Florida Federal Court Rejects Arbitration Waiver Claims In Multijurisdictional Dispute Litigated By Bilzin Sumberg

by Bilzin Sumberg

On January 10, 2014, Judge Kathleen Williams of the U.S. District Court for the Southern District of Florida, the federal court based in Miami, issued an opinion which further solidifies the role of role of arbitration in international disputes, even when parallel litigation is pending in other jurisdictions.

In December 2010, several entities affiliated with JSC Acron, a Moscow-based agrichemicals company, filed suit in Saskatchewan, Canada, to recover for certain breaches of fiduciary duty relating to multimillion-dollar potash permits these entities held against two individuals, Igor Medge and Jason Mann, and their companies. Weeks later, in January 2011, Medge and Mann responded with their own lawsuit in Saskatchewan, which named Acron as a defendant. Finally, in August 2011, Mann initiated a third Saskatchewan suit, which generally related to the same dispute, against Acron and others.

Having itself asserted no claims against Medge, Acron instituted an international arbitration seated in Miami against Medge in January 2012 to recover for his breaches of the fiduciary duties he owed Acron. Acron and Medge actively participated in the arbitration, even after Acron sought (and, later, was granted) leave to join the first Canadian action as a plaintiff in August 2012. It was on the basis of that request that Medge moved the Southern District of Florida, in July 2013, for an injunction against the Miami arbitration. The thrust of Medge’s argument: Acron had “invok[ed] the litigation machinery” – and thus waived its right to arbitrate – by becoming a plaintiff against Medge in Canada. Acron moved to dismiss.

Judge Williams granted Acron’s motion in its entirety, holding that Medge’s cries of waiver were unfounded. Noting that the authorities Medge cited address the opposite situation in which a party first litigates and then tries to arbitrate, Judge Williams emphasized that “[i]t was Medge’s companies that first brought Acron into the Canadian litigation by filing suit against Acron” and “Medge’s business partner then filed a separate suit, also naming Acron as a defendant.” Medge subsequently consented to the Miami arbitration and “fully participated in it,” and then “waited more than six months after Acron filed its claim in the Canadian litigation to raise the issue of waiver.” On these facts, Judge Williams also found that Medge had “failed to establish any real prejudice.”

The decision contains two other important points for practitioners. First, Medge initiated the Southern District of Florida proceeding by filing a motion, not a traditional complaint that attempted to state a cause of action. Relying on Eleventh Circuit precedent, Judge Williams held that “Medge’s failure to identify any cause of action on which an injunction could be based is fatal.” Second, Medge also made arguments based on comity and international abstention. These principles, as explained in the cases Medge cited, “involve a court staying its own proceedings in favor of a foreign proceeding,” not in the instance in which a third court is asked essentially to act as an umpire among the other tribunals.

The Southern District of Florida case, which is styled Medge v. JSC Acron, No. 13-22329-CIV-WILLIAMS (S.D. Fla.), was litigated by Bilzin Sumberg international arbitration and litigation practitioners Jeffrey Gutchess, Rafael Ribeiro, and Joseph Mamounas.

Editor’s Note: A third practitioners’ tip in the international arbitration arena also emerged on January 10, 2014, when the Eleventh Circuit Court of Appeals vacated its June 25, 2012 decision in Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA) Inc. That earlier decision found that an international arbitration constitutes a “foreign or international tribunal” under 28 U.S.C. § 1782. The court has now left “resolution of the matter for another day.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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