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CLAIMS AGAINST LOAN SERVICER AND FORCE-PLACED INSURER ALLEGING COMMISSION AND REINSURANCE KICKBACK SCHEME SURVIVE DISMISSAL

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A putative class action involving force-placed home insurance and an alleged scheme for mortgage lenders to obtain kickbacks in the form of commissions, reinsurance premium, and other fees, has survived a motion to dismiss. The complaint alleged that the mortgage lender, loan servicer, and insurer participated in a scheme of entering into exclusive agreements to force place insurance at grossly excessive rates in return for the kickbacks. The loan servicer and insurer moved to dismiss two Florida law claims: unjust enrichment and tortious interference with a business relationship. Regarding the claim for unjust enrichment, the court held that the complaint sufficiently alleged that the named plaintiffs conferred a “direct benefit” on the servicer and insurer (force-placed premiums), that the servicer and insurer retained the benefit, and that the benefit would be inequitable for them to retain. With respect to tortious interference, the court held that the complaint sufficiently alleged that the servicer and insurer intentionally interfered with the lender’s and plaintiffs’ business relationship in bad faith, which resulted in damages to the plaintiffs. The court held that the complaint adequately alleged the causes of action. Hamilton v. SunTrust Mortgage, Inc., Case No. 13-60749-CIV (USDC S.D. Fla. March 28, 2014).

This post written by Michael Wolgin.

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TENNESSEE WITHDRAWS FROM SLIMPACT

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Tennessee’s governor signed into law a repeal of that state’s previously-passed enabling legislation, which allowed it to join the Surplus Lines Insurance Multi-State Compliance Compact (“SLIMPACT”). SLIMPACT was one of the two models proposed by various states in response to the invitation and recommendation to do so set forth in the Non-Admitted and Reinsurance Reform Act (“NRRA”) as part of the omnibus Dodd-Frank financial regulation overhaul passed by Congress in 2010. SLIMPACT is an interstate compact created for the purpose of allowing states to take advantage of shared administration of data, record-keeping, and premium tax allocation. Tennessee was the last state to join, which it did in June, 2011, becoming the ninth state. By its terms, SLIMPACT was slated to become effective once ten states joined. However, its future is now in doubt as it moved farther away from its ten-state goal, after stalling at nine states for the last three years. The repeal bill, Tennessee Senate Bill 356, was signed into law on April 4, 2014, and repeals Section 56-14-201 of the Tennessee Code. The bill becomes effective July 1, 2014.

This post written by John Pitblado.

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DENIAL OF ARBITRATION REVERSED WHERE TRIAL COURT FAILED TO HOLD TRIAL TO RESOLVE DISPUTED QUESTIONS OF FACT

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The Tenth Circuit has pointedly reversed a trial court’s decision to deny arbitration, based on the fact that the lower court failed to hold a trial (as required by the FAA) when disputed questions of fact surrounding the parties’ oral agreement remained. The case was brought as a class action against a propane gas company for overcharging customers. Despite multiple rounds of lengthy discovery, factual questions remained regarding the content of conversations between the parties, and when the “last act” of contract formation occurred for purposes of determining choice of state contract law. The Tenth Circuit concluded: “Summary-judgment-like motions practice may be a permissible and expedient way to resolve arbitrability questions when it’s clear no material disputes of fact exist and only legal questions remain. But when factual disputes may determine whether the parties agreed to arbitrate, the way to resolve them isn’t by round after round of discovery and motions practice. It is by proceeding summarily to trial. That is the procedure the [FAA] requires and the parties should have undertaken a long time ago – and it is the procedure they must follow now.” Howard v. Ferrellgas Partners, L.P., Case No. 13-3061 (10th Cir. April 8, 2014).

This post written by Michael Wolgin.

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COURT VACATES ARBITRATION AWARD WHERE ARBITRATION HELD UNDER INCORRECT ARBITRATION RULES

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A federal judge in Houston recently vacated an arbitration award where the reinsurance agreement specified that the arbitration of any disputes would proceed “under the auspices of the ICC,” but the arbitration actually proceeded under the American Arbitration Association’s Commercial Arbitration Rules. The Court found that the parties to the reinsurance agreements selected the International Chamber of Commerce, and application of its rules, as a mandatory and essential condition of their agreement to arbitrate. Because this did not occur, the selected arbitrator lacked jurisdiction to hear the claims presented. The court noted that generally, after the conclusion of an arbitration, a court cannot second guess the arbitrator’s jurisdiction and decision so long as the arbitrator (1) is arguably construing or applying the contract, and (2) is acting within the scope of his authority. The court found, however, that the case presented a rare example of the second exception, in which an arbitrator assumed authority over a dispute that the parties’ agreements mandated be referred to a different forum, namely the ICC. This error fundamentally prejudiced the proceedings. PoolRe Insurance Corp. v. Organizational Strategies, Inc., Case No. H-13-1857 (USDC S.D. Tex. Mar. 31, 2014).

This post written by Catherine Acree.

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