Reinsurance Focus

On June 25, 2012, we reported on Iskanian v. CLS Transportation Los Angeles, LLC, where a California appellate court, following the U.S. Supreme Court’s Concepcion decision, affirmed the enforcement of an arbitration clause waiving class claims, subsequent to the court’s pre-Concepcion suggestion that the waiver was unenforceable based on state precedent. In Samaniego v. Empire Today LLC, another California appellate court reached a different result in a similar context. There, the court found that a class action could proceed despite the existence of a class waiver arbitration clause, on the grounds that the entire agreement between the parties was unconscionable. The court construed Concepcion narrowly, noting Concepcion precluded only “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue,” but did not preclude “generally applicable contract defenses, such as fraud, duress, or unconscionability.” Samaniego v. Empire Today LLC, Case No. A132297 (Cal. Ct. App. April 5, 2012).

This post written by Michael Wolgin.

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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. Plaintiff appealed. Shortly thereafter, in 2007, the California Supreme Court decided Gentry v. Superior Court, which held that class action waivers should not be enforced if class arbitration was a more effective way to vindicate the class members’ claims than individual arbitration. The Appellate Court thus reversed and remanded in light of Gentry. After the case proceeded and the trial court certified the class, the U.S. Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion. The defendant renewed its motion to compel arbitration in light of Concepcion. The trial court granted the motion, and the Appellate Court affirmed. Iskanian v. CLS Transportation Los Angeles, LLC, No. B23158 (Cal. App. Ct. June 4, 2012).

This post written by John Pitblado.

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INA Reinsurance recently moved to dismiss or to stay an action initiated by Utica Mutual Insurance arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. Utica alleged that INA breached the confidentiality agreement put in place in the reinsurance arbitration by improperly disclosing confidential information in a separate lawsuit against a third party. The federal district court denied INA’s motion to dismiss or to stay, finding that the Supreme Court’s Colorado River abstention doctrine inapplicable because the defendants in the two lawsuits were unrelated and the claims were significantly different. Further, the district court concluded that Utica was not required to pursue its claims for breach of the confidentiality agreements in the pending arbitration because there exists clear language in the confidentiality agreements authorizing Utica to pursue claims for breach in a judicial forum. Utica Mutual Insurance Co. v. INA Reinsurance Co., No. 12-cv-00194 (USDC N.D.N.Y. Apr. 24, 2012).

This post written by John Black.

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Plaintiff Lavern Robinson brought a putative class action against Title Lenders, Inc. in Missouri state court. Title Lenders moved to stay and compel arbitration of the claims under the parties’ contract, which contained an agreement to arbitrate, as well as a class arbitration waiver. The trial court found the class arbitration waiver to be unconscionable, and therefore unenforceable under Missouri common law contract principles. The Missouri Supreme Court reversed, enforcing AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), because the trial court’s decision was based specifically on the unconscionability of the class arbitration waiver, thereby distinguishing its companion ruling in Brewer v. Mo. Title Loans, Inc., — S.W.3d —- (Mo. March 6, 2012), which allowed for unconscionability review of other aspects of an agreement, even in light of Concepcion, so long as the agreement was not invalidated for containing a class arbitration waiver. Robinson v. Title Lenders, Inc., No. SC91728 (Mo. March 6, 2012).

This post written by John Pitblado.

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Jeffrey Reed brought a putative class action case against his alma mater, “on-line” school, Florida Metropolitan University, Inc. (“FMU”), in Texas state court, alleging that FMU solicited students in violation of certain provisions of the Texas Education Code. FMU removed to federal court, and moved to compel arbitration under the parties’ agreement. The court granted the motion to compel, and also refused to address the issue of whether class arbitration was allowable, which Reed had raised, finding it should be decided by the arbitrator. At arbitration, Reed moved for a “Clause Construction Award” allowing the arbitration to proceed on a class basis. Over FMU’s objection, the arbitrator ruled in Reed’s favor. Reed moved to confirm and FMU moved to vacate the ruling. The district court vacated the award, finding it exceeded the scope of the arbitrator’s power under the Federal Arbitration Act. Reed appealed. The Fifth Circuit Court of Appeals affirmed, based on the U.S. Supreme Court’s holdings in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct 1758 (2010) and AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), emphasizing that the arbitrator forced the parties into class arbitration without a contractual basis for doing so. Reed v. Florida Metropolitan Univ., Inc., No. 11-50509 (5th Cir. May 18, 2012).

This post written by John Pitblado.

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The Greers entered into a contract with Town Construction for construction of their home. After a dispute arose regarding costs, workmanship, and other issues, Town Construction filed an arbitration demand with AAA for unpaid balances. The Greers counterclaimed for damages for repairs and diminution in home value due to construction defects, specifically alleging that their home had cracks in the walls due to Town Construction’s faulty workmanship. The arbitrator awarded damages on Town Construction’s claims and the Greers’ counterclaims. There was no evidence in the record, however, that the award had been confirmed by a court.

Three years later, the Greers discovered more cracks in the walls and filed a lawsuit in state court for damages. The trial court dismissed the claims as barred by res judicata because the Greers’ claims had already been litigated in the AAA arbitration proceeding. The Court of Appeal reversed. The court held that, under Louisiana Supreme Court precedent, an unconfirmed arbitration award is not a “valid final judgment” because it was not “rendered by [a] court” and thus has no res judicata effect. Greer v. Town Constr. Co., No. 2011 CA 1360 (La. Ct. App. Mar. 23, 2012).

This post written by Ben Seessel.

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Certain Underwriters at Lloyds, London (“Underwriters”) brought an action in Massachusetts Superior Court against Liberty Mutual and its counsel, Sidley Austin LLP, seeking to disqualify Sidley from representing Liberty Mutual in a coverage action involving a Lloyds reinsurance treaty, where Liberty Mutual was adverse to Lloyds. Sidley had also been retained by Resolute Management, Inc.. (f/k/a Equitas), which is Lloyds’ long-tail asbestos reinsurance claims management arm, to represent it in connection with a federal appeal. Sidley claimed that there was no conflict in its representation in the two actions, but that if there was a conflict, it was nevertheless disclosed to Lloyds, and implicitly waived thereby. The Court agreed with Sidley, finding the two representations did not involve substantially similar issues, and that Lloyds had been appropriately apprised of Sidley’s representation of Liberty Mutual when it retained Sidley in the federal appeal. The Court denied the motion for disqualification, and dismissed Lloyds’ action seeking declaratory and injunctive relief. Apparently, Lloyds was not upset enough about Sidley’s dual role to fire it from representing Equitas in the appeal. Certain Underwriters at Lloyds, London v. Sidley Austin LLP, No. SUCV2010-04663 (Mass. Super. Ct. March 5, 2012).

This post written by John Pitblado.

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The Ninth Circuit recently issued an opinion on an issue of first impression — whether an order compelling enforcement of a contractual agreement to submit a dispute to a referee, and staying proceedings in the interim, is immediately appealable. The dispute at issue arose between Bagdasarian Productions and Twentieth Century Fox over the film “Alvin and the Chipmunks, The Squeakquel.” The Ninth Circuit dismissed the appeal on the basis that it lacked jurisdiction at this stage of the proceedings. Specifically, the court held that the stay was not a “final decision” or “judgment” because it did not put the plaintiffs “out of court.” No decision by the referee could possibly moot the action or be res judicata (as with a parallel proceeding). Indeed, after the referee’s decision, the losing party would have the option of moving for a new trial or any other post-judgment motions. Similarly, the court found that the order staying the proceedings was not immediately appealable under the collateral order doctrine because plaintiffs could ultimately seek relief on appeal to this court after the action before the referee and district court concludes. The Court noted that its ruling was consistent with treatment of orders denying or compelling arbitration under the Federal Arbitration Act. Bagdasarian Productions, LLC v. Twentieth Century Fox Film Corp., No. 10-56430 (9th Cir. Mar. 26, 2012).

This post written by John Black.

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Policyholder Nero filed a putative class action lawsuit against American Family Insurance Company, alleging common law and statutory claims. American Family moved to dismiss, asserting that the claims were subject to mandatory arbitration, among other grounds. Shortly thereafter, on March 1, Nero notified American Family that an arbitration hearing would be commencing on March 5 in a different state and in front of a single arbitrator. American Family sought a temporary restraining order from the court enjoining the arbitration. American Family argued that it did not have sufficient time to prepare and, furthermore, that the location and designation of a single arbitrator was contrary to the terms of the arbitration provision in Nero’s insurance policy. It further argued that it would be irreparably harmed by having to “oppose confirmation of an unjust arbitration award” in a different jurisdiction. The court denied American Family’s request. The court stated that American Family’s contention that the arbitrator would not follow the proper procedure for selecting arbitrators was only speculative, and, furthermore, that FAA section 10(a)(3) permits vacatur where an arbitrator wrongfully refuses to postpone an arbitration hearing. Nero v. American Family Mut. Ins. Co., Case No. 11-02717 (USDC D. Colo. Mar. 2, 2012).

This post written by Ben Seessel.

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Plaintiff sued her bank in Florida federal court for the manner in which she was charged overdraft fees. The bank moved to compel arbitration, but the district court found the agreement to arbitrate unconscionable and unenforceable. The bank appealed. After the Supreme Court decided AT&T Mobility LLC v. Concepcion, __ U.S. __, 131 S.Ct. 1740 (2011), the Eleventh Circuit reversed and remanded for consideration in light thereof. The district court again refused to compel arbitration, avoiding an unconscionability finding, but nevertheless finding that the dispute did not come within the scope of the arbitration agreement. The bank again appealed and the Eleventh Circuit again reversed, finding the threshold issue of whether the dispute is arbitrable to be explicitly reserved for the arbitrator under the so-called “delegation provision” in the parties’ contract, which states that “[a]ny issue regarding whether a particular dispute or controversy is . . . subject to arbitration will be decided by the arbitrator.” In re Checking Account Overdraft Litigation, No. 11-14282 (11th Cir. March 21, 2012).

This post written by John Pitblado.

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