Reinsurance Focus

Confirming Award

Mandell v. Reeve, No. 11-5238 (2d. Cir. Feb. 4, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; denying appellee’s motion for sanctions, finding that the appeal was not frivolous).

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., No. 12-20256 (5th Cir. Apr. 9, 2013) (reversing district court’s decision to vacate an arbitration award with instructions to reinstate the award, holding that the arbitrator’s award of a perpetual license as relief to the prevailing party was not inconsistent with the essence of the parties’ contract).

Data & Development, Inc. v. Infokall, Inc., No. 12-2456 (2d Cir. Mar. 13, 2013) (affirming district court’s decision to confirm arbitration award, holding that the arbitrator did not manifestly disregard New York law in awarding lost profits to the prevailing party on breach of contract claim).

Stonebridge Equity v. China Automotive Systems, Inc., No. 12-1548 (6th Cir. Mar. 26, 2013) (affirming district court’s confirmation of arbitration award, holding that arbitrators did not act in manifest disregard of the law by using extrinsic evidence to interpret the parties’ contract and that the district court’s minor modification of the award to assure compliance was in accordance with the FAA).

Johnson Controls, Inc. v. Edman Controls, Inc., Nos. 12-2308 & 12-2623 (7th Cir. Mar. 18, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; arbitrator had not disregarded the parties’ choice of law nor exceeded his powers in awarding damages and attorneys fees to prevailing party).

Vacating Award

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 12-1850 (6th Cir. Apr. 9, 2013) (affirming district court’s partial vacatur of arbitration award, holding that the district court did not commit clear error in making the factual determination that an entity was not bound by an arbitration clause).

City of Oswego v. Oswego City Firefighters Association, No. 49 (N.Y. Apr. 2, 2013) (reversing order of appellate division; ordering that an arbitration award be vacated because the award would require a municipality to provide a benefit no longer authorized by law and that the final result would conflict with other laws and well-defined policy considerations).

Class Action Waiver and FAA Preemption

McKenzie Check Advance of Florida, LLC v. Betts, No. SC 11-514 (Fla. Apr. 11, 2013) (FAA preemption prevents court from invalidating class action waiver as void against state public policy because waiver would prevent consumers from vindicating rights under state consumer protection laws).

Jurisdiction

Community State Bank v. Knox, No. 12-1304 (4th Cir. Apr. 11, 2013) (affirming district court’s dismissal of petition to compel arbitration holding that that the FAA by itself does not bestow federal jurisdiction and that there was no independent basis for federal jurisdiction).

This post written by Ben Seessel.

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As we reported on November 1, 2012, a federal court confirmed an arbitration award in favor of AXA Versicherung AG in a long-running reinsurance dispute with New Hampshire Insurance Company and other AIG affiliated entities. The $10 million award provided interest to be paid at 6.5%, compounded annually. AIG asked AXA for an extension on its deadline to pay the award. AXA agreed on the condition that AIG would not challenge the award and, further, that AIG would pay 6.5% interest until the award was paid in full.

AIG mistakenly sent payment to a former AXA affiliate that had been sold to an unrelated third-party. It took six weeks for the money to be returned to AIG. AIG argued that it should only have to pay interest at the lower stautory rate during this six-week period because AXA had not cooperated in obtaining a return of the funds. The court ruled in AXA’s favor, holding that AIG had to pay the 6.5% interest as agreed and, moreover, that it was AIG’s responsibility to make payment to the proper party. AXA Versicherung AG v. New Hampshire Insurance Co., Case No. 1:12-c-06009 (USDC S.D.N.Y. Apr. 22, 2013)

This post written by Ben Seessel.

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In a prior post, we reported the district court’s denial of the insurer’s motion to compel arbitration in Union Electric Co. v. Aegis Energy Syndicate 1225. In that decision, the court held that a choice of law and forum selection clause agreeing “to submit to the jurisdiction of the Courts of the state of Missouri” in a policy endorsement, commonly known as a service of suit provision, prevailed over an alternative dispute resolution clause in the policy itself, and foreclosed arbitration. On April 19, 2013, the Eighth Circuit affirmed that decision, holding that the endorsement’s plain language gave Missouri courts jurisdiction over all disputes related to the policy. The court was not persuaded by the insured’s argument that the endorsement granted only personal jurisdiction over the parties for Missouri courts to enforce the ADR provision. This decision is setting up a conflict of opinions on this issue. Union Electric Co. v. Aegis Energy Syndicate 1225, No. 12-3546 (8th Cir. April 19, 2013).

This post written by Michael Wolgin.

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Former students of a failed flight-training school brought a putative class action against the bank that originated their student loans and the loan servicer, claiming violation of the California Unfair Competition Law and seeking to enjoin defendants from reporting loan defaults to creditors and from enforcing Notes against the students. The district court dismissed plaintiffs’ claims for failure to state a claim and denied defendants’ motion to compel arbitration. A panel of the Ninth Circuit reversed, holding that the arbitation provision as not unconscionable and that arbitration should have been compelled, following the United States Supreme Court’s Concepcion opinion, which had reversed a ruling by the Ninth Circuit. The Ninth Circuit granted en banc review, but then followed the panel decision in a lopsided 10-1 decision, holding that the arbitration clause was not substantively or procedurally unconscionable under California law for the following reasons: (1) the Note’s ban on class arbitration is not unconscionable after Concepcion; (2) the risk that plaintiffs cannot afford the arbitration fees is too speculative; and (3) the arbitration clause was “in its own section, clearly labeled, in boldface” and gave the students an opportunity to opt out of the clause within 60 days of signing the note. The Court also held that the case did not fall under the “public injunction” exception to the Federal Arbitration Act because injunctive relief would benefit only the approximately 120 putative class members and not the public. Judge Pregerson dissented, finding the arbitration to be unconscionable and unenforceable. Kilgore v. KeyBank, Nat’l Assoc., Case No. 09-16703 (9th Cir. Apr. 11, 2013).

This post written by Abigail Kortz.

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New Jersey Physicians United Reciprocal Exchange (“NJ Pure”) filed a complaint claiming that its reinsurer breached a 2007 reinsurance contract under which it owed plaintiff some $2.3 million, having allegedly improperly offset an amount owed by NJ Pure under the parties’ 2004 contract. The reinsurer moved to dismiss/stay in favor of arbitration. NJ Pure resisted, citing the forum selection clause as evidence that the parties did not intend for arbitration to be mandatory. The court disagreed, pointing out that such a reading would eviscerate the arbitration clause, and that the forum selection clause was intended for situations involving enforcement or challenge to the arbitration award. Finding the suit within the scope of the arbitration clause, the court compelled the parties to arbitrate. New Jersey Physicians United Reciprocal Exchange v. Ace Underwriting Agencies, Ltd., No. 12-04397 (USDC D.N.J. April 11, 2013).

This post written by John Pitblado.

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Following is a summary, by category, of recent opinions of note concerning arbitration process issues.

Class Waiver

Muriithi v. Gadson, No. 11-1445 (4th Cir. April 1, 2013) (vacating judgment that found arbitration clause unconscionable; remanding for court to compel individual arbitration; class waiver not unconscionable under Concepcion; insufficient evidence that arbitration fee-splitting provision rendered arbitration cost prohibitive)

Torres v. United Healthcare Services, Inc., Case No. 12-00923 (USDC E.D.N.Y. Feb. 1, 2013) (granting motion to dismiss and compel arbitration; right to participate in a FLSA collective action can be waived; plaintiffs failed to meet burden of showing that costs of individual arbitrations are cost prohibitive)

Multiple Contracts

Germains Seed Technology, Inc. v. R&R Manufacturing, Inc., Case No. 12-02737 (USDC D. Kan. March 12, 2013) (denying motion to stay and compel arbitration; arbitration clause language in supply agreements was limited to disputes “arising out of” those agreements, and did not encompass dispute connected with claims based on separate stock purchase agreement)

Enterprises International, Inc. v. Pasaban, S.A., Case No. 11-05919 (USDC W.D. Wash. Feb. 11, 2013) (granting motion to stay and compel arbitration against non-signatory to arbitration agreement under alter ego and equitable estoppel theories; free-standing arbitration agreement encompassed dispute arising out of separate license agreement because it “approve[d] and consent[ed]” to the license agreement and thus was “intimately linked” to it)

Related Claims

Cook v. John Hancock Life Insurance Co. (U.S.A.), Case No. 12-00455 (USDC W.D. Va. March 13, 2013) (granting motion to stay pending completion of arbitration; notwithstanding presence of non-arbitrable claims and parties not involved in arbitration, stay would serve considerations of judicial economy, and avoidance of confusion and possible inconsistent results)

Non-Signatories/Equitable Estoppel

Muecke Co., Inc. v.CVS Caremark Corp., No. 12-40475 (5th Cir. Feb. 11, 2013) (affirming denial of motion to compel arbitration; no abuse of discretion in denying motion to compel non-signatories to arbitration under equitable estoppel theory)

Kramer v. Alexsandra Del Real, No. 12-55050 (9th Cir. Jan. 30, 2013) (affirming denial of motion to compel arbitration in putative class action; notwithstanding agreement to arbitrate arbitrability, district court had authority to determine arbitrability between plaintiff/signatories and defendant/non-signatories; equitable estoppel did not permit appellant/non-signatories to compel arbitration where claims were not intertwined with contracts containing arbitration agreement)

This post written by Michael Wolgin.

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A Connecticut federal court put to bed a case which started out as a petition to confirm an arbitration award between reinsurer and retrocessionaire, but “transmogrified over the years to become the antithesis of the speedy, inexpensive dispute resolution process that the Federal Arbitration Act (‘FAA’) intends.”

Trustmark and Arrowood were parties to certain retrocession agreements. Trustmark disputed its payment obligations and submitted the dispute to arbitration. After the arbitration panel found that Trustmark was not responsible for some $9.4 million of disputed payments, Trustmark petitioned the court to confirm the award. The court confirmed the award in 2003. Some three years later, Arrowood moved for contempt, alleging Trustmark had an obligation arising from the Court’s order to pursue set offs on Arrowood’s behalf, and that it failed to do so with regard to certain insolvent insurers. Ultimately, the Court kicked the issue back to the panel, which found that Trustmark may have an obligation to pay Arrowood the $9.4 million, if it was unsuccessful in pursuing payment from the insurers, but that the factual issues that would determine that issue were beyond the scope of the arbitration. Thus, the parties went back to court, and built an evidentiary record on the issue of whether Trustmark adequately fulfilled its duties to pursue setoff on Arrowood’s behalf. Accepting the factual record, but not the recommendations of the magistrate who handled the hearings, the Court denied Arrowood’s motions for enforcement and contempt. Arrowood Indmenity Co. v. Trustmark Insurance Co., No 3:03-cv-01000 (USDC D. Conn. Mar. 29, 2013).

The Third Circuit affirmed a district court decision denying a motion to vacate an arbitration award issued in favor of Pittsburgh Glass Works and PGW Auto Glass and against James Freeman. Freeman had asserted age discrimination claims in federal district court against the respondents after being fired from his job. The parties agreed upon a retired state court judge to arbitrate their dispute. The arbitrator had recently lost an election to the Pennsylvania Supreme Court. Freeman moved to have the award vacated on the basis that the arbitrator was biased because she had failed to disclose that she had received $4,500 in campaign contributions from PPG Industries, a minority owner of Pittsburgh Glass and PGW, during her unsuccessful Pennsylvania Supreme Court bid. Further, Freeman argued that the arbitrator had failed to disclose that she co-taught a law school course with a senior employment attorney at PPG Industries.

The district court denied the petition and the Third Circuit affirmed, holding that failing to disclose the existence of judicial campaign contributions did not establish “evident partiality” by the arbitrator, particularly in this instance where PPG Industries’ contributions were relatively small and, moreover, Freeman’s law firm had contributed five times the amount that PPG Industries had to the judge’s campaign. An undisclosed professional relationship with a minority owner was not “powerfully suggestive of bias.” The court made clear that “an arbitrator is evidently partial only if a reasonable person would necessarily conclude that the arbitrator was partial to one side,” and was careful to distinguish that standard from the more exacting appearance of bias standard for federal judges. Freeman v. Pittsburgh Glass Works, LLC, No. 12-2026 (3d Cir. Mar. 6, 2013).

This post written by Ben Seessel.

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First State Insurance Company and National Casualty Company arbitrated a reinsurance dispute in which the panel issued a confidentiality order prohibiting disclosure of confidential arbitration information. First State sought confirmation of an arbitration award in its favor by filing a petition in federal district court attaching the arbitration award to its moving papers. National Casualty moved to seal the record, including the award itself, arguing that public interest in access to the documents was low but an affiliate of National Casualty and third-parties could be injured if the award was made public because the award could be used to their disadvantage in other pending arbitration proceedings. The federal district court rejected National Casualty’s motion, holding that National Casualty had not overcome the presumption of public access to judicial documents, which included First State’s moving papers and the award itself. First State Insurance Co. v. National Casualty Co., Case No. 1:13-cv-00704 (USDC S.D.N.Y. Feb 19, 2013).

This post written by Ben Seessel.

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Following is a summary of five recent opinions of note concerning the interpretation of arbitration agreements and arbitration procedure:

Klein v. Nabors Drilling USA L.P., Case No. 11-30824 (5th Cir. Feb. 26, 2013) (reversing denial of motion to compel arbitration; option in contract to agree to non-binding alternative dispute resolution proceedings did not render mandatory arbitration clause unenforceable).

Noohi v. Toll Bros., Inc., Case No. 12-1261 (4th Cir. Feb. 26, 2013) (affirming denial of motion to dismiss or stay pending arbitration; arbitration clause was unenforceable because it lacked mutuality of consideration under state law, notwithstanding Concepcion).

GGNSC Omaha Oak Grove, LLC v. Payich, Case No. 12-2592 (8th Cir. Mar. 4, 2013) (affirming denial of application to compel arbitration; estate of deceased nursing home resident was not bound by arbitration agreement as a third-party beneficiary where agreement was not executed by decedent’s son in his individual capacity).

Landers v. FDIC, Case No. 27223 (S.C. Feb. 27, 2013) (reversing denial of motion to compel arbitration of claims for slander, emotional distress, illegal proxy solicitation, and wrongful expulsion, in connection with arbitration clause in employment agreement; the “pleadings provide a clear nexus between [plaintiff’s] claims and the employment contract sufficient to establish a significant relationship to the employment agreement”).

MHC Kenworth-Knoxcille/Nashville v. M & H Trucking, LLC, Case No. 2011-SC-000441 (Ky. Feb. 21, 2013) (reversing order denying motion to compel arbitration; state case law holding jurisdiction does not exist for state courts to compel out-of-state arbitration did not apply when arbitration clause provided for choice of law to be the FAA).

This post written by Michael Wolgin.

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