Alex Silverman

New York Court Compels Arbitration of Commercial Marijuana Dispute

October 22, 2019 by Alex Silverman

The defendants moved to compel arbitration of a complex dispute concerning the parties’ investment in medical marijuana companies. The plaintiff claimed that the defendants breached a non-compete agreement and fiduciary obligations by taking virtually all the business belonging to the parties’ mutual holding company and transferring it to a competing company in which the plaintiff held a substantially smaller interest. The holding company’s operating agreement contained a broad arbitration clause requiring that all disputes, claims, rights, and obligations between the parties arising out of the agreement be resolved by final and binding arbitration. The plaintiff brought suit in New York state court seeking to compensate the holding company for its loss of business. The defendants argued that the plaintiff’s claims were barred by the statute of limitations and laches, and moved to dismiss and/or compel arbitration under the operating agreement.

While agreeing that the defendants had potentially strong affirmative defenses, including a statute of limitations and laches, the court held that the merits of these claims and defenses must be decided by an arbitrator. Although New York law allows courts to rule on “gateway” issues, such as a statute of limitations and laches defenses, the court held that the Federal Arbitration Act (FAA) applied here because the matter involved interstate commerce. Under the FAA, the court explained, threshold questions of these kinds are presumptively reserved for the arbitrator. The arbitration clause in this case also expressly incorporated the American Arbitration Association rules. New York courts generally defer arbitrability questions to the arbitrators in such cases. The court also held that the defendants did not waive their right to move to compel arbitration. Because the defendants insisted throughout the case that it belonged in arbitration, the court held that the plaintiff could not now claim to be prejudiced by the defendants’ request for that relief.

Broumand v. Abbot, No. 655954/2018 (N.Y. Sup. Ct. N.Y. Cty. Oct. 4, 2019).

District Court Dismisses Petition to Confirm Interim Arbitration Award for Lack of Subject-Matter Jurisdiction

October 3, 2019 by Alex Silverman

The petitioner sought to confirm an arbitration award, which the respondent opposed for lack of subject-matter jurisdiction. The respondent argued that the district court only had jurisdiction to confirm final arbitration awards and that the petitioner was seeking to enforce an interim ruling. The award at issue was governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as the petitioner was not a U.S. citizen. Under the Convention, the district courts lack authority to confirm an arbitration award unless it is “final,” meaning it resolves the rights and obligations of the parties definitively enough to preclude the need for further adjudication. An interim arbitration decision is “final” as to certain claims under certain circumstances – when, for example, it definitively disposes of specific claims in the arbitration, even if others remain.

The petitioner sought to enforce an award titled “interim emergency award.” While the title itself was not decisive on the issue, the court found that the ruling facially and substantively only “paused” the parties’ business relationship until a full arbitration panel could be convened. Because the award did not definitively dispose of any independent claim submitted to arbitration, the court found that it lacked subject-matter jurisdiction over the petition to confirm and therefore granted the respondent’s motion to dismiss.

Al Raha Grp. for Tech. Servs. v. PKL Servs., Inc., No. 1:18-cv-04194 (N.D. Ga. Sept. 6, 2019).

District Court Compels Arbitration Citing Insurance Policy’s “Service-of-Suit” Provision

October 1, 2019 by Alex Silverman

The plaintiff’s property sustained fire damage, for which the plaintiff sought coverage under an insurance policy issued by the defendants. After a dispute arose, the plaintiff sued the defendants in Mississippi state court. The defendants, foreign insurance companies, removed the action to Mississippi federal court pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The defendants then moved to compel arbitration based on an arbitration clause in the insurance policy, which stated that the parties would arbitrate any dispute if they failed to agree on any aspect of the policy. The plaintiff opposed and moved to remand the case to state court, citing language in the policy’s cover note conferring U.S. courts with “exclusive jurisdiction” over any dispute under the policy. The sole issue was whether the plaintiff’s claim was arbitrable.

Applying a four-factor test used in the Fifth Circuit to analyze arbitrability under the Convention, the court found the first factor – whether there is a written agreement to arbitration – to be decisive here. The court rejected the plaintiff’s argument that the policy’s arbitration and exclusive jurisdiction clauses conflicted, finding that any such conflict was resolved by the policy’s “service-of-suit” provision. That provision addressed service of process in the event of litigation but also expressly provided that it “will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in any Arbitration clause within this Policy” and that it is solely “intended as an aid to compelling arbitration or enforcing such arbitral award, not as an alternative to such Arbitration clause for resolving disputes arising out of this contract of insurance.” Finding that this language clearly demonstrated the parties’ intent to arbitrate, and that the three other factors in the four-factor test were undisputed, the court granted the defendants’ motion to compel arbitration and denied the plaintiff’s motion to remand.

First United Methodist Church of Corinth, Inc. v. Certain Underwriters at Lloyds Subscribing to Policy No. PG197716, No. 1:19-cv-00120 (N.D. Miss. Sept. 4, 2019).

UK High Court Declines to Sanction Transfer of Annuity Portfolio

September 12, 2019 by Alex Silverman

The High Court of Justice Business and Property Courts of England & Wales refused to sanction a scheme proposed by Prudential Assurance Co. and Rothesay Life PLC to transfer approximately 370,000 annuity policies from Prudential to Rothesay. The scheme was proposed under Part VII of the Financial Services and Markets Act 2000. As part of the scheme, Prudential and Rothesay entered into a reinsurance agreement to transfer the majority of the economic risk and reward of Prudential’s annuity business covered by the agreement from Prudential to Rothesay. Although the scheme would not change any terms of any policies, the court found that the scheme offered no benefits to the transferred policyholders, who would no longer be entitled to look to Prudential to pay or service their annuities and instead would need to look solely to Rothesay in these respects. The court noted that the scheme was “strenuously opposed” by a number of policyholders, who contended that they selected Prudential as their annuity provider based specifically on its long history as a leading UK insurer, its size, reputation, and financial strength and resources.

On balance, the court concluded that a number of factors weighed heavily against exercising its discretion to sanction the scheme. It emphasized, among other things, the overall fairness of the scheme as between all affected persons, the annuity policyholders in particular. The court found that it was entirely reasonable for policyholders to have chosen Prudential based on its history and reputation, among other factors, and for policyholders to have assumed that Prudential would not seek to transfer their policies to another provider. The court rejected Rothesay’s contention that it would be prejudiced by any decision not to sanction the scheme by refusing it the benefits of the reinsurance agreement with Prudential referenced above, finding that Rothesay entered into the reinsurance agreement knowing the scheme was subject to the court’s sanction and thus was not guaranteed to be approved.

In re Prudential Assurance Co. Ltd. [2019] EWHC (Ch) 2245 (Eng.).

Court Stays Yacht-Wreck Coverage Action Pending Concurrent Proceeding to Vacate Arbitration Award in Favor of Insurers

September 10, 2019 by Alex Silverman

Taunia Kittler, through Galilea LLC, owned a 60-foot sailing yacht named Galilea. In June 2015, the Galilea crashed off the coast of Panama and was deemed a complete loss. Kittler and Galilea LLC sought insurance coverage from the insurer-defendants, which denied the claim on the ground that the accident had occurred outside the covered cruising area. The insurers then commenced arbitration against Galilea in New York.

In June 2018, while the arbitration was pending, Kittler and Galilea commenced a separate action in Montana federal court, asserting claims that were identical to the counterclaims they asserted in the arbitration proceeding. The insurers moved to dismiss and/or stay the case pending final resolution of the arbitration, and, in March 2019, certain of Kittler and Galilea’s claims were dismissed. The remainder of the insurers’ motion was referred to the magistrate judge for resolution. One month later, the arbitrators issued an award in favor of the insurers, finding that Kittler and Galilea were not entitled to coverage for the Galilea wreckage. In June 2019, while the insurers’ motion to dismiss and/or stay was still pending, Kittler and Galilea moved to vacate the arbitration award in the Southern District of New York.

In the most recent development, the Montana district court agreed with the insurers to stay the case pending the outcome of Kittler and Galilea’s motion to vacate the arbitration award. Because Kittler and Galilea’s claims in the case were identical to those asserted in the arbitration proceeding – which was resolved against Kittler and Galilea – and because Kittler and Galilea have challenged the arbitration award, the court held that the award was not “final.” As such, it determined that a stay of the case was required, citing the “liberal federal policy favoring arbitration.” Given the significant overlap of issues, the court also noted that the case may be rendered moot by the outcome of the proceedings in the Southern District of New York, and that absent a stay of the case, any decisions therein may result in inconsistent rulings.

Galilea, LLC v. Pantaenius Am. Ltd., No. 1:18-cv-00131 (D. Mont. Aug. 26, 2019).