Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Brendan Gooley

Brendan Gooley

Court Denies Reinsurers’ Attempts to Avoid Suit

by

The U.S. District Court for the District of Columbia recently denied attempts by reinsurers to avoid a suit by moving to have the claims against them dismissed or, in the alternative, seeking to compel arbitration or stay the case pending a related arbitration.

Vantage Commodities Financial Services I, LLC sued various reinsurers. The court dismissed Vantage’s breach of contract claim but allowed Vantage to file an amended complaint in which it alleged breach of implied contract, promissory estoppel, and unjust enrichment claims. The reinsurers moved to dismiss those claims. They argued that express agreements foreclosed the claim that there was a breach of an implied contract. The court disagreed. It noted that Vantage was not a party to any agreement with the reinsurers. Thus, the court also rejected the reinsurers’ claim that Vantage’s claim was untimely under an agreement.

In the alternative, the reinsurers sought to compel arbitration. Because Vantage and the reinsurers were not parties to an agreement with Vantage, however, the court concluded that the parties had not agreed to arbitrate disputes under arbitration clauses in a related agreement.

The court then rejected the reinsurers’ request that Vantage revise its amended complaint, reasoning that the complaint was not unduly vague or ambiguous. Finally, the court denied the reinsurers’ request for a stay pending ongoing arbitration. The court recognized that there were “overlapping factual issues common to both the arbitration and [the] litigation,” but found that overlap was insufficient to justify a stay and that it would not be in anyone’s interest to allow the “case to languish” during a pending arbitration of undetermined length.

Vantage Commodities Fin. Servs. I, LLC v. Assured Risk Transfer PCC, LLC, No. 1:17-cv-01451 (TNM) (D.D.C. Apr. 26, 2019).

New York Court Discusses Qualifying and Disqualifying Conditions for Umpires

by

A New York Supreme Court recently explained the conditions that qualify and disqualify a proposed umpire. National Union Fire Insurance and Enstar could not agree on an umpire for their asbestos-claim-related arbitration. Each felt the umpires proposed by the other’s arbitrator should be disqualified. They invoked a procedure allowing the court to select the umpire.

The court explained that umpires must be “impartial such that his/her decision will be based upon the merits of the dispute rather than the personal influence or identity of the disputants.” Applying that general standard, the court struck one proposed umpire (Chaplin) on the ground that he had previously testified for Enstar in another arbitration on an issue material to the present arbitration and was therefore “not entirely neutral as to this arbitration.” The court noted, however, that prior service as an expert is not always an automatic disqualification. The court then struck another proposed umpire (Maneval) because he had voted against Chaplin’s interpretation in a prior arbitration. The court explained that his service as an umpire in the instant arbitration could therefore create “an appearance of possible bias.” Another proposed umpire (Stern) was previously adverse to National Union’s arbitrator and, while not necessarily a problem, there was no reason to put that arbitrator in such an “untenable position” when there were other qualified candidates. Those candidates did not include an arbitrator (Gurevitz) who had previously worked for National Union’s counsel, which warranted disqualification, and another arbitrator (White) who was not a lawyer and who was therefore not ideal given the legal nature of the issues in the forthcoming arbitration. The court determined that another arbitrator (Bickford) with substantial industry experience was best suited to serve in this dispute.

Enstar EU Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No 654089/2018 (N.Y. Sup. Ct. Apr. 19, 2019).

Ninth Circuit Finds No Foreign Arbitration Award to Uphold

by

Foreign arbitration awards must generally be upheld in the United States under treaty obligations. Upholding a foreign award requires that there actually be an arbitration award, however. For that matter, it requires an actual arbitration proceeding. A recent Ninth Circuit decision confronted a strange situation where there was no arbitration to confirm.

Michael Castro signed an employment agreement to be a commercial fisherman for Tri Marine. The agreement contained a mandatory arbitration provision that required him to arbitrate any disputes in and subject to the procedural rules of American Samoa. Castro was injured on the job. He released his claims in exchange for a cash settlement. The release also contained an arbitration clause requiring arbitration in American Samoa. Castro was then advised to go to an arbitrator in the Philippines with a representative of Tri Marine, though claimed he was told and believed he was merely picking up his settlement check. At the arbitrator’s office, Tri Marine filed a motion to dismiss the arbitration, even though there was not an arbitration case filed (indeed, there wasn’t even a case number assigned to the matter). The arbitrator granted that motion. Castro later required additional surgery and sought to bring suit in Washington state court in the United States. Tri Marine removed to Washington federal court, which dismissed the case.

The Ninth Circuit reversed. The court recognized that foreign arbitration awards must generally be upheld under the New York Convention, but concluded that there was no arbitral award under the facts. Although the arbitrator had issued a decision on a motion to dismiss, the parties had settled their dispute before the “case” was even filed. There was nothing to arbitrate. But even if there was an “arbitration,” it did not comply with the arbitration agreement’s arbitration clause or choice-of-venue provision. There was no evidence Castro waived those provisions. And even putting aside all those problems, the “arbitration” did not comply with the law of the Philippines concerning arbitration. The Ninth Circuit was careful to note that it was not infringing on “consent awards” whereby settlements reached during arbitration are turned into arbitration awards. That did not happen in this case. The court then remanded the case to the district court and instructed it to consider whether jurisdiction existed.

Castro v. Tri Marine Fish Co., No. 17-35703 (9th Cir. Feb. 27, 2019).

New York Federal Court Rejects Attempt to Vacate Arbitration Award Related to Theft of Corporate Assets

by

A New York federal court recently confirmed an arbitration award related to the alleged theft of more than $100 million from a Luxembourg company, SLS Capital. SLS’s liquidator in bankruptcy court then initiated a FINRA arbitration against CRT Capital, which had sold its majority interest in SLS to David Elias, who allegedly stole SLS’s assets.

CRT prevailed after a lengthy arbitration and was awarded more than $4 million, which includes costs and fees. CRT sought to confirm the award. SRT opposed that motion and sought to vacate the award. SRT argued that the arbitrators had improperly: (1) excluded expert rebuttal testimony it proffered; (2) applied the Federal Rules of Evidence during the hearing; and (3) awarded fees. The New York district court rejected those arguments and confirmed the award. The court concluded that the arbitration panel had numerous independent grounds for excluding the proffered rebuttal testimony, acted within its discretion to apply the evidentiary rules, and, under a highly circumscribed review, did not manifestly disregard the law of New York with respect to the award of costs and fees.

CRT Capital Grp. LLC v. SLS Capital, S.A., No. 1:18-cv-03986-VSB (S.D.N.Y. Mar. 31, 2019)

“Partial Final” Does Not Mean Final

by

Don’t try to confirm an arbitration award when there is still arbitration work to be done. Relying on Seventh Circuit precedent, the Northern District of Illinois concluded that it lacked subject-matter jurisdiction to confirm an arbitration award because the arbitrators’ work was incomplete and the arbitration hearing wasn’t finished.

FCE Benefit Administrators Inc., a third-party benefits administrator, agreed to administer health insurance policies underwritten by Standard Security Life Insurance Co. of New York and Madison National Life Insurance Co. The life insurers terminated the agreement, alleging that FCE had breached it, essentially by doing a bad job. They initiated arbitration and FCE counterclaimed, claiming the insurers wrongfully terminated the agreement.

Before the arbitration, FCE sought a continuance for discovery and to amend its counterclaim. The panel denied the request for a continuance, but granted the request to amend. In addition, the panel explained that FCE’s counterclaims would be presented at a second phase of the arbitration at which FCE would also be required to produce certain documents.

The parties proceeded to arbitration and the panel issued a “Partial Final Award” in favor of the insurers, concluding that the insurers were within their rights to terminate the agreement. The panel awarded the insurers nearly $5.4 million and determined that “[a]ll other claims for relief by the parties [were] denied.” The insurers sought to confirm the award.

The district court dismissed the insurers’ claim for confirmation for lack of subject-matter jurisdiction. It explained that courts lack jurisdiction to confirm an award when the arbitrators’ work was unfinished. Although the award in this case had resolved the insurers’ claim and denied all other claims, it was “undisputed that the Panel still ha[d] left to adjudicate, at a minimum, FCE’s counterclaim against” the insurers. All parties had contemplated a “Phase II.”

Standard Sec. Life Ins. Co. of New York v. FCE Benefit Adm’rs, Inc., No. 19 CV 64 (N.D. Ill. Mar. 13, 2019).