Reinsurance Focus

In In re Mirant Corporation, the Fifth Circuit affirmed the lower court’s finding that the defendant waived its right to arbitrate. The defendant had filed multiple motions to dismiss based, in part, on waiver and estoppel, over a span of eighteen months. The court held that whether a motion to dismiss constitutes a waiver of arbitration as an invocation of the judicial process is a case-by-case determination. Here, the court explained, the defendant’s multiple motions invoked the judicial process by seeking a decision on the merits and a dismissal with prejudice for failure to state a claim. The court was also persuaded by the fact that the defendant did not file its motions to dismiss as an alternative to arbitration, but instead filed them prior to seeking arbitration as a “backup plan.” Lastly, the court held that the plaintiff was prejudiced both legally and financially by the defendant’s tactics. In re Mirant Corp., No. 09-10451 (5th Cir. August 2, 2010).

This post written by Michael Wolgin.

On November 17, 2008, we reported on a Colorado district court’s decision in a reinsurance dispute to alter the post-judgment interest rate provided in the arbitration panel’s final award and replace it with a statutory rate.

Earlier this month, however, the Tenth Circuit reversed the district court, holding that the post-judgment interest entitlement and rate decided by the arbitration panel should govern. The court reasoned that parties are permitted to set their own rate of post-judgment interest through contract, and the arbitration provision at issue in this case was a “broad” provision. The court further held that “the parties’ intent is a quintessential fact question, and we see no reason why an arbitration panel with authority to decide a contractual dispute cannot also determine whether the contract in question includes language clearly, unambiguously, and unequivocally stating the parties’ intent to bypass § 1961[, the post-judgment interest statute].” Newmont USA LTD v. Ins. Co. of N. Am., Nos. 08-1347 & 08-1370 (10th Cir. Aug. 11, 2010).

This post written by Michael Wolgin.

The Texas high court has held that a trial court abused its discretion by refusing to stay the litigation related to one corporation, MetroPCS Communications, Inc. (Communications), until the identical claims of its corporate affiliate, MetroPCS Wireless, Inc. (Wireless), were decided by arbitration or until Wireless became a member of a certified class action. The petitioner moved the trial court to compel arbitration and requested a stay of all litigation. The trial court denied the motion to compel arbitration because of a clause excluding arbitration where a signatory was a class member, but stayed Wireless’s claims until a class certification decision was rendered in a consolidated class action against the petitioner, of which Wireless was a putative member. The trial court declined to stay the related Communications litigation, which involved claims identical to the Wireless litigation. Directing that the Communications litigation also be stayed, the Supreme Court stated that the class action exclusion clause does not provide “a signatory with sanctuary from arbitration while a non-signatory affiliate simultaneously conducts discovery and chips away at the same issues in litigation.” In re Merrill Lynch & Co., Case No. 09-0161 (Tex. June 25, 2010).

This post written by Brian Perryman.

Tony Cicchetti offers a Treaty Tip concerning arbitrator selection, and a recent case concerning the process for selecting the umpire for an arbitration in a matter involving Lloyd’s.

This post written by Tony Cicchetti.

On February 18, 2010, we reported on Jock v. Sterling Jewelers, Inc., in which the U.S. District Court for the Southern District of New York refused to vacate an arbitration decision that permitted class arbitration under an agreement that did not address whether that procedure was permitted. Sterling subsequently appealed the order to the Second Circuit Court of Appeals, where it is currently pending. Thereafter, Sterling moved the Southern District of New York for an “indicative ruling” as to whether the court would reconsider its order based on the U.S. Supreme Court’s recent Stolt-Nielsen decision, which held that class arbitration is not permitted when the relevant arbitration clause is “silent” on class arbitration. The Southern District of New York concluded that, in light of Stolt-Nielsen, the court would now vacate the arbitration decision. The court explained that the determinative factor was the underlying arbitration agreement’s silence on whether class arbitration was permitted. The court was not persuaded by the plaintiffs’ attempts to distinguish this case from Stolt-Nielsen, including plaintiffs’ contention that the context of the agreement and sophistication of the parties in this case varied from the underlying agreement and parties in Stolt-Nielsen. Without an express or implied agreement for class arbitration, class arbitration would not be allowed. Jock v. Sterling Jewelers, Inc., No. 08- 2875 (USDC S.D.N.Y. July 27, 2010).

This post written by Michael Wolgin.

Defendant-Appellant Affiliated Computer Services appealed an order of the US District Court for the Southern District of New York denying Affiliated’s motion to compel arbitration. The district court held that the arbitration clause of a promissory note was unconscionable under California law because of its class action and class arbitration waiver provision. On appeal, Affiliated argued that the clause was not unconscionable, and in the alternative, that California law on this issue was preempted by the FAA. The Second Circuit affirmed the district court’s order, finding that the class arbitration waiver was unconscionable and unenforceable under California law according to principles applicable to contracts generally, and that California law is therefore not preempted by the FAA. Fensterstock v. Education Fin. Partners, Case No. 09-1562 (2d Cir. July 12, 2010)

This post written by John Black.

A federal district court recently dismissed a Title VII discrimination suit and compelled the parties to arbitration, finding that the employer did not waive its right to arbitrate by participating in an EEOC investigation. The court held that the mere involvement of an administrative agency in the enforcement of a statue did not preclude arbitration. The court noted that the employer specifically advised the EEOC that its participation should not be considered as a waiver of arbitration and that the employee would not be prejudiced by arbitration. The court concluded that the EEOC’s provision of 90 days for the employee to file suit against the company in court was subject to the arbitration agreement. Henry v. Turner Construction Co., No. 09-9366 (USDC S.D.N.Y. June 14, 2010).

This post written by Michael Wolgin.

In Rent-A-Center v. Jackson, No. 09-497 (Sup. Ct. June 21, 2010), the U.S. Supreme Court considered whether a provision that delegated to an arbitrator the authority to decide whether any portion of an arbitration agreement was void or voidable is enforceable under section 2 of the Federal Arbitration Act (“FAA”), in a situation in which it was contended that the agreement was unconscionable under Nevada law The Court recognized that it had previously held that parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether an agreement covers a particular controversy. The Court further recognized that there were two types of challenges to the validity of an agreement under section 2 of the FAA: (1) challenges to an agreement to arbitrate itself; and (2) challenges to the contract containing the arbitration agreement as a whole, “either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.” Only the first type of challenge is relevant to a court’s determination whether the arbitration agreement is enforceable. Since an arbitration provision is severable from the remainder of the contract, a challenge must be specifically directed to the arbitration provision in order for the court to intervene. Since the challenge here was to the contract as a whole, rather than specifically directed to the arbitration provision at issue, the arbitration provision was enforceable, and the arbitrator had the authority to determine the issue of unconscionability.

This post written by Michael Wolgin.

On August 3, 2009, we reported on a district court vacating its prior order that arbitration must commence anew and reappointing an arbitrator to the panel after the arbitrator’s health improved. Insurance Company of North America and INA Reinsurance (collectively, “INA”) appealed and also successfully moved for a stay pending the appeal in the Second Circuit, as we reported on April 15, 2010.

Now, the Second Circuit has issued its decision affirming the district court’s grant of Public Service Mutual Insurance Company’s motion for relief from the judgment based on newly discovered evidence that an arbitrator who had resigned was, in fact, able to rejoin the arbitration panel prior to the district court’s decision on whether to convene a new panel or order a replacement arbitrator. According to the Second Circuit, the general rule that a new panel should be convened if a vacancy arises on an arbitral panel due to the death of an arbitrator prior to the rendering of an award does not apply to a vacancy created by a resignation. The Second Circuit further found that the district court’s decision either to reappoint the arbitrator who had resigned, or, in the alternative, to direct INA to appoint a replacement was proper. Among other things, that decision avoided the waste entailed in convening a new panel after the remaining arbitrators had already engaged in significant proceedings in the case. Insurance Co. of North America v. Public Service Mutual Insurance Co., No. 09-3640 (2d Cir. June 23, 2010).

This post written by Brian Perryman.

In a dispute centered on retroactive credit card interest-rate increases, Mr. and Mrs. Puleo, on behalf of those similarly situated, appealed the District Court’s decision that the enforceability of an Arbitration Agreement’s ban on class actions was a question of arbitrability for the court to decide. The Puleos argued that the District Court should never have addressed the unconscionability of the class action waiver and instead should have left the issue to be decided by the arbitrator. The Third Circuit Court of Appeals, following the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., 537 US 79, 84 (2002), concluded that the challenge to the class action waiver in the concededly valid arbitration agreement did not raise an issue of arbitrability, and thus should have been decided by the arbitrator. The Court reasoned that the parties’ agreement provided that all disputes should be arbitrated, and that this agreement included the claim that the agreement’s waiver of class arbitration was unconscionable. The Court noted that its decision was consistent with the Supreme Court’s recent opinion in Stolt-Nielsen S.A. v. AnimalFeeds, because it gave effect to the terms of the parties’ arbitration agreement. Puleo v. Chase Bank USA, N.A., Case No. 08-3837 (3d Cir. May 10, 2010).

This post written by John Black.