Reinsurance Focus

The Ninth Circuit recently reversed a district court’s denial of a motion to compel arbitration of an employee’s claims that were brought as a putative class action against her employer, Nordstrom. The basis for the motion to compel was an arbitration provision contained in Nordstrom’s employee handbook. The arbitration provision had been modified to preclude employees from bringing class action lawsuits after the employee received the handbook.

The employee argued that she did not have reasonable notice of the change based on a provision in the employee handbook that required Nordstrom to provide employees with 30 days written notice of any substantive changes to the arbitration provision. The handbook provided that the notice provision was included to “allow employees time to consider the changes and decide whether or not to continue employment subject to the changes.” To comply with the notice provision, Nordstrom sent letters to employees in June 2011 informing them of the change in the arbitration policy. Nordstrom did not seek to enforce the new arbitration provision during the 30-day notice period, but the letter was silent in that regard and stated that the revised arbitration provision was the “current version.” Applying California law, the Ninth Circuit ruled that Nordstrom had satisfied the minimal requirements for providing employees with reasonable notice of a change to its employee handbook by sending the letter to the employees informing them of the modification, and by not seeking to enforce the arbitration provision during the 30-day notice period. The Ninth Circuit also held that Nordstrom was not bound to inform the employee that her continued employment after receiving the letter constituted acceptance of new terms of employment. Davis v. Nordstrom, Inc., No. 12-17403 (9th Cir. June 23, 2014).

This post written by Catherine Acree.

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Nearly ten years after arbitration proceedings commenced involving a claim arising from the purchase and sale of various insurance companies, the Texas Supreme Court vacated the $26 million arbitration award entered against Americo Life, Inc. et. al. (“Americo”) in favor of Robert L. Myer and Strider Marketing Group, Inc. (“Myer”) and reversed the Court of Appeal’s judgment, finding that the arbitration panel exceeded its authority because the panel was formed contrary to the express terms of the arbitration agreement. The arbitration clause contained in the agreement between Americo and Myers provided for a tripartite arbitration, where each party appointed an arbitrator and the two arbitrators would select a third. Each arbitrator was to be a “knowledgeable, independent business person or professional.” The arbitration clause also provided that the arbitration proceedings “shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”). At the time the agreement was executed, AAA rules did not require arbitrator impartiality, but by the time the arbitration was invoked, AAA rules required by default that any arbitrator shall be “impartial and independent…”

The issue in this case centered around the AAA striking the arbitrator selected by Americo on the basis the arbitrator was not impartial. America moved to vacate the award and argued that in disqualifying the arbitrator, the AAA failed to follow the arbitrator-selection process specified in the parties’ agreement because the parties never agreed that the arbitrators must be “impartial.” The Texas Supreme Court agreed.

First, the Texas Supreme Court rejected Myer’s argument that the term “independent”, which was contained in the parties’ agreement, was the same as the term “impartial.” The Court then turned to the question of whether the incorporation by reference of the AAA Rules also incorporated the impartiality requirement even though the requirement did not exist at the time the agreement was signed. The Americo Court held the impartiality requirement was not incorporated because it conflicted with the terms of the parties’ agreement. The parties agreed to arbitrators who were “knowledgeable” and “independent,” but not impartial. Thus, because the AAA impartiality rules conflicted with the parties’ agreement, the agreement controls over the AAA rules. Therefore, the AAA should not have disqualified Americo’s arbitrator on the grounds of impartiality and the arbitration panel exceeded its authority, requiring that the award be vacated. Americo Life, Inc. v. Myer, No. 12-0739 (Texas June 20, 2014).

This post written by Leonor Lagomasino.

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On April 8, 2014, we reported on National Indemnity Company’s (“NICO”) attempt in a Nebraska federal district court to enjoin Transatlantic Reinsurance Company from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York.

The Illinois district court recently refused to compel arbitration against NICO, finding that NICO was a not a signatory to the underlying reinsurance agreement containing the arbitration agreement between Transatlantic Re and the cedent, Continental Insurance Company. The court also found that the language of the arbitration clause was not broad enough to include nonsignatories, and further found that NICO, by its conduct, never assumed the obligation to arbitrate. The court also interpreted the agreements between Continental and NICO and determined that the Transatlantic Re’s arbitration provisions were never incorporated in those agreements by reference. Finally, the court held that NICO was not estopped from disclaiming an obligation to arbitrate because it never asserted any rights of its own for its direct benefit under Transatlantic Re’s reinsurance agreement, notwithstanding the fact that NICO did derive certain indirect benefits. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 1:14-cv-01535 (USDC N.D. Ill. June 24, 2014).

This post written by Michael Wolgin.

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The Tenth Circuit recently affirmed a district court’s denial of a motion to compel arbitration in a securities fraud lawsuit brought by two investors in a company. The basis for the motion to compel was an arbitration provision contained in an unsigned copy of the company’s Operating Agreement that had been provided to the plaintiffs prior to them making their investment in the company. The Tenth Circuit ruled that the mere fact that the plaintiffs invested in the company following their receipt of an unsigned Operating Agreement did not establish that the plaintiffs agreed to, and accepted, the terms of the Operating Agreement, including its arbitration provision because under the controlling state law, a contact between the parties had not been formed. The Tenth Circuit also agreed with the district court that the plaintiffs were not equitably estopped from asserting their lack of signature on the Operating Agreement as a basis for avoiding arbitration. The Tenth Circuit acknowledged the legal principle that a party may be bound by an arbitration agreement in a contract he did not sign, if that party is seeking to enforce rights under that contract. But the court found no evidence that the plaintiffs in the instant case were seeking to enforce rights under the Operating Agreement. Bellman v. I3Carbon, LLC, No. 12-1275 (10th Cir. May 29, 2014).

This post written by Catherine Acree.

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The Fourth Circuit affirmed order from the United States District Court for the Eastern District of Virginia compelling arbitration of former employee’s federal claims under the Age Discrimination in Employment Act (ADEA), the Family and Medical Leave Act (FMLA), and the Employee Retirement Income Security Act (ERISA). The Court held that where a plaintiff is not pursuing Dodd-Frank whistleblower claims, neither 7 U.S.C. § 26(n)(2), nor 18 U.S.C. § 1514A(e)(2) of Dodd-Frank overrides the Federal Arbitration Act’s mandate that arbitration agreements are enforceable. The Court examined the interplay between the Federal Arbitration Act and Dodd-Frank and determined that while Dodd-Frank created causes of action for whistleblowers and then protected those causes of action by barring their waiver in “predispute arbitration agreements” nothing in Dodd-Frank suggests that Congress sought to bar arbitration of every claim if the arbitration agreement in question did not exempt Dodd-Frank claims. Santoro v. Accenture Federal Services, LLC et. al., No. 12-2561 (4th Cir. May 5, 2014).

This post written by Kelly A. Cruz-Brown.

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A federal court in New York has held that arbitrators, not courts, should decide whether class arbitration is available under an arbitration agreement entered into between private parties. The court had previously compelled the arbitration of plaintiffs’ claims against certain defendants and stayed the remainder of the action. The issue now presented was on defendants’ motion to preclude plaintiffs from pursuing class arbitration and to require individual arbitrations of those claims. In determining that the issue of class arbitration was one for the arbitrators, the court considered prior U.S. Supreme Court and lower court holdings, but found no binding precedent on the issue. Because the court had already ruled on the enforceability of the parties’ agreement to arbitrate, the interpretation of that agreement – to decide whether or not it allowed for class arbitration – was “a matter within the arbitrator’s competence.” Defendants’ request to order individual arbitrations was therefore denied. The court declined to reach the parties’ other arguments, including whether plaintiffs had waived or conceded the class arbitration issue, finding those matters also best left to the arbitrators. In Re A2P SMS Antitrust Litigation, Case No. 12-CV-2656 (USDC S.D.N.Y. May 29, 2014).

This post written by Renee Schimkat.

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The Eleventh Circuit affirmed a decision permitting discovery for use in foreign proceedings which were contemplated but not yet pending. In this case, which arose from a billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. (“CONECEL”) and Jet Air Service Ecuador SA, CONECEL applied in the district court for an order under 28 U.S.C. § 1782 to obtain discovery for use in foreign proceedings in Ecuador. The foreign proceedings included both a pending arbitration brought by Jet Air against CONECEL and contemplated civil and private criminal suits CONECEL might bring against two of its former employees who, CONECEL claimed, may have colluded with Jet Air. The District Court granted CONECEL’s application and Jet Air appealed.

As we previously reported, on June 25, 2012, the Eleventh Circuit affirmed the lower court’s order, holding that the arbitral panel was a foreign tribunal for purposes of 28 U.S.C. § 1782. That decision did not address whether the contemplated civil and criminal proceedings constituted foreign proceedings within the meaning of § 1782. Recently, however, the Eleventh Circuit vacated its earlier decision sua sponte and instead analyzed whether the contemplated civil and criminal proceedings satisfied the “foreign tribunal” element of the statute. Noting § 1782 requires only that a proceeding be within reasonable contemplation, as supported by reliable indications that the proceedings will be instituted within a reasonable time, the Court found that CONECEL provided such reliable indications by proffering the results of its internal audits leading to its findings of collusion and by submitting sworn declarations of CONECEL’s intent to purse the civil and criminal actions. Application of Consorcio Ecuatoriano de Telecomunicaciones SA v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. Jan. 10, 2014), vacating 685 F.3d 987 (11th Cir. 2012).

This post written by Leonor Lagomasino.

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The California Supreme Court has upheld the validity of class action waivers in employment arbitration agreements, reversing its prior rule that California courts could refuse to enforce such waivers on grounds of public policy or unconscionability. At issue was an employee’s right to bring a class action against his employer after he had entered into an arbitration agreement and waived the right to class proceedings. The court had previously held that class action waivers in employment arbitration agreements were, in large part, invalid. In light of the U.S. Supreme Court’s decision in Concepcion, which reversed a California decision restricting consumer class action waivers in arbitration agreements, the California Supreme Court recognized that the Federal Arbitration Act preempts its rule against employment class waivers. The court also rejected arguments that class action waivers were unlawful under the National Labor Relations Act and that the employer in the case had waived its right to arbitrate by withdrawing its motion to compel and otherwise failing to diligently pursue arbitration.

The employee had also sought to bring a representative action under the state’s Labor Code Private Attorneys General Act of 2004 (PAGA). That action was not subject to FAA preemption. The court upheld California’s public policy prohibiting waivers of representative actions brought under PAGA, distinguishing them from private employment disputes, characterizing PAGA claims as “public enforcement actions.” The court further held that PAGA did not violate the principle of separation of powers under the California Constitution. Having concluded that the employer could not compel the waiver of the employee’s representative PAGA claim, but that the employee had waived his right to class proceedings and must therefore proceed to arbitration on his individual damage claims, the court remanded the case for further proceedings to determine forum and bifurcation issues. Iskanian v. CLS Transportation of Los Angeles, LLC, Case No. S204032 (Cal. June 23, 2014).

This post written by Renee Schimkat.

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The Eleventh Circuit affirmed a ruling compelling arbitration of an employment dispute. Plaintiff employees brought a putative collective action suit against the defendant, a windshield repair company, pursuant to the Fair Labor Standards Act (“FLSA”), alleging wage violations. The employer moved to compel individual arbitration pursuant to the terms of the parties’ individual arbitration agreements. The district court granted the motion and plaintiffs appealed, arguing that the FLSA’s statutory right to bring a collective action is substantive and cannot be abrogated by agreement or superseded by the Federal Arbitration Act (“FAA”). The Eleventh Circuit disagreed, finding that, absent explicit congressional intent otherwise in the terms of the FLSA, the FAA requires enforcement of arbitration provisions, and allows for parties to waive their right to class or collective action. Walthour v. Chipio Windshield Repair, LLC, No. 13-11309 (11th Cir. March 21, 2014).

This post written by John Pitblado.

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Basulto v. Hialeah Automotive, Case No. SC09-2358 (Fla. March 20, 2014) (reversing intermediate appellate court’s ruling compelling arbitration on monetary relief claims; intermediate court failed to limit its review to whether a valid arbitration agreement existed; no valid agreement due to substantive and procedural unconscionability);

Crawford Professional Drugs, Inc. v. CVS Caremark Corp., Case No. 12-60922 (5th Cir. April 4, 2014) (affirming order compelling arbitration, notwithstanding argument by non-signatories that they were not subject to the arbitration clause; state law may allow an arbitration contract to be enforced by or against nonparties to the contract through state-contract-law theories, including equitable estoppel);

Sanchez v. Carmax Auto Superstores California, LLC, Case No. B244772 (Cal. Ct. App. Feb. 6, 2014) (reversing order denying motion to compel arbitration; arbitration agreement was not illusory, nor unenforceable for procedural unconscionability merely because it was an adhesion contract; arbitration agreement was not substantively unconscionable in that it had bi-lateral application, it did not overly limit discovery, and arbitration rules and procedures were not unfair);

Caplin Enterprises, Inc. v. Arrington, Case No. 2011-CT-01332-SCT (Miss. May 8, 2014) (reversing intermediate appellate court’s ruling that certain arbitration agreements were enforceable; all agreements were contracts of adhesion and so one-sided in their terms as to meet the standard for substantive unconscionability);

Tiri v. Lucky Chances, Inc., Case No. A136675 (Cal. Ct. App. May 15, 2014) (reversing denial of petition to compel arbitration based on trial court’s finding of unconscionability; trial court lacked authority to rule on enforceability of the arbitration agreement where the parties delegated such authority to the arbitrator).

This post written by Michael Wolgin.

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