Reinsurance Focus

A federal judge in Indiana referred the parties to arbitration of the latest piece of a long running employment dispute between Masco Corporation and Peter Prostyakov, its former Director of operations in Moscow, Russia. After an arbitration award on the principal claims, which was confirmed in federal court, and affirmed by the Seventh Circuit, a further dispute erupted pertaining to payment of fees and costs in connection with the arbitration and subsequent litigation. Masco filed a petition in court, seeking a ruling that the fee dispute had been subsumed in and decided in the prior arbitration, and that Prostyakov was unfairly seeking a “second bite” at the apple. The court disagreed, finding it improper to decide this and other issues raised by the parties, citing their original agreement to arbitrate, and the pending second arbitration initiated by Prostyakov relating to the fee dispute. Masco Corp. v. Prostyakov, No. 1:09-cv-0500 (USDC S.D. Ind. Feb. 5, 2010).

This post written by John Pitblado.

Plaintiffs Patricia Hooper and Josephine Vaughn filed a putative class action against their payday lender, Advance America Cash Advance Centers of Missouri Inc., in federal district court. Advance America, invoking a clause in Plaintiffs’ loans, moved to stay all litigation and compel Plaintiffs to binding arbitration. The District Court held that Advance America waived its right to arbitration when it filed an extensive motion to dismiss. Advance America appealed the ruling to the Eighth Circuit.

The Eighth Circuit affirmed, applying a tripartite test to find waiver because Advance America: (1) knew of its existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by its inconsistent actions. The Court noted, however, that not every motion to dismiss is inconsistent with the right to arbitration, and that district courts should consider the totality of the circumstances in determining if a party acted inconsistently with the right to arbitrate. The Court concluded its opinion by reminding the parties that “experienced trial lawyers know how important it is to settle on a forum at the earliest possible opportunity and Advance America’s failure to move promptly for arbitration is powerful evidence that it made its election – against arbitration.” Hooper v. Advance America, Cash Advance Centers of Missouri, Inc., Case No. 08-3252 (8th Cir. Dec. 16, 2009).

This post written by John Black.

In this class action brought by current and former female employees of Sterling Jewelers, Inc. (“Sterling”), Sterling moved to vacate the arbitrator’s decision that class arbitration is not prohibited by the arbitration agreement or, in the alternative, to stay the arbitration proceedings. The federal district court stated, and Sterling conceded, that the arbitrator’s decision could be overturned only if the decision exceeded the arbitrator’s powers in violation of the Federal Arbitration Act or if the decision was made in manifest disregard of the law. In denying the motion to vacate, the court first ruled that the arbitrator had the power to decide such an issue, pointing to the broadness of the arbitration clause and citing the court’s prior decision determining that the arbitrator should resolve the question of whether class arbitration should proceed. The court held that the arbitrator did not act in manifest disregard of law based upon the Second Circuit’s holding in Stolt-Nielsen SA v. Animalfeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008), which is currently pending for decision before the Supreme Court after argument last December. Lastly, the court refused to grant a stay of arbitration pending the Supreme Court’s decision in Stolt-Nielsen, finding that Sterling did not identify any substantial harm that would justify a delay and noting the uncertainty surrounding when Stolt-Neilsen will be decided and whether the decision will dispose of the issues raised in this case. Jock v. Sterling Jewelers, Inc., Case No. 08-2875 (USDC S.D.N.Y. Dec. 28, 2009).

This post written by Dan Crisp.

Trustmark Ins. Co. brought an action against Clarendon Nat’l Ins. Co. and Clarendon America Ins. Co. (“Clarendon”) seeking a preliminary injunction barring any arbitration between Trustmark and Clarendon with Clarendon’s appointed arbitrator on the panel. In a decision issued ten days after a similar decision in favor of Trustmark in another case in the same district (see our February 15, 2010 post), a different judge rejected nearly identical arguments made by Trustmark. Trustmark argued that Clarendon’s arbitrator would necessarily breach a confidentiality agreement entered into by the parties and arbitrators relating to a prior arbitration between the parties (see our December 9, 2009 arbitration roundup). Clarendon named the same arbitrator it used in the first arbitration for the second, unrelated arbitration. Trustmark argued this would require the arbitrator necessarily to import information from the first arbitration into the second, in violation of the confidentiality agreement. The court rejected Trustmark’s argument, finding that a potential future breach of the confidentiality agreement by Clarendon’s arbitrator was not sufficient ground for a preliminary injunction barring the proceeding, and that any challenge to an arbitrator’s conduct or impartiality must be made post-award. It seems questionable whether this result can be harmonized with the prior ruling in favor of Trustmark on the basis that in the earlier decision there was an actual breach by the party-appointed arbitrator of the confidentiality agreement, not a hypothetical future breach. The issue now seems a good candidate for review by the Seventh Circuit Court of Appeals. Trustmark Ins. Co. v. Clarendon Nat’l Ins. Co., No. 09-c-6169 (N.D. Ill. Feb. 1, 2010).

This post written by John Pitblado.

Trustmark Ins. Co. filed an action against John Hancock Life Ins. after the parties arbitrated one reinsurance dispute and had begun a separate arbitration of another reinsurance dispute. Trustmark sought a preliminary injunction barring the parties from proceeding with the second arbitration with Hancock’s appointed arbitrator on the panel. Trustmark argued that Hancock’s choice of arbitrator in the second arbitration – the same person who served as Hancock’s chosen arbitrator in the first arbitration – resulted in: (1) that arbitrator’s breach of the confidentiality agreement that the parties and arbitrators in the first arbitration had signed; and (2) an inherent conflict of interest by that arbitrator who was being asked to interpret the confidentiality agreement to which he was a signatory (and which he allegedly breached), and who was also being asked to consider the extent to which issues in the second arbitration had been resolved in the first arbitration. The Court agreed with Trustmark, noting that the arbitrator had breached the confidentiality agreement by discussing matters pertaining to the first arbitration with the other panel members in the second arbitration (who were not parties to the confidentiality agreement). The Court also noted that Trustmark’s arbitrator violated a court order, in that the previous arbitration award and the confidentiality agreement entered into in connection therewith had been confirmed by Court Order. In a separate decision released simultaneously with its memorandum granting Trustmark’s preliminary injunction, the Court addressed additional issues raised in a motion for reconsideration by Hancock, but reaffirmed its prior ruling. Trustmark Ins. Co. v. John Hancock Life Ins. Co., No. 09-c-3959 (N.D. Ill. Jan. 21, 2010)

This post written by John Pitblado.

Along with an insurance policy, the parties previously entered into an administration agreement that obligated the defendant to reimburse the plaintiff for claims made under extended warranty contracts. The plaintiff brought suit in state court over the alleged failure to pay reimbursement requests. The defendant removed and then sought to compel arbitration and stay proceedings pursuant to the arbitration provision in the administration agreement. However, this agreement was to be interpreted in accordance with Nebraska law, and the Nebraska Uniform Arbitration Act (“NUAA”) exempts from arbitration any agreement that concerns or relates to an insurance policy. In denying the defendant’s motion to compel arbitration and stay proceedings, the court ruled that the NUAA reverse-preempted the Federal Arbitration Act (“FAA”) pursuant to the McCarran-Ferguson Act, finding that the NUAA was enacted for the purpose of regulating the business of insurance and would be invalidated, impaired or superseded by the FAA. The Court therefore denied the motion to compel arbitration, finding that the Nebraska statute prevailed over the FAA. Datacor, Inc. v. Heritage Warranty Ins. Risk Retention Group, Inc., Case No. 09-1123 (USDC E.D. Mo. Dec. 16, 2009).

This post written by Dan Crisp.

After granting defendant Lloyd’s motion to compel arbitration, plaintiff B.D. Cooke and Partners filed a motion for reconsideration of the order.  Soon thereafter, B.D. Cooke contacted Lloyd’s to begin arbitration.  Lloyd’s subsequently filed a motion to stay arbitration pending the result of B.D. Cooke’s motion for reconsideration.  The District Court for the Southern District of New York likened the analysis to a stay of arbitration requested pending appeal of a court’s order compelling arbitration.  In such situations, the court explained, motions to stay are generally denied unless the equities tip decisively in the direction of a stay, such as when irreparable harm or clear hardship would otherwise result.  The Court denied the motion to stay, reasoning that incurring unnecessary expenses did not constitute sufficient harm to the defendant.  The court, however, denied plaintiff’s motion for fees finding that the motion to stay was not brought in bad faith.  B.D. Cooke & Partners Ltd. v. Certain Underwriters at Lloyd’s London, Case No. 08-3435 (USDC S.D.N.Y. Nov. 19, 2009).

This post written by John Black.

In one outgrowth of a thicket of litigation between Amway Global and a number of its former beauty product “independent business owners” (“IBOs”), a Michigan federal court confirmed an arbitration award in favor of Amway. Dispute arose when the IBOs allegedly breached agreements with Amway when they went to work for a competitor. The IBOs alleged that the contracts were unenforceable, as were the arbitration provisions. In Michigan litigation, the court compelled the parties to arbitrate, which they did over 16 days in Detroit in 2009. The arbitrator ruled in favor of Amway. Meanwhile, the IBOs had brought putative class action claims in Utah federal court, which claims were consolidated with two similar cases brought by Amway and its competitor, MonaVie products, and were pending (and remain pending) when the arbitration took place. When Amway filed an action in Michigan to confirm the arbitration award, the IBOs filed an identical action in Utah, seeking to vacate the award, and seeking to consolidate that action with the other consolidated Utah cases. The Michigan court refused the IBOs’ motion to stay or transfer to Utah, citing the “first to file” rule, as Amway had filed its action to confirm the award three days earlier than the IBOs filed their similar Utah action, and the IBOs failed to demonstrate a reason to depart from the rule. Amway Global v. Woodward, No. 09-12946 (E.D. Mich., Nov. 20, 2009).

This post written by John Pitblado.

A motion to compel arbitration and to stay a case was granted to prevent the court from having to intepret certain reinsurance contracts that contain the arbitration agreements. Petitioner Sun Life Assurance Company of Canada sought the confirmation of an arbitration award. The respondents opposed, arguing that in seeking confirmation of the award, Sun Life also sought substantive rulings regarding the rights and liabilities of the parties that the arbitration panel did not address, namely, whether Sun Life owed interest on the award and whether the parties’ relationship should be terminated. The court agreed with the respondents, finding that to grant the relief Sun Life sought, the court would have to review the contracts and determine substantive rights and liabilities of the parties, thereby improperly usurping the arbitrators’ role. Sun Life Assurance Co. of Canada v. Liberty Mutual Insurance Co., Case No. 09 CV 2133 (USDC S.D. Cal. Dec. 9, 2009).

This post written by Brian Perryman.

A federal district court recently granted defendant, Vitol Inc.’s motion to stay a claim pending arbitration. The plaintiff, ICC Chemical, argued that the parties had not agreed to arbitratre, and therefore, that the four-part inquiry used by the Second Circuit to determine whether an action is arbitrable was not satisfied. Specifically, plaintiff argued that the contract (drafted and delivered by a third party) did not contain an arbitration provision. Plaintiff did not dispute that a “confirmation” of the agreement sent four days later did contain the arbitration provision. The Court concluded that under the New York Uniform Commercial Code, the “confirmation” set forth additional contract terms and was sent in a reasoanble time period. Additionally, under New York law, arbitration provisions do not constitute material alterations to a contract. Therefore, the Court concluded that the parties had agreed to arbitrate, and stayed the action pending arbitration. ICC Chemical Corp. v. Vitol, Inc. , 09 Civ. 7750 (PKC) (USDC S.D.N.Y. Nov. 18, 2009).

This post written by Lynn Hawkins.