Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

KAWASAKI HEAVY INDUSTRIES v. BOMBARDIER RECREATIONAL PRODUCTS (October 21, 2011)

In 2006 and 2007, Kawasaki and Bombardier were embroiled in a patent dispute that led to several federal lawsuits. Kawasaki brought suit in Texas and Bombardier brought suits in both Florida and Texas. The parties reached a settlement in late 2007, pursuant to which they agreed to dismiss the lawsuits, agreed not to bring a future suit for patent infringement, and agreed to resolve any controversy arising out of the settlement through various alternative dispute mechanisms, including binding arbitration. The agreement also required Bombardier to cause its security agreements with its bank to be subordinated to the settlement agreement. Kawasaki executed the agreement in March of 2008, after receiving assurances from Bombardier that its bank had agreed to the subordination. In fact, Bombardier's bank refused to subordinate its security interests. Kawasaki returned to federal court in Texas and asked the court to vacate the earlier dismissal and require Bombardier to comply with the settlement agreement. The court refused. Kawasaki appealed but also engaged, with Bombardier, in court-ordered mediation. Kawasaki later dismissed the appeal and filed a new action in the Southern District of Illinois requesting specific performance of the settlement agreement's obligations. Kawasaki also brought claims against Bombardier's attorneys and its bank. Bombardier moved to dismiss or, in the alternative, to stay the claims pending arbitration. Chief Judge Herndon (S.D. Ill.) denied the motion. Bombardier appeals.

In their opinion, Seventh Circuit Judges Flaum, Manion, and Sykes reversed as to the Bombardier claims and vacated as to the other claims. The Court noted that the arbitration agreement was broad enough to cover the dispute between the parties. The only reason to deny Bombardier's request to arbitrate, then, would be that it waived that right. The district court so concluded, citing Bombardier's participation in the Texas district court litigation, the appeal, and the court-ordered mediation. The Court recognized that a party can waive a contractual arbitration right, and that the waiver can be explicit or inferred. In order to infer such a waiver, however, a court must determine the party acted inconsistent with its right to arbitrate, given all the circumstances. Relevant considerations include a party's diligence, delay, participation in court proceedings, and prejudice. Although the Court conceded that Bombardier participated in the court proceedings and mediation, it concluded that its participation was not inconsistent with exercising its right to arbitrate. All of its actions were in response to Kawasaki's actions and it never agreed to allow the Texas court to resolve the dispute -- it never even addressed the merits. Had it not participated in the proceedings or mediation, it risked a default judgment. Likewise, although there has been some delay, the delay is not inconsistent with Bombardier's right to arbitrate. It has consistently asserted its right to arbitrate the dispute, and it is Kawasaki's dispute that is an issue. Bombardier was not required to take any affirmative steps. It is enough for it to continue to assert its willingness to arbitrate and forgo any participation in substantive litigation. The district court erred in denying the motion to dismiss or stay. With respect to the other parties, the Court vacated the district court's order. First, Bombardier has no standing to protect the rights of the other defendants. Second, the issue whether the arbitration clause applies to the non-signatories is not ripe for review. Kawasaki does not want to arbitrate those claims and the non-signatories have not indicated their desire, one way or the other.

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AFFYMAX v. ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS (October 3, 2011)

Affymax and Ortho-McNeil-Janssen Pharmaceuticals created a joint venture in 1992 to develop peptide compounds. Their agreement assigned ownership based on development efforts. If a compound was jointly developed, it was jointly owned. If a compound was solely developed by either company, that company owned it. The parties also agreed to arbitrate all ownership disputes. Affymax brought suit in 2004 with respect to the ownership of the so-called '940 family and '078 family. After arbitration, a panel concluded that Ortho owned the ‘078 family and that the parties jointly owned the ‘940 family. Judge Kennelly (N.D. Ill.) confirmed most of the arbitration ruling but vacated the award with respect to its conclusion that Ortho owned the foreign patents in the ‘078 family. Ortho appeals (Affymax also appealed, but to the Federal Circuit).

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Wood and Tinder reversed. The Court first addressed appellate jurisdiction. Patent controversies that arise over a contractual dispute, as this one does, arise under the contract, not the patent. Therefore, the Federal Circuit's jurisdiction over patent disputes has not been triggered. The Court concluded that it was the proper forum, with jurisdiction over the district court's order vacating a part of the panel's award. On the merits, the Court noted that the Federal Arbitration Act gives four reasons a district court may rely on in vacating an arbitration award. The reason given by the district court here – the panel’s disregard of law -- is not one of those four reasons. The court's order was therefore error, if in fact that was the only basis for its conclusion. Before finding error, the Court considered whether the panel exceeded its powers, which is one of the four reasons permitting the vacation of an award, and is somewhat related to the district court's rationale. The Court concluded that the panel resolved the dispute pursuant to the 1992 contract’s directions and did not exceed its powers in doing so.

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CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. GEORGIA-PACIFIC (March 29, 2011)

In the early 1990s, Georgia-Pacific contributed to the multiemployer Central States, Southeast and Southwest Areas Pension Fund on behalf of employees in three different divisions. In 1994 and 1995, it laid off workers in its wood-pulp division and stopped its contributions for that division. In 1997, the company laid off workers in its building division and ceased those contributions. Then, in 2004, the company sold its building-products division. The new owner began contributing to the Fund and posted a bond. The Fund claims that Georgia-Pacific owes approximately $5 million in withdrawal liability. Georgia-Pacific, on the other hand, asserts that it has no liability under ERISA § 1384 because it ceased operations "solely because" of an arms-length sale of assets to an unrelated party. The parties proceeded to arbitration, as required by the statute. The arbitrator ruled in Georgia-Pacific's favor. Judge Pallmeyer (N.D. Ill.) enforced the arbitrator's award. The Fund appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Ripple affirmed. The Court noted that withdrawal payments are necessary to ensure the continued viability of underfunded multiemployer plans. The purpose of § 1384 is to prevent a windfall to a plan. But what does "solely because" mean? The Court found no appellate court jurisprudence on that question. The Fund argued that the arms-length sale was not the sole cause for Georgia-Pacific no longer contributing to the Fund. It cited the earlier layoffs as additional contributors. The Court identified and elaborated on the problems created by the Fund’s approach and concluded that the proper statutory construction requires consideration only of the transaction at issue. If no withdrawal liability would have accrued to the seller had there been no sale, then no withdrawal liability should accrue to the seller when the sale does go through. The Court recognized an exception to this general rule if an employer manipulates its business planning to avoid withdrawal liability. Here, the arbitrator was asked to consider whether the three stages of Georgia-Pacific's fund withdrawal should be considered as one. The arbitrator concluded that each stage was independent. The Court found that factual conclusion adequately supported by the evidence.

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FAULKENBERG v. CB TAX FRANCHISE SYSTEMS (March 29, 2011)

In late 2007, Jon Faulkenberg and Byron LeMaster inquired about owning a CB Tax franchise. The company, headquartered in Texas, sent them an offering circular that summarized the franchise agreement. In particular, the circular disclosed that the agreement required all disputes to be arbitrated in Texas and required all litigation to be brought in Texas. The parties ultimately entered into a franchise agreement, although there is some dispute about how and where the parties executed the agreement. Faulkenberg and LeMaster eventually opened five franchises. Four of them were located in Missouri and one in Illinois. CB tax asserts that the agreement was intended to cover only Missouri franchises. Within a matter of months, Faulkenberg and LeMaster closed all the franchises and filed suit against CB Tax in Illinois state court. They alleged violations of the Illinois Franchise Disclosure Act as well as common law fraud. CB Tax removed the case to federal court and moved to dismiss, citing both the arbitration clause and the forum selection clause. Judge Stiehl (S.D. Ill.) dismissed the complaint on the forum selection clause grounds. Faulkenberg and LeMaster appeal.

In their opinion, Circuit Judges Evans and Sykes and District Judge Der-Yeghiayan affirmed. The Court noted that the Illinois Franchise Act nullifies forum selection clauses in franchise agreements. The district court was not clear in its rationale for not applying the Act. The Court presumed that the court rejected plaintiffs' argument that the franchise was located in Illinois. But that was error. The court was obliged to accept plaintiffs' version of the facts and plaintiffs alleged that one of the franchises was located in Illinois. They also submitted evidence in support of the allegation in the form of two e-mails and a reference on CB Tax's website. Although the Court concluded that the lower court was wrong to dismiss pursuant to the forum selection clause, it nevertheless concluded that there was an alternative ground for dismissal -- the arbitration clause. Before addressing the substance of the argument, the Court disposed of several preliminary matters. First, the Illinois Franchise Act specifically permits parties to agree to arbitrate outside of Illinois. Second, CB Tax did not waive its right to arbitration when it filed its motion to dismiss. Third, a Rule 12(b)(3) motion is the proper vehicle, rather than a motion to compel arbitration, when the arbitration locale is outside the district. So, if the parties agreed to arbitrate in Texas, the case was properly dismissed for improper venue. The court concluded that the evidence strongly supported an agreement to arbitrate. The circular discussed the arbitration clause. The franchise agreements contained the arbitration clause in plain terms. Faulkenberg and LeMaster received the circular and signed the franchise agreement. They also signed an acknowledgment stating that they had read and understood the agreement. The Court rejected their arguments that they failed to read or understand the franchise agreement and that they did not know they were signing a franchise agreement.

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MERRYMAN EXCAVATION v. INTERNATIONAL UNION OF OPERATING ENGINEERS (March 21, 2011)

Merryman Excavation and Local 150 of the International Union of Operating Engineers entered into a Memorandum of Agreement in 2000. The agreement basically adopted the terms of Local 150's Collective Bargaining Agreement. In addition to setting wages and describing working conditions, the agreement provided that all disputes were to be resolved by an informal process. The final phase of this process was a hearing before the joint grievance committee. The committee is comprised of an equal number of employer and union members. A majority decision of the committee on a dispute is final and non-appealable. On two different occasions in 2006, a joint committee heard a total of 13 grievances initiated against Merryman. Some of the grievances were settled, some resulted in a committee deadlock, and some were resolved in the union's favor. In total, Merryman was ordered to pay almost $100,000. At the two hearings, Merryman objected to the committee's jurisdiction, objected to proceeding with only two voting members on each side, objected to proceeding before an attempt to settle, and objected to "unbiased" committee members on the union side. Merryman brought suit pursuant to § 301 of the Labor Management Relations Act. The complaint alleged violations of the agreement and sought to set aside the awards. Local 150 counterclaimed for enforcement of the awards. Judge Kendall (N.D. Ill.) granted summary judgment to Local 150. Merryman appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Hamilton affirmed. The Court first identified some confusion in the briefing and even in its own jurisprudence. It pointed out that the joint committee proceeding is not an arbitration subject to the Federal Arbitration Act and its impartiality requirements. Rather, it is a creature of contract -- a failure to honor a valid award is simply a breach of contract. The Court categorized Merryman's arguments into three categories: procedural errors, orders to pay the union assistance fund instead of union members, and bias. The Court quickly disposed of the alleged procedural errors. First, most of the alleged "errors" were contract disputes and the joint committee had the absolute authority to resolve them without appeal. Second, with respect to the composition of the committee and whether a quorum was required, the Court concluded that Merryman received all the procedures to which it was entitled under the agreement. With respect to the awards to the assistance fund, the Court also concluded that the issue involved construction of the agreement and was within the joint committee's authority to resolve without appeal. Finally, with respect to bias, the Court conceded that bias is one of the few grounds to attack the decision of a supposedly unbiased arbitrator or panel. But the agreement here does not require a neutral committee members. Instead, it strives to achieve achieves fairness by requiring an equal number of voting members from each camp. There is no evidence that that requirement was not met in this case. Whether any particular voting individual lacked impartiality is irrelevant.

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TRUSTMARK INSURANCE CO. v. JOHN HANCOCK LIFE INSURANCE CO. (U. S. A.) (January 31, 2011)

Trustmark Insurance Company agreed to reinsure certain risks underwritten by John Hancock Life Insurance Company. Their agreement contained a broad arbitration clause. When a dispute arose regarding one of the agreement's exclusions, the companies submitted it to arbitration. The arbitration panel consisted of one person selected by each company and a third person selected by the first two. The panel's award, which was affirmed by district court, supported Hancock. The parties entered into a confidentiality agreement that precluded them from discussing the proceedings or the award. When Trustmark refused to pay, Hancock instituted a second arbitration. Hancock named as its arbitrator the same person who had arbitrated the earlier dispute. The other two arbitrators were not involved in the earlier dispute. After the panel decided that it could consider the evidence and result from the first arbitration, but before it addressed the merits, Trustmark brought suit. It sought to enjoin any further arbitration while Hancock's chosen arbitrator remained on the panel. Its position was that the arbitration clause required "disinterested" arbitrators and that Hancock's arbitrator was not disinterested because of his knowledge of and participation in the first arbitration. Trustmark also argued that the panel could not interpret the confidentiality agreement from the first arbitration because that agreement did not contain its own arbitration clause. Judge Zagel (N.D. Ill.) issued the injunction. Hancock appeals.

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KARL SCHMIDT UNISIA, INC. v. INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE, AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (December 17, 2010)

Karl Schmidt Unisia and the Union representing its workers negotiated a Collective Bargaining Agreement (CBA). It contains several provisions relevant to this case: a "Thirty and Out" provision providing enhanced retirement benefits to employees who reach a certain age and seniority, a provision stating that the retirement plan would remain in effect during the term of the CBA, and a four-step dispute resolution process ending in arbitration. In early 2007, the Company announced its intention to lay off employees at its Fort Wayne facility. The Union initiated the dispute resolution process because of its belief that the Company intended to deny "Thirty and Out" provisions to eligible employees. The Company and the Union exhausted the first three stages of the dispute resolution process. The Union proceeded to arbitration and added a grievance on behalf of two affected employees. The Company filed suit seeking a declaratory judgment that the grievances were not arbitrable. The Union counterclaimed to compel arbitration. Judge Van Bokkelen (N.D. Ind.) granted summary judgment to the Union and ordered arbitration. The Company appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Sykes affirmed. The Court first noted the care it would take in not addressing the merits and set forth some general principles regarding arbitration -- there is a federal policy favoring arbitration, a party cannot be compelled to arbitrate unless it has contractually agreed to do so, and a presumption of arbitrability arises from a broad arbitration clause. Here, the Court had little difficulty in finding the presumption. The CBA states that the dispute resolution process is the "sole and exclusive remedy" for a grievance and that the Union may grieve any alleged violation of the CBA. In order to overcome this presumption, the Court stated, the Company must come forward with either an express exclusion or the "most forceful evidence" of an intent to exclude the issue from arbitration. The Court first rejected the Company's express exclusion argument, concluding that it distorted the Union's claim. The Company offered several "most forceful evidence" arguments -- that the answer to the underlying dispute lies in the Pension Plan and not the CBA, that the provisions in dispute were never negotiated, and that the issue is governed by the Pension Plan's dispute resolution process. The Court concluded that none of these arguments were supported by the record or the case law. 

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LUMBERMENS MUTUAL CASUALTY CO. v. BROADSPIRE MANAGEMENT SERVICES (October 13, 2010)

Broadspire Management Services purchased an insurance administration business from Lumbermens Mutual Casualty Co. The parties agreed on a purchase price formula tied to the business’ success over the following four years. Under the contract, Broadspire calculated a proposed payment each year and submitted a report to Lumbermens. It used a different contract formula to calculate the expected earnings of any business sold during the first four years and submitted a similar report to Lumbermens. Lumbermens had 90 days to accept the calculation or submit a "Disagreement Notice" with a reasonably detailed basis for its disagreement. The agreement provided for binding arbitration in the event of a disagreement. Lumbermens ultimately disagreed with four Broadspire reports and sought arbitration. Broadspire claimed that the "Disagreement Notices" were deficient and refused to arbitrate. Lumbermens filed a Petition in Aid of Arbitration. Judge Leinenweber (N.D. Ill.) ordered arbitration, concluding that the sufficiency of the notice was a question for the arbitrator. Broadspire appeals.

In their opinion, Justice O'Connor and Judges Williams and Sykes affirmed. The only question before the Court was whether a court or an arbitrator should rule on Broadspire's "insufficient notice" argument. The Court concluded that the Supreme Court's decision in Howsam provided the answer. There, the Supreme Court held that a question relating to a grievance’s timeliness was a "gateway procedural dispute" for the arbitrator. The Seventh Circuit, following Howsam, has distinguished between substantive and procedural questions – the latter being questions for the arbitrator. Employers Insurance held that a consolidation question was a procedural one for the arbitrator. Zürich American likewise held that a question regarding the preclusive effect of a state court judgment was a procedural question for the arbitrator. Here, there is no disagreement regarding the existence of an agreement to arbitrate, which would be decided by a judge. The only disagreement is a procedural one and is properly in the hands of the arbitrator.

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JANIGA v. QUESTAR CAPITAL CORP. (August 2, 2010)

Alfred Janiga has lived and worked in the United States for over 20 years since his arrival from Poland. However, he still understands very little English. His brother, Weislaw Hessek, operates Hessek Financial Services and is a registered representative of Questar Capital Corp. After much prodding from Hessek, Janiga agreed to open a Questar account. He signed one piece of paper and claims that he never saw any of the documents related to his account. Just above his signature, however, in large letters, was a reference to an arbitration agreement in the contract and an admission that he had received a copy. Janiga was originally content with his investment. In fact, he increased his investment after a few months. After about a year, Janiga filed a complaint against his brother and Questar. His complaint included counts of securities violations, negligence, fraud, and others. The defendants moved to stay the proceedings and order arbitration. Judge Shadur (N.D. Ill.) denied the motions without prejudice until he determined whether a contract had even been formed. The defendants appeal.

In their opinion, Judges Wood, Evans, and Sykes reversed and remanded. The Court first commented on its appellate jurisdiction. Although the decision of the district court was not a final decision, the Federal Arbitration Act allows for an interlocutory appeal of the district court's refusal to stay and order arbitration. The Court turned to the merits -- whether the threshold question of the existence of a contract is a question for the court or the arbitrator. The Supreme Court has distinguished between challenges to the validity of an arbitration agreement and challenges to the validity of a contract. A court decides the former; the arbitrator decides the latter. At the time of the district court’s opinion (and even oral argument), the Supreme Court had not decided which decided the contract formation issue. On June 24, 2010, in the Granite Rock Co. case, the Supreme Court held that a courts, not an arbitrator, should decide issues of contract formation. The district court was therefore correct in not referring that issue to arbitration. The Court did take issue with the lower court's hesitation to decide the issue. The district court focused on issues such as Janiga's language barriers, whether he understood or read or even saw the contract, and whether the contract was valid under state law. But these are enforceability issues, said the Court. The fundamental point is that Janiga signed the contract and both parties performed under it for a year. Janiga clearly intended to open a brokerage account and his admittedly voluntary signature is evidence of his assent to the agreement. Contract formation has been established -- other questions may remain for the arbitrator. The Court was less confident of the resolution of the formation issue with respect to Hessek. If Hessek is an agent of Questar and the claims asserted are within the scope of that agency, he may receive the benefit of the arbitration agreement. Since the district court never addressed that issue, the Court remanded for further consideration.

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BOARD OF TRUSTEES v. ORGANON TEKNIKA CORP. (July 27, 2010)

The University of Illinois licenses certain intellectual property rights to Organon Teknika for the manufacture of a cancer drug. In return, the University collects a royalty. Because the royalty depends on Organon's revenue and because Organon is allowed to sell to its affiliated companies, the license allows the University to challenge the royalty rate. In the case of a challenge, an arbitrator is asked to determine whether Organon is receiving the equivalent of an arms-length negotiated rate. The University did challenge the rate in 2006. After receiving evidence, the arbitrator concluded that the rate was appropriate and issued a final award closing the proceedings without modifying the rate. He also sent the parties his final bill. In the final two sentences of his award, he explicitly "reserve[d] the right" to amend his findings if new evidence became available. The University neither sought judicial review nor reconsideration under the Federal Arbitration Act. Instead, after six months, it asked the arbitrator to reconsider. When Organon refused to consent to any further proceedings, the University filed suit to compel the resumption of arbitration. Judge Guzmán (N.D. Ill.) dismissed the suit, though on a ground neither party had requested -- that the arbitrator had never issued a final award. Organon appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Hamilton vacated and remanded. At first blush, the Court questioned its appellate jurisdiction. In the court below, the University had requested an order compelling Organon to arbitrate and Organon had objected to such an order. The court dismissed the suit without granting the University its requested relief. Nevertheless, the University did not appeal -- but Organon did. On the face of it, it appears that Organon prevailed. A prevailing party cannot appeal the judgment even if it disagrees with the content or rationale of the opinion. Upon deeper analysis, however, the Court appreciated that Organon was in fact attacking the judgment. What it wanted was finality -- a dismissal with prejudice -- rather than the dismissal without prejudice entered by the court. Satisfied with its jurisdiction, the Court addressed the merits. It had little difficulty in concluding that the district court erred in concluding that the arbitration was still pending. The arbitrator resolved the dispute, referred to the award as his final decision, and sent his final bill. The reservation in the final two sentences, in the Court's opinion, was nothing more than the arbitration equivalent of Rule 60(b)(2). Just as Rule 60(b)(2) does not stand in the way of the finality of a judgment, neither does the arbitrator's reservation. Under the Federal Arbitration Act, the University had 90 days within which to present new evidence. It did not do so. The arbitration is over. 

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PRATE INSTALLATIONS, INC. v. CHICAGO REGIONAL COUNCIL OF CARPENTERS (June 4, 2010)

Prate Installations, Inc. filed a grievance against its Union, the Chicago Regional Counsel of Carpenters, in 2003. Prate alleged that the Union's requirement that Prate pay hourly wages while allowing competitors to pay on a piece work basis violated the Collective Bargaining Agreement (CBA). The parties selected an arbitrator in accordance with the terms of the 2001 CBA. Arbitrator Martin issued an award in September of 2008. He awarded close to $10 million in damages, injunctive relief and attorney's fees. Meanwhile, the parties entered into a new CBA in 2005 that modified the arbitration procedure. It established a rotating panel of arbitrators -- Martin was not on the panel. Prate brought suit to confirm the award. Judge St. Eve (N.D. IL) confirmed the damages award, as amended to eliminate damages after the revised CBA, and the attorneys’ fees. She also vacated the equitable relief because it applied after the expiration of the earlier CBA. Both parties appeal.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Manion affirmed. The Court noted that their review of the arbitration award is quite limited. Here, the arbitrator relied on the contract in concluding that the Union was in violation. The district court correctly upheld that conclusion. The Court also found that the district court correctly determined that Arbitrator Martin had no authority under the 2005 CBA. His damages award covering the period after the new CBA was therefore improper. The analysis of the equitable award is slightly different. Martin could have ordered equitable relief if he issued his award prior to the expiration of the earlier agreement. Since he did not, however, the Court concluded that it had to treat the equitable remedy like the damages remedy and vacated it.

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SHERWOOD v. MARQUETTE TRANSPORTATION CO. (November 23, 2009)

Bluegrass Marine employs Michael Sherwood as a deckhand on one of its Mississippi River vessels. Sherwood alleged that he was injured during his employment. He brought suit under the Jones Act. Bluegrass sought a stay in favor of arbitration, invoking a clause in Sherwood's employment contract that required all disputes to be arbitrated under the Illinois Uniform Arbitration Act. The court denied the stay, concluding that the Federal Arbitration Act (which does not apply to seamen) preempted the Illinois Act. Bluegrass appealed.

In their opinion, Chief Judge Easterbrook and Judges Evans and Williams dismissed for want of jurisdiction. The Court noted that Bluegrass relied on § 16 of the FAA, which authorizes interlocutory review of a refusal to stay an action under § 3 of the FAA. The Court concluded that § 16 could not provide a basis for jurisdiction since the FAA does not apply to seamen and because Bluegrass never sought or was denied a stay under § 3 of the Act. The Court also rejected Bluegrass' reliance on both the collateral order doctrine and § 1292 (as the denial of an injunction) as bases for an appeal. Although the Court denied the appeal, it did express its doubt regarding the correctness of the district court's preemption conclusion.

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HABER v. BIOMET, INC. (August 20, 2009)

Biomet produces artificial joints. It contracted with Paul Haber to be its distributor in parts of Florida. Their relationship was governed by two contracts -- one made in 1995 and one made in 1999. The 1995 contract contained a forum selection clause favoring an Indiana court. The 1999 contract contained a clause requiring arbitration in Chicago. Biomet came to believe that Haber was in breach of the contracts and brought an action in Indiana state court. In response, Haber filed a complaint in the local federal court to compel arbitration. The federal court dismissed the complaint, concluding that venue for such an action was proper only in Chicago, the selected forum of the arbitration. Haber also moved to compel arbitration in the state court action. The state court compelled arbitration only on claims that arose under the 1999 agreement and ordered Biomet to identify which of its claims arose under that agreement. Haber did not appeal the state court decision -- Haber did appeal the federal court decision.

In their opinion, Judges Posner, Kanne and Wood affirmed. Before addressing the venue issue, the Court addressed res judicata. The Indiana court, although not resolving all matters, concluded that claims under the 1995 agreement were not arbitrable. The Court had to decide whether that ruling was of sufficient finality to be afforded res judicata effect. Indiana requires finality for issue preclusion. The factors a court should look at are whether: the parties were fully heard, the decision was rendered in a reasoned opinion, the order was appealable, and the order was appealed. The Court concluded that the state court’s order was final. The issue was before the court, was decided in a reasoned opinion and was appealable (though not appealed). Having found finality, the Court easily concluded that the order met the next four elements barring relitigation: a court of competent jurisdiction, an issue actually determined, identical parties, and a decision on the merits. The state court ruling was entitled to preclusive effect. The Court also briefly addressed the venue issue. Section 4 of the Federal Arbitration Act requires that, if an arbitration clause selects a forum for arbitration, a motion to compel the arbitration must be brought in a court in the forum selected. The venue decision was thus proper.

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FRENCH v. WACHOVIA BANK (July 31, 2009)

Brian French and his siblings (“French”) are the beneficiaries of the trust set up by their father. Wachovia Bank (the “Bank”) is the trustee of the French Trust. French sued the bank, alleging in Count I that the Bank breached its duties and in Count II that the bank provided false information with respect to life insurance policies. On the Bank's motion to compel arbitration, the court determined that only Count II was subject to arbitration. The court ordered the parties to arbitrate Count II and stayed proceedings with respect to Count I. French moved to amend the complaint to dismiss Count II and to lift the stay with respect to Count I. The court granted the motion on October 23. However, in response to an inquiry from the Bank, French denied that they had abandoned the Count II claims. On December 21, the Bank reasserted its request to compel arbitration on Count II and to stay Count I. The court denied the motion. The Bank appeals.

In their opinion, Judges Ripple, Manion and Tinder affirmed. The Court first addressed its jurisdiction. It noted that, under the Federal Arbitration Act, an interlocutory appeal may be taken from an order refusing to stay an action or refusing to order arbitration. The Court noted the existence of the October 23 order, which was not timely appealed, and noted the rule that a party cannot simply file a second motion and appeal from its denial when it failed to appeal from the denial of the first motion. Here, however, the Court relied on the ambiguity of the status of Count II after the October 23 order to conclude that an interlocutory appeal of the definitive denial of arbitration in the April 23 order was proper. On the merits, the Court agreed with the district court. Once French amended the complaint to eliminate Count II, the complaint at issue contained only Count I. Count I was not subject to arbitration. The Court concluded that the district court therefore correctly denied the request to compel arbitration.

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WOLF v. KENNELLY (July 23, 2009)

Ford Kennelly, an Indiana citizen, received a $1.3 million arbitration award, jointly and severally, against commodities brokers Rosenthal Collins Group ("RCG") and Ken Wolf. Wolf filed a petition to vacate in state court. He included a request for declaratory relief against RCG, alleging that RCG had made a demand for indemnity against him. Kennelly removed the petition to federal court and asked that RCG be realigned as a petitioner. RCG was an Illinois citizen. Its presence as a defendant prevented removal. Wolf moved to remand, opposing the realignment of RCG. Several months later, the parties discovered that one of RCG's limited partners was an Indiana citizen. Since Kennelly was also an Indiana citizen, diversity would be destroyed if RCG was realigned as a petitioner. The district court granted the motion to remand. The court then denied Wolf's request for attorneys' fees, concluding that the case was an exceptional one not warranting a fee award. Wolf appeals.

In their opinion, Judges Bauer, Flaum and Kanne reversed and remanded. The Court first rejected Wolf's argument that the court's brief minute order, without much discussion or analysis, was an abuse of discretion. The Court noted that the issue had been fully briefed and the judge explained his rationale on the record, although not repeating it in the minute order. On the merits, the Court concluded that Wolf did not have an objectively reasonable basis for seeking removal. The "objectively reasonable basis" standard is similar to the qualified immunity doctrine. A district court may award fees if "clearly established" law prevents removal. At the time Kennelly sought removal, the long-standing precedent in the circuit was that realignment of a party was improper if an actual and substantial controversy existed between the plaintiff and that party. The fact that Wolf and RCG shared an interest in escaping liability altogether did not justify the realignment. The Court remanded for consideration of the fee petition.

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