Reinsurance Focus

A Florida court of appeals affirmed a trial court decision to deny arbitration finding a later signed contract supplanted an earlier contract with an arbitration provision. The Appellant, HHH Motors, LLP, signed a retail purchase agreement with Appellees, Jenny and Kristopher Holt, to purchase a Dodge Ram truck. The contract contained an arbitration provision. To finance the truck purchase, both parties then executed a retail installment sales contract (“RISC”) which failed to include a similar provision. The contract did include a merger clause however, which signified that the RISC was to be a complete and final agreement between HHH Motors and the Holts.

The Holt’s then filed a class action lawsuit alleging HHH Motors violated Florida’s Deceptive and Unfair Trade Practices Act relating to certain customer charges. The trial court denied HHH Motors motion to compel arbitration based on the retail purchase agreement, and they subsequently appealed.

HHH Motors argued that their right to arbitration vested when the original agreement was signed. They further argued that as the contracts were signed “contemporaneously,” both contracts should be interpreted together. While the appeals court did acknowledge two documents signed contemporaneously on the same transaction may be interpreted together, this argument was not dispositive. The RISC was “was sufficiently unequivocal to render the [retail purchase agreement] arbitration clause nugatory.” The court further noted that if HHH Motors wanted to include an arbitration clause in the RISC, they easily could have done so. HHH Motors v. Holt, No. 1D13-4397, (Fla. 1st DCA, Dec. 3, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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On November 18, 2014, we reported on the Seventh Circuit’s decision in Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, in which Pine Top claimed that Banco de Seguros owed it $2,352,464.08 under certain reinsurance contracts.  The Seventh Circuit affirmed the trial court’s ruling denying Pine Top’s motion to compel arbitration, agreeing that Pine Top’s assigned rights under the reinsurance contracts were limited to the collections of certain debts and did not include the right to arbitrate.  The Seventh Circuit also had affirmed the trial court’s denial of a motion to strike Banco Seguros’s pleading for failure to post security, holding that such pre-judgment security is a form of attachment that violates the Foreign Sovereign Immunities Act.  On December 22, 2014, the Seventh Circuit denied Pine Top’s petition for rehearing and rehearing en banc, as no judge requested a vote on the petition, and the judges on the prior panel voted to deny rehearing.  Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 13–1364 (7th Cir. Dec. 22, 2014).

This post written by Michael Wolgin.

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Steadfast Insurance Company entered into a settlement agreement with its insured, Barton Malow Enterprises after agreeing to pay $15 million on Barton’s claim. The settlement included a complete release of all claims by Steadfast against Barton and its affiliates and subsidiaries. Thereafter, Steadfast discovered that it had purchased reinsurance covering a portion of the settlement proceeds under a reinsurance agreement with United Integrity. United denied the claim, arguing that Steadfast released United because United was in fact a wholly-owned subsidiary of Barton’s. Steadfast then served an arbitration demand on United pursuant to the arbitration clause in their reinsurance agreement. Barton and United responded by filing suit against Steadfast, which moved to stay the action pending arbitration. Barton and United opposed the motion for stay, arguing that the later-executed settlement agreement overrode the arbitration provision. The court disagreed and stayed the case pending arbitration. The arbitration provision was not superseded by the settlement agreement because the settlement agreement did not specifically preclude arbitration. Moreover, United’s claims fell within the scope of the arbitration provision; the claims implicated both sides’ rights and obligations under the reinsurance agreement. Finally, although Barton was not a party to the reinsurance agreement, the court found that judicial economy warranted staying Barton’s claims against Steadfast pending conclusion of the arbitration. Barton Malow Enterprises, Inc. v. Steadfast Insurance Co., No. 14-cv-7347 (USDC S.D.N.Y. Dec. 31, 2014).

This post written by Leonor Lagomasino.

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The Seventh Circuit recently held that a cost-sharing agreement (“CSA”) between Hennessy Industries Inc. (“Hennessy”) and National Union Fire Insurance Co. (“National Union”) required the parties to arbitrate a dispute over attorneys’ fees stemming from asbestos-related personal injury claims. Hennessy and National Union entered into a CSA that set forth a framework to govern asbestos claims handling and payment in 2008. The CSA was governed by Illinois law and contained an agreement that the parties would submit disputes to arbitration, though arbitrators would not have jurisdiction to award punitive damages, fines, or penalties.

Despite the language of the CSA, Hennessy sued National Union in federal court, seeking penalties, attorneys’ fees, and costs as provided by Section 155 of Illinois’s insurance law. National Union moved to compel arbitration of that claim, but the district court denied the motion, finding that the Section 155 claim was not within the scope of the parties’ arbitration agreement. National Union appealed to the Seventh Circuit, which reversed the district court’s ruling. Judge Posner, writing for the court, held: (1) Section 155 “regulate[s] the business of insurance” and thus could not be preempted by the Federal Arbitration Act; and (2) Section 155 was within the scope of the arbitration agreement, and so it was arbitrable by its terms. Hennessy Industries, Inc. v. National Union Fire Ins. Co. of Pittsburgh, No. 14-1277 (7th Cir. Oct. 28, 2014)

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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The California Court of Appeals recently held that the Federal Arbitration Act (“FAA”) preempts California’s Broughton-Cruz rule, which states that arbitration agreements for injunctive relief under California’s unfair competition and false advertising laws are against public policy and invalid.

In McGill v. Citibank, plaintiff sued Citibank for state law claims of unfair competition and false advertising, alleging that Citibank had violated her rights as a consumer in offering a credit insurance plan she purchased to protect her credit card account. Citibank moved to compel plaintiff to arbitrate her claims pursuant to the arbitration provision in her account contract. The trial court granted the motion with regard to plaintiff’s claims for monetary damages and restitution but refused to order arbitration of the claim for injunctive relief. Citibank appealed the decision as to the damages and restitution claims.

California’s appellate court held that the California Broughton-Cruz rule did not survive the Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, __ U.S. __, 131 S. Ct. 1740 (2011). In Concepcion, the Court held that the FAA preempts state laws, such as laws that prohibit class arbitration waivers in certain contexts or otherwise impede the FAA’s objective of enforcing arbitration agreements according to their terms. The California court reversed and remanded the case for the trial court to order all of plaintiff’s claims to arbitration. McGill v. Citibank, N.A., No. G049838 (Cal. Ct. App. Dec. 18, 2014).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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The trial court had granted the motion to compel arbitration of Flintkote Company against one of its asbestos liability insurers, Aviva PLC, despite the fact that Aviva was a non-signatory to the subject Alternative Dispute Resolution Agreement (“ADR Agreement”). Flintkote had entered into the ADR Agreement with its other asbestos liability insurers, but not with Aviva, which would not accept the ADR Agreement’s arbitration provision. The trial court compelled arbitration based on equitable estoppel, reasoning that Aviva had agreed to participate in mediation with Flintkote and the other insurers (which had been initiated further to the ADR Agreement). On appeal, the Third Circuit reversed. The court held that there was “simply no evidence that Aviva embraced the [ADR] Agreement when it opted to participate in mediation alongside the other London insurers.” The court also ruled that certain correspondence sent by the joint mediation counsel that referenced the ADR Agreement or suggested joint action with Aviva did not constitute sufficient reliance on the ADR Agreement to compel Aviva to arbitrate. The court further held that Flintkote could not have reasonably relied on an “unspoken” agreement with Aviva to arbitrate, given that Aviva had previously “negotiated for and specifically reserved the right to resolve all disputed issues through litigation.” Flintkote Co. v. Aviva PLC, No. 13-4055 (3d Cir. Oct. 9, 2014).

This post written by Michael Wolgin.

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The Second Circuit recently affirmed a district court’s refusal to enjoin an arbitration proceeding under the All Writs Act. The parties to the dispute had been involved in a prior arbitration that resulted in an award confirmed by the district court. While the confirmation judgment was on appeal, one of the parties instituted a second arbitration raising claims similar to those asserted in the first arbitration. The respondent, Citigroup, Inc., filed suit in the Southern District of New York, arguing that the All Writs Act should be applied to enjoin the second arbitration because the second arbitration amounted to an “assault” on the prior federal judgment confirming the first award. The district court rejected Citigroup’s argument, dismissed the federal court action, and compelled arbitration. The Second Circuit affirmed, holding that the FAA’s framework favoring the submission of disputes to arbitration precludes use of the All Writs Act to enjoin a subsequent arbitration of claims that one party asserts are barred by the prior arbitration. In reaching this decision, the Second Circuit noted that the prior federal judgment did not involve consideration of the merits of the underlying claims, but rather merely confirmed an arbitration award through a limited review. The Second Circuit concluded that a federal court’s interest in protecting the integrity of such a prior judgment does not authorize use of the All Writs Act.  Citigroup, Inc. v. Abu Dhabi Inv. Auth., No. 13-4825-CV, 2015 WL 161745 (2d Cir. Jan. 14, 2015).

This post written by Catherine Acree.

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In In Re Sussex, No. 14-70158 (9th Cir. Jan. 27, 2015), the Ninth Circuit determined that the district court erred in holding that its decision to intervene mid-arbitration was justified under Aerojet-General Corp. v. Am Arbitration Ass’n, 478 F.2d 248 (9th Cir. 1973). Specifically, the panel held that the district court erred in predicting that an award issued by the arbitrator would likely be vacated because of his evident partiality under the Federal Arbitration Act, 9 U.S.C. § 10(a)(2). The panel determined that undisclosed facts regarding the arbitrator’s efforts to start a company to attract investors for litigation financing did not give rise to a reasonable impression that the arbitrator would be impartial toward either party. The panel, quoting Commonwealth Coatings v. Continental Cas. Co., 393 U.S. 145, 150 (1968) emphasized that an arbitrator must disclose facts showing that they might be reasonably biased against one litigant and favorable to another. In this case, the panel found that the arbitrator’s financial effort regarding his efforts to start a litigation finance company in relation to the parties and issues in the case were contingent, attenuated, and speculative. Furthermore, the panel held that even if the arbitrator’s activities created a reasonable impression of partiality, the district court’s equitable concern that costs and delays would result if the arbitration award were vacated was inadequate to justify a mid-arbitration intervention, regardless of the size and early stage of arbitration.

This post written by Kelly A. Cruz-Brown.

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The core issue facing a federal court in Utah was whether it should stay the proceedings pending resolution of related arbitration proceedings involving sureties which issued payment bonds under the Miller Act. A dispute arose among various parties involved in the construction of a project called the Utah Data Center. Cache Valley Electric Company sued Truland Systems which subcontracted Cache to perform certain electrical work on the project. In accordance with the Miller Act, Truland, which had been subcontracted by the general contractor, obtained payment bonds for the labor and materials on the project. Cache sued to recover payment from the general contractor and from Truland’s sureties.

Truland’s sureties then moved to stay the proceedings pending the outcome of the arbitration proceeding between the general contractor, Truland, and Cache, arguing that the outcome of the arbitration proceeding would determine whether Cache performed its contractual responsibilities. Cache opposed the stay on the grounds that the purpose of the Miller Act would be violated if arbitration is compelled because the purpose of the payment bond required under the Act is to shift the ultimate risk of nonpayment from workmen and suppliers to the surety. Staying the case, Cache argued, would violate the Act’s prompt payment requirement. The court rejected Cache’s argument and stayed the proceedings. Even though Truland’s sureties were not parties to the arbitration proceedings and not technically bound by the Truland/Cache arbitration agreement, the case should nevertheless be properly stayed. A stay of the case would promote judicial economy, would avoid inconsistent results, and would create undue hardship for Cache which had the opportunity to defend itself in the arbitration. United States ex. rel Cache Valley Electric Co. v. Travelers Casualty & Surety Co. of America, Case No. 2:13-cv-01120-DN (USDC D. Utah Jan. 13, 2015).

This post written by Leonor Lagomasino.

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The District Court of Colorado recently denied Defendant Garmin International’s motions to dismiss and to stay pending arbitration, concluding that Plaintiff MSPBO was not bound by an arbitration agreement to which it was not a signatory.  In late 2006, PhatRat Technology, Inc., (“PhatRat”) entered into a settlement and arbitration agreement (“agreement”) with Garmin International to resolve a licensing dispute. The agreement stipulated that Garmin International would be released from all liability from PhatRat and its affiliates associated with the licensed patents. Seven years later, MSPBO sued Garmin International for patent infringement.

Garmin argued that the dispute as to whether MSPBO was an affiliate of PhatRat, and therefore subject to arbitration, should be covered by the agreement’s arbitration clause. The Court disagreed, holding that a non-signatory cannot be bound to arbitrate unless there is a “close relationship” between the parties and the claims relate to the underlying dispute.  Garmin International alleged that MSPBO was merely a shell company, but the Court found no support for these allegations. The nature of the relationship between the parties is somewhat convoluted. MSPBO and PhatRat shared common ownership, but MSPBO was later sold to Deer Creek Capital, after which they acquired the disputed patent. The Court further found that “the agreement between PhatRat and Garmin contains no clause placing upon PhatRat’s affiliates equal rights and obligations under the agreement.” As such, Garmin International motions were denied and MSPBO would not be bound by the arbitration agreement to which it was not a signatory.  MSPBO, LLC v. Garmin International, Inc., Case No. 13-cv-03388-PAB-KMT (USDC D. Colo Sept. 11, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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