Carlton Fields

COURT AFFIRMS ARBITRATION AWARD, FINDING NO VIOLATION OF DUE PROCESS WHERE PARTY ELECTED NOT TO PRESENT CERTAIN EVIDENCE

September 20, 2017 by Carlton Fields

Wilson, a former salesperson for Oracle, had unsuccessfully appealed the amount of her commission through Oracle’s internal compensation review process. Wilson then submitted a claim for arbitration alleging breach of contract and breach of the covenant of good faith and fair dealing in processing her appeal. Oracle filed a motion to dismiss, arguing that Wilson’s commission was subject to the Single Customer Provision in her contract and that her compensation was properly calculated in accordance with that provision. Wilson opposed oracle’s motion and made a cross-motion for a summary award, requesting that the arbitrator rule in her favor based on the undisputed facts.

At oral argument, the arbitrator asked Wilson questions, and Wilson answered, providing what Oracle characterized as unsworn testimony. Oracle also claimed that it did not receive any notice that the arbitrator was going to hear such testimony, but did not object to the questioning or cross-examine Wilson. Ultimately, the arbitrator issued the final award denying Oracle’s motion to dismiss and granting Wilson’s cross-motion for a summary award, awarding her the remaining balance of her commission prior to the application of the Single Customer Provision. The arbitrator determined that the full pre-modified commission on the sale would not have given Wilson an “unplanned windfall” as contemplated in her contract.

The trial court denied Oracle’s motion to vacate the award, reaffirming the Second Circuit’s precedent that an arbitrator’s rationale for an award “need not be explained,” and that an award should be confirmed “if a ground for the arbitrator’s decision can be inferred from the facts of the case.” The court found no evidence in the record demonstrating that the arbitrator prevented Oracle from presenting pertinent and material evidence before a final award was issued. Specifically, the Court noted that Oracle expressly turned down an opportunity to object to the procedure the arbitrator proposed to follow and determined that Oracle made a strategic decision not to rely on language aside from the Single Customer Provision. The court determined that Oracle failed to identify any evidence that it would have presented, or why that evidence would have caused the arbitrator to resolve the dispute in its favor. Oracle Corp., v. Wilson, Case No. 17 Civ. 554 (USDC S.D.N.Y. Aug. 22, 2017).

This post written by Gail Jankowski.
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SEVENTH CIRCUIT AFFIRMS DISMISSAL OF POST-LIQUIDATION REINSURANCE CLAIM AS TIME-BARRED

September 19, 2017 by Carlton Fields

We previously posted on the trial court’s ruling addressing the statute of limitations in this case on June 23, 2016. By way of background, the underlying contract between the insurer and the reinsurer required the insurer to calculate the balances due to the respective parties and send statements to the reinsurer reflecting those balances on a quarterly basis. The liquidator complied with this requirement for a number of years until it stopped without explanation. Then, 15 years later, the liquidator sent the reinsurer a statement netting all of the balances purportedly due to the parties under the contract and a demand for $2 million.

The plaintiff assignee of the reinsurance balance (Pine Top) argued that the Illinois statute governing set-offs and counterclaims permitted the liquidator to ignore the underlying contractual provisions requiring quarterly statements and to instead wait until the end of the liquidation, at which point it would submit one bill netting all of the balances due to the parties. The Seventh Circuit disagreed. Although the court acknowledged a possible exception for cases where a liquidator proposes a time for netting and a judge approves that proposal after notice and a hearing, the opinion states that in the absence of such an agreement, the underlying contractual provisions continue to apply. As a result, the liquidator’s demand for the balance due was barred by the statute of limitations. Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 16-3499 (7th Cir. Aug. 7, 2017).

This post written by Benjamin E. Stearns.
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FIRST CIRCUIT UPHOLDS ARBITRATOR’S DENIAL OF ARBITRABILITY OF REINSURANCE AGREEMENT, FINDING NO MANIFEST DISREGARD OF THE LAW

September 18, 2017 by Carlton Fields

Mountain Valley Property, Inc (MVP) entered into a three-year reinsurance participation agreement with Applied Underwriters Captive Risk Assurance Co. Inc. (AUCRA), which contained a mandatory arbitration clause as well as a Nebraska choice-of-law clause. Thereafter, MVP filed a complaint asserting breach of contract and various tort claims, alleging that the reinsurance was overpriced and imposed unlawful fees. After removal to federal court, AUCRA counterclaimed in the amount of the outstanding premiums.

The trial court referred the case to arbitration for a determination of arbitrability, whereupon the arbitrator decided that the case was not arbitrable. The arbitrator reasoned that the FAA, if applied to enforce the arbitration clause, would “invalidate, impair, or supersede” the Nebraska Uniform Arbitration Act (NUAA) by requiring the parties to an insurance-related contract to arbitrate — which is exactly what the NUAA forbids. Therefore, the arbitrator concluded that the McCarran-Ferguson Act applied and the FAA was reverse-preempted by NUAA, which, in turn, precluded the case from being arbitrated as a matter of law.

The First Circuit, reviewing de novo, affirmed, finding no manifest disregard of the law in the arbitrator’s determination that the NUAA bans arbitration of insurance-related cases, regardless of the parties’ intent to arbitrate. Specifically, the First Circuit reasoned that the arbitrator’s decision was not “unfounded in reason and fact” or “based on reasoning so palpably faulty that no judge, or group of judges, ever could conceivably have made such a ruling.” Mountain Valley Property, Inc. v. Applied Risk Services., Inc., No. 16-2189 (1st Cir. July 13, 2017).

This post written by Gail Jankowski.
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LONDON COURT UPHOLDS ARBITRAL AWARD IN CONTRACTOR DISPUTE IN FACE OF CHALLENGE THAT ARBITRAL PANEL FAILED TO CONSIDER COVERAGE DEFENSES

September 8, 2017 by Carlton Fields

A court in London recently upheld an arbitral award in the face of claims that the arbitral panel failed to consider several coverage defenses one party asserted during the proceedings. The arbitration arose from a dispute between contractors relating to the construction of a power station in Kabul, Afghanistan. The prime contractor (“JV”) engaged Symbion Power LLC (“Symbion”), which in turn engaged Venco Imtiaz Construction Co. (“Venco”) as a sub-contractor. JV and Symbion participated in an arbitration in 2012 (“prior arbitration”) which preceded the current arbitration between Venco and Symbion in 2013. The arbitral panel issued an award in Venco’s favor in July 2016. This opinion arises from Symbion’s challenges to the arbitral award on the grounds that the arbitral panel failed to address two coverage defenses outright, and failed to address all essential parts of two other coverage defenses. The court addressed in turn each of the four defenses Symbion alleges were not adequately addressed by the arbitral panel.

First, Symbion alleged a defense that the court referred to as the “conclusive evidence” defense. Symbion argued Venco’s case was based on invoices and POs it treated as conclusive evidence of the amount due to Venco, but Symbion disputed that these documents were conclusive. The court concluded this was not actual an issue that arose, and, further, the panel did not treat the invoices and POs as conclusive evidence, so they could not have “failed’ to deal with the defense.

Second, Symbion asserted a defense that Venco failed to meet its burden of proof. However the argument was framed in the arbitration, and the court held the defense was addressed by the panel, which decided against Symbion.

Third, Symbion argued that the panel was bound by the findings in the prior arbitration. The court noted the collateral estoppel issue was not one the panel needed to address because it had fallen away. But if the issue was still in play, it was not reasonably arguable and there would be no substantial injustice had the panel not dealt with it.

Fourth, Symbion alleged the prior arbitration award was binding or persuasive as to value, and as to proof and evidence. The court found this defense was repetitive of the collateral estoppel defense, and rejected the defense for similar reasons.

Finally, the court admonished one of the arbitrators for inappropriate ex parte conduct with Symbion, the party that appointed him. The Symbion-appointed arbitrator e-mailed Symbion at the outset of the proceedings to complain about the third, neutral arbitrator, with the express condition that Symbion not use the complaint in any of its arbitral submissions. While the episode was not dispositive to any issues in the court’s review, it sharply criticized such conduct as inappropriate. Symbion Power LLC v. Venco Imtiaz Constr. Co., Case No. HT-2016-000211 (Royal Court of Justice Mar. 10, 2017).

This post written by Thaddeus Ewald .
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FOLLOWING SERIES OF PROCEDURAL BATTLES, BANKRUPTCY COURT SENDS MF GLOBAL HOLDINGS DISPUTE TO ARBITRATION IN BERMUDA

September 5, 2017 by Carlton Fields

In the latest opinion arising from a coverage dispute following MF Global Holdings’s bankruptcy, the Bankruptcy Court in the Southern District of New York sent the dispute to arbitration in Bermuda pursuant to the underlying E&O insurance policy’s binding arbitration provision. To begin, the court laid out the four step process by which bankruptcy courts decide motions to compel arbitration: (1) whether the parties agreed to arbitrate; (2) how broad the arbitration agreement is; (3) if federal statutory claims are involved, did Congress intend those claims to be non-arbitrable; and (4) if not all claims are arbitrable, should the balance of proceedings be stayed pending arbitration?

First, the court interpreted the E&O policy as requiring the parties to arbitrate the coverage dispute in Bermuda. Second, the court read the arbitration clause broadly, covering “any and all” disputes arising under the policy. Third, the court undertook a comprehensive analysis to conclude that Congress did not intend to exclude the dispute from arbitration. In determining whether the policy presumption in favor of arbitration was outweighed by federal interests embodied in the Bankruptcy Code, the court considered whether the disputed issue was “core” or “non-core” to the bankruptcy proceeding. “Core” issues are those arising under the Bankruptcy Code or arising in bankruptcy cases, while “non-core” issues are those merely related to bankruptcy cases. Core issues can override the arbitration presumption, but non-core issues do not and the Bankruptcy Court must refer the claims to arbitration. For core issues, courts should enforce arbitration provisions unless doing so would seriously jeopardize the objectives of the Bankruptcy Code.

Here, the court found the coverage dispute at issue was non-core. Recovery under the E&O policy is not the most important asset of the estate, nor is it the sole source of recovery, and there is no pay-first provision at issue. And, contrary to the plaintiff’s assertions, resolution of the dispute does not require interpretation of the court’s previous orders and thus does not impact the arbitral panel’s ability to accurately decide the issues. Furthermore, arbitration does not conflict with the Bankruptcy Code’s objectives or overarching policy; the dispute relates to the parties’ pre-petition relationship and does not depend on rights created under the Code. Thus, the court found the strong federal policy in favor of arbitration outweighs the federal interests in the Bankruptcy Code.

Finally, the court stayed the proceedings pending the arbitration. Because the insurer has posted a required $15 million bond, the court found plaintiff’s ability to recover against that bond mandates a stay of proceedings rather than dismissal pending the arbitral outcome. In re: MF Global Holdings Ltd., Case No. 11-15059 (Bankr. S.D.N.Y. Aug. 24, 2017).

This post written by Thaddeus Ewald .
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