Carlton Fields

CIRCUIT SPLIT DEVELOPS OVER THE ENFORCEABILITY OF CLASS WAIVERS IN EMPLOYMENT AGREEMENTS

June 6, 2016 by Carlton Fields

Affirming a district court’s denial of a motion to compel arbitration, the United States Court of Appeals for the Seventh Circuit has held unenforceable a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” The provision further provided that if the waiver provision was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.” Employees were not permitted to opt out of this provision; it was a requirement of continued employment. The Court found the waiver of collective action prohibited by the National Labor Relations Act (“NLRA”), and rejected the contention that the case involved any conflict between the NLRA and the Federal Arbitration Act (“FAA”). This decision appears to conflict with decisions of the Second, Fifth, Eighth and Ninth Circuits, laying the potential basis for the review of this issue by the Supreme Court.

The Court found that the contractual waiver of the right to proceed in a collective manner was an unlawful restriction of the exercise by the employee of the right to collective action protected by section 7 of the NLRA, a right it termed substantive and “at the heart” of the purpose of the NLRA rather than a procedural right. Addressing the employer’s contrary interpretation of section 7, the Court found persuasive interpretations of the scope of the protections of section 7 by the National Labor Relations Board, which the Court found to be “a sensible way to understand the statutory language, and thus we must follow it.”

The Court then rejected the employer’s assertion that the case involved a conflict between the NLRA, as it interpreted it, and the FAA, as interpreted by the Supreme Court. The Court reasoned that since the contractual provision at issue is unlawful under section 7 of the NLRA, “it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement.” The FAA’s savings clause provides that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Stating that finding the NLRA in conflict with the FAA “would render the FAA’s savings clause a nullity,” the Court rejected the contention that its decision created a Circuit split, contending that none of the opinions from the other four Circuits “has engaged substantively with the relevant arguments.” Regardless of the analytical claim, the result of the Seventh Circuit’s opinion does conflict with the result of the decisions of the other Circuits on the same issue, and accords the FAA a different role and emphasis than do the opinions of other Circuits. Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016).

This post written by Rollie Goss.
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COURT PARTIALLY GRANTS AND PARTIALLY DENIES MOTION FOR SUMMARY JUDGMENT IN CROP INSURANCE COMMISSION DISPUTE

June 2, 2016 by Carlton Fields

Plaintiff Hudson Insurance Company brought suit against DuRussel Insurance Agency, Inc. and Blue Water Agribusiness LLC concerning the alleged breach of two separate crop insurance contracts issued by Hudson. The first contract was between only Hudson and DuRussel and provided that DuRussel would sell crop insurance and place it with Hudson. The first contract also provided that commissions might be paid by Hudson to DuRussel in advance based on projected policy placement and that DuRussel would be obligated to Hudson for any resulting overpayment of commissions. Both parties conceded the existence of this obligation and that DuRussel owed Hudson an amount of overpaid commissions. The second contract was between all three parties and provided an identical sale structure and advance commission provision as the first contract. The parties conceded that Hudson did not pay Blue Water any advance commissions pursuant to the second contract.

On Hudson’s motion for summary judgment, the court examined each contract separately. For the first contract, the court granted summary judgment against DuRussel because there was no genuine dispute between the parties as to DuRussel’s obligation to pay back any overpaid commission and the pending amount owed to Hudson. Although DuRussel claimed that since Hudson sought summary judgment against both DuRussel and Blue Water, its otherwise meritorious claim against just DuRussel cannot be sustained, the court reasoned that either Blue Water is not liable because it signed a separate agreement, or it is jointly liable with DuRussel because it signed the same agreement. For the second contract, the court held that summary judgment for breach of contract was inappropriate against Blue Water because Hudson did not pay Blue Water any advance commissions. Hudson Insurance Co. v. DuRussel Insurance Agency, Inc., No. 15-cv-12073 (USDC E.D. Mich. May 9, 2016).

This post written by Brian Perryman.

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COURT PARTIALLY ALLOWS POST-PROCEEDING MODIFICATION OF PROTECTIVE ORDER FOR DOCUMENTS SOUGHT IN ARBITRATION

June 1, 2016 by Carlton Fields

A federal district court dealt with a novel approach where parties to an arbitration wanted to gain access to documents from a previous proceeding. The original case before the court pitted one plaintiff against three defendants—and the parties had a protective order entered following two differing proposals. The plaintiff opposed language in a protective order that would allow the confidential documents to be used in a subsequent arbitration, while the defendants advocated for the documents’ use. The court entered hybrid language allowing “information derived from any Protected Material” to be used in other matters but not allowing the documents themselves to be used. That case was later dismissed.

The matter is now being arbitrated between two of the defendants to the earlier action. The tribunal ordered the parties to produce the relevant documents. The two remaining parties returned to court to modify the protective order to allow the documents to be disclosed. One party sought to have only documents of the third defendant disclosed while the other party sought to have only documents of the plaintiff disclosed. In a March 9, 2016 opinion, the court determined that it had retained jurisdiction to modify the protective order, even though the case was dismissed. Rio Tinto PLC v. Vale, S.A., No. 14-3042 (USDC S.D.N.Y. Mar. 9, 2016).

In an April 18, 2016 opinion, the court took a split approach, determining that the defendant’s documents could be used, while the plaintiff’s could not. In reaching this determination, the court reasoned that the third defendant “had no or minimal reliance interest” because they had advocated for language allowing the documents’ use, whereas the plaintiff had “insisted” that the documents not be used. Rio Tinto PLC v. Vale, S.A., No. 14-3042 (USDC S.D.N.Y. Apr. 18, 2016).

This post written by Zach Ludens.

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FEDERAL DISTRICT COURT CONFIRMS ARBITRATION AWARD IN HOSPITAL SERVICES DISPUTE

May 31, 2016 by Carlton Fields

Weirton Medical Center, Inc. (“WMC”), a hospital in West Virginia, entered into an agreement with QHR Intensive Resources, LLC, under which QHR provided hospital administrative services. WMC ultimately terminated the agreement and refused to pay QHR’s invoices. As a result, QHR commenced arbitration in accordance with the arbitration provision in the operative agreement, alleging that WMC was in breach of contract for failing to reimburse QHR for amounts owed thereunder and seeking to recover those amounts.

After three years of discovery and an evidentiary hearing on the merits, the arbitrator issued an award in favor of QHR. WMC then brought an action in the U.S. District Court for the Northern District of West Virginia to vacate the award under Section 10 of the Federal Arbitration Act, and QHR cross-moved for confirmation. The Court ruled in QHR’s favor, finding that the arbitrator did not exceed his powers in basing the award on the proposed findings of fact and conclusions of law submitted by QHR in lieu of those submitted by WMC, as there was sufficient evidence to support the arbitrator’s decision, and it was apparent he considered the claims and defenses asserted by WMC. Moreover, the Court held that the arbitrator’s ruling was not in manifest disregard of the law, as he did not refuse to apply a legal principle that was clearly defined and not subject to reasonable debate. Last, the Court found that the award was not procured by fraud, corruption or undue means based on QHR’s having paid four of its fact witnesses for the time spent traveling to and preparing for their testimony at the arbitration, as WMC did not show by clear and convincing evidence that the witnesses were paid for their testimony, the arrangements did not materially influence the outcome of the hearing, and WMC failed to address this issue before the award was rendered, even though it was aware of the situation. Weirton Medical Center, Inc. v. QHR Intensive Resources, LLC, No. 5:15CV131 (USDC N.D.W.Va May 12, 2016).

This post written by Rob DiUbaldo.

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REINSURANCE (E) TASK FORCE OF THE NAIC MEETS IN NEW ORLEANS

May 26, 2016 by Carlton Fields

The minutes of the April 4, 2016 task force meeting (available here) included the following seven items of activity:

Adopted its Jan. 6, 2016 and Dec. 9, 2015 minutes (which were attached), which reflected the adoption of revisions to the Credit for Reinsurance Model Law (#785).
Received a status report from the Qualified Jurisdiction (E) Working Group.
Adopted the report of the Reinsurance Financial Analysis (E) Working Group, which had reviewed and recommended three renewals for certified reinsurer passporting purposes, and discussed and made revisions to the Uniform Application Checklist for Certified Reinsurers (attached to the minutes).
Requested an extension from the Financial Condition (E) Committee in order to continue working on a proposed XXX/AXXX Credit for Reinsurance Model Regulation (Model Regulation).
Discussed comments received on the Feb. 26 draft of the Model Regulation (attached to the minutes) and the accompanying NAIC staff memorandum (also attached), which details the revisions made from the prior exposure draft. Comment letters were received from a handful of organizations, state regulators, and insurance companies. Affiliated captive reinsurance was addressed as a significant focus area for several federal agencies. Several reports published by these agencies were discussed detailing significant concerns with the use of affiliated captive reinsurance. A comment letter from the Life Actuarial (A) Task Force submitted to the Reinsurance (E) Task Force was also discussed (attached to the minutes).
Adopted the recommendation of the Valuation of Securities (E) Task Force to expand the NAIC Bank List, which is used by insurers to identify letters of credit that can be used as collateral in reinsurance transactions under Model #785, to include eligible non-bank financial institutions. Proposed amendments to the Purposes and Procedures Manual of the NAIC Investment Analysis Office and an executive summary from the Securities Valuation Office were attached to the minutes.
Discussed reinsurance collateral next steps. Regarding the states’ implementation of the revised Model #785 and Credit for Reinsurance Model Regulation (#786), to date 32 states have passed legislation to implement the revised Model #785, with 22 of those states enacting Model #786 as well. Insurers domiciled in these states represent more than 66% of the direct insurance premium written in the U.S. across all lines of business.

This post written by Michael Wolgin.
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