An Illinois federal court recently granted an insurer’s motion to compel arbitration of a dispute with its insureds and denied the insureds’ motion to dismiss and transfer venue.
This dispute arose under four written program agreements, each containing an arbitration clause. The insurer filed a single demand for arbitration with the American Arbitration Association (the “AAA”), alleging that the insureds failed to pay amounts due under the four program agreements. The insureds raised various objections to the arbitration demand, including that they were entitled to four separate arbitrations. The AAA ruled that the arbitration would continue as one arbitration, and the insureds appointed the sole arbitrator. Shortly thereafter, the insureds filed an action in Texas state court, seeking a Temporary Restraining Order (“TRO”) to stay the arbitration because it had been improperly consolidated. The Texas court granted the TRO, stating that the AAA had failed to follow the arbitration agreements by administering one proceeding, not four, and enjoined the AAA from administering the arbitration. The AAA removed the Texas action to federal court, and filed a motion to dismiss, to which the insureds did not file a response. After the TRO expired, the AAA attempted to resume administration of the arbitration, but the insureds would not participate in the arbitration and informed the AAA that their counsel could not communicate with the AAA given the pending Texas action. Thus, the insurer filed this action in Illinois, where the arbitration was pending, seeking to compel arbitration.
The Illinois federal court denied the insureds’ motion to dismiss and transfer venue, finding that the court had jurisdiction over the insureds as they agreed to arbitrate their disputes related to the program agreements in Illinois and that the venue for the motion to compel was also proper. As for the motion to compel arbitration, the court noted that under the Federal Arbitration Act, the question of whether a given dispute is arbitrable is decided by the courts, but all other disputes concerning the application of the arbitration agreement are for the arbitrators to decide. Thus, the court held that the propriety of consolidated arbitration proceedings is an issue of procedure for the arbitrator to decide, not the court. Thus, the court granted the insurer’s motion to compel arbitration, noting that the insureds’ only means of judicial review on the issue of consolidation is a motion to vacate the arbitration award after the final award is issued.
Zurich American Insurance Company, et al. v. Trendsetter HR, LLC, et al., No. 1:15-cv-08696 (USDC N.D. Ill. Nov. 16, 2015).