United States: Court Distinguishes Between Claims For Relief And Affirmative Defenses In Denying Rehearing Of Order Compelling Arbitration

On May 11, 2016 we reported on a dispute between certain captive insurance administrative service providers (Capstone) against various defendants concerning the rights to certain intellectual property related to a captive insurance arrangement. Following a mediation and a settlement between the parties of other claims between them (excluding the intellectual property claims), a dispute arose regarding whether the defendants' affirmative defenses were released in the settlement. To resolve that issue, Capstone sought arbitration pursuant to an engagement letter that was part of the operative administrative services contract they and their attorneys entered into with the defendants as part of the captive insurance arrangement. The defendants opposed arbitration under the engagement letter, arguing that the parties' claims and affirmative defenses were not arbitrable. The court compelled arbitration, holding that arbitrability was to be decided in arbitration under the terms of the arbitration clause in the engagement letter.

The defendants then filed the instant motion for rehearing, arguing that an order in a related case which denied arbitration under the same engagement letter, precluded arbitration in this case under res judicata. The court rejected that argument and denied rehearing, distinguishing between the claims for relief at issue in the order in the related case, and the affirmative defenses to those claims at issue in this case. While the claims for relief implicate a particular section of the administrative services agreement based on which the related order denied arbitration, the defenses at issue in this case do not directly implicate that section of the agreement. Consequently, the court ruled, the related order denying arbitration "did not decide the issue before the Court," res judicata did not apply, and the court correctly compelled arbitration to decide arbitrability. Capstone Associated Services, Ltd., et al. v. Organizational Strategies, Inc., et al., No. H-15-3233 (USDC S.D.Tex. May 20, 2016).

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