Reinsurance Focus

The Eighth Circuit recently reversed a district court’s refusal to compel arbitration in an employment dispute under the Fair Labor Standards Act, enforcing a class-waiver arbitration clause. The district court interpreted the FLSA as providing a right to a class action, and had found that the class waiver in this case was therefore invalid. The district court had also held that Concepcion was not controlling in the employment context, relying on a recent National Labor Relations Board decision. The Eighth Circuit reversed, holding that nothing in the text or legislative history of the FLSA indicates a congressional intent to bar employees from agreeing to arbitrate FLSA claims individually, and that there is no conflict between the FLSA and the FAA. The Eighth Circuit further held that the NLRB decision relied on by the district court was not entitled to deference. In any event, the court explained, the NLRB decision limited its holding to arbitration agreements barring all concerted actions, unlike the agreement in this case, which did not preclude reporting to administrative agencies, which themselves could file representative class suits. The court also rejected the notion that Concepcion and other U.S. Supreme Court precedent upholding the enforceability of class waivers is limited to the consumer context. Owen v. Bristol Care, Inc., No. 12-1719 (8th Cir. Jan. 7, 2013).

This post written by Michael Wolgin.

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Confirming/Vacating Arbitral Award

Fisher v. Wells Fargo Advisors, LLC, Case No. 12-1413-CM (USDC D. Kan. Dec. 18, 2012) (granting motion to confirm arbitration award; holding that allegedly erroneous discovery rulings did not deprive plaintiff of a fundamentally fair hearing nor constitute arbitrator misconduct)

Laughlin v. VMWare, Inc., Case No. 11-cv-00530-EJD (USDC N.D. Cal. Dec. 20, 2012) (denying motion to vacate arbitration award; holding that the arbitrator did not manifestly disregard the law by denying respondent’s motion to strike class allegations)

State Farm Insurance Cos. v. Padilla, No. 27-CV-11-23900 (Minn. Ct. App. Dec. 24 2012) (reversing order vacating no fault arbitration award; holding that the arbitrator did not exceed his powers by finding that insurer’s request for an examination under oath was unreasonable)

Stone & Youngberg, LLC v. Kay Family Revocable Trust, No. 11-16684 (9th Cir. Dec. 12, 2012) (holding that the arbitrator did not manifestly disregard negligence law and, further, that a court has no authority under the FAA to modify an arbitration award to prevent double recovery)

Compelling Arbitration

Baltazar v. Forever 21, Inc., No. B237173 (Cal. Ct. App. Dec. 20, 2012) (reversing order denying motion to compel arbitration; holding, among other things, that a provision in an arbitration agreement allowing either party to seek provisional remedies in court, such as injunctive relief, did not render the arbitration agreement unconscionable)

Taylor v. Community Bankers Securities, LLC, Case No. H-12-2088 (USDC S.D. Tex. Dec. 19, 2012) (denying motion to compel arbitration of action brought by receiver appointed to represent investors in Ponzi scheme due to absence of evidence that investors entered into arbitration agreements)

Botorff v. Amerco, Case No. 2:12-cv-01286-MCE-EFB (USDC E.D. Cal. Dec. 19, 2012) (dismissing UCL claim against truck rental company; holding that arbitration agreement referred to but not included in rental agreement was enforceable and, further, that small claims court exception to compulsory arbitration did not apply because plaintiff’s lawsuit was brought as a class action that could not be adjudicated in small claims court)

Stone v. Vail Resorts Development Co., Case No. 1:09-cv-02081 (USDC D. Colo. Dec. 20, 2012) (denying plaintiff’s motion to reopen case and reconsider order compelling arbitration)

Interim Arbitral Relief

United States f/b/o Clifford & Galvin Contracting, LLC v. Endicott Constructors Corp., Case No. 12-10152-MLW (USDC D. Mass. Dec. 13, 2012) (denying motion to dismiss Miller Act claims against surety and staying case pending arbitration between contractor and assured party)

Bergman v. Spruce Peak Realty, LLC, Case Nos. 2:11-cv-127, 2:11-cv-128 (USDC D. Vt. Dec. 13, 2012) (granting motion to consolidate two related class action cases and granting motion to stay consolidated action pending arbitrator’s decision on scope of arbitrable claims in one case)

Jurisdictional Issues

First Investment Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., No. 12-30377 (5th Cir. Dec. 21, 2012) (affirming that district court properly dismissed for lack of personal jurisdiction a petition to confirm a foreign arbitration award under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards; affirming that defendant People’s Republic of China was properly dismissed for lack of subject matter jurisdiction)

This post written by Ben Seessel.

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Plaintiffs, five Lloyd’s of London underwriters, filed suit in Ohio federal court seeking a declaration that an alleged reinsurance agreement between them and defendant Stonebridge Casualty Insurance Company’s predecessor in interest was invalid because plaintiffs had no knowledge of it. Plaintiffs’ Ohio action was filed after Stonebridge had successfully moved in Florida federal court to compel arbitration of disputes arising under the agreement. Stonebridge moved to have the Ohio action transferred to Florida or dismissed. In response, plaintiffs argued that the Florida court lacked jurisdiction due to the presence of an Ohio forum selection clause in the reinsurance agreement. The court found that this clause did not strip the Florida court of its diversity jurisdiction. The court chastised plaintiffs for attempting to rely on a forum selection clause in a contract that they had not even acknowledge existed. The Ohio court similarly rejected plaintiffs’ argument that venue was improper in Florida, given that many of the relevant negotiations occurred in Florida, and key witnesses and documents were located in Florida. Certain Underwriters at Lloyd’s, London v. Stonebridge Casualty Insurance Co., Case No. 2:12-cv-160 (USDC S.D. Ohio Dec. 12, 2012).

This post written by Ben Seessel.

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Bilbo, a Mississippi resident, and McNally, a Floridian, entered into a joint venture agreement to purchase, renovate, and resell residential property located in Jackson, Mississippi. The agreement contained an arbitration clause. After a dispute arose, Bilbo moved to compel arbitration in federal district court. McNally moved to dismiss on the grounds that the FAA did not apply because the parties’ agreement did not concern “matters of interstate commerce.” The court held that the FAA applied, given that Congress’ power to regulate commerce is broadly construed and that McNally, a Florida resident, agreed to purchase and renovate property in Mississippi, a different state. Bilbo v. McNally, Case No. 12-cv-00502 (USDC S.D. Miss. Nov. 15, 2012).

This post written by Ben Seessel.

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The Supreme Court has accepted certiorari review of two cases involving putative class actions and arbitration. In the first case, American Express Company v. Italian Colors Restaurant, the Court agreed to review the question whether the FAA permits courts to invalidate arbitration agreements on the ground that the agreement precludes class arbitration of federal statutory claims. The court of appeals had invalidated an arbitration provision because it found that the provision effectively precluded plaintiffs from pursuing protections provided by federal antitrust laws. In the Second matter, Oxford Health Plans LLC v. Sutter, the Court agreed to review whether, under Stolt-Nielsen, an arbitrator acts within his powers pursuant to the FAA by determining that parties affirmatively agreed to authorize class arbitration based solely on the use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under a contract.

American Express Co. v. Italian Colors Rest., No. 12-133 (U.S., cert. granted, Nov. 9, 2012); Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S., cert. granted Dec. 7, 2012)

This post written by Ben Seessel.

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Last week we reported on a decision by one California appellate court holding that U.S. Supreme Court precedent did not overrule the California Supreme Court’s Gentry decision to the extent the latter voids class arbitration waivers that are determined by the court to prevent an employee from vindicating certain statutory rights. Another decision of a different panel of the same California appellate district highlights the broader approach currently taken by California courts on this issue. In an appeal of an order refusing to enforce a class arbitration waiver based on California statutory law, the appellate court reversed, finding that Concepcion made clear that the FAA preempts state law prohibiting a consumer from waiving class action rights. The court noted the current divide with California courts regarding the viability of Gentry, but concluded that it “need not comment on the continuing viability of Gentry because the instant case does not deal with employment issues.” The court did conclude, however, that Concepcion rejects the argument that class action waivers in consumer contracts can be invalidated in order to vindicate statutory rights even if the statutory right is desirable for other reasons” — a position that is apparently not unanimously held in California. Sherf v. Rusnak/Westlake, Case No. B237275 (Cal. Ct. App. October 16, 2012).

This post written by Michael Wolgin.

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A recent opinion of the Second Appellate District of the California Court of Appeals has reinforced the split among California courts as to the impact in California courts of the U.S. Supreme Court’s recent decisions concerning arbitration procedure. The plaintiff brought a putative class action against his employer, alleging various Labor Code violations, in California State Court. Citing the parties’ arbitration agreement and class arbitration waiver, the defendant moved to compel individual arbitration, which the trial court granted. A California appellate court reversed, relying on the California Supreme Court’s opinion in Gentry, which held that class action waivers should not be enforced if class arbitration is a more effective way to vindicate the class members’ claims than individual arbitration.

Following the reversal, the employer filed a second motion to compel arbitration, contending that the U.S. Supreme Court’s intervening decisions in Stolt-Nielsen and Concepcion effectively overruled Gentry and required individual arbitration. On appeal following the trial court’s denial of the second motion to compel, the California appellate court affirmed, concluding that Gentry remains good law. The court reasoned that Concepcion prohibits only categorical rules against class action waivers, that Concepcion did not preclude a case-specific determination such as that in Gentry, and that a class waiver which prevents an employee from vindicating certain statutory rights was unenforceable. The court also held that Stolt-Nielsen did not overrule Gentry so long as the claims would ultimately proceed in court, rather than in a class arbitration. There may be further guidance on these issues soon, since the U.S. Supreme Court has accepted review of an opinion of the Second Circuit which espoused the waiver of statutory rights theory. Franco v. Arakelian Enterprises, Inc., Case No. B232583 (Cal. Ct. App. December 4, 2012).

This post written by Michael Wolgin.

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In an antitrust suit by certain pharmacies against CaremarksPCS, the plaintiffs appealed a trial court order granting defendant Caremark’s motion to compel arbitration based on the parties’ arbitration agreement. The plaintiffs argued that (1) Caremark waived its right to arbitrate by actively litigating the case in federal court for over ten months before demanding arbitration; and (2) that the arbitration clause is unenforceable because it limited the remedies available under the Sherman Act. The Third Circuit agreed with the plaintiffs, finding that Caremark waived the right to arbitrate based on the fact that it actively litigated the matter for so long prior to demanding arbitration. The court did not reach the second argument, as it was rendered moot by the holding on waiver. In re Pharmacy Benefit Managers Antitrust Litigation, No. 12-1430 (3d Cir. Nov. 15, 2012).

This post written by John Pitblado.

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The Second Circuit has dismissed an appeal arising from a reinsurance dispute between Northwestern National Insurance Company and Insco, Ltd. As we last reported in a December 29, 2011 post, those entities were parties to a reinsurance agreement and submitted a dispute to arbitration, with each party appointing its own arbitrator, and those two in turn selecting a neutral third to act as umpire. Insco’s appointed arbitrator shared private email communications between panel members with Insco’s counsel, believing that they showed that Northwestern’s selected arbitrator could not serve as an impartial arbitrator. Insco reviewed the emails and thereafter demanded that all the arbitrators resign immediately. Northwestern’s arbitrator resigned, but Insco’s and the neutral umpire did not. Northwestern then became suspicious that Insco had received the private panel member emails and demanded copies, but Insco refused. Northwestern named a new arbitrator, and the panel took up the issue, compelling production, determining that Insco’s counsel had acted inappropriately, and allowing the parties time to take the matter up in court.

Northwestern brought an action in federal court to disqualify Insco’s counsel. The trial court granted the motion to disqualify. Insco appealed, challenging the trial court’s jurisdiction and statutory authority to do so. On November 6, 2012, however, Insco moved to dismiss the appeal because the parties had settled the underlying arbitration. That motion was granted on November 21, 2012. Northwestern National Insurance Co. v. Insco, Ltd., No. 11-4626 (2d Cir. Nov. 21, 2012).

This post written by Brian Perryman.

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Amerisure successfully arbitrated a dispute with Global Re. Under the parties’ reinsurance agreement, arbitration was to be governed by Illinois law, though Amerisure is a Michigan-based company and Global Re is based in New York. Amerisure’s award was confirmed by an Illinois circuit court but the portion of it awarding attorney’s fees was vacated. Subsequently, Amerisure filed a one-count complaint in the circuit court seeking attorney’s fees pursuant to Illinois statute. The court dismissed Amerisure’s complaint, determining that New York law applied to the lawsuit and that New York law did not permit an award of attorney’s fees in this instance. While the parties agreed that Illinois law should apply to arbitration matters, there was no such provision governing litigation. Absent a governing choice of law provision, New York law applied because New York had the most significant contacts with the parties’ dispute. Amerisure Mutual Insurance Co. v. Global Reinsurance Corp. of America, Case No. 10 L 012665 (Ill. Cir. Ct. Nov. 7, 2012).

This post written by Ben Seessel.

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