Carlton Fields

FAILURE TO PAY COSTS DID NOT MATERIALLY BREACH ARBITRATION AGREEMENT IN LIGHT OF LEGITIMATE DISPUTE AS TO THE FORUM

May 25, 2016 by Carlton Fields

A New Jersey appellate court affirmed an order dismissing a class action and compelling individual (non-class) arbitration. The underlying arbitration agreements provided that the defendant car dealership would pay all costs of the arbitration, which would be arbitrated pursuant to the rules of the American Arbitration Association (AAA). The putative class members interpreted the sole forum as the AAA and central to the purposes of the agreement. When the putative members attempted to initiate arbitration with the AAA, the defendant did not pay the filing and arbitrator fees, resulting in AAA refusing to arbitrate the claims. The putative class members alleged that due to the defendant’s inaction, the arbitration agreement was materially breached. The lower court disagreed, and the appellate court affirmed, holding that the agreement was neither voluntarily breached nor waived. The defendant’s failure to pay the costs of arbitration to the AAA did not evidence an intent to avoid arbitration; the defendant was legitimately disputing whether the AAA was the obligatory forum. Roach v. BM Motoring, LLC, No. A-0749-14T4 (N.J. Super. Ct. App. Div. Jan. 20, 2016).

This post written by Joshua S. Wirth.

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COURT DENIES RECONSIDERATION OF RULING THAT REINSURER MUST POST PRE-PLEADING SECURITY

May 24, 2016 by Carlton Fields

On April 13, 2016, we reported on Select Insurance Company’s successful motion for pre-pleading security against Excalibur Reinsurance Corp., pursuant to Connecticut law. Excalibur filed a motion for reconsideration, which the Magistrate has now denied. The court rejected on procedural grounds Excalibur’s new argument that, because Connecticut law did not deem Select Insurance Co. a Connecticut citizen, Select should not be permitted to invoke the Connecticut pre-pleading statute. The court also rejected Excalibur’s citation to certain Connecticut case decisions as dicta. The court concluded: “In the March 2016 Ruling, this Court held that the language of the Connecticut Security Statute does not address the citizenship of the moving party, nor is there Connecticut case law to the contrary; the Court relied on controlling law in this district in interpreting Connecticut’s Security Statute … and the wording of the Security Statute itself. There is no basis for reconsideration of the March 2016 Ruling on these issues.” Select Insurance Co. v. Excalibur Reinsurance Corp., Case No. 3:15-cv-00715 (D. Conn. May 10, 2016).

This post written by Joshua S. Wirth.
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EIGHTH CIRCUIT: DELAY IN ASSERTING RIGHT TO ARBITRATE AND USING LITIGATION MACHINERY RESULTS IN WAIVER

May 23, 2016 by Carlton Fields

The plaintiff, a terminated employee, had signed a two year employment agreement and a separate arbitration agreement with a home décor company. The plaintiff was terminated after six months and sued the defendant in Minnesota state court for wrongful termination. After defendant removed the case to federal court in Minnesota it filed an answer with various affirmative defenses but never mentioned the arbitration agreement. Additionally, the parties engaged in various motion practice and meetings but the arbitration agreement was never raised. The defendant raised the separate arbitration agreement for the first time, eight months after the initiation of the lawsuit and after it lost a motion to transfer the matter to the Eastern District of California. The lower court denied the motion to compel arbitration on the ground of waiver. On appeal, the Eighth Circuit affirmed, finding that the defendant knew of the right to arbitrate, acted inconsistently with the right, and prejudiced the plaintiff causing him to incur litigation costs. The court noted that the defendant had filed the Joint Rule 26(f) report requesting that the court set the matter for trial, and then engaged in motion practice attempting to transfer venue. The actions of the defendant in using the litigation machinery until it lost, clearly prejudiced the Plaintiff and constituted waiver of the right to arbitrate. Messina v. North Central Distributing, Inc., Case No. 15-2323 (8th Cir. May 10, 2016).

This post written by Barry Weissman.

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PENNSYLVANIA FEDERAL COURT REMANDS LITIGATION AGAINST BROKER BACK TO STATE COURT, FINDING THAT PARTY WAS NOT FRAUDULENTLY JOINED

May 17, 2016 by Carlton Fields

The background of this case is that Boomerang Recoveries LLC, a reinsurance program review company, investigated Farmers Insurance Company’s reinsurance contracts to identify any premiums Farmers had been overcharged in exchange for a percentage of any recoveries. Boomerang allegedly found that Farmers had been overcharged $2,246,014.65 in reinsurance premiums from 2003 to 2013. Guy Carpenter & Company LLC, the reinsurance broker, conducted its own review in response to Boomerang’s, and found that Farmers owed reinsurers over two million dollars in premium that had not been paid, thus reducing the amount owed to Farmers to $273,989.97. According to Boomerang, Guy Carpenter had no justification for performing the audit and disputing Boomerang’s findings, that Guy Carpenter disparaged Boomerang, and induced Farmers not to pursue a substantial portion of the recoveries.

On December 9, 2014, Boomerang brought a litigation against Guy Carpenter and two of its officers for various torts, including intentional interference with contract, unfair competition, commercial disparagement and other claims in Pennsylvania state court. The case was removed and then later remanded back to the state court. Boomerang then added Marsh & McLennan Cos. Inc. (MMC) as a defendant in a fifth amended complaint, and MMC again removed the case. Boomerang then moved to remand on the basis that removal was improper given the forum defendant rule, 28 U.S.C. § 1441(b)(2), and that one of the defendants is a citizen of Pennsylvania. The defendants argued that the one officer who is a Pennsylvania citizen was fraudulently joined to defeat removal. The Pennsylvania federal court, however, concluded that the officer was not fraudulently joined, and that the case was improperly removed from state court. Thus, the court remanded the action back to Pennsylvania state court for lack of federal subject matter jurisdiction. Boomerang Recoveries, LLC v. Guy Carpenter & Co., LLC, Case No. 16-0222 (USDC E.D. Pa. Apr. 21, 2016).

This post written by Jeanne Kohler.
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FOURTH CIRCUIT CONSIDERS WHETHER ARBITRATION AGREEMENT WAS BINDING WHERE PARTIES MODIFIED CONTRACT THROUGH CONDUCT

May 12, 2016 by Carlton Fields

In early April, the Fourth Circuit Court of Appeals considered whether an arbitration agreement was “a written provision” for purposes of the Federal Arbitration Act where the parties modified the contract through their conduct. The case arose from an automobile loan, where the loan stated that “any change to this contract must be in writing and we must sign it.” After the borrower was having difficulties making payments, CitiFinancial sent an Amended Agreement for the borrower’s review and signature. In the Amended Agreement, CitiFinancial included an arbitration agreement and a class waiver. The borrower signed the Amended Agreement, but CitiFinancial raised the amount charged per month by 86¢–which the borrower proceeded to pay.

Sometime later, the borrower defaulted on the auto loan, and the new servicer repossessed the vehicle. The borrower initiated a putative class action lawsuit, and the loan holder sought to compel arbitration. The lower court compelled arbitration, but then dismissed the suit so that an immediate appeal could be taken. On appeal, the Fourth Circuit had to address whether there was an agreement between the parties and whether the arbitration clause was “in writing” for purposes of the FAA.

Under the principle of estoppel, the Fourth Circuit held that a proper contract existed between the parties. Moving on to the consideration of “in writing,” the Fourth Circuit held that because “the arbitration agreement was in writing and [the borrower] assented to be bound by that agreement when she made payments in the amount CitiFinancial requested, it does not matter, for purposes of enforceability under the FAA, that she also assented to other terms that may not have been in writing.” The Fourth Circuit reasoned that all that is required is that the arbitration agreement be in writing—not that there be any written assent to these obligations, following the lead of the Second, Sixth, and Eleventh Circuits. As such, the Fourth Circuit affirmed the dismissal so that the case could be taken to arbitration.

Galloway v. Santander Consumer USA, Inc., Case No. 15-1392 (4th Cir. Apr. 8, 2016).

This post written by Zach Ludens.

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