an international proceeding.”

 

 

In a new case that reminds federal judges everywhere to sing “I’ve got the power!” like C&C Music Factory, the Fifth Circuit reiterates that federal courts can stay related state court actions if necessary to “protect or effectuate” an order compelling arbitration.  American Family Life Assurance Co. of Columbus v. Biles, __ F.3d __, 2013 WL 1809766 (5th Cir. April 30, 2013).

The underlying facts of the case highlight a tragically dysfunctional family.  An adult homosexual man named his partner as a beneficiary of his life insurance, but when the insurer in fact distributed money to the decedent’s life partner, the decedent’s mother and siblings sued the partner, the insurer, and the insurance agent in state court, alleging that they all conspired to fraudulently obtain life insurance “with the intent to end the decedent’s life and collect the policy’s death benefits.”

The insurance policy had an arbitration clause, but the angry family members refused to arbitrate.  That led the insurer, Aflac, to file a federal court action to compel arbitration.  After multiple motions and expert affidavits about whether the decedent’s signature on the policy was a forgery, the district court compelled arbitration and enjoined the angry family from continuing their state court action.  The angry family appealed on multiple grounds.

The Fifth Circuit affirmed the district court.  With respect to the federal court’s ability to effectively shut down the state court action, the court said two things.  First, there was no reason for the federal court to abstain under the Colorado River doctrine, largely because the two cases were not “parallel” and no exceptional circumstances were present that favored abstention.  Second, the court rejected the idea that the result violated the Anti-Injunction Act, which generally prohibits federal courts from staying proceedings in state court.  The Fifth Circuit found that the district court’s injunction against the state court proceeding fell within a recognized exception to the Anti-Injunction Act, for injunctions necessary to “protect or effectuate [] order[s] compelling arbitration.”