Reinsurance Focus

The defendant was the managing general agent for a book of reinsurance business for the plaintiff reinsurer. The parties disputed commission amounts owed by defendant to the plaintiff. Plaintiff initiated an arbitration seeking recoupment of approximately $2 million in commissions it claimed it was owed, as well as approximately $70,000 in other expenses arising from the dispute. An interim order in the arbitration established that plaintiff was owed the $70,000 portion of the claim, and the parties agreed to resolve the larger portion later, as they needed information to develop the claim. In the meantime, the plaintiff filed an application in district court seeking security from the defendant, pursuant to a Texas statute allowing for the posting of security in arbitrations. It sought security for the $70,000 already established by the interim award, as well as the $2 million it continued to seek in the arbitration. The Court denied both, arguing that plaintiff had not made out a case that is was likely to secure the $2 million award it sought, and that there was no basis to require security for the “de minimis” $70,000. General Fidelity Insurance Co. v. WFT Inc., 3-11-CV-0448 (USDC N.D. Tex. Oct. 15, 2012).

This post written by John Pitblado.

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On remand from the Supreme Court and the Second Circuit in light of AT&T Mobility v. Concepcion, a district court granted defendant’s motion to compel arbitration over plaintiff’s arguments that: 1) defendant could not compel arbitration because it was not a party to the contract containing the arbitration clause; and 2) the arbitration clause is unconscionable. Applying California law, the court held that the plaintiff was estopped from avoiding arbitration against the defendant because the defendant was the agent of a signatory to the contract and the plaintiff’s claims were intertwined with the contract that included the arbitration clause. Regarding the unconscionability issue, the court reasoned that even though Concepcion overruled the Discover Bank rule, it did not entirely do away with the unconscionability defense to arbitration agreements. Applying a California rule governing the unconscionability of all contracts, not just arbitration agreements, the court analyzed whether the arbitration clause was procedurally and substantively unconscionable and found that it was not. Fensterstock v. Education Finance Partners, Case No. 08-03622 (USDC S.D.N.Y. Aug. 30, 2012).

This post written by Abigail Kortz.

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Plaintiff filed a class action complaint alleging wage and hour violations. He had signed an arbitration agreement which did not contain a class arbitration waiver. The trial court denied a motion to compel arbitration on the basis that the employer had waived arbitration by failing to properly and timely demand arbitration. The court of appeal reversed, ordering individual arbitration, holding that: 1) the defendant did not waive its right to arbitration even though it waited 14 months to move to compel arbitration; and 2) Section 7 of the National Labor Relations Act did not bar enforcement of the arbitration agreement at issue. The Supreme Court’s decision in AT&T Mobility v. Concepcion prompted the defendant’s delayed motion to compel. Concepcion held that the Federal Arbitration Act preempts California’s Discover Bank rule, which invalidates class arbitration waivers in consumer contracts of adhesion based on a finding of unconscionability. The court of appeal found that prior to Concepcion, the defendant reasonably perceived it would be futile to seek to compel arbitration in light of the Gentry test, which extended the Discover Bank rule to the employment context. The court reasoned that the risk of invalidation “diminished substantially” after Concepcion, but declined to explicitly “decide whether Gentry remains good law after Concepcion.” The employee contended that an order requiring individual arbitration would deprive him of the right to engage in collective legal action as protected by section 7 of the NLRA. This argument was accepted by National Labor Relation Board in D. R. Horton. The court of appeals followed other California court decisions which found Horton inapplicable in California courts. Reyes v. Liberman Broadcasting, Inc., No. B232511 (Cal. Ct. App. August 31, 2012).

This post written by Abigail Kortz.

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A court recently dismissed a case brought to compel arbitration in a asbestos reinsurance coverage dispute between Century Indemnity Company and Everest Reinsurance Company, after the parties reported to the court that they had finally installed umpires in multiple arbitrations related to the dispute. The parties had previously agreed to an ARIAS neutral selection process in November 2011 as part of a global agreement involving the arbitrations, but a report filed by the parties in January 2012 reflected that no agreement as to the umpires could then be reached. Everest Reinsurance Co. v. Century Indemnity Co., Case No. 11-5893 (USDC S.D.N.Y. June 29, 2012).

This post written by Michael Wolgin.

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An Alabama court claimed authority under Section 5 of the Federal Arbitration Act to appoint an umpire in an arbitration upon complaint by the plaintiff that “a lapse in the naming of an arbitrator . . . or umpire” had occurred in the arbitration selection process. 9 U.S.C. § 5. The arbitration provision at issue required each party to nominate one non-impartial arbitrator and required the two chosen arbitrators to select a neutral umpire within thirty days of the second arbitrator’s appointment. The Supreme Court of Alabama reversed the circuit court’s appointment, holding that 1) defendants’ delay in providing a list of potential umpires by six days beyond the prescribed thirty days was so minimal it did not warrant judicial intervention, and 2) defendants did not act in bad faith by proposing two potential umpires plaintiffs contend were biased because there was no showing that the potential umpires would not disclose facts relevant to their ability to be fair if selected and defendants offered to propose an additional umpire when plaintiffs complained of bias. Lexington Insurance Co. v. Southern Energy Homes, Inc., No. 1091617 (Ala. Aug. 17, 2012).

This post written by Abigail Kortz.

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In opinions issued the same week, the 11th and 3rd Circuits affirmed district court orders granting defendants’ motions to compel arbitration on an individual, rather than on a class-wide, basis over plaintiffs’ objections that class-arbitration waiver clauses in their credit card and wireless telephone service agreements were unconscionable and unenforceable. The circuit courts followed Supreme Court precedent from AT&T Mobility LLC v. Concepcion, which held that Section 2 of the Federal Arbitration Act, which provides that arbitration agreements are “valid, irrevocable, and enforceable,” preempts state laws that hold class-arbitration waivers to be unconscionable and unenforceable. Consistent with the Supreme Court’s reasoning, the circuit courts found that preemption trumps the public policy argument, accepted by some other courts, that when arbitration is mandated, “class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system.” Homa v. American Express Co., No. 11-3600 (3rd Cir. Aug. 22, 2012); Pendergast v. Sprint Nextel Corp., No. 09-10612 (11th Cir. Aug. 20, 2012).

This post written by Abigail Kortz.

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Following is a summary of court decisions, some confirming, others vacating, arbitral awards:

Windler v. Anheuser-Busch, Inc., Case No. 10-cv-00350 (USDC D. Colo. Aug. 22, 2012) (denying motion to vacate arbitration award, finding that arbitrator did not manifestly disregard the law on reasonable accommodations under the Americans With Disabilities Act)

Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., No. 11-1778 (6th Cir. Aug. 27, 2012) (affirming district court’s confirmation of arbitration award involving dispute under a petroleum supply agreement; finding that ex parte communication between arbitrator and employee was not in excess of arbitrator’s powers and district court did not apply the wrong evidentiary standard in confirming the award)

Scurtu v. Hospitality & Catering Management Services, Case No. 1:07-cv-00410 (USDC D. Ala. Sept. 13, 2012) (denying motion to vacate or modify arbitration award where the movant failed to set forth any grounds under the FAA for vacatur or modification or show how the arbitrator’s award would have satisfied such grounds)

N.J. Regional Council of Carpenters v. Jayeff Construction Corp., No. 11-3872 (3d Cir. Sept. 12, 2012) (affirming district court’s decision vacating arbitration award where there was insufficient evidence that appellee non-union contractor had entered into collective bargaining agreement bearing arbitration clause)

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Smolcheck, Case No. 12-80355 (S.D. Fla. Sept. 17, 2012) (denying motion to vacate and granting motion to confirm arbitration award; rejecting movant’s arguments on evident partiality, arbitrator misconduct, and insufficient opportunity to be heard)

Quench LLC v. Liquor Group Wholesale, Inc., Case No. 3:11-cv-811 (M.D. Fla. Sept. 13, 2012) (denying motion to vacate and granting motion to confirm arbitration award; finding that arbitrator had jurisdiction over signatory to agreement and that respondent was not prejudiced, under the circumstances, by waiting until after the final hearing before deciding whether certain respondents were subject to the arbitrator’s jurisdiction)

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Schwarzwaleder, No. 11-2605 (3d Cir. Aug. 13, 2012) (reversing district court’s decision vacating arbitration award requiring former employee to repay a loan from her former employer; arbitrator’s decision was not “irrational” as to warrant vacatur)

Comerica Bank v. Howsam, No. B232749 (Cal. Ct. App. Aug. 20, 2012) (affirming orders denying vacatur and confirming arbitration award; finding that arbitrator’s failure to timely disclose potentially disqualifying circumstances, as required under California statute, was not a ground for vacatur of international commercial arbitration award, and, further, that the award was not procured by fraud or corruption, did not result from a manifest disregard of the law, and that the arbitrator did not exceed his powers in deciding alter ego issues)

This post written by Ben Seessel.

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Pacific West Securities Inc. made a claim for coverage with its insurers, relating to underlying securities claims alleged against it in a FINRA proceeding brought by investors. The insurers contested coverage and initiated arbitration under the contracts. Pacific West brought suit in Washington state court, seeking to stay arbitration and have the matter heard in court based on the service-of-suit provision in the parties’ contracts. The insurers removed the case to federal court and moved to dismiss the petition to stay the arbitration. Citing the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, the court granted the motion, finding that the service-of-suit clause and the arbitration clause were compatible and could be read in a reasonable way to further the strong federal policy embodied in the FAA of enforcing arbitration agreements. Pacific West Securities Inc. v. Illinois Union Insurance Co., No. C12-539RSM (USDC W. D. Wash. Aug. 29, 2012).

This post written by John Pitblado.

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In an employment dispute, a Magistrate Judge issued a Report and Recommendation which broadly interpreted the arbitration provision in an employment agreement in favor of arbitration. The judge interpreted the term providing that either party “may submit the matter to arbitration” (emphasis added) to mean that once one party elects to arbitrate, the arbitration becomes mandatory with respect to the other party. The judge also interpreted the term which explains that the arbitration clause applies to “any disputes . . . in connection with [Plaintiff’s] rights and obligations under this agreement” (emphasis added) to cover plaintiff’s sex and pay discrimination claims. The district court adopted the Report and Recommendation, except that it granted an objection to a fee-shifting provision of the arbitration clause, requiring that it be severed, finding it to be unenforceable and not essential to the arbitration clause. The fee-shifting provision required the losing party to pay attorneys’ fees. The court found the provision to be unenforceable because the claimant would not have to pay attorneys’ fees to vindicate her federal statutory rights under Title VII and the Equal Pay Act in court, and requiring the claimant to be exposed to that risk to vindicate her rights in an arbitral formum was not consistent with the statute. The district court specifically declined to follow cases from other circuits, which have held that fee-shifting provisions are generally too speculative to prevent a plaintiff from vindicating his or her federal statutory rights in an arbitral forum. Smith v. AHS Oklahoma Heart, LLC, Case No. 11-00691 (USDC N.D. Okla. Aug. 3, 2012).

This post written by Abigail Kortz.

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In 2009 Delaware adopted a rather unique process for the arbitration of business disputes by a sitting judge of the Court of Chancery, which was intended “to preserve Delaware’s pre-eminence in offering cost-effective options for resolving disputes, particularly those involving commercial, corporate, and technology matters.” Del. H.B. 49, at 4 (2009). A public interest group filed suit challenging the section of the new statute requiring that the proceedings be considered “confidential and not of public record.” 10 Del C. § 349(b). The federal district court in Delaware recently held that since the arbitration process essentially functions like a civil trial the confidentiality provision violates the qualified right of access to criminal and civil trials protected by the First Amendment. The court concluded that the proceedings function like a non-jury trial because: 1) the Chancellor, not the parties, selects the judge; 2) the Chancery Court discovery rules apply instead of the rules for arbitration discovery, and 3) a sitting judge of the Chancery Court, rather than a third party arbitrator, presides. The arbitration process remains in force in all other respects. Delaware Coalition for Open Government v. Strine, Case No. 1:11-01015 (USDC D. Del. Aug. 30, 2012).

This post written by Abigail Kortz.

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