Wake Forest Law Review
27Feb

Weekly Roundup – 2/26 – 3/2

Categories: 4th Cir. Blog Weekly Roundup
Comments Off on Weekly Roundup – 2/26 – 3/2

Weekly Roundup: 2/26-3/2

By: Cara Katrinak & Raquel Macgregor

Carlton & Harris Chiropractic, Inc. v. PDR Network, LLC

In this civil case, Carlton & Harris Chiropractic appealed the district court’s dismissal of its claim against PDR Network for violating the Telephone Consumer Protection Act (TCPA) by sending an unsolicited advertisement via fax. Carlton & Harris argued that the district court erred by failing to defer to a 2006 rule promulgated by the Federal Communications Commission (FCC) interpreting provisions of the TCPA–specifically, interpreting the term “unsolicited advertisement.” Carlton & Harris further argued that the Hobbs Act required the district court to defer to the FCC’s rule. The Fourth Circuit vacated and remanded the case, holding both that the Hobbs Act deprived the district court of jurisdiction to consider the validity of the FCC rule and the district court’s reading of the FCC rule conflicted with the plain meaning of the rule’s text.  

Singer v. Reali

This appeal and cross-appeal arose from the district court’s dismissal of a securities fraud class action complaint related to the healthcare provider reimbursement practices of defendant TranS1 and four of its officers in connection with TranS1’s AxiaLIF system (the “System”). Named plaintiff Phillip J. Singer alleged that TranS1 and its officers, through the System, enabled surgeons to secure fraudulent reimbursements from health insurers and government-funded healthcare programs. Singer initiated this class action against TranS1 and its officers pursuant to Section 10(b) of the Securities Exchange Act, claiming that TranS1 and its officers concealed the fraudulent reimbursement scheme from the market through false and misleading statements and omissions and that TranS1’s stock price plummeted when the scheme was revealed.

Here, Singer appealed (No. 15-2579) the district court’s dismissal of his complaint for failure to sufficiently plead the material misrepresentation element or the scienter element of his Section 10(b) claim. TranS1 and its officers cross-appealed (No. 16-1019), contending that the district court erred in dismissing their challenge to the loss causation element of Singer’s claim. In reviewing the complaint, the Fourth Circuit held that Singer sufficiently pleaded the misrepresentation and scienter elements because the complaint specified statements made by TranS1 and its officers about its reimbursement practices that support Singer’s claim. In addition, the Court held that Singer also sufficiently pleaded the loss causation element because the complaint alleged losses resulting from “the relevant truth . . . leak[ing] out” about TranS1’s previously concealed fraudulent reimbursement scheme. Accordingly, the Fourth Circuit vacated and remanded No. 15-2579 and affirmed No. 16-1019.

Norfolk Southern Railway Co. v. Sprint Communications Co. L.P.

In this civil case, Sprint Communications appealed the district court’s order granting Norfolk Southern Railway’s motion to confirm an arbitration award. The arbitration arose from a disputed license agreement between the parties. The agreement granted use of Norfolk Southern’s railroad rights of way for Sprint’s fiber optic telecommunications system. The parties disagreed over the amount Sprint owed Norfolk Southern for such continued use and, pursuant to their agreement, hired three appraisers to determine an appropriate amount. On appeal, the parties disputed whether the final decision of the appraisers constituted a “final” arbitration award under the Federal Arbitration Act (FAA). Because the text of the appraisers’ final decision reserved the right to withdraw assent in the future, the award could not be considered “final.” Accordingly, the Fourth Circuit reversed and remanded the case, holding that the arbitration award was not “mutual, final, and definite” as required by the FAA.        

U.S. v. Phillips

In this civil case, claimant Damian Phillips appealed the district court’s holding that he lacked standing to intervene in his brother Byron Phillips’ forfeiture case. Damian sought to intervene after the United States claimed that $200,000 in cash found in a storage unit leased by Byron was subject to forfeiture under 21 U.S.C. § 881(a)(6) for being connected to the “exchange [of] a controlled substance.” Damian claimed that the cash was his life savings and, therefore, was not connected with drugs in violation of the statute. The Fourth Circuit affirmed the district court, holding that–based on the record–Damian lacked the necessary colorable interest in the $200,000 to establish standing.     

Janvey v. Romero

The Fourth Circuit affirmed the District Court of Maryland’s decision denying a motion to dismiss a bankruptcy petition. Appellee, Romero, had originally filed a Chapter 7 bankruptcy petition after he was found liable for a $1.275 million Ponzi scheme. The receiver, Janvey, moved to dismiss the bankruptcy petition due to bad faith under 11 U.S.C. §707(a). The Fourth Circuit was tasked with assessing whether the district court abused its discretion in deciding that Romero’s decision to file bankruptcy had not risen to the level of “bad faith.” The Fourth Circuit emphasized that the purpose of the Bankruptcy Code is to “grant a fresh start to the honest but unfortunate debtor,” and dismissing a bankruptcy petition for cause under bad faith is only warranted “in those egregious cases that entail concealed or misrepresented assets . . . excessive and continued expenditures, [and] lavish life-style.” The Court rejected Appellant’s arguments that filing bankruptcy in response to a single debt or the debtor’s ability to pay the debt constitute bad faith per se. The Court noted that although Romero had $5.348 million in assets, most of these assets were statutorily exempt. Moreover, Romero was supporting his wife’s medical costs, which averaged $12,000 a month for a bacterial brain infection that had left her incapacitated. The Court noted that Romero filed for bankruptcy in part for legitimate reasons, such as the inability to pay his wife’s medical expenses, and Romero was unable to find work after the Ponzi scheme was made public. Thus, the Court found that the district court had not abused its discretion in finding that Romero’s bankruptcy petition had not risen to the level of bad faith.

Hickerson v. Yamaha Motor Corp.

In this case, the Fourth Circuit affirmed the District Court of South Carolina’s decision to exclude the Plaintiff’s expert testimony and enter summary judgment for the Defendant. The Plaintiff had filed suit against Yamaha for a WaveRunner’s (jet ski) inadequate warnings and defective design that resulted in serious internal injuries during a watercraft accident. The WaveRunner itself contained several warnings to wear a swimsuit bottom and to only have three passengers riding the craft at a time. When the accident occurred, a ten-year-old was driving, the Plaintiff was only wearing a bikini bottom, and she was the fourth passenger. The district court excluded the Plaintiff’s expert testimony regarding potential warnings because the expert’s proposals were scientifically untested and thus were unreliable under the Daubert standard. The Fourth Circuit offered little independent analysis regarding the expert testimony exclusion, but the Court agreed with the district court’s reasoning under the abuse of discretion standard of review. Moreover, regarding Plaintiff’s defective design claims, the Court noted that in South Carolina, design defects can be “cured” by adequate product warnings. The Court found that the warnings were adequate as a matter of law, and thus the district court did not err in granting summary judgment on the Plaintiff’s design defect claims.

Elliott v. American States Insurance Co.

This appeal arose from Plaintiff Elliott’s claim against her automobile insurer. In 2013, Elliott was in an automobile accident that left her with serious bodily injuries. As Plaintiff’s insurance coverage through the Defendant was capped at $100,000 and Plaintiff claimed more than $200,000 in damages, her recovery was insufficient to cover her expenses. The Plaintiff then initiated an action to recover damages first against Jones, the other driver in the accident, and then against her insurer. The District Court for the Middle District of North Carolina ultimately denied Plaintiff’s motion to remand the case back to the Superior Court (where she originally filed the case) and granted Defendant’s 12(b)(6) motion for failure to state a claim. On appeal to the Fourth Circuit, the Plaintiff had three claims: (1) that the Defendant’s filing for removal to the district court was untimely, (2) that the district court erred in determining parties were diverse, and thus subject matter jurisdiction did not exist in federal court; and (3) the district court erred in granting Defendant’s motion to dismiss for failure to state a claim. On the Plaintiff’s first claim, the Court concluded that the original service of process was made on a “statutory agent,” not an agent appointed by the defendant. Thus, the thirty-day time period to file the notice of removal did not start until the Defendant actually received a copy of the complaint, not when the service of process was actually delivered. Consequently, the Defendant filed its notice of removal within the allotted time period. As to the second claim, the Court held that the “direct action” variation on diversity jurisdiction from § 1332(c)(1) does not include an insured’s suit against his or her own insurer for breach of the insurance policy terms; thus the parties were diverse. Lastly, the Court rejected the Plaintiff’s claims regarding the Defendant’s motion to dismiss on multiple grounds, including that the Defendant had no obligation to settle the Elliot’s claims until after a judgment was settled against the other motorist, Jones.

Tags:
30Nov

Fourth Circuit Refuses to Challenge Arbitration Award

Categories: 4th Cir. Blog Civil Cases
Comments Off on Fourth Circuit Refuses to Challenge Arbitration Award

By Ali Fenno

On November 22, 2016, the Fourth Circuit issued a published opinion in the civil case of UBS Financial Services, Inc. v. Padussis. In UBS Financial, the Fourth Circuit addressed whether an arbitration award of over $900,000 to Gary Padussis (“Padussis”) could be vacated or modified in light of Padussis’s insolvency and UBS Financial Services’ (“UBSFS”) lack of participation in the selection of the arbitrators. In affirming the district court, the Fourth Circuit held that there was no basis for overturning the arbitrators’ award and that UBSFS’s motion should be dismissed in its entirety.

Facts of the Case and Procedural History

Padussis began working for UBSFS in 2009, bringing with him a team of financial advisors and an established list of clients. As part of his initial compensation, UBSFS granted Padussis a $2.7 million loan, for which he signed a promissory note that provided the balance of the loan would become fully due in the event he ended his employment with UBSFS. Also executed by Padussis was a Letter of Understanding describing his compensation and a Financial Advisor Team Agreement that governed the operations of his team. Each agreement entered into by the parties provided that any dispute would be subject to arbitration before the Financial Industry Regulatory Authority (“FINRA”).

Two years later, Padussis resigned from UBSFS on the grounds that it had ruined his team of financial advisors and cost him valuable clients. When he did not pay the $1.6 million remaining balance on the promissory note, USBS initiated arbitration proceedings.  Padussis responded with counterclaims alleging that UBSFS’s interference with his team of financial advisors and clients amounted to tortious conduct and a breach of contractual duties.

Pursuant to the FINRA Code of Arbitration Procedure for Industry Disputes (the “FINRA Code”), the Director of FINRA Dispute Resolution (the “Director”) mailed a list of potential arbitrators to Padussis and USBFS on August 21, 2013. Each party was then supposed to indicate their preferences by striking four arbitrators from the list and ranking the remaining ones. The lists were to be returned to the Director within 20 days of their being sent so he could then select a three-person arbitration panel based on those rankings. Padussis returned his list of preferences within the proscribed time, but USBFS did not, allegedly because it never received the list from the Director.

On September 11, UBSFS received a letter, dated September 3, reminding the parties to return their list of preferences by the September 10 deadline. It then filed a motion to extend the deadline. Padussis opposed the motion, claiming that UBSFS had notified him in mid-August that it was transferring to new counsel and that the list of preferences had not yet been sent. Padussis argued that this transfer of counsel caused confusion over who was sending the list and was the reason the list was never sent.

Although FINRA Rule 13207(c) allows a Director to extend the Code’s deadlines for good cause, FINRA’s Regional Director, acting for the Director as consistent with FINRA Rule 13100(k), denied UBSFS’s motion. The Director affirmed the denial, finding that UBSFS did not have good cause to extend the deadline because the list of arbitrators and a courtesy reminder of the deadline were both timely mailed, and FINRA did not receive any mail returned as undeliverable. Accordingly, FINRA proceeded with the arbitration process and selected a three-person panel of arbitrators based off of Padussis’s list of preferences.

UBSFS challenged the composition of the panel based on his lack of participation in the selection of the arbitrators, but his challenge was denied. Then, on October 27, 2014, the panel issued its final decision, awarding UBSFS $1,683,262 for the balance on the promissory note and Padussis $932,887 for damages UBSFS caused to his business.

However, faced with a statutory lien and the prospect of bankruptcy, Padussis admitted that he could not pay the full $932,887, leaving UBSFS in a position of owing Padussis over $900,000. UBSFS subsequently filed the present action to vacate the award on the grounds that UBSFS did not participate in the arbitrator selection process. It argued in the alternative that the award should be offset because of Padussis’s admission of being unable to pay the award owed to UBSFS.

The district court declined to vacate the arbitration award and to impose an offset, and UBSFS appealed.

Narrow Standard of Review

The Fourth Circuit first established the extremely narrow scope of judicial review of an arbitration award. It noted that an arbitration award should only be modified if it is one of the limited circumstances listed in the Federal Arbitration Act, or if under common law, it “fails to draw its essence from the contract” or “evidence a manifest disregard of the law.” The court emphasized that in reviewing an arbitration award, whether an arbitrator did their job “well, or correctly, or reasonably,” is not the concern. Instead, courts should ask whether the arbitrators exceeded their powers because they did not meet certain thresholds of arbitrability such as not being appointed according to the parties’ agreement. Deference should be given to arbitrators on questions outside those thresholds that regard the merits of the case or procedural questions.

The court found support for this narrow scope in public policies that focus on using arbitration as a tool to avoid the costs and delays of litigation. It noted that parties entering into agreements to arbitration do so in the hope of avoiding “a protracted set of legal proceedings.” Narrowing the judicial review of arbitration awards furthers this intent.

Rightful Appointment of Arbitrators

The Fourth Circuit next addressed UBSFS’s claim that the arbitrators were not selected according to the parties’ agreement. It first confirmed that, pursuant to Section 5 of the Federal Arbitration Act, arbitration awards will be vacated where the arbitrators’ appointment violates the parties’ contract. It then noted that here, UBSFS and Padussis agreed that all disputes would be subject to arbitration before FINRA and thus subject to the FINRA Code.

However, the Fourth Circuit rejected UBSFS’s claim that the rules for selecting arbitrators were not followed. The court listed every step FINRA and the Director took in selecting the panel and noted that not a single requirement was skipped. And even though UBSFS did not get to participate in the selection of the arbitrators, the court found that this outcome was explicitly allowed in FINRA Rule 13404(d), which requires a Director to appoint arbitrators without a party’s input when the list of arbitrators is not returned.

Because FINRA clearly followed the FINRA Code’s rules for selecting arbitrators, the Court decided that the issue raised by UBSFS was instead whether FINRA properly applied the rules when it found that UBSFS did not have good cause to extend the deadline for submitting its list of preferences. But the Fourth Circuit concluded that this constituted a procedural question, and relying on the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., affirmed that such a “procedural question[] which grow[s] out of the dispute and bear[s] on its final disposition [is] presumptively not for the judge, but for the arbitrator, to decide.” The court also noted that the power to determine whether good cause existed was explicitly given to FINRA in FINRA Rule 13412. Furthermore, the court reasoned that arbitrators would be more expert about the issue because it concerned, as stated in Dockser v. Schwartzberg, “the written rules governing the parties’ proceeding.” Accordingly, the Court refused to question FINRA’s decision that there was not good cause for extending the deadline for returning the list of preferences.

Refusal to Reduce the Award

The court next addressed UBSFS’s request for the arbitral award to be offset based on Padussis’s admission of being unable to pay his portion of the award. The court first noted that complying with UBSFS’s request would result in a net profit for UBSFS and thus eliminate any damages he might owe to Padussis. It also found that the offset would constitute a modification of the arbitration award because the agreement explicitly denied “any and all relief not specifically addressed” in the arbitrators’ final decision, which never mentioned the possibility of an offset.

Pursuant to the Federal Arbitration Act, a court may modify an award if it will effectuate the intent of the arbitrators. Here, the court concluded that this modification would not effectuate the intent of the arbitrators because the award never mentioned an offset and there is no other evidence in the record suggesting such an intention. UBSFS contended that the offset of the award would reflect the intent of the arbitrators because it would provide a “simple, fair result” without changing the arbitrators’ valuation decision. But the court rejected this claim, reasoning that UBSFS should have determined the arbitrators’ intent by asking for an offset during the arbitration proceedings. Accordingly, because evidence in the record and the arbitration award did not indicate that the intent of the arbitrators would be effectuated by an offset, the Fourth Circuit chose to not impose an offset on these grounds.

UBSFS last claimed that the offset should be imposed regardless of the arbitrators’ actual intent and that the court should recognize a presumption favoring an offset. The court disagreed, reasoning that such an action would put a “judicial gloss” on the arbitration award. A judicial gloss on this award would be impermissible because the award explicitly limited itself to the relief specifically rendered in the arbitrators’ final decision.

Accordingly, because the intent of the arbitrators would not be effectuated by the offset, and because a presumption of an offset would directly conflict with the arbitrator’s final decision, the court held that granting an offset in this case would be inappropriate.

Conclusion

The Fourth Circuit concluded that UBSFS simply did not want to abide by a result it did not like. Because UBSFS had agreed to arbitration, the dispute was within the scope of that agreement, and the rules for arbitration were selected in the agreement and then followed, the court could find no reason to vacate or modify the award. Accordingly, it affirmed the district court’s decision to deny UBSFS’s motion in its entirety.

Tags:
2Feb

Fourth Circuit Declares Arbitration Agreement Unenforceable in Payday Loan Case

Categories: 4th Cir. Blog
Comments Off on Fourth Circuit Declares Arbitration Agreement Unenforceable in Payday Loan Case

gavel

By George Kennedy

Today, in the civil case of Hayes v. Delbert Services Corporation, the Fourth Circuit reversed the order of the district court compelling arbitration under the Federal Arbitration Act. The Fourth Circuit held that the arbitration agreement at issue was unenforceable as a matter of law, and accordingly reversed the district court order and remanded for further proceedings.

The Origin of the Dispute: Payday Loans Issued by Western Sky

The plaintiff, James Hayes, received a payday loan from Western Sky Financial, LLC, a lender owned and operated by the Cheyenne River Sioux Tribal Nation. Under the terms of the loan, Hayes received a loan of $2525 at an annual rate of 139.12% over four years, meaning that Hayes was set to pay over $14,000 for a loan of just $2525.  The exorbitant rates charged by Western Sky were not the issue of this case. Western Sky’s lending practices violated a number of federal and state laws. Eventually, extended litigation and prosecution caused Western Sky to stop issuing loans in 2013.

The issue in this case, however, concerned Western Sky’s use of collection agencies. Notwithstanding the end of Western Sky’s lending business, the corporation continued to pursue unpaid loan balances through the use of these agencies. One of these agencies was Delbert Services Corporation, the defendant. Delbert’s actions as a debt collector raised issues of their own, and Hayes filed several claims against Delbert in federal district court, prompting the litigation of this case.

The District Court Compels Arbitration

Hayes filed a putative class action with a number of similarly situated plaintiffs in the Eastern District of Virginia. In the class action, Hayes sought to obtain relief from Delbert’s allegedly unlawful collection practices. Hayes alleged that Delbert violated both the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act in the carrying out of its debt collection practice. Delbert countered that Hayes was precluded from suing in federal court because of a binding arbitration clause and forum selection clause in the loan agreement Hayes had previously signed with Western Sky. In response, Hayes argued that the  forum selection and arbitration provisions in the loan agreement were unenforceable.

The district court agreed with Hayes that the loan agreement’s forum selection clause was unenforceable, but ultimately sided with Delbert in ruling that it would enforce the arbitration clause. Accordingly, Hayes appealed the order compelling arbitration.

Fourth Circuit Holds that The Arbitration Agreement Is Unenforceable as a Matter of Law

The Fourth Circuit disagreed with the district court’s ruling, and held that the arbitration agreement was legally unenforceable.   In its analysis, the Fourth Circuit focused on two key provisions of the loan agreement. The first provision stated that “[t]his Loan Agreement is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe.” The second provision stated “no United States state or federal law applies to this Agreement.” The Fourth Circuit held that these two provisions were extremely problematic. As the court explained, these provisions allow the “disavowal of state and federal law,” and the substitution of the law of the Cheyenne River Sioux Tribe in its place.

The Fourth Circuit adamantly maintained that arbitration agreements may never be used to totally circumvent federal and state law. While the court acknowledged that the Federal Arbitration Act gives parties fairly wide discretion to structure arbitration in the way they wish, the court explained that this discretion does not allow parties to dodge federal and state law completely. Doing so, the Fourth Circuit argued, would endanger the federally protected civil rights of individuals privy to arbitration awards. The Fourth Circuit held that this issue of the arbitration agreement circumventing state and federal law was so problematic and so central to the “essence” of the contract that the arbitration agreement as a whole was unenforceable.

Reversed and Remanded

Accordingly, the Fourth Circuit reversed the order of the district court compelling arbitration, and remanded the case for further proceedings.

Tags:
30Sep

Fourth Circuit Vacates Denial of Motion to Compel Arbitration in Payday Loan Case

Categories: 4th Cir. Blog
Comments Off on Fourth Circuit Vacates Denial of Motion to Compel Arbitration in Payday Loan Case

file000195499258

By Eric Jones

On May 29, 2015, the Fourth Circuit issued a published opinion in the civil case Dillon v. BMO Harris Bank.  The Circuit Court held that the district court erred when it denied appellant’s renewed motion to compel arbitration pursuant to loan agreements that the plaintiff had signed.  Thus, the Fourth Circuit vacated and remanded to the district court for further proceedings.

The Automated Clearing House Network and Payday Lenders

In 2013, James Dillon obtained loans from several online lenders that carried interest rates which substantially exceed the maximum allowable rates under North Carolina State law.  The defendants, BMO Harris Bank, N.A., Generations Federal Credit Union, and Bay Cities Bank (the “Banks”) operated as Originating Depository Financial Institutions (“ODFIs”) in connection with the loans.  Dillon alleges that in doing so they provided the payday lenders with access to the Automated Clearing House (the “ACH”) network, a system to enable secure electronic payments.  When payments were due under Dillon’s loans, the lenders initiated payment transactions through the ACH network.  The Banks then entered the transactions into the ACH network.  Soon after, a central clearing facility transferred funds directly from Dillon’s account to those of the lenders.  In this way, Dillon alleges that the payday lenders were able to establish loans in states where those loans are illegal and unenforceable.

The Motions to Compel Arbitration

Dillon filed a putative class action against the Banks alleging that by operating as OFDIs for payday lenders, they were complicit and necessary parties to the lenders’ unlawful practices.  The Banks filed initial motions to compel arbitration, pointing to clauses in the loan agreements stating that any claims arising from those loans would be submitted to arbitration.  To these motions, the Banks attached the loan agreements themselves bearing Dillon’s name.  In opposition, Dillon argued that the Banks had failed to offer proof that the attached loan agreements had been authenticated.  The Banks argued that because Dillon used the same loan agreements in his complaint, the pleadings themselves established the authenticity of the agreements and the arbitration clause.  Nevertheless, the district court denied the motion to compel arbitration, finding that the Banks had failed to provide authenticating evidence.

To cure the deficiency, the Banks obtained declarations from the lenders purporting to authenticate the loan agreements and filed renewed motions to compel arbitration.  Dillon opposed, arguing that the district court had already ruled on the motion to compel arbitration, and thus the law of the case doctrine should bar reconsideration.  The district court agreed, and the Banks filed a timely interlocutory appeal.

The Federal Arbitration Act and Interlocutory Appeals

The Fourth Circuit began by explaining the history of the Federal Arbitration Act (FAA) and the requirement that courts rigorously enforce agreements to arbitrate.  Section 16(a)(1)(A) of the FAA provides for immediate appeal from an order refusing a stay in any litigation that is referable to arbitration, and § 16(a)(1)(B) provides for immediate appeal for any order denying a petition to compel arbitration.  The Banks argued that the district court’s denial of the renewed motion to compel arbitration and stay the proceedings thus allows immediate appeal.  Dillon, in opposition, argued that the district court’s order denied reconsideration of the motion to compel arbitration, and thus fell outside of the FAA.  The Fourth Circuit, looking to the title of the motions and the clear intention to seek enforcement of an arbitration clause, held that valid jurisdiction existed over the appeal.

The District Court Erred by Interpreting the Renewed Motions as Motions for Reconsideration

Although the district court did not explain why it considered the renewed motions to be motions for reconsideration, the Circuit Court found two potential reasons.  The Fourth Circuit held that neither were convincing.  First, the district court could have believed that the Banks were allowed only one opportunity to invoke the FAA’s enforcement mechanisms.  Alternatively, the district court could have relied on the law of the case doctrine, believing that both motions invoked the same issues.  The Circuit Court addressed each of these in turn.

First, the Fourth Circuit could find no authority which limited a party’s access to FAA’s enforcement mechanisms unless the party is found to be in default.  A party is found to be in default, and thus barred from compelling arbitration or staying the proceedings, only if they have utilized the litigation machinery so substantially that to subsequently permit arbitration would prejudice the party opposing the stay.  Because the district court did not find that the Banks were in default, the order could not have rested upon these grounds.

Second, the Fourth Circuit held that the initial motions to compel arbitration and the renewed motions raised different issues, and thus were not barred by the rule of the case doctrine.  In their initial motions, the Banks argued that the loan agreements were substantially authenticated.  When the district court disagreed, the Banks did not challenge that ruling in their renewed motions.  Rather, they attempted to cure the evidentiary deficiencies that the district court relied on in denying the initial motion.  Thus, the law of the case doctrine did not bar the renewed motions.

The Fourth Circuit Vacated and Remanded for Further Proceedings

Because the district court erred in its interpretation of the Banks’ renewed motions to compel arbitration, the Fourth Circuit vacated the court’s order and remanded for further proceedings.

Tags: