The plaintiff in the underlying arbitration (Health Options) served a third-party subpoena on Walgreens to attend a hearing and produce documents concerning the prices it charged for pharmaceuticals to Navitus that Health Options ultimately covered. Walgreens initially declined to produce the requested information and a corporate representative for the hearing, claiming its headquarters was more than 100 miles from the hearing location in Madison, Wisconsin, and that the court lacked personal jurisdiction over it. The court, however, granted a motion to enforce the arbitration subpoena. First, the court rejected Walgreens’s territoriality argument, accepting Health Options’s proposed method of measuring distance “as the crow flies” and finding that Walgreens’ headquarters in Deerfield, Illinois was less than 100 miles from Madison. Second, the court held that it had personal jurisdiction over Walgreens. The court concluded that Walgreens’s suit-related in-state activities—submitting inflated prices to Navitus that Navitus in turn submitted to Health Options—were sufficiently related to Health Options’s injuries—overpaying on Navitus’s claims. Walgreens’s “purposely-directed communications” to Navitus in Wisconsin were “part of the wrongful conduct” that prompted the lawsuit. Because it is unclear whether the traditional minimum contacts inquiry applies in the third-party discovery context, the court examined the additional criterion some circuits apply: whether a close relationship exists between the non-party’s contacts with the specific discovery request. Even with the heightened scrutiny, the court found the subpoena sought documents related specifically to Walgreens’s contact with Wisconsin. Finally, the court denied Walgreens’s request that Health Options pay its subpoena compliance costs up front. It found Walgreens did not demonstrate the subpoena would be unduly burdensome nor did it provide an estimate of costs, both flaws that precluded an award of costs, let alone upfront costs. Maine Community Health Options v. Walgreen Co., Case No. 18-0009 (USDC W.D. Wis. Dec. 20, 2018).
Sixth Circuit Finds it Lacks Jurisdiction Over Dispute Regarding Proper Forum for Settlement of Fee Dispute
A dispute regarding attorney Steven Johnson’s right to fees from William Drake, an individual who hired Johnson to pursue a product liability claim, was made considerably more complicated by conflicting forum provisions in a contract with the attorney and the settlement agreement in the MDL that eventually resolved Drake’s product liability claim.
Drake received a hip implant that was later recalled. Drake hired Mr. Johnson to represent him in his claim against the manufacturer of the implant, signing a contract providing that fee disputes would be arbitrated in Texas. Drake later terminated Johnson and hired a new lawyer, who filed lawsuit against the manufacturer, which became part of an MDL. Drake’s claims were then settled by the manufacturer, and the settlement agreement specified the use of a special master to settle disputes regarding attorneys’ fees.
Johnson commenced an arbitration proceeding against Drake in Texas regarding his fees, and Drake initiated arbitration proceedings against Johnson before the special master regarding the same issues. The special master dismissed Drake’s arbitration proceeding because it was already pending in a different arbitral forum. The Texas arbitrator then issued an award in Johnson’s favor. Drake moved, in the Ohio federal district court handling the MDL, to enforce the terms of the settlement agreement and vacate the Texas arbitration award. The court granted to motion to enforce the settlement but did not decide whether to vacate the apparently conflicting Texas arbitration award, and Johnson appealed this decision to the Sixth Circuit.
The Sixth Circuit started and ended its consideration of the matter with the question of jurisdiction, which Johnson argued existed because (1) the district court’s decision was a final decision appealable under 28 U.S.C. § 1291, and (2) it was appealable under section 16 of the Federal Arbitration Act. The court disagreed. First, the court found that the motion to vacate the Texas arbitration award was one of the main issues before the court, and the district court’s failure to rule on that motion meant that there was no final resolution of the litigation on the merits. Second, the court found that section 16 of the FAA did not apply because the district court did not address the Texas arbitration award, rejecting an argument that it was implicitly vacated by the ruling enforcing the settlement. Lacking jurisdiction, the Sixth Circuit remanded the case to the district court with instructions that it consider whether the Texas arbitration award should be confirmed or vacated.
Drake v. DePuy Orthopaedics, Inc., No. (6th Cir. Nov. 30, 2018)
Court Confirms Arbitration Award Rejecting Insurers’ Allocation of Losses to Multiple Policies for Reinsurance Purposes
A federal district court in Massachusetts has confirmed and entered as a judgment of the court an arbitration award in favor of Certain Underwriters at Lloyd’s, London against Century Indemnity Company regarding reinsurance coverage they provided for a set of claims against Boy Scouts of America (BSA) for sexual molestation by individuals associated with BSA in the 1960s and 1970s.
Century had provided insurance to BSA under 8 policies between 1963 and 1971, and the Underwriters had agreed to reinsure those policies. In the late 1990s, BSA submitted dozens of claims regarding BSA’s alleged liability for sexual molestation claims, and Century settled these claims. The dispute with the reinsurer’s at Lloyd’s of London arose out of the manner in which Century, per an agreement with BSA, chose to allocate these settlement payments among the BSA policies, such that all payments to a particular claimant were allocated to the policy of the first year of the alleged conduct against that individual. Century also combined all claims from a particular year into a single loss for reinsurance purposes.
The Underwriters refused to pay Century’s reinsurance claim, arguing that the manner of allocating losses to the first year of the alleged conduct “was counterfactual” and the agreement with BSA to do it that way “was not the product of a reasonable and business-like investigation.” Century took the dispute to arbitration, and the panel issued an award in the Underwriters’ favor.
The Underwriters then moved to have the court confirm the award and enter it as a judgment of the court. Century did not oppose this motion, which the court then granted without comment.
Certain Underwriters at Lloyd’s, London v. Century Indemnity Company, Civil Action No. 18-12041 (D. Mass. Nov. 16, 2018)
Covered Agreements: Covered Agreement Reached With UK; Implementation of Covered Agreement With EU Slows
On December 11, 2018, the Secretary of the Treasury and the United States Trade Representative sent the Chairs and Ranking Members of the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Finance, the House Committee on Financial Services, and the House Committee on Ways and Means the text of a new Covered Agreement agreed to by the United States and the United Kingdom concerning the business of reinsurance, with the notification letters required for such agreements by the Dodd-Frank Act. A press release also was issued describing the new US-UK Covered Agreement.
The substantive terms of the US-UK Covered Agreement appear to be materially the same as the terms of the previously existing US-EU Covered Agreement. The implementation provisions of the US-EU Covered Agreement were a bit complicated, and the provisions of Article 9 (“Implementation of the Agreement”) and Article 10 (“Application of the Agreement”) of the new US-UK Covered Agreement also are complicated. For example, the agreement becomes applicable the later of the date it enters into force or 60 months from September 22, 2017. September 22, 2017 was the date that the US-EU Covered Agreement was officially signed. More curious is the provision of Article 9 paragraph 3.(a) of the new US-UK Covered Agreement that “[f]rom the date of entry into force of this Agreement, the United States shall encourage each U.S. State to promptly adopt the following measures: (a) the reduction, in each year following 7 November 2017, of the amount of collateral required by each State to allow full credit for reinsurance by 20 percent of the collateral that the U.S. State required as of 1 January 2017 ….” Perhaps these provisions reflect a desire that the two covered agreements become applicable at the same time, with no resulting advantage or disadvantage to reinsurers domiciled in either the EU or the UK post-Brexit.
Meanwhile, the implementation of the US-EU Covered Agreement has slowed somewhat. Consideration of final approval of the proposed amendments to the Credit for Reinsurance Model Act and Model Regulation, which is part of the implementation process, was on the agenda for the December 19, 2018 telephonic meeting of the NAIC Executive Committee and Plenary, but at the end of the meeting NAIC President McPeak, who was moderating the meeting, announced without comment that the consideration of the revisions to the Models was being deferred to a later date to allow for the consideration of late comments on the proposed Model revisions received from the US Treasury and the US Trade Representative. Neither the substance of those comments nor a revised timeline for consideration of the proposed Model revisions was provided during that meeting. It remains to be seen what the next step will be in the consideration of the proposed amendments to the Models.
Fifth Circuit Finds Waiver of Arbitration Where Motion to Dismiss Argued Merits, Omitted Mention of Arbitration, and Created Prejudice
A consumer (Forby) filed a proposed class action in Illinois state court alleging that One Technologies, L.P. (One Tech) failed to adequately disclose that consumers who accessed their “free” online credit score on the company’s website would be enrolled in a credit monitoring program and be charged a monthly fee. The case was removed and then transferred to the Northern District of Texas. One Tech filed a motion to dismiss in the Texas district court, seeking dismissal of all of Forby’s claims but omitting any mention of arbitration. After the district court partially denied One Tech’s motion to dismiss, Forby served requests for production, which prompted One Tech to file motions to compel arbitration and to stay discovery. After the court granted these motions, Forby appealed to the Fifth Circuit, arguing that the court erred in finding that One Tech did not waive its right to arbitration. The Fifth Circuit agreed with Forby and reversed the district court’s order compelling arbitration, finding that One Tech substantially invoked the judicial process by seeking a full dismissal on the merits, and caused prejudice to Forby by waiting thirteen months before moving to compel arbitration and by forcing Forby to re-litigate in arbitration the matters already decided by the district court in her favor. The court reasoned: “[a] party does not get to learn that the district court is not receptive to its arguments and then be allowed a second bite at the apple through arbitration.” Forby v. One Technologies, L.P., Case No. 17-10883 (5th Cir. Nov. 28, 2018).
This post written by Gail Jankowski.
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