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May 25, 2011

Two New Arbitrability Decisions, Briefly Noted

Today I briefly note two recent arbitrability decisions of US federal district courts, one in Los Angeles and one in Connecticut.

In Los Angeles, the Court granted a motion to compel arbitration filed by an affiliate of Roche Pharmaceuticals, and stayed the action pending completion of an ongoing arbitration in Zurich, but did not dismiss the case entirely. The Court evidently found that plaintiff’s single cause of action for a declaratory judgment of patent invalidity was outside the scope of the agreement to arbitrate, but that whether the parties’ patent license agreement required patent validity to be determined by the country that issued the patent was a question of contract interpretation falling within the scope of the license agreement’s arbitration provision, and was therefore to be resolved in the Zurich arbitration before any further proceedings on the invalidity claim in the California federal court.  No more can be discerned of the parties’ arguments before the Court, as nearly the entire record was placed under seal upon the application of Roche’s counsel. (One Lambda, Inc. v. Roche Molecular Systems, Inc., 2011 U.S. Dist. LEXIS 54627 (C.D. Cal. May 19, 2011)).   

Meanwhile, in Connecticut, there has been a useful decision helping to define the limits of the “offensive” use of equitable estoppel by non-signatories to compel signatories the arbitrate disputes with them.  At the heart of the dispute was the arbitration clause in a consumer’s wireless service agreement with AT&T – reminiscent of the Supreme Court’s recent decision in AT&T Mobility v. Concepcion.  But here the party seeking to enforce the arbitration clause — to avoid a class action litigation challenging alleged unfair debt collection practices — was an independent collection company that contracted with AT&T, unbeknownst to it wireless services customer, to collect delinquent accounts.  The debt collector argued that agency principles justified enforcement of the arbitration agreement by the non-signatory, but this was defeated by AT&T’s contract with the debt collector that expressly declared the latter to be an independent contractor, not an agent. The debt collector argued in the alternative that AT&T’s customer was estopped to deny it the right to enforce the arbitration agreement in view of its involvement in the relationship between AT&T and the customer, but this was rejected by the Court because that involvement was unknown to the consumer and therefore this was not a circumstance where it would be unfair for the consumer, as a signatory to the arbitration agreement, to take the position that it did not expect to arbitrate disputes with a non-signatory. (Lucy v. Bay Area Credit SVC LLC, 2011 U.S. Dist. LEXIS 55088 (D. Conn. May 23, 2011)).