Certain plastic surgeons (“the insured”) entered into an agreement with lawyers who allegedly owned insurance companies (“the insurers”). The insured alleged that the insurer encouraged them to form several insurance entities and have those entities participate in third-party insurance and reinsurance through a risk-pooling arrangement. The insured also claimed that the insurers failed to disclose that the insurance pool would underwrite malpractice and breach of fiduciary duties claims made against the lawyers. Later, the insured requested that the insurers wind down the business entities, but the insurers failed to do so. The two parties engaged in numerous arbitrations pursuant to an engagement letter. Four arbitrators ultimately issued final awards. Each arbitrator issued an award in favor of the insured, and each found that the insurers had breached fiduciary duties, committed malpractice, and converted funds belonging to the insured. However, in every decision, the arbitrators did not agree on other issues, such as class arbitration and whether a certain insurer would be liable. Nevertheless, the district court confirmed all four awards and denied the insurers’ post-judgement motion to reconsider the issues. The insurers appealed.
In Sullivan v. Feldman, 132 F.4th 315 (5th Cir. 2025), the court affirmed two arbitration awards, affirmed and reversed in part with respect to the award about a particular insurer, and vacated the order that stayed further arbitration between the parties. The insurers argued four points: (1) whether the engagement letter gave the arbitrators the right to decide whether the letter permitted class arbitration; (2) whether the district court had erred in allowing multiple arbitrations to proceed at the same time; (3) whether the district court had erred in confirming multiple and inconsistent awards; and (4) whether the district court had erred in confirming an arbitration award against a particular individual insurer. When considering the first argument, the court concluded that class arbitration was an issue that courts leave to arbitrators only when the agreement showed that the parties “clearly and unmistakably” intended that outcome. See 20/20 Commc’ns, Inc. v. Crawford, 930 F.3d 715, 718-19 (5th Cir. 2019). Here, the clear and unmistakable evidence was the incorporation of the AAA Commercial Arbitration Rules in the engagement letter. The court noted that the AAA Supplementary Rules delegated class arbitrability to the arbitrator, which signified that here “the parties’ clear intent [was] to arbitrate the issue.” Furthermore, the arbitrators had jurisdiction to decide that the four-month period for concluding an arbitration in the documentation was inconsistent with due process. Regarding the second argument, the court found that the agreement delegated to the arbitrators the authority to allow simultaneous arbitrations. The letter also created a limit of one arbitrator per dispute, and the arbitrators considered each arbitration to be a different dispute. Under the insurers’ third argument regarding inconsistent awards, the court concluded that the district court erred in applying its stay order that prohibited further arbitration to resolve the inconsistent awards. The district court had explained that the parties chose arbitration to resolve disputes and a court should not risk stepping in to make the situation worse. The Fifth Circuit disagreed and vacated the stay, concluding it was overbroad, not narrowly tailored, and was “no longer viable” to prevent the parties from engaging in further arbitration. Finally, the arbitration award against a non-signatory to the arbitration agreements was reversed. The individual insurer was not bound by the agreement because he was never a party to it, having neither signed it nor having been subject to direct-benefits estoppel. That doctrine prevents a non-signatory from seeking benefits from the contract while objecting to its arbitration provision. In re Weekley Homes, L.P., 180 S.W.3d 127, 131-33 (Tex. 2005). Here, the individual had sought arbitration to intervene in an action, but only to seek the determination that he was not bound by the arbitration agreements. Because no Texas law cited by the insured involved similar facts, the court declined to extend the doctrine to this dispute. Therefore, the court reversed in part the award against the non-signatory, vacated the stay order, and affirmed all other awards.
By Olivia Lewis [email protected]
Edited By Landon Womack [email protected]
Edited By Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]