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English High Court Blocks Financial Services Group From Bringing Excess Insurance Claim Against UK Reinsurers in South Africa Where Courts of England and Wales Had Exclusive Jurisdiction Under Excess Layer Reinsurance Contracts

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After paying out more than $21 million in settlements for its mishandling of a collective investment scheme that collapsed in 2009, financial services group ABSA filed suit in South Africa against its reinsurers to enforce reinsurance contracts that purportedly provided compensation for the settlement of lawsuits and arbitration.

The U.K.-based reinsurers claimed that the proceedings brought against them in South Africa by ABSA were in breach of the reinsurance contracts, which provided that the courts of England and Wales should have exclusive jurisdiction.

The reinsurers applied for an interim anti-suit injunction. An interim anti-suit injunction restraining ABSA from pursuing the South African proceedings was granted until the return date. On the return date, Nicholas Vineall QC, sitting as a judge at the High Court, addressed what, if any, anti-suit injunction was appropriate — mainly whether he should continue, or vary, or decline to continue, the interim injunction.

Finding no strong reasons for refusing to restrain the South African proceedings on the excess layers, the High Court judge held he would keep in place the anti-suit injunction preventing a claim from being brought in South Africa under the excess layers, reasoning that the excess layer coverage was governed by an exclusive jurisdiction clause that required disputes to be litigated in the courts of England and Wales. However, the High Court judge refused to continue the injunction preventing a South African proceeding over the primary layer of reinsurance, as that primary layer of coverage had no such exclusive jurisdiction clause.

Recognizing that the end result was not ideal because it leaves most of the parties involved in two sets of proceedings, the High Court judge reasoned that its decision “reflects the different wording of the agreements which the parties entered into,” and “[t]he result does give effect to and enforce those agreements.”

Axis Corporate Capital UK II Ltd. v. ABSA Group Ltd., No. CL-2020-000871, [2021] EWHC 861 (Comm), in the High Court of Justice, Business and Property Courts of England and Wales, Commercial Court (Apr. 13, 2021).

Party Opposing Confirmation of Non-Domestic Arbitration Award Subject to Convention May Also Assert FAA Defenses If Award Rendered in the U.S. or Under U.S. Arbitral Law

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In 2006, Goldgroup and DynaResource entered into a contract relating to a gold mining operation in Mexico, which contained a dispute resolution provision requiring that the disputes be submitted to binding arbitration in Denver, Colorado, under the rules of the American Arbitration Association (AAA). Goldgroup initiated arbitration in Denver, but DynaResource refused to participate, relying on a Mexico City court’s ruling in 2015 that the arbitration agreement was unenforceable because Goldgroup had waived its right to arbitration by submitting to the jurisdiction of Mexico courts in prior disputes.

In 2016, the arbitrator ruled in Goldgroup’s favor and awarded it monetary and equitable relief. The arbitrator also found that the arbitration clause was valid and enforceable, that Goldgroup had not waived its right to arbitrate by participating in any other lawsuits, and that DynaResource engaged in forum shopping by asking the Mexico City court to rule on the arbitrability of Goldgroup’s claims.

Goldgroup then sought confirmation of the non-domestic arbitration award in the Colorado district court. DynaResource opposed recognition of the award under the Inter-American Convention on International Commercial Arbitration (the Convention) and moved to vacate the award under the Federal Arbitration Act (FAA), arguing that the award should not be confirmed because the arbitrator exceeded the scope of his authority by ruling on the issue of whether Goldgroup had waived its right to arbitrate and whether the Mexico City court’s ruling effectively annulled the subsequent award issued in the arbitration. The district court confirmed the award and entered final judgment against DynaResource. After unsuccessfully moving to alter or amend the judgment, DynaResource appealed.

On appeal, DynaResource argued that the district court erred in holding that waiver was a question for the court without making a factual determination as to whether Goldgroup in fact waived its right to arbitration. Goldgroup contended that DynaResource did not raise the issue with the district court and thus failed to preserve it. The Tenth Circuit Court of Appeals agreed, finding that the district court was not required to decide whether Goldgroup waived its right to arbitrate because the issue was not properly before it, and DynaResource had not preserved the issue for the appellate court’s review.

In addition, Goldgroup argued that even if DynaResource had preserved the issue, waiver is not available as a defense to confirmation of the award because FAA defenses, such as waiver, do not provide grounds for vacating an award subject to the Convention.

On an issue of first impression, the Tenth Circuit addressed whether the FAA’s vacatur standards apply when a U.S. court is considering the confirmation of a non-domestic arbitration award subject to the Convention and rendered in the United States or under U.S. arbitral law.

The Tenth Circuit rejected Goldgroup’s argument, holding that the Convention’s defenses for opposing the confirmation of a non-domestic arbitration award are not exclusive and that a party may also assert FAA defenses to oppose confirmation if the non-domestic arbitration award was rendered in the United States or under U.S. arbitral law.

Despite its holding that DynaResource could seek vacatur under the FAA, the Tenth Circuit rejected DynaResource’s argument under the FAA that the arbitrator exceeded his authority by ruling on the issue of arbitrability, finding that the contracting parties manifested a clear intent to arbitrate the issue of arbitrability by incorporating the AAA rules into their arbitration agreement. Moreover, the circuit court found DynaResource failed to show that any alleged error by the arbitrator in ruling on the waiver issue warranted vacatur.

The circuit court also rejected DynaResource’s argument under the Convention that the Mexico City court’s ruling effectively annulled the subsequent arbitration award, holding that the defense does not apply preemptively to awards not yet rendered. The circuit court also found the defense was inapplicable because the Mexico City court improperly applied Mexican law rather than U.S. law, where the arbitration was pending. Therefore, the Tenth Circuit affirmed confirmation of the award.

Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V., No. 20-1143 (10th Cir. Apr. 16, 2021).

No “Meeting of the Minds” Where Material Terms of Arbitration Agreement Were Changed After Party Electronically Signed Document

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This action concerned a dispute between the plaintiffs, two individual investors, and the defendants, a financial planning adviser and her firm. After the plaintiffs’ investments did not work out as they had hoped, the plaintiffs filed suit against the defendants in the Western District of North Carolina for state law contract and fraud claims.

The defendants moved to compel arbitration under the asset management agreement that the plaintiffs executed when they hired the defendants to manage their investments, which required the parties to arbitrate any dispute that may arise between the parties concerning any transaction or the construction, performance, or breach of the agreement. The defendants also moved to dismiss for lack of personal jurisdiction, to transfer venue, and to dismiss for failure to state a claim, but all motions, including the arbitration motion, were denied by the district court. Notably, the district court denied the defendants’ motion to compel, as the parties submitted different versions of the asset management agreement and therefore had not formed an agreement to arbitrate.

The Fourth Circuit affirmed the district court’s order, holding that the parties did not form an agreement to arbitrate. Calling it a “very simple contract dispute,” the circuit court relied on general principles of contract formation and found there was no “meeting of the minds,” and therefore no contract, because both parties did not agree to the same terms. The circuit court noted that the two versions of the agreement submitted to the district court differed as to a number of terms, including one that added an extra account to be managed and designated how it was to be managed. The circuit court found there was no evidence in the record to establish that the plaintiffs were ever informed of, let alone reviewed, such changes.

Because the designation of which accounts were to be managed and how they were to be managed would be of paramount importance for any couple turning over its hard-earned savings to a financial firm for management, the circuit court found that the fact that the defendants did not bother to solicit this information from the plaintiffs after they submitted the signed form through DocuSign, a commonly used online platform for signing and transmitting documents, was fatal to the formation of the contract.

The circuit court noted that while the defendants (a sophisticated certified financial professional and her firm) changing the terms of an agreement after a customer signs it does not add to the impression of fairness that one hopes to get from a financial institution managing an individual investor’s portfolio, what happened here was at best “sloppy” on the part of the defendants and precluded formation of a contract.

Rowland v. Sandy Morris Financial & Estate Planning Services LLC, No. 20-1187 (4th Cir. Apr. 7, 2021)

Seventh Circuit Holds EEOC Right-to-Sue Letter Does Not Trump a Binding Arbitration Agreement

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This case involved a dispute between Bruce Melton and his former employer, Pavilion Behavioral Health System, for unlawful discharge after a routine background check revealed Melton’s criminal convictions.

Melton first filed a charge with the Equal Employment Opportunity Commission, alleging discrimination based on his carpal tunnel disability, but the investigator found no evidence of discrimination, closed the file, and issued a right-to-sue letter. Melton thereafter sued Pavilion in federal court, claiming he was wrongfully discharged because he was in the process of expunging his criminal record and also because Pavilion discriminated and retaliated against him for taking medical leave for carpal tunnel surgery.

Relying on the parties’ arbitration agreement that required workplace concerns to be resolved through final and binding arbitration, the district court granted Pavilion’s motion to compel arbitration, finding Melton’s claims were covered by the arbitration agreement, which Melton adopted by signing the acknowledgment form and never opting out.

Ruling in favor of Pavilion, the arbitrator found there was no evidence to support Melton’s claims. Pavilion thereafter moved to confirm the award in district court. Melton opposed confirmation, claiming he was entitled to proceed in court under the EEOC’s right-to-sue letter. The district court granted Pavilion’s motion to confirm the award, reasoning that, although the arbitration agreement permitted Melton to file administrative charges with the EEOC, it prohibited him from pursuing any claims in court. Melton appealed, claiming he never signed the arbitration agreement himself but rather merely signed a form that referred to it.

On appeal, the Seventh Circuit affirmed, finding that the parties entered into an enforceable arbitration agreement and Melton presented no valid ground to vacate, modify, or correct the arbitration award.

The circuit court noted that it was undisputed that Melton signed a form acknowledging he received a copy of the arbitration agreement, which covered the claims Melton wanted to pursue, and understood that if he did not opt out within 30 days, he was bound by it. “True, the form that he signed was not the arbitration agreement itself, but by signing it he committed himself to that agreement.” The circuit court also found that the EEOC’s right-to-sue letter did not override the arbitration agreement; it merely allowed Melton to move beyond the administrative process and pursue any rights that he may have in court — rights that Melton had waived by previously entering into the binding arbitration agreement.

Melton v. Pavilion Behavioral Health System, No. 20-2399 (7th Cir. Apr. 9, 2021)

Federal Circuit Affirms Denial of Oil Company’s Attempt to Compel Arbitration Following Loss at Trial

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Benton Energy Service Co. (BESCO) has lost its appeal seeking to compel arbitration in a drilling patent dispute against Cajun Services Unlimited LLC. The Federal Circuit Court of Appeals, upholding a decision from the Eastern District of Louisiana, recently found that BESCO waived its right to arbitration of its claims in light of the extended litigation that took place before BESCO even raised the possibility of arbitration.

In January 2017, Cajun filed suit against BESCO in Louisiana district court in a dispute over ownership and intellectual property rights in an elevator system used in oil drilling. For seven months following BESCO’s first responsive pleading in that case, BESCO made no mention of arbitration, raising it for the first time in opposition to one of Cajun’s motions for summary judgment following discovery. That case was administratively closed, but a separate, similar suit was later filed. This time, BESCO raised arbitration as an affirmative defense, but only in the context of Cajun’s breach of contract claim. The case proceeded to trial, where a jury found in Cajun’s favor on all claims.

Following the jury verdict, BESCO moved to compel arbitration of all Cajun’s claims, asking the district court to vacate the jury verdict in light of an arbitration provision between the parties.  The district court denied BESCO’s motion to compel arbitration, noting that BESCO had failed to take any action to initiate arbitration until two years after litigation had commenced, and following an unfavorable trial on the merits. The court concluded that BESCO had waived its right to arbitration of all its claims by substantially invoking the judicial process to Cajun’s prejudice. On appeal, the Federal Circuit found that the Louisiana district court did not clearly err in its conclusion and thus affirmed.